10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 30, 2013

- or -

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________.

Commission Number:  1-13712

TECHE HOLDING COMPANY

(Exact name of Registrant as specified in its Charter)

Louisiana	72-1287456
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1120 Jefferson Terrace, New Iberia, Louisiana	70560
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code:   (337) 560-7151

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	NYSE MKT

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [  ] NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [  ] NO [X]

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X] YES [  ] NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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. (Check one):

Large accelerated filer  [  ]	Accelerated filer  [  ]
Non-accelerated filer  [  ] (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 by Rule 12b-2 of the Exchange Act). YES [  ] NO [X]

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant’s Common Stock as quoted on the NYSE MKT on March 31, 2013, was $51 million.

As of December 9, 2013 there were 2,063,269 issued and outstanding shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the 2013 Annual Report to Stockholders (Parts I, II and IV)

2. Portions of the Proxy Statement for the 2014 Annual Meeting of Stockholders (Part III)

TECHE HOLDING COMPANY

FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

INDEX

		Page
PART 1
Item 1.	Business	1
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosures	23
PART II
Item 5.	Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	24
Item 9A.	Controls and Procedures	24
Item 9B.	Other Information	24
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	25
Item 11.	Executive Compensation	25
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	25
Item 13.	Certain Relationships and Related Transactions, and Director Independence	26
Item 14.	Principal Accountant Fees and Services	26
PART IV
Item 15.	Exhibits and Financial Statement Schedules	26

PART I

Teche Holding Company (the “Company” or “Registrant”) may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission (including this Annual Report on Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economy in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), inflation, interest rates, market and monetary fluctuations; the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

Item 1. Business

General

The Company is a Louisiana corporation organized in December 1994 at the direction of Teche Federal Bank (the “Bank” or “Teche Federal”) to acquire all of the capital stock that the Bank issued in its conversion from the mutual to stock form of ownership (the “Conversion”). References to the Company herein, unless the context requires otherwise, refer to the Company and the Bank on a consolidated basis.

On June 21, 2011, the Bank completed the conversion of its existing federal savings bank charter to that of a Louisiana commercial bank charter (the “Charter Conversion”).  Upon completion of the Charter Conversion, the Bank became a Louisiana state-chartered commercial bank regulated by the Commissioner of the Office of Financial Institutions of the State of Louisiana (the “Commissioner”) and the Federal Deposit Insurance Corporation (“FDIC”) and the Company became a bank holding company regulated by the Federal Reserve Board.

The Bank offers a variety of financial services to meet the local banking needs of St. Mary, Lafayette, Iberia, St. Martin, Terrebonne, upper Lafourche, East Baton Rouge, and St. Landry Parishes, Louisiana (the “primary market area”).  Teche Federal operates from its main office located at 1120 Jefferson Terrace, New Iberia, Louisiana and currently has nineteen other offices. As of September 30, 2013, the Bank had 256 full-time and 67 part-time employees.

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Market Area/Competition

Teche Federal’s home office is located in New Iberia, Iberia Parish, Louisiana. The Bank also has branch offices in the Parishes of Iberia, St. Mary, St. Martin, Lafayette, Terrebonne, Lafourche, St. Landry, and East Baton Rouge, Louisiana.

The regional economy is dependent to a certain extent on the oil and gas, seafood and agricultural (primarily sugar cane) industries. These industries are cyclical in nature and have a direct impact on the level and performance of the Bank’s loan portfolio. Economic downturns in the past have caused a decrease in loan originations and an increase in nonperforming assets. The oil drilling moratorium which the federal government imposed after the Deep Water Horizon explosion has been lifted.  The effects of the oil drilling moratorium have not totally been realized and may affect job growth in the Company’s market area.  However, the metropolitan Lafayette area, which is the fourth largest city in Louisiana, has experienced sustained growth and is the home to the University of Louisiana at Lafayette, several hospitals and various small-to medium-size businesses, and has provided the Bank with increased lending opportunities.

The Bank encounters strong competition both in the attraction of deposits and origination of real estate and other loans. Competition comes primarily from other financial institutions in its primary market area, including savings banks, commercial banks and savings associations, credit unions and investment and mortgage brokers in serving its primary market area. Competition is also increasing from non-traditional providers of financial services. The Bank also originates mortgage loans through its branch offices, secured by properties throughout its primary market area and other locations in Louisiana.

Lending Activities

The Bank’s lending strategy historically focused on the origination of traditional one-to-four-family mortgage loans with the primary emphasis on single family residences in the Bank’s primary market area. In recent years, the Bank has emphasized SmartGrowth Loans, consisting of commercial loans, home equity loans, Smart mortgage loans and consumer loans. In furtherance of this strategy, the Bank has increased the amount of its commercial real estate and non-real estate loan portfolios, consumer loans and Smart mortgage loans for retention in the Company’s loan portfolio. Smart mortgage loans originated by the Bank are residential real estate loans that do not meet all of the Bank’s standard loan underwriting criteria. Smart mortgage loans are residential real estate loans that are underwritten to established Bank criteria, but may or may not conform to secondary market requirements. Smart mortgage loans comprised $113.6 million, or 16.6%, of the total loan portfolio. For more information regarding loans see Note 4 to the Consolidated Financial Statements included as part of Exhibit 13 to this report.  At September 30, 2013, SmartGrowth Loans totaled $509.0 million or 74.4% of total loans.

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Analysis of Loan Portfolio. Set forth below is selected data relating to the composition of the Bank’s loan portfolio at the dates indicated.  Except as set forth below, there are no concentrations of loans exceeding 10% of the loan portfolio.

	At September 30,
	2013				2012				2011				2010				2009
			Percent				Percent				Percent				Percent				Percent
	Amount		of Total		Amount		of Total		Amount		of Total		Amount		of Total		Amount		of Total
Commercial real estate loans	$	133,649	19.4	%	$	120,557	17.8	%	$	111,558	18.3	%	$	118,858	19.9	%	$	119,602	20.0	%
Commercial non-real estate loans		30,685	4.5			34,032	5.0			27,403	4.5			30,929	5.2			30,434	5.1
Commercial-construction loans		8,593	1.3			7,357	1.1			9,473	1.5			5,526	0.9			6,814	1.1
Commercial-land		10,349	1.5			13,312	2.0			15,721	2.6			19,004	3.2			20,531	3.4
Residential-construction loans		5,112	0.7			9,478	1.4			10,604	1.7			4,320	0.7			4,800	0.8
Residential-real estate loans		409,693	59.7			413,500	61.1			356,950	58.5			337,885	56.6			335,199	56.2
Consumer-Mobile home loans		43,198	6.3			37,030	5.5			38,285	6.3			40,094	6.7			40,328	6.8
Consumer-other		45,171	6.6			41,110	6.1			40,227	6.6			40,807	6.8			39,163	6.6
Total Loans		686,450	100.00	%		676,376	100.00	%		610,221	100.00	%		597,423	100.00	%		596,871	100.00	%
Less:
Allowance for loan losses		7,868				8,559				8,331				9,256				6,806
Deferred loan fees		2,047				1,975				1,619				1,532				1,538
Total Net loans	$	676,535			$	665,842			$	600,271			$	586,635			$	588,527

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Loan Maturity Tables. The following table sets forth the maturity of the Bank’s construction loans, commercial real estate loans and commercial non-real estate loans at September 30, 2013.  The table does not include prepayments or scheduled principal repayments.  Adjustable-rate loans are shown as maturing based on contractual maturities.

	Residential		Commercial		Commercial
	Construction		Real Estate		Non Real
	Loans		Loans		Estate Loans
(In Thousands)
Amounts due:
1 year or less	$	4,616	$	18,988	$	10,790
After 1 year:
1 year to 5 years		209		73,641		19,105
More than 5 years		287		41,020		790
Total due after September 30, 2014		496		114,661		19,895
Total amount due	$	5,112	$	133,649	$	30,685

The following table sets forth the dollar amount of the Bank’s construction loans and commercial real estate and non-real estate loans due more than one year after September 30, 2013 that have pre-determined interest rates and that have floating or adjustable interest rates.

	Fixed Rates		Floating or Adjustable Rates		Total
(In Thousands)
Residential Construction loans	$	496	$	-	$	496
Commercial real estate loans		108,792		5,869		114,661
Commercial non-real estate loans		19,895		-		19,895
Total	$	129,183	$	5,869	$	135,052

One- to Four-Family Residential Real Estate Loans.  Teche Federal generally originates single-family owner occupied residential mortgage loans in amounts up to 80% of the lower of the appraised value or selling price of the property securing the loan.  The Bank also originates such loans in amounts up to 100% of the lower of the appraised value or selling price of the mortgaged property, provided that private mortgage insurance is provided on the amount in excess of 90% of the lesser of the appraised value or selling price.

The Bank offers fixed-rate and adjustable-rate mortgage loans with terms of up to 30 years, which amortize monthly.  Interest rates charged on mortgage loans are competitively priced based on market conditions and the Bank’s cost of funds.  The Bank originates and holds most of its fixed-rate mortgage loans as long term investments.  Most loans are originated in conformance with the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal National Mortgage Association (“FNMA”) guidelines and can therefore be sold in the secondary market should management deem it necessary to manage interest rate risk.  The Bank originated $71.7 million of fixed-rate mortgage loans during the year ended September 30, 2013 and sold an aggregate of $58.0 million of such loans in 73 transactions during the year ended September 30, 2013. The Bank retains servicing of these loans.

Smart one-to-four family mortgages represent those loans not meeting all of the Bank’s standard loan underwriting criteria.  Smart mortgage loans consist primarily of smaller mortgage loans of $100,000 or less with higher interest rates, first time home buyer loans with 100% loan-to-value ratios (“LTVs”), and loans with LTVs greater than 80% to conforming borrowers.  Because these loans may have higher

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credit risks, they also provide higher yields to the Bank. Underwriting criteria for these loans require sufficient mitigating factors, such as higher FICO scores and/or additional equity, to minimize the additional credit risk associated with these types of loans.  In addition, the Bank does not originate exotic loans, such as interest only ARMs.  The Company does allow a borrower to pay interest only on funds advanced for a construction loan during the construction phase, see “Construction Loans” below for further explanation.  At September 30, 2013, Smart mortgage loans comprised $113.6 million, or 16.6%, of the total loan portfolio.

Construction Loans. The Bank’s construction loans have primarily been made to finance the construction of single-family owner occupied residential properties and, to a limited extent, single family housing for sale by contractors.  Construction loans generally are made to customers of the Bank in its primary market area.  The Bank offers construction loans in amounts up to 80% of the appraised value of the property securing the loan. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant.  Construction loans to individuals generally do not pay off at completion of the construction phase, but are automatically transferred to the Bank’s one-to-four family residential portfolio. These single-family residential loans are structured to allow the borrower to pay interest only on the funds advanced for the construction during the construction phase (normally for a period of up to nine months) at the end of which time the construction loan converts to a mortgage loan.

Multi-Family and Commercial Real Estate Loans. This portfolio has grown in recent years and management anticipates that it will continue to grow.  The Bank originates loans secured by multi-family (greater than four family units) properties. The Bank also originates loans secured by commercial real estate, primarily office buildings (both owner and non-owner occupied) and development loans to builders.

The Bank generally originates multi-family and commercial real estate loans in amounts of up to 80%-85% of the appraised value of the property securing the loan depending upon the type of collateral. The Bank’s philosophy is to originate commercial real estate and multi-family loans only to borrowers known to the Bank and on properties in its market area. This portfolio generally consists of short term (generally five years or less) fixed rate balloon loans originated at prevailing market rates with amortizations up to 15-20 years.

Loans secured by multi-family and commercial real estate are generally larger and involve a greater degree of risk than one- to four-family residential mortgage loans. The Bank may occasionally participate larger commercial real estate loans to mitigate risk. Of primary concern in multi-family and commercial real estate lending is the borrower’s creditworthiness, the feasibility and cash flow potential of the project, and the outlook for successful operation or management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. In accordance with the Bank’s classification of assets policy and procedure, the Bank requests annual financial statements on major loans secured by multi-family and commercial real estate. At September 30, 2013 the aggregate balance of the five largest multi-family and commercial real estate loans totaled $16.9 million, with no single loan larger than $4.1 million.

Commercial Non-real Estate Loans. At September 30, 2013, the Bank had $30.7 million invested in commercial non-real estate loans. Such loans are commercial business loans primarily to small business owners in the Bank’s market area. These loans are typically secured by equipment, machinery and other business assets and generally have terms of three to five years.  The largest single relationship loan in this category is $1.8 million and is secured by equipment. Commercial business loans generally have higher interest rates and shorter terms than one-to-four family residential mortgage loans, but also

5

involve a greater degree of risk. These loans may have higher average balances, increased difficulty of loan monitoring and a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business. The Bank tries to minimize its risk exposure by limiting these loans to proven businesses and obtaining personal guarantees from the borrowers whenever possible.

Commercial Land Loans. The Bank offers commercial land and development loans.  Balances in this category have continued to decrease from $15.7 million at September 30, 2011, $13.3 million at September 30, 2012 and currently $10.3 million at September 30, 2013.

Consumer Lot Loan. At September 30, 2013, the Bank had $21.4 million invested in residential lot loans made to individuals.  Balances in this category have remained relatively stable over the last few years.

Home Equity Loans. The Bank also offers home equity loans on single family residences. At September 30, 2013, home equity mortgage loans totaled $40.8 million which makes up part of the category residential real-estate loans. While the Bank does offer adjustable rate home equity lines of credit, the majority of the home equity portfolio have fixed rates with a maximum term of 15 years. A variety of home equity loan programs are offered including combined LTVs up to 100% of collateral, however, such loans are generally for shorter terms. Loans with LTVs 100% and greater total $172.6 thousand as of September 30, 2013.  Creditworthiness, capacity, and loan to value are the primary factors considered during underwriting. To offset additional credit risk and higher combined LTVs, the Bank reduces loan terms and increases loan yields.

Consumer Loans. The Bank also offers loans in the form of loans secured by deposits, home equity loans, automobile loans, mobile home loans and unsecured personal consumer loans. Federal regulations allow the Bank to make secured and unsecured consumer loans of up to 35% of the Bank’s assets.

Loans secured by deposits at the Bank are made up to 100% of the deposit. At September 30, 2013, the Bank had $3.2 million of loans secured by deposits.

At September 30, 2013, the Bank had $2.8 million in automobile loans and $43.2 million in mobile home loans.

Consumer loans tend to be originated at higher interest rates than conventional residential mortgage loans and for shorter terms, which benefits the Bank’s interest rate risk management. However, consumer loans generally involve more risk than first mortgage one-to-four family residential real estate loans. Repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance as a result of damage, loss or depreciation, and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Further, the application of various state and federal laws, including federal and state bankruptcy and insolvency law, may limit the amount which may be recovered. These loans may also give rise to defenses by the borrower against the Bank and a borrower may be able to assert against the Bank claims and defenses which it has against the seller of the underlying collateral. In underwriting consumer loans, the Bank considers the borrower’s credit history, an analysis of the borrower’s income and ability to repay the loan, and the value of the collateral.

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Loans-to-One Borrower.  Banks cannot make loans to one borrower in an amount that exceeds in the aggregate 15% of unimpaired capital and allowance for loan and lease losses (ALLL) on an unsecured basis and an additional amount equal to 10% of unimpaired capital and ALLL if the loan is secured by readily marketable collateral (generally, financial instruments, not real estate) or $500,000, whichever is higher. The Bank’s maximum loan-to-one borrower limit was approximately $12.5 million as of September 30, 2013.

Non-Performing and Problem Assets

General. Teche Federal’s primary market area is dependent, to a certain extent, on the oil and gas, seafood and agricultural (primarily sugar cane) industries. These industries are cyclical in nature and have a direct impact on the level and performance of the Bank’s loan portfolio. Management continually monitors its loan portfolio for appropriate underwriting standards.

Non-Performing Assets and Delinquencies. When a borrower fails to make a required payment on a loan and does not cure the delinquency promptly, the loan is classified as delinquent. In this event, the normal procedure followed by the Bank is to make contact with the borrower at prescribed intervals in an effort to bring the loan to a current status. In most cases, delinquencies are cured promptly. If a delinquency is not cured, the Bank normally, subject to any required prior notice to the borrower, commences foreclosure proceedings, in which the property may be sold. In a foreclosure sale, the Bank may acquire title to the property through foreclosure, in which case the property so acquired is offered for sale and may be financed by a loan involving terms more favorable to the borrower than those normally offered. Any property acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until such time as it is sold or otherwise disposed of by the Bank to recover its investment. Any real estate acquired in settlement of loans is initially recorded at the estimated fair value less estimated selling cost at the time of acquisition and is subsequently reduced by additional allowances which are charged to earnings if the estimated fair value of the property declines below its initial value. Subsequent costs directly relating to development and improvement of property are capitalized (not to exceed fair value), whereas costs related to holding property are expensed.

The Bank’s general policy is to place a loan on nonaccrual status when the loan becomes 90 days delinquent or otherwise demonstrates other risks of collectibility. Interest on loans that are contractually 90 days or more past due is generally reserved through an allowance account. The Bank sometimes modifies this general policy after a review of the value of the collateral pledged against individual loans. The allowance is established by a charge to interest income equal to all interest previously accrued and unpaid, and interest is subsequently recognized only to the extent cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is back to normal, in which case the loan is returned to accrual status.  A return to accrual status usually requires a satisfactory period of regular payments that is no less than six months.

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The following table sets forth information regarding non-accrual loans, real estate owned (“REO”), and loans that are 90 days or more delinquent but on which the Bank was accruing interest at the dates indicated and restructured loans.

	At September 30,
	2013			2012			2011			2010			2009
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
All loans:
Commercial real estate loans	$	-		$	810		$	$1,275		$	$1,640		$	$695
Commercial non-real estate loans		-			2			-			154			98
Commercial-construction loans		-			-			1,021			1,066			760
Commercial-land		-			4,344			4,594			6,042			49
Residential-construction loans		-			-			-			-			-
Residential-real estate loans		1,973			4,249			2,487			4,594			3,666
Consumer-Mobile home loans		246			425			379			458			232
Consumer-other		206			343			322			184			120
Total	$	2,425		$	10,173		$	10,078		$	14,138		$	5,620
Accruing loans which are contractually past due 90 days or more:
All loans:
Commercial real estate loans	$	-		$	-		$	-		$	-		$	-
Commercial non-real estate loans		-			-			-			-			-
Commercial-construction loans		-			-			-			-			-
Commercial-land		-			-			239			249			255
Residential-construction loans		-			-			-			-			-
Residential-real estate loans		353			351			554			556			1,186
Consumer-Mobile home loans		-			-			-			-			34
Consumer-other		-			-			-			-			36
Total	$	353		$	351		$	793		$	805		$	1,511
Total non-performing loans	$	2,778		$	10,524		$	10,871		$	14,943		$	7,131
Real estate owned	$	741		$	513		$	1,405		$	1,181		$	1,953
Troubled debt restructurings accruing	$	3,203		$	2,373		$	1,056		$	-		$	-
Total non-performing assets	$	6,722		$	13,410		$	13,332		$	16,124		$	9,084
Total non-performing loans to total loans outstanding before allowance		0.40	%		1.56	%		1.79	%		2.51	%		1.20	%
Total non-performing loans to total assets		0.37	%		1.27	%		1.37	%		1.96	%		0.93	%
Total non-performing assets to total assets		0.78	%		1.34	%		1.68	%		2.12	%		1.19	%

Interest income that would have been recorded on loans accounted for on a non-accrual basis under the original terms of such loans was $126,000 for the year ended September 30, 2013.  Interest income of $3,000 on nonaccrual loans was included in net income for the year ended September 30, 2013.

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Real Estate Owned. Real estate acquired by the Bank as the result of foreclosure or by deed in lieu of foreclosure is classified as REO until it is sold. When property is acquired it is recorded at the fair value less estimated costs to sell at the date of foreclosure. At September 30, 2013, the Bank had REO with a net balance of $741 thousand, comprised of 8 properties, the largest of which is a parcel of undeveloped commercial land with a book carrying value of $250,000.

Allowances for Loan Losses. The allowance for loan losses is a valuation allowance available for losses incurred on loans. Any losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is probable to occur. Recoveries are credited to the allowance at the time of recovery.

Periodically during the year management estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb losses in the existing portfolio. Based on the estimates, an amount is charged to the provision for loan losses and credited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb such losses.

Management’s judgment as to the level of losses on existing loans involves the consideration of current and anticipated economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, known inherent risks in the loan portfolio, and the present level of the allowance; results of examination of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio. In determining the collectibility of certain loans, management also considers the fair value of any underlying collateral.

It should be understood that estimates of loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses, which are substantial relative to the allowance for loan losses, it is the judgment of management that the allowance of loan losses reflected in the consolidated balance sheets is adequate to absorb losses in the existing loan portfolio.

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Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans in each category to total loans receivable at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for losses which may occur within the loan category since the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio.

	At September 30,
	2013						2012						2011						2010						2009
				Percent of						Percent of						Percent of						Percent of						Percent of
				Loans to						Loans to						Loans to						Loans to						Loans to
				Total						Total						Total						Total						Total
	Amount			Loans			Amount			Loans			Amount			Loans			Amount			Loans			Amount			Loans
	(Dollars in Thousands)
At end of year allocated to:
Commercial real estate loans		$	1,959		19.4	%		$	2,045		17.8	%		$	1,991		18.2	%		$	2,179		19.9	%		$	1,869		20.0	%
Commercial non-real estate loans			268		4.5				265		5.0				258		4.5				497		5.2				369		5.1
Commercial-construction loans			141		1.3				141		1.1				136		1.6				64		0.9				96		1.1
Commercial-land			398		1.5				437		2.0				425		2.6				1,137		3.2				205		3.4
Residential-construction loans			80		0.7				80		1.4				78		1.7				50		0.7				47		0.8
Residential-real estate loans			3,931		59.7				4,390		61.1				4,274		58.5				4,363		56.6				3,421		56.2
Consumer-Mobile home loans			560		6.3				609		5.5				593		6.3				477		6.7				397		6.8
Consumer-other			531		6.6				592		6.1				576		6.6				489		6.8				402		6.6
Total allowance		$	7,868		100.00	%		$	8,559		100.00	%		$	8,331		100.00	%		$	9,256		100.00	%		$	6,806		100.00	%

10 

Analysis of the Allowance for Loan Losses. The following table sets forth information with respect to the Bank’s allowance for loan losses for the periods indicated:

	At September 30,
	2013			2012			2011			2010			2009
	(Dollars in Thousands)
Total loans outstanding, net	$	676,535		$	665,842		$	600,271		$	586,635		$	588,527
Average loans outstanding	$	660,218		$	643,224		$	590,354		$	599,134		$	606,751
Allowance balances (at beginning of year)	$	8,559		$	8,331		$	9,256		$	6,806		$	5,545
Provision		400			1,910			3,900			3,896			3,026
Charge offs:
Commercial real estate loans		(103)			(426	)		(1,565	)		(610	)		(1,206	)
Commercial non-real estate loans		(13)			(165	)		(138	)		(83	)		(168	)
Commercial-construction loans		-			-			(51	)		(3	)		-
Commercial-land		(168)			(250	)		(1,666	)		(23	)		-
Residential-construction loans		-			-			-			-			-
Residential-real estate loans		(658)			(753	)		(1,131	)		(443	)		(162	)
Consumer-Mobile home loans		(230)			(209	)		(234	)		(151	)		(167	)
Consumer-other		(69)			(82	)		(97	)		(164	)		(91	)
Total charge-offs		(1,241)			(1,885	)		(4,882	)		(1,476	)		(1,794	)
Recoveries
Commercial real estate loans		17			159			-
Commercial non-real estate loans		16			-			1			1			-
Commercial-construction loans		-			5			-			1			-
Commercial-land		26			-			-			-			-
Residential-construction loans		-			-			-			-			-
Residential-real estate loans		49			12			39			15			5
Consumer-Mobile home loans		34			16			10			5			7
Consumer-other		8			11			7			8			17
Total recoveries		150			203			57			30			29
Net (charge-offs)		(1,091)			(1,682	)		(4,825	)		(1,446	)		(1,765	)
Allowance balance (at end of year)	$	7,868		$	8,559		$	8,331		$	9,256		$	6,806
Allowance for loan losses to total loans outstanding before  allowance		1.15	%		1.27	%		1.37	%		1.55	%		1.14	%
Net loans charged off as a percent of average loans  outstanding before allowance		0.17	%		0.26	%		0.82	%		0.24	%		0.29	%

11 

Investment Activities

General. To supplement lending activities, the Company invests in residential mortgage-backed securities, including collateralized mortgage obligations (“CMOs”), investment securities and interest-bearing deposits. These investments have historically consisted of investment securities issued by U.S. government agencies and government-sponsored corporations. Such securities can serve as collateral for borrowings and, through repayments and maturities, as a source of liquidity.

The Company is authorized to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies and government-sponsored corporations, including securities issued by FHLMC, FNMA, and the Government National Mortgage Association (“GNMA”), securities of state and municipal governments, deposits at the FHLB of Dallas, certificates of deposit of federally insured institutions, certain bankers’ acceptances and federal funds. Subject to various restrictions, the Company also has the authority to invest in commercial paper and corporate debt and/or equity securities, the assets of which conform to the investments that a State Chartered Bank are otherwise authorized to make directly.  At September 30, 2013, the Company’s securities portfolio did not contain securities of any non-GSE issuer having an aggregate book value in excess of 10% of the Company’s equity.

The Company’s investments in mortgage-backed securities and CMOs include securities issued by government agencies, private issuers and financial institutions. The CMOs held by the Company at September 30, 2013 consisted of floating rate and fixed rate tranches.  Generally, private issued CMOs tend to have greater prepayment and credit risk than those issued by government agencies or government-sponsored corporations, such as the FHLMC, FNMA and GNMA, because they often are secured by jumbo loans. At September 30, 2013, the Bank had CMOs with an aggregate estimated market value of $1.9 million.

Securities are classified as held-to-maturity or available-for-sale. Management determines the classification of securities when they are purchased and reevaluates this classification periodically as conditions change that could require reclassification.

Securities which the Company both positively intends and has the ability to hold to maturity are classified as securities held-to-maturity and are carried at amortized cost. Intent and ability to hold are not considered satisfied when a security is available to be sold in response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management strategy.

Securities not meeting the criteria to be classified as securities held-to-maturity are classified as available-for-sale and are carried at fair value. Net unrealized holding gains or losses are excluded from net income and are recognized, net of income taxes, in other comprehensive income and in accumulated other comprehensive income, a separate component of stockholders’ equity.

Premiums and discounts on securities, both those held-to-maturity and those available-for-sale, are amortized and accreted to income as an adjustment to the securities’ yields using the interest method. Realized gains and losses on securities, including declines in value judged to be other than temporary, are reported as a component of income. The cost of securities sold is specifically identified for use in calculating realized gains and losses.

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If the fair value of a security is below its amortized cost basis at the quarter end, the security is evaluated for other-than-temporary impairment (“OTTI”). For debt securities, we consider our intention to sell the security.  If we do not intend on selling the security, then we evaluate whether it is more likely than not we will be required to sell the security before recovery of the security’s amortized cost.  If we fail either of those tests, then we record OTTI for the affected security equal to the difference between the fair value and amortized cost.

If it is not more likely than not we will be required to sell the debt security, then we go to the next step to determine if OTTI exists. In determining if OTTI exists, management considers: (1) the length of time and the extent to which the fair value has been less than cost, (2) Adverse conditions related to the security, industry or geographic area, (3) the financial condition and near-term prospects of the issuer, (4) failure of the issuer to make scheduled interest or principal payments and the outlook for receiving the contractual cash flows of the investments, (5) changes in the rating of the security (for our purposes, a drop below AA is considered an adverse change) and (6) historical and subsequent volatility of fair value of the security.  If these conditions provide an indication of a reduction in expected cash flows, then cash flows are evaluated to determine the amount of credit related impairment.  If a debt security is an investment in a beneficial interest security and it is rated below AA, cash flows are evaluated for a decrease in expected cash flows and related credit impairment.  If OTTI has been identified, the credit related impairment, to the extent it does not reduce the security below fair value, is charged to earnings and the non-credit-related impairment is adjusted through other comprehensive income for both held to maturity and available for sale securities.

For marketable equity securities, the Company evaluates its ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  Evidence considered to determine anticipated recovery are analysts’ reports on the near-term prospects of the issuer and the financial condition of the issuer or the industry, in addition to the length and extent of market value decline.  If OTTI is identified, the security is adjusted to fair value through a charge to earnings.

See Note 3 in the Consolidated Financial Statements for further discussion of other-than-temporary impairments on investment securities. The Company has 330 investments at September 30, 2013 of which one had immaterial unrealized losses. During the fourth quarter ended September 30, 2012, Management took the opportunity to sell the portfolio of private label mortgage securities at an immaterial gain. While the Company had the ability to hold these securities, due to the current uncertainties in the market place, Management made the decision to move these securities out of the portfolio.

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The following table sets forth the carrying value of the Company’s investment portfolio, short-term investments and FHLB stock at the dates indicated.

	At September 30,
	2013		2012		2011
	(In Thousands)
FHLB Stock	$	5,068	$	6,809	$	5,318
Time Deposits Other Banks		52,995		44,673		47,975
Mortgage-backed securities
Government sponsored entities		26,768		38,923		52,176
Private label		-		-		1,377
CMOs
Government sponsored entities		1,855		2,690		3,379
Private label		-		-		320
Equity securities		561		494		519
Total investment and mortgage-backed securities		87,247		93,589		111,064
Interest-bearing deposits		16,039		21,639		15,614
Total investments	$	103,286	$	115,228	$	126,678

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Investment Portfolio Maturities. The following table sets forth certain information regarding the carrying values and weighted average yields of the Bank’s securities portfolios by scheduled maturity date at September 30, 2013.  The table shows contractual maturities and does not reflect repricing or the effect of prepayments.  Actual maturities may differ.  Securities with no maturity date (FHLB stock and equity securities) are shown under the total investments column only.  The total investments carrying value differs from the total amortized cost because available for sale securities are carried at their fair value instead of their amortized cost while the carrying value of held to maturity securities is equal to their amortized cost.

	As of September 30, 2013
	One Year or Less				One to Five Years				Five to Ten Years				More than Ten Years				Total Investment
	Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average		Amortized
	Value		Yield		Value		Yield		Value		Yield		Value		Yield		Value		Yield		Cost
Investment securities held-to-maturity -time deposits other banks	$	26,531	0.64	%	$	26,464	0.91	%	$	-	-		$	-	-		$	52,995	0.77	%	$	52,995
Mortgage-backed securities available for sale government sponsored entities(1)		3	4.00	%		1,000	4.27	%		4,765	5.01	%		11,111	2.93	%		12,590	3.12	%		12,019
Mortgage-backed securities held to maturity-government sponsored entities(1)		-	-			1,649	4.72	%		2,561	5.32	%		9,968	3.41	%		14,178	3.90	%		14,178
Mortgage-backed securities held to maturity-private label		-	-			-	-			-	-			-	-			-	-			-
CMOs(1):
Available for sale government sponsored entities		-	-			-	-			-	-			1,296	4.50	%		1,296	4.50	%		1,175
Held-to maturity-private label		-	-			-	-			-	-			-	-			-	-			-
Held-to-maturity-government sponsored entities		-	-			-	-			-	-			559	4.36	%		559	4.36	%		559
FHLB stock(2)		-	-			-	-			-	-			-	-	%		5,068	0.38	%		5,068
Equity securities(2)		-	-			-	-			-	-			-	-	%		561	0.17	%		375
Total	$	26,534	0.64	%	$	29,113	1.24	%	$	3,037	5.27	%	$	22,934	3.26	%	$	87,247	1.67	%	$	86,369

(1)   Does not assume prepayments.

(2)   Equity investments have no stated maturity

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Sources of Funds

General. Deposits are the major source of the Bank’s funds for lending and other investment purposes. Teche Federal also derives funds from amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and operations. Scheduled loan principal and interest payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions. Teche Federal also utilizes advances from the FHLB of Dallas. In recent years, the Bank has emphasized SmartGrowth Deposits consisting of checking accounts, money market accounts and savings accounts. SmartGrowth Deposits totaled $499.1 million at September 30, 2013.

Deposits. Consumer and commercial deposits are attracted principally from within the Bank’s primary market area through the offering of a broad selection of deposit instruments including regular savings, demand and NOW accounts and certificates of deposit. Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit and the interest rate, among other factors.

The interest rates paid by the Bank on deposits can be set daily at the direction of senior management. Senior management determines the interest rate to offer the public on new and maturing accounts. Senior management obtains the interest rates being offered by other financial institutions within its market area. This data along with a report showing the dollar value of certificates of deposit maturing is reviewed and interest rates are determined.

Non-interest bearing demand accounts constituted $100.8 million or 15.5% of the Bank’s deposit portfolio at September 30, 2013.  Money market accounts and NOW accounts constituted $195.2 million, or 30.0% of the Bank’s deposit portfolio at September 30, 2013. Regular savings accounts constituted $203.0 million, or 31.2% of the Bank’s deposit portfolio at September 30, 2013. Certificates of deposit constituted of $151.8 million or 23.3% of the deposit portfolio, including $69.6 million of which had balances of $100,000 and over. As of September 30, 2013, the Bank had no brokered deposits.

Certificates of Deposit Accounts of $100,000 or More. Teche Federal maintains a policy of offering higher interest rates on certificates of deposit with larger balances. As a result, to some extent, Teche Federal customers tend to consolidate accounts to earn the highest possible interest. This enables the Bank to effectively compete in the marketplace, reduce the number of accounts and associated costs, and increase, to some extent the number of accounts with balances of $100,000 or more. The following table indicates the amount of the Bank’s certificates of deposit of $100,000 or more by time remaining until maturity as of September 30, 2013.

	Certificates of Deposit		Weighted Interest Rate
Maturity Period:	(In Thousands)
3 months or less	$	6,653	0.57	%
Over 3 through 6 months		14,438	0.95
Over 6 through 12 months		17,361	1.46
Over 12 months		31,191	2.04
Totals	$	69,643	1.53	%

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Borrowings

Deposits are the primary source of funds of the Bank’s lending and investment activities and for its general business purposes. The Bank may obtain advances from the FHLB of Dallas to supplement its supply of lendable funds. Advances from the FHLB of Dallas are typically secured by a pledge of the Bank’s stock in the FHLB of Dallas and a portion of the Bank’s first mortgage loans and certain other assets.  Funds available under existing credit facilities from the FHLB and two other correspondent banks combined totaled $243.8 million.  The Bank has total FHLB borrowings of $109.0 million, or 12.7% of the Bank’s assets.  Approximately $29.2 million is due in the year ending September 30, 2014.

The following table sets forth certain information regarding the Bank’s short term advances at or for the years ended on the dates indicated:

	At or For the Year Ended September 30,
	2013			2012			2011
	(Dollars in Thousands)
FHLB advances:
Average balance outstanding	$	25,525		$	34,944		$	12,738
Maximum amount outstanding at any month-end during the year		56,314			56,558			30,839
Balance outstanding at end of year		29,247			53,214			27,093
Weighted average interest rate during the year		1.27	%		0.79	%		3.27	%
Weighted average interest rate at end of year		1.90	%		0.70	%		0.92	%

Subsidiary Activity

The only subsidiary of the Company is Teche Federal Bank.  As of September 30, 2013, the Bank had one inactive subsidiary: Family Investment Services, Inc. (“FISI”) which had total assets of approximately $182 thousand consisting primarily of cash.

Regulation

The Bank and the Company operate in a highly regulated industry.  This regulation establishes a comprehensive framework of activities in which a bank holding company and its subsidiary bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors.  Set forth below is a brief description of certain laws that relate to the regulation of the Bank and the Company.  The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution and its holding company, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses.  Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, including changes in the regulations governing mutual holding companies, could have a material adverse impact on the Company, the Bank and their operations. The adoption of regulations or the enactment of laws that restrict the operations of the Bank and/or the Company or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of the Bank’s franchise, resulting in negative effects on the trading price of the Company’s common stock.

17

Regulation of the Bank

General.  As a Louisiana state-chartered commercial bank with deposits insured by the FDIC, the Bank is subject to extensive regulation by the Office of Financial Institutions of the State of Louisiana and the FDIC.  This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classification of assets and the level of the allowance for loan losses.  The activities of state- chartered commercial banks are subject to extensive regulation including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity, transactions with affiliates and community reinvestment.    Both state and federal law regulate a state-chartered commercial bank’s relationship with its depositors and borrowers, especially in such matters as the ownership of savings accounts and the form and content of the bank’s mortgage documents.

The Bank must file reports with the FDIC concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions.  The FDIC will regularly examine the Bank and prepares reports to the Bank’s Board of Directors on deficiencies, if any, found in its operations. The FDIC has substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements.

Federal Deposit Insurance.   The Bank’s deposits are insured to applicable limits by the FDIC.  Under the Dodd-Frank Act, the maximum deposit insurance amount has been permanently increased from $100,000 to $250,000 as a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  The FDIC has adopted a risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios.  Starting in 2009, the FDIC significantly raised the assessment rate in order to restore the reserve ratio of the Deposit Insurance Fund to the statutory minimum of 1.15%.

The FDIC imposed a special assessment equal to five basis points of assets less Tier 1 capital as of June 30, 2009, payable on September 30, 2009.  The prepaid assessment was applied against actual quarterly assessments until exhausted.  Prepaid funds of $971,000 were refunded to the bank in June 2013.

The Dodd-Frank Act required the FDIC to take such steps as necessary to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020.  In setting the assessments, the FDIC is required to offset the effect of the higher reserve ratio against insured depository institutions with total consolidated assets of less than $10 billion.   The Dodd-Frank Act also broadened the base for FDIC insurance assessments so that assessments will be based on the average consolidated total assets less average tangible equity capital of a financial institution rather than on its insured deposits.

The FDIC has adopted new assessment regulations that redefine the assessment base as average consolidated assets less average tangible equity.  Insured banks with more than $1.0 billion in assets must calculate quarterly average assets based on daily balances while smaller banks and newly chartered banks may use weekly averages.  In the case of a merger, the average assets of the surviving bank for the quarter must include the average assets of the merged institution for the period in the quarter prior to the merger. Average assets would be reduced by goodwill and other intangibles.  Average tangible equity will equal Tier 1 capital. For institutions with more than $1.0 billion in assets average tangible equity will be calculated on a weekly basis while smaller institutions may use the quarter-end balance.  The base assessment rate for insured institutions in Risk Category I now ranges between 5 to 9 basis points and for  

18

institutions in Risk Categories II, III, and IV will be 14, 23 and 35 basis points.  An institution’s assessment rate will be reduced based on the amount of its outstanding unsecured long-term debt and for institutions in Risk Categories II, III and IV may be increased based on their brokered deposits. Risk Categories are eliminated for institutions with more than $10 billion in assets which will be assessed at a rate between 5 and 35 basis points.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to recapitalize the Federal Savings and Loan Insurance Corporation.  The FICO assessment rates, which are determined quarterly, averaged 0.64 basis points of insured deposits on an annualized basis in fiscal year 2013.  These assessments will continue until the FICO bonds mature in 2017.

Regulatory Capital Requirements.  The Bank is required to maintain certain minimum levels of regulatory capital.  At September 30, 2013, the Bank was in compliance with these requirements.  For further information regarding the Bank’s compliance with these regulatory capital standards, see Note 17 to Consolidated Financial Statements.  In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors as well and has the authority to establish higher capital requirements for individual institutions where necessary.

Dividend and Other Capital Distribution Limitations.  Federal regulations and the State of Louisiana impose various restrictions or requirements on the ability of the Bank to make capital distributions, including cash dividends.  We do not expect that these laws, regulations or policies will materially affect the ability of the Bank to pay dividends.

Community Reinvestment Act.  Under the CRA, every insured depository institution, including the Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.  The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community.  The CRA requires the FDIC to assess the depository institution’s record of meeting the credit needs of its community and to consider such record in its evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by the Bank.  The FDIC may use an unsatisfactory CRA examination rating as the basis for the denial of an application.  The Bank received an outstanding CRA rating in its most recent CRA examination.

Federal Home Loan Bank System.   The Bank is a member of the FHLB of Dallas, which is one of twelve regional Federal Home Loan Banks.  Each FHLB serves as a reserve or central bank for its members within its assigned region.  It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System.  It makes loans to members pursuant to policies and procedures established by the board of directors of the FHLB.

As a member, the Bank is required to purchase and maintain stock in the FHLB of Dallas in an amount equal to the greater of 1% of our aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of our outstanding FHLB advances. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member’s capital and limiting total advances to a member.

19

The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future.  In addition, these requirements could result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members.

Changes to Regulatory Capital Requirements

In June 2013, the federal banking agencies approved amendments to their regulatory capital rules to conform them with the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as “Basel III”.  The revisions would establish new higher capital ratio requirements, tighten the definitions of capital, impose new operating restrictions on banking organizations with insufficient capital buffers and increase the risk weighting of certain assets including residential mortgages. The new capital requirements apply to all banks and savings associations, bank holding companies with more than $500 million in assets and all savings and loan holding companies regardless of asset size.  The rules will become effective for the institutions with assets over $250 billion and internationally active institutions starting in January 2014 and will become effective for all other institutions beginning in January 2015.

The following discussion summarizes the changes which are most likely to affect the Company and the Bank.

New and Higher Capital Requirements.  The regulations establish a new capital measure called “Common Equity Tier 1 Capital” which consists of common stock instruments and related surplus (net of treasury stock), retained earnings, accumulated other comprehensive income and, subject to certain adjustments, minority common equity interests in subsidiaries.  Unlike the current rules which exclude unrealized gains and losses on available-for-sale debt securities from regulatory capital, the proposed rules would generally require accumulated other comprehensive income to flow through to regulatory capital.  Depository institutions and their holding companies will be required to maintain Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets by 2015.

The regulations increase the required ratio of Tier 1 Capital to risk-weighted assets from the current 4% to 6% by 2015. Tier 1 Capital would consist of Common Equity Tier 1 Capital plus Additional Tier 1 Capital elements which would include non-cumulative perpetual preferred stock.  Neither cumulative preferred stock (other than cumulative preferred stock issued to the U.S. Treasury under the TARP Capital Purchase Program or the Small Business Lending Fund) will qualify as Additional Tier 1 Capital. Trust preferred securities and other non-qualifying capital instruments issued prior to May 19, 2010 by bank and savings and loan holding companies with less than $15 billion in assets as of December 31, 2009 may continue to be included in Tier 1 Capital but will be phased out over 10 years beginning in 2016 for all other banking organizations.

These non-qualifying elements, however, could be included in Tier 2 Capital which could also include qualifying subordinated debt.  The regulations also require a minimum Tier 1 leverage ratio of 4% for all institutions eliminating the 3% option for institutions with the highest supervisory ratings.  The minimum required ratio of total capital to risk-weighted assets would remain at 8%.

Capital Buffer Requirement. In addition to higher capital requirements, depository institutions and their holding companies will be required to maintain a capital buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements.  Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage

20

of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management.  The capital buffer requirement would be phased in over four years beginning in 2016.  The capital buffer requirement effectively raises the minimum required risk-based capital ratios to 7% Common Equity Tier 1 Capital, 8.5% Tier 1 Capital and 10.5% Total Capital on a fully phased-in basis.

Changes to Prompt Corrective Action Capital Categories.  The Prompt Corrective Action rules was  amended to incorporate a Common Equity Tier 1 Capital requirement and to raise the capital requirements for certain capital categories.  In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization  will be required to have at least an 8% Total Risk-Based Capital Ratio, a 6% Tier 1 Risk-Based Capital Ratio, a 4.5% Common Equity Tier 1 Risk Based Capital Ratio and a 4% Tier 1 Leverage Ratio.  To be well capitalized, a banking organization will be required to have at least a 10% Total Risk-Based Capital Ratio, an 8% Tier 1 Risk-Based Capital Ratio, a 6.5% Common Equity Tier 1 Risk Based Capital Ratio and a 5% Tier 1 Leverage Ratio.

Additional Deductions from Capital. Banking organizations will be required to deduct goodwill and other intangible assets (other than certain mortgage servicing assets), net of associated deferred tax liabilities, from Common Equity Tier 1 Capital.  Deferred tax assets arising from temporary timing differences that could not be realized through net operating loss carrybacks will continue to be deducted but deferred tax assets that could be realized through NOL carrybacks would not be deducted but would be subject to 100% risk weighting.  Defined benefit pension fund assets, net of any associated deferred tax liability, would be deducted from Common Equity Tier 1 Capital unless the banking organization has unrestricted and unfettered access to such assets.  Reciprocal cross-holdings of capital instruments in any other financial institutions will now be deducted from capital, not just holdings in other depository institutions.  For this purpose, financial institutions are broadly defined to include securities and commodities firms, hedge and private equity funds and non-depository lenders.  Banking organizations would also be required to deduct non-significant investments (less than 10% of outstanding stock) in other financial institutions to the extent these exceed 10% of Common Equity Tier 1 Capital subject to a 15% of Common Equity Tier 1 Capital cap.  Greater than 10% investments must be deducted if they exceed 10% of Common Equity Tier 1 Capital.  If the aggregate amount of certain items excluded from capital deduction due to a 10% threshold exceeds 17.65% of Common Equity Tier 1 Capital, the excess must be deducted.

Changes in Risk-Weightings.  The new regulations apply a 250% risk-weighting to mortgage servicing rights, deferred tax assets that cannot be realized through NOL carrybacks and significant (greater than 10%) investments in other financial institutions.  The rules would also significantly change the risk-weighting for residential mortgages.  Current capital rules assign a 50% risk-weighting to “qualifying mortgage loans” which generally consist of residential first mortgages with an 80% loan-to-value ratio (or which carry mortgage insurance that reduces the bank’s exposure to 80%) that are not more than 90 days past due.  All other mortgage loans have a 100% risk weight.  Under the new regulations, one-to-four family residential mortgage loans will be divided into two broad risk categories with their risk-weighting determined by their loan-to-value ratio without regard to mortgage insurance. Prudently underwritten 30-year residential mortgages providing for regular periodic payments that do not result in negative amortization or balloon payments or allow payment deferrals and caps on annual and lifetime interest rate adjustments and which are not more than 90 days past due will be assigned a risk weighting from 35% for loans with a 60% or lower loan-to-value ratio to 100% for loans over 90%.  Residential mortgage loans in this category with a loan-to-value ratio greater than 60% but not more than 80% will continue to carry a 50% risk weighting. All other residential mortgage loans will be risk-weighted between 100% to 200%.  The new rules also create a new 150% risk-weighting category for “high volatility commercial real estate loans” which are credit facilities for the acquisition, construction or development of real property other than one- to four-family residential properties or commercial real

21

projects where: (i) the loan-to-value ratio is not in excess of interagency real estate lending standards; and (ii) the borrower has contributed capital equal to not less than 15% of the real estate’s “as completed” value before the loan was made.

Regulation of the Company

General.   The Company is a bank holding company registered with the FRB.  As a result, it is required to file reports with the FRB and is subject to regulation and examination by the FRB.  The Company must also obtain regulatory approval from the FRB before engaging in certain transactions, such as mergers with or acquisitions of other financial institutions.  In addition, the FRB has enforcement authority over the Company.  This permits the FRB to restrict or prohibit activities that it determines to be a serious risk to the Bank.  This regulation is intended primarily for the protection of the depositors and not for the benefit of stockholders of the Company.

Activities Restrictions.  As a bank holding company, the Company is subject to statutory and regulatory restrictions on its business activities.  Before engaging in any non-banking activity or acquiring a company engaged in any such activities, the Company must file with the FRB either a prior notice or (in the case of non-banking activities permissible for bank holding companies) an application regarding its planned activity or acquisition.  The Company has not elected to become a financial holding company.

Mergers and Acquisitions.  The Company must obtain approval from the FRB before acquiring, directly or indirectly, more than 5% of the voting stock of another bank holding company or bank or acquiring such an institution or holding company by merger, consolidation, or purchase of its assets.  In evaluating an application for the Company to acquire control of another institution, the FRB would consider the financial and managerial resources and future prospects of the Company and the target institution, the effect of the acquisition on the risk to the insurance fund, the convenience and the needs of the community and competitive factors.

Acquisition of Control.  Under the federal Change in Bank Control Act, a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire “control” of a bank holding company.  An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or as otherwise defined by the FRB.  Under the Change in Bank Control Act, the FRB has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition.  Any company that so acquires control is then subject to regulation as a bank holding company.

Item 1A. Risk Factors

Not applicable as the Company is a smaller reporting company.

Item 1B. Unresolved Staff Comments

Not applicable.

Item  2. Properties

The Bank operates from its main office located at 1120 Jefferson Terrace, New Iberia, Louisiana and currently has nineteen other offices. The majority of our offices are owned, however, two offices are leased under short-term operating leases as disclosed in Note 6 to the Consolidated Financial Statements.

22

The Bank’s total investment in office property and equipment was $50.6 million with a net book value of $32.6 million at September 30, 2013.

Item 3. Legal Proceedings

At September 30, 2013, neither the Company nor its subsidiaries were involved in any pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Information relating to the market for Registrant’s common equity and related stockholder matters appears under the heading “Market and Dividend Information” in the Registrant’s Annual Report to Stockholders for the fiscal year ended September 30, 2013 (the “Annual Report”) and is incorporated herein by reference.

Set forth below is information regarding the Company’s stock repurchases during the fourth quarter of the fiscal year ended September 30, 2013.

ISSUER PURCHASES OF EQUITY SECURITIES

	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs
July 1–31, 2013	-	$	-	-	50,100
August 1-31, 2013	-		-	-	50,100
September 1-30, 2013	-		-	-	50,100
Total	-	$	-	-	50,100

The repurchase plan announced May 23, 2013, authorizing the repurchase of up to 60,000 shares has no expiration date for the authorized repurchase under this plan.

Item 6. Selected Financial Data

Not applicable as the Company is a smaller reporting company.

23

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The above-captioned information appears under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report and is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable as the Company is a smaller reporting company.

Item 8. Financial Statements and Supplementary Data

The Company’s consolidated financial statements, together with the report thereon by DixonHughes Goodman LLP, and the supplementary financial information appear in the Annual Report and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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 Annual Report on Form 10-K such disclosure controls and procedures are effective.

(b)           Internal Control Over Financial Reporting. Management’s Report on Internal Control Over Financial Reporting is furnished herein by reference from the Annual Report which is filed as Exhibit 13 hereto.  Such report is not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.  This annual report does not include an attestation of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’ registered public accounting firm as it is a smaller reporting company.

Changes in internal control over financial reporting. During the last quarter of the year 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.

Item 9B. Other Information

Not applicable.

24

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information that appears under the headings “Proposal I – Election of Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s definitive proxy statement for the Registrant’s Annual Meeting of Stockholders to be held in January 2014 (the “Proxy Statement”) is incorporated herein by reference.

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code will be furnished without charge upon written request to the Secretary, Teche Holding Company, 1120 Jefferson Terrace Boulevard, New Iberia, Louisiana 70560.

Item 11. Executive Compensation

The above-captioned information appears under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      (a)   Securities Authorized for Issuance Under Equity Compensation Plans

Set forth below is information as of September 30, 2013 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.

25 

EQUITY COMPENSATION PLAN INFORMATION

	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	(b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights	(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by shareholders:	231,061	37.03	182,514
Equity compensation plans not approved by stockholders:	-	-	-
Total	231,061	37.03	182,514

For information regarding the material features of the Registrant’s equity compensation plans, see Note 14 to the Consolidated Financial Statements included as part of Exhibit 13 to this report.

(b)   Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the section entitled “Principal Holders of our Common Stock” in the Proxy Statement.

(c) Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned “Proposal I – Election of Directors” in the Proxy Statement.

(d) Changes in Control

Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Registrant.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The above-captioned information appears under the headings “Corporate Governance” and “Related Party Transactions” in the Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information relating to this item is incorporated herein by reference to the information contained under the section captioned “Proposal II – Ratification of Independent Auditors” in the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)           The following documents are filed as a part of this report:

26

(1)           The following financial statements and the report of the independent registered public accounting firm are included in the Annual Report and are incorporated herein by reference:

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2013 and 2012

Consolidated Statements of Income For the Years Ended September 30, 2013, 2012 and 2011

Consolidated Statements of Comprehensive Income for the years ended September 30, 2013, 2012 and 2011

Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2013, 2012 and 2011

Consolidated Statements of Cash Flows for the Years Ended September 30, 2013, 2012 and 2011

Notes to Consolidated Financial Statements

(2)           All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

(3)           Exhibits

The following exhibits are filed as part of this report:

3.1	Articles of Incorporation of Teche Holding Company*
3.2	Bylaws of Teche Holding Company*
4	Stock Certificate of Teche Holding Company*
10.1	Teche Federal Savings Bank Management Stock Plan**
10.2	Teche Holding Company 1995 Stock Option Plan**
10.3	Teche Holding Company 1997 Stock Option Plan***
10.4	Teche Holding Company 1998 Stock Option Plan***
10.5	Teche Holding Company Stock Option Agreement with Scott Sutton****
10.6	Teche Federal Savings Bank Restricted Stock Agreement with Scott Sutton****
10.7	Teche Holding Company 2001 Stock-Based Incentive Plan*****
10.8	Teche Holding Company 2004 Stock-Based Incentive Plan******
10.9	Employment Agreement between Teche Holding Company and Patrick O. Little *******
10.10	Employment Agreement between Teche Federal Bank and Patrick O. Little *******
10.11	Change in Control Severance Agreement between Teche Federal Bank and Jason Freyou *******
10.12	Change in Control Severance Agreement between Teche Federal Bank and Darryl Broussard *******
10.13	Change in Control Severance Agreement between Teche Federal Bank and J. L. Chauvin *******
10.14	Change in Control Severance Agreement between Teche Federal Bank and Ross Little, Jr. *******
10.15	Teche Holding Company 2011 Stock-Based Incentive Plan********
11	Statement regarding computation of earnings per share (see Note 14 to the Consolidated Financial
	Statements in the Annual Report)

13	Annual Report to Stockholders for the fiscal year ended September 30, 2013
21	Subsidiaries of the Registrant (see “Item 1 Business - Subsidiary Activity” herein)

27

23	Consent of Dixon Hughes Goodman LLP, Independent Registered Public Accounting Firm
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 ********

_______________

* Incorporated herein by reference to the identically numbered exhibits to the Registrant’s Registration Statement on Form S-1, filed with the Commission on December 16, 1994, Registration No. 333-87486.

** Incorporated herein by reference to Exhibits 10.1 and 10.2 to the Registrant’s Form 10-K for the fiscal year ended September 30, 1995.

*** Incorporated herein by reference to Exhibits 4.1 and 4.2 to the Registrant’s Registration Statement on Form S-8, filed with the Commission on June 3, 1998, Registration No. 333-55913.

**** Incorporated herein by reference to Exhibits 4.1 and 4.2 to the Registrant’s Registration Statement on Form S-8, filed with the Commission on January 28, 2000, Registration No. 333-95583.

***** Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8, filed with the Commission on May 1, 2002, Registration No. 333-87354.

****** Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8, filed with the Commission on May 25, 2005, Registration No. 333-125218.

******* Incorporated herein by reference to Exhibits 10.9 through 10.14 to the Registrant’s Form 10-K for the fiscal year ended September 30, 2009.

******* Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on July 1, 2011, Registration No. 333-175315.

******** Submitted as Exhibits 101 to this Form 10-K are documents formatted in XBRL (Extensible Business Reporting Language).

28 

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: December 20, 2013		/s/ Patrick O. Little
	By:	Patrick O. Little President, Chief Executive Officer and Chairman of the Board (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on December 20, 2013.
/s/ Patrick O. Little	/s/ J.L. Chauvin
Patrick O. Little President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	J.L. Chauvin Director, Senior Vice President and Treasurer (Principal Financial and Accounting Officer)
	/s/ Donelson T. Caffery, Jr.
Ernest Freyou Director	Donelson T. Caffery, Jr. Director
/s/ Mary Coon Biggs	/s/ W. Ross Little, Jr.
Mary Coon Biggs Director	W. Ross Little, Jr. Director and Secretary
/s/ Henry L. Friedman	/s/ Thomas F. Kramer
Henry L. Friedman Director	Thomas F. Kramer Director
/s/ Robert L. Wolfe, Jr.	/s/ William A. Anderson, III
Robert L. Wolfe, Jr. Director	William A. Anderson, III Director
/s/ William T. Allen
William T. Allen
Director

EX-13

Teche Holding Company	Bayou Vista	Baton Rouge
1120 Jefferson Terrace Boulevard	206 Arlington Street	Wal-Mart Neighborhood Market
New Iberia, LA 70560-5780	Morgan City, LA  70380-5977	9830 Old Hammond Highway
PHONE (337) 560-7151	(985) 395-5244	Baton Rouge, LA  70816-8251
FAX (337) 359-1831		(225) 926-7378
	Lafayette
New Iberia	Broadmoor	Breaux Bridge
1120 Jefferson Terrace Boulevard	5121 Johnston Street	1410 Rees Street
New Iberia, LA  70560-5780	Lafayette, LA  70503-5157	Breaux Bridge, LA  70517-3801
(337) 365-0366	(337) 981-1887	(337) 332-2149
Call Center (800) 897-0315
	Lafayette	Houma
New Iberia	Downtown	706 Barrow Street
529 N. Lewis Street	1001 Johnston Street	Houma, LA  70360-4702
New Iberia, LA  70563-2015	Lafayette, LA  70501-7809	(985) 868-8766
(337) 367-2516	(337) 232-6463
		Houma
New Iberia	Lafayette	912 Grand Caillou Road
142 W. St. Peter Street	2200 W. Pinhook Road	Houma, LA  70363-5700
New Iberia, LA  70560-3743	Lafayette, LA  70508-3232	(985) 857-9990
(337) 364-5528	(337) 232-3419
		Thibodaux
Franklin	Lafayette	921 Canal Boulevard
211 Willow Street	Oil Center	Thibodaux, LA  70301-4505
Franklin, LA  70538-6154	124 Heymann Blvd.	(985) 446-6707
(337) 828-3212	Lafayette, LA  70503-
	(337) 262-8746	Opelousas
Franklin Drive-Thru		428 E. Landry Street
1823 Main Street	Baton Rouge	Opelousas, LA  70570-6126
Franklin, LA  70538-3130	3524 S. Sherwood Forest Boulevard	(337) 942-5748
(337) 828-4177	Baton Rouge, LA  70816-2232
	(225) 293-0954	Eunice
Morgan City		840 E. Laurel Avenue
1001 7th Street	Baton Rouge	Eunice, LA  70535-3608
Morgan City, LA  70380-1905	5063 Essen Lane	(337) 457-9585
(985) 384-0653	Baton Rouge, LA  70809
	(225) 218-6930
		www.teche.com

Table of Contents

President’s Message

Selected Financial Data

Business of the Bank - Business of the Company

Summary of Quarterly Operating Results

Market and Dividend Information

Management's Discussion and Analysis of Financial

Condition and Results of Operations

Management’s Report

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Directors and Officers

2

3

4

5

6

7

8

9

SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)

At or for the Year Ended September 30,

	2013			2012			2011			2010			2009
Assets	$	856,664		$	851,962		$	793,203		$	761,524		$	765,071
Loans Receivable, Net		676,535			665,842			600,271			586,635			588,527
Securities-Available for Sale		14,447			19,967			25,148			14,996			20,936
Securities-Held to Maturity		67,732			66,813			80,598			59,566			75,384
Cash and Cash Equivalents		34,332			37,300			29,155			40,655			23,675
Deposits		650,791			617,722			598,582			579,355			585,469
FHLB Advances		108,997			142,751			108,183			100,017			100,628
Stockholders’ Equity		89,061			83,541			79,987			75,513			71,485
SUMMARY OF OPERATIONS
Interest Income	$	37,428		$	39,134		$	39,358		$	41,336		$	44,237
Interest Expense		6,750			8,080			9,168			11,704			15,297
Net Interest Income		30,678			31,054			30,190			29,632			28,940
Provision for Loan Losses		400			1,910			3,900			3,896			3,026
Net Interest Income after
Provision for Loan Losses		30,278			29,144			26,290			25,736			25,914
Non-Interest Income		17,841			15,510			15,543			15,960			15,852
Non-Interest Expense		34,991			33,714			31,131			31,229			31,372
Income Before Income Taxes		13,128			10,940			10,702			10,467			10,394
Income Tax Expense		4,397			3,655			3,474			3,366			3,258
Net Income	$	8,731		$	7,285		$	7,228		$	7,101		$	7,136
Basic Income per Common Share	$	4.29		$	3.55		$	3.49		$	3.40		$	3.38
Diluted Income per Common Share	$	4.22		$	3.51		$	3.45		$	3.37		$	3.36
Ratio of Equity to Assets		10.40	%		9.81	%		10.08	%		9.92	%		9.34	%
Book Value/Common Share	$	43.47		$	41.09		$	38.79		$	36.19		$	34.09
Return on Average Assets		1.03	%		0.88	%		0.94	%		0.93	%		0.91	%
Return on Average Equity		9.96	%		8.80	%		9.12	%		9.43	%		9.98	%
Net Interest Margin		3.96	%		4.10	%		4.28	%		4.25	%		4.01	%
Non-Interest Expense/Average Assets		4.12	%		4.09	%		4.03	%		4.10	%		4.02	%
Non-Interest Income/Average Assets		2.10	%		1.88	%		2.01	%		2.11	%		2.08	%
Non-Performing Loans/Loans (1)		0.41	%		1.58	%		1.81	%		2.47	%		1.21	%
Allowance for Loan Losses/Total Loans		1.15	%		1.27	%		1.37	%		1.55	%		1.14	%
Dividend Payout Ratio		34.44	%		41.45	%		41.59	%		42.14	%		41.32	%

 (1)  Total loans net of allowance for loan losses

10

Business of the Bank

Teche Federal Bank (the "Bank") attracts savings deposits from the general public and uses such deposits to originate primarily residential mortgage loans, commercial mortgage loans and consumer loans.  Additionally, the Bank invests in mortgage-backed and investment securities. (See “Management Strategy” on page 10).

The Bank serves the local banking needs of its primary market area, which presently includes twenty offices in the Louisiana Parishes of St. Mary, Iberia, Lafayette, St. Landry, St. Martin, Terrebonne, Lafourche and East Baton Rouge.  The FDIC insures deposits at the Bank up to the maximum legal amount.

Business of the Company

Teche Holding Company (the "Company") is a Louisiana corporation organized in December 1994 at the direction of the Board of Directors of the Bank to acquire all of the capital stock that the Bank issued upon its conversion from the mutual to stock form of organization.

Summary of Quarterly Operating Results

	Fiscal Year 2013								Fiscal Year 2012
	First		Second		Third		Fourth		First		Second		Third		Fourth
	(Amounts in thousands, except per share data)
Interest Income	$	9,571	$	9,002	$	9,392	$	9,463	$	9,766	$	9,807	$	9,725	$	9,836
Interest Expense		1,832		1,697		1,630		1,591		2,080		2,111		1,993		1,895
Net Interest Income		7,739		7,305		7,762		7,872		7,686		7,696		7,732		7,941
Provision for Loan Losses		150		250		-		-		350		550		510		500
Income before		4,649		2,321		2,929		3,229		2,657		2,582		2,586		3,115
Income Taxes
Net Income		3,072		1,559		1,953		2,147		1,772		1,708		1,732		2,073
Basic Income		1.51		0.76		0.96		1.05		0.86		0.83		0.84		1.02
per Common Share
Diluted Income		1.49		0.75		0.95		1.03		0.85		0.82		0.83		1.01
per Common Share

11

Market and Dividend Information

 The Company's common stock trades on theNYSE MKT under the symbol "TSH.”  The following sets forth the high and low closing prices, period end closing price and cash dividends declared for the common stock for the last two fiscal years.

Quarter ended	Closing Price				Period		Cash Dividend
	High		Low		End Close		Declared		Date Declared
December 31, 2011	$	35.65	$	29.05	$	35.00	$	0.36	November 30, 2011
March 31, 2012	$	37.75	$	34.23	$	37.75	$	0.365	February 23, 2012
June 30, 2012	$	39.10	$	36.13	$	39.10	$	0.365	May 24, 2012
September 30, 2012	$	41.29	$	37.50	$	40.50	$	0.365	August 22, 2012
December 31, 2012	$	41.30	$	36.60	$	37.87	$	0.73	November 28, 2012
March 31, 2013	$	41.25	$	38.07	$	41.25	$	­$0.00	No Dividend
June 30, 2013	$	44.48	$	40.15	$	44.48	$	0.37	May 23, 2013
September 30, 2013	$	46.40	$	43.50	$	45.68	$	0.375	August 29, 2013

 According to the records of the Company's transfer agent, there were 402 stockholders of record at November 30, 2013.  This number does not include any persons or entities that hold their stock in nominee or "street" name through various brokerage firms.

 As a bank holding company, the Company is subject to regulatory limitations on its ability to pay dividends.  Under guidelines of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Company is expected to serve as a “source of strength” for the Bank.  Consistent with this policy, the Federal Reserve Board has stated that a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fund such dividends, and the prospective rate of earnings retention is consistent with the bank holding company’s capital needs, asset quality and overall financial condition.  In addition the Company's ability to pay dividends is substantially dependent upon the dividends it receives from the Bank.  Under current regulations, the Bank is not permitted to pay dividends if its regulatory capital would thereby be reduced below (1) the amount then required for the liquidation account established in connection with the Bank's conversion from mutual to stock form, or (2) the regulatory capital requirements imposed by the Office of Financial Institutions (“OFI”) and Federal Deposit Insurance Corporation (“FDIC”).  Capital distributions are also subject to certain limitations based on the Bank's net income.  See Note 17 of Notes to Consolidated Financial Statements.  The Bank's total capital at September 30, 2013 exceeded the amount required for its liquidation account and exceeded all regulatory capital requirements.

12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

 The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements.  When used in this discussion, the words “believe”, “anticipates”, “contemplates”, “expects”, and similar expressions are intended to identify forward-looking statements.  Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.   Those risks and uncertainties include changes in interest rates, risk associated with the effect of opening new branches, the ability to control costs and expenses, and general economic conditions.  The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.

 The Company's consolidated results of operations are primarily dependent on the Bank's net interest income, or the difference between the interest income earned on its loan, mortgage-backed securities and investment securities portfolios, and the interest expense paid on its savings deposits and other borrowings.  Net interest income is affected not only by the difference between the yields earned on interest-earning assets and the costs incurred on interest-bearing liabilities, but also by the relative amounts of such interest-earning assets and interest-bearing liabilities.

 Other components of net income include: provisions for losses on loans and other assets, non-interest income (primarily, service charges on deposit accounts and other fees), and non-interest expenses (primarily, compensation and employee benefits, office occupancy expense, marketing expense and expenses associated with foreclosed real estate) and income taxes.

 Earnings of the Company also are significantly affected by economic and competitive conditions, particularly changes in interest rates, government policies and regulations of regulatory authorities.

 References to the "Company" herein, unless the context requires otherwise, refer to the Company and the Bank on a consolidated basis.

Overview

 The Company’s net income increased to $8.7 million for fiscal 2013 as compared to $7.3 million for fiscal 2012 and $7.2 million for fiscal 2011.  The increase was due primarily to a gain, net of taxes, of $1.3 million from the sale of $46.3 million in mortgage loans in the first fiscal quarter of 2013 along with a continued decline in loan loss provision which was offset by an increase in compensation and employee benefits.  Net income for fiscal 2012 compared to fiscal 2011 was higher due to an increase in net interest income of $864,000 along with a decrease in the loan loss provision of $2.0 million offset somewhat by $2.6 million increase in non-interest expense.  The Company’s total assets increased $4.7 million to $856.7 million at September 30, 2013 as compared to September 30, 2012 due to increases in commercial and consumer loans offset somewhat by decreases in mortgage loans, cash balances and security balances.

Management Strategy

 Management's strategy has been to maximize earnings and profitability through steady growth while maintaining asset quality.  The Bank's lending strategy has historically focused on the origination of traditional one- to four-family mortgage loans with the primary emphasis on single-family residences in the Bank's primary market area. Additionally, management emphasizes a “SmartGrowth” strategy that focuses on the origination of consumer loans (primarily home equity and mobile home loans), SmartMortgage loans, commercial loans and commercial real estate loans for retention in the Company’s loan portfolio.  Smart mortgage loans are residential real estate loans that are underwritten to established Bank criteria, but may or may not conform to secondary market requirements. Smart mortgage loans comprised $113.6 million, or 16.6%, of the total loan portfolio. Consumer loans, commercial loans and commercial real estate loans generally have shorter terms to maturity and higher yields than residential real estate loans.  While SmartMortgage loans, consumer loans, commercial loans, and commercial real estate loans have greater credit risk than conforming residential real estate loans, the Company believes its SmartGrowth strategy will have a favorable impact on the Company’s net interest margin, as well as assist in interest rate risk management.  SmartGrowth also emphasizes growth in core deposits (primarily transaction accounts), which include demand deposits, NOW accounts, money market deposit accounts and savings accounts.

13

Asset and Liability Management

 Interest Rate Sensitivity Analysis. Net interest income, the primary component of the Bank's net income, is derived from the difference between the interest income on interest-earning assets and the interest expense of interest-bearing liabilities.  The Bank has sought to manage its exposure to changes in interest rates by monitoring the effective maturities or re-pricing characteristics of its interest-earning assets and interest-bearing liabilities.  The matching of the Bank's assets and liabilities may be analyzed by examining the extent to which its assets and liabilities are interest rate sensitive and by monitoring the expected effects of interest rate changes on its net interest income and economic value of equity.

 The ability to maximize net interest income is largely dependent upon achieving a positive interest rate spread that can be sustained during fluctuations in prevailing interest rates.  The Bank is exposed to interest rate risk as a result of the difference in the maturity of interest-bearing liabilities and interest-earning assets and the volatility of interest rates.  Because most deposit accounts react more quickly to market interest rate movements than do traditional mortgage loans due to their shorter terms to maturity, increases in interest rates may have an adverse effect on the Bank's earnings.  Conversely, this same mismatch will generally benefit the Bank's earnings during periods of declining or stable interest rates.

 The Bank attempts to manage its interest rate exposure by shortening the maturities of its interest-earning assets by emphasizing adjustable rate mortgages ("ARMs"), periodically selling loans from the portfolio of long term fixed rate mortgages, originating shorter term loans such as residential construction, consumer, home equity and commercial loans and the investment of excess liquidity in purchased loans, adjustable rate mortgage-backed securities and other securities with relatively short terms to maturity.  Furthermore, the Bank works to manage the interest rates it pays on deposits while maintaining a stable deposit base and providing quality services to its customers.  In recent years, the Bank has used borrowings while continuing to rely primarily upon deposits as its source of funds.  At September 30, 2013, the weighted average term to re-pricing of the Bank’s ARM loan and ARM mortgage-backed securities portfolio was approximately 30 months. In contrast, at September 30, 2013, $78.6 million of the Bank's certificate of deposit accounts and $398.2 million of the Bank's regular deposit accounts (e.g. demand, NOW, money market, savings), out of $650.8 million of total deposits, were scheduled to mature or re-price within one year or sooner.

 Management believes that it has adequate capital to accept a certain degree of interest rate risk.  At September 30, 2013 the Bank was slightly liability sensitive which indicates that an increase in market interest rates would not have a material impact on earnings and market value.

 Rate/Volume Analysis. The table below sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in average volume multiplied by old rate); (ii) changes in rates (changes in rate multiplied by old average volume); and (iii) the net change.  The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	September 30,									September 30,
	2013 vs. 2012									2012 vs. 2011
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
Interest-Earning Assets:
Securities (1)	$	(534	)	$	(134	)	$	(668	)	$	136		$	(334	)	$	(198	)
Loans Receivable, Net		969			(1,904	)		(935	)		3,285			(3,295	)		(10	)
Other Interest-Earning Assets (2)		164			(267	)		(103	)		(44	)		28			(16	)
Total Interest-Earning Assets		599			(2,305	)		(1,706	)		3,377			(3,601	)		(224	)
Interest-Bearing Liabilities
Deposits		106			(1,335	)		(1,229	)		18			(1,207	)		(1,189	)
FHLB Advances		(451	)		350			(101	)		1,223			(1,122	)		101
Total Interest-Bearing Liabilities		(345	)		(985	)		(1,330	)		1,241			(2,329	)		(1,088	)
Net Change in Net Interest Income	$	944		$	(1,320	)	$	(376	)	$	2,136			(1,272	)	$	864

(1)       Includes investment securities and FHLB stock.

(2)       Includes certificates of deposit and other interest-bearing accounts.

14

 Average Balance Sheet. The following table sets forth certain information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated.  Such yields and costs are derived by dividing income or expenses by the average balance of assets or liabilities, respectively, for the periods presented.  Average balances are derived from daily average balances.

	Year Ended September 30,
	2013						2012						2011
	Average				Average		Average				Average		Average				Average
	Balance		Interest		Yield/Cost		Balance		Interest		Yield/Cost		Balance		Interest		Yield/Cost
							(Dollars in Thousands)
Assets
Interest-Earning Assets
Securities (1)	$	40,898	$	1,204	2.94	%	$	57,237	$	1,872	3.27	%	$	53,698	$	2,070	3.85	%
Loans Receivable (2) (3)		660,218		35,734	5.41	%		643,224		36,669	5.70	%		590,354		36,679	6.21	%
Other Interest-Earning Assets (4)		72,823		490	0.67	%		57,027		593	1.04	%		61,429		609	0.99	%
Total Interest-Earning Assets		773,939	$	37,428	4.84	%		757,488	$	39,134	5.17	%		705,481	$	39,358	5.58	%
Non-Interest Earning Assets		74,892						67,548						66,507
Total Assets	$	848,831					$	825,036					$	771,988
Liabilities and Stockholders’  Equity
Interest-Bearing Liabilities
NOW Accounts	$	139,930	$	237	0.17	%	$	119,611	$	238	0.20	%	$	109,177	$	199	0.18	%
Statement & Regular Savings Accounts		206,972		412	0.20	%		192,985		627	0.32	%		181,509		832	0.46	%
Money Funds Accounts		52,152		54	0.10	%		53,872		123	0.23	%		56,376		163	0.29	%
Certificates of Deposit		141,677		2,169	1.53	%		153,694		3,113	2.02	%		170,876		4,096	2.40	%
Total Deposits		540,731		2,872	0.53	%		520,162		4,101	0.67	%		517,938		5,290	1.02	%
FHLB Advances		114,077		3,878	3.40	%		127,433		3,979	3.13	%		88,337		3,878	4.39	%
Total Interest-Bearing Liabilities		654,808	$	6,750	1.03	%		647,595	$	8,080	1.25	%		606,275	$	9,168	1.51	%
Non-Interest-Bearing Liabilities		106,403						94,630						86,484
Total Liabilities		761,211						742,225						692,759
Stockholders’ Equity		87,620						82,811						79,229
Total Liabilities and Stockholders’ Equity	$	848,831					$	825,036					$	771,988
Net Interest Income/Interest Rate Spread (5)			$	30,678	3.81	%			$	31,054	3.92	%			$	30,190	4.07	%
Net Interest Margin (6)					3.96	%					4.10	%					4.28	%
Interest-Earning Assets/
Interest-Bearing Liabilities					118.19	%					116.97	%					116.36	%

(1)  Includes securities and Federal Home Loan Bank (FHLB) stock.

(2)  Amount is net of deferred loan fees, loan discounts and premiums and loans-in-process and includes non-accruing loans.

(3)  Interest income includes loan fees of approximately $715,000 in 2013, $596,000 in 2012 and $611,000 in 2011.

(4)  Amount includes certificates of deposit and other interest-bearing deposits.

(5)  Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(6)  Net interest margin represents net interest income divided by average interest-earning assets.

15

Changes in Financial Condition from September 30, 2012 to September 30, 2013

 General.  Total assets increased $4.7 million or 0.6% to $856.7 million at September 30, 2013 from $852.0 million at September 30, 2012, due primarily to increases in commercial and consumer loans offset somewhat by decreases in mortgage loans, cash balances and security balances.

 Cash and Cash Equivalents.  Cash and cash equivalents decreased $3.0 million from $37.3 million at September 30, 2012 to $34.3 million at September 30, 2013.  The decrease resulted primarily from a decrease in overnight cash.

 Securities Available-for-Sale and Held-to-Maturity.  Securities available-for-sale decreased $5.6 million from $20.0 million at September 30, 2012 to $14.4 million at September 30, 2013 due primarily to repayments on existing securities.  Securities held-to-maturity increased $0.9 million from $66.8 million to $67.7 million due primarily to purchases of certificates of deposits at other institutions offset somewhat by repayments on existing securities. For additional information regarding the Company’s securities portfolio see Note 3 of the Notes to Consolidated Financial Statements.

 Loans Receivable, Net.   The Bank’s net loans receivable increased $10.7 million or 1.6% to $676.5 million from $665.8 million at September 30, 2012 due primarily to increases in commercial and consumer loans offset somewhat by decreases in mortgage loans. The sale of one-to-four family mortgage loans allowed the Bank to increase originations of commercial, consumer, and new one-to-four family mortgage loans. (See Note 4 of the Notes to Consolidated Financial Statements for a comparative breakdown of the Bank’s loan portfolio.)

 Premises and Equipment, Net.    Premises and equipment increased $3.0 million or 10.3% during the year ended September 30, 2013 due to additional investments in branch premises.  The Bank opened a new branch in the Baton Rouge market area and the Lafayette market area.

 Deposits.  The Bank’s deposits increased $33.1 million or 5.4% to $650.8 million at September 30, 2013, from $617.7 million at September 30, 2012.  SmartGrowth deposits which consist of non-interest bearing checking, interest-bearing checking, savings accounts, and money market accounts increased $24.9 million during the fiscal year from $474.2 million to $499.1 million.  Time deposits increased $8.2 million from $143.5 million to $151.7 million.  See Note 7 of the Notes to Consolidated Financial Statements for a comparative breakdown of the Bank’s deposit portfolio.

 Advances from FHLB.  Advances from the Federal Home Loan Bank of Dallas decreased $33.8 million, or 23.7%, to $109.0 million from $142.8 million at September 30, 2012.  The decrease was due to normal principal payments on existing advances and $48.6 million in maturities offset by a new overnight advance of $19.4 million.

 Stockholders’ Equity.  Stockholders’ equity increased $5.6 million, or 6.7% from $83.5 million at September 30, 2012, to $89.1 million at September 30, 2013.  The increase was primarily due to net income and stock option exercises less $3.0 million in cash dividends and $2.6 million used to purchase treasury stock.

Comparison of Operating Results for the Years Ended September 30, 2013, 2012 and 2011

Analysis of Net Income

 General.  The Company had net income of $8.7 million, $7.3 million and $7.2 million for the fiscal years ended September 30, 2013, 2012 and 2011, respectively. The $1.4 million increase during fiscal year 2013 was due primarily to $1.3 million net-tax gain on the sale of $46.3 million in mortgage loans during the first fiscal quarter of 2013, along with a decrease in the loan loss provision of $1.5 million offset somewhat by increases in non-interest expenses and decreases in net interest income.  Fiscal 2012 net income remained relatively the same as fiscal 2011.

 Operating Revenue.  Operating revenue consisting of net interest income before provision for loan losses, plus non-interest income, amounted to $48.5 million, $46.5 million and $45.7 million for the fiscal years ended September 30, 2013, 2012 and 2011, respectively.  The $2.0 million increase during fiscal 2013 was primarily due to increased gain on sale of loans.   The $0.8 million increase during fiscal 2012 was primarily due to a reduction in interest expense offset by a decrease in interest income and lower deposit fees.

 Interest Income.  Interest income amounted to $37.4 million, $39.1 million and $39.4 million for the fiscal years ended September 30, 2013, 2012 and 2011, respectively. The $1.7 million decrease during fiscal 2013 was primarily due to lower rates on earning assets as well as a decrease in the average balance of the securities portfolio during the fiscal year offset by an increased volume of loans.  The $0.3 million decrease during fiscal 2012 was primarily due to lower rates on earning assets offset by an increased volume of earning assets.

16

 The average balance of loans increased during fiscal 2013 by $17.0 million, or 2.6% while increasing in fiscal 2012 by $52.9 million, or 9.0%.  With sustained low interest rates, the Bank retained more one-four family residential loan production in the loan portfolio during the year ended September 30, 2012 to increase earning assets. In the first quarter of fiscal 2013, the Bank sold approximately $46 million of its one-four family loan portfolio and recognized a $2 million gain ($1.3 million net of taxes).

 Interest Expense.  Interest expense totaled $6.8 million, $8.1 million and $9.2 million for the fiscal years ended September 30, 2013, 2012 and 2011, respectively. The $1.3 million decrease from fiscal 2012 to fiscal 2013 was primarily due to lower rates on interest bearing liabilities, primarily deposits, offset by an increased volume of loans.  The $1.1 million decrease from fiscal 2011 to fiscal 2012 was primarily due to lower rates on interest bearing liabilities offset by an increased volume of interest bearing liabilities.

 Net Interest Income.  Net interest income decreased $0.4 million to $30.7 million during the year ended September 30, 2013 as compared to the prior fiscal year primarily due to a decrease in interest income on loans offset by a decrease in interest expense on deposits and FHLB advances.   Net interest income increased $0.9 million to $31.1 million during the year ended September 30, 2012 as compared to the fiscal year ended September 30, 2011 primarily due to lower rates on deposits and a higher volume of loans offset by lower rates on earning assets.

 Provision for Loan Losses. The Bank provided $0.4 million, $1.9 million and $3.9 million to the allowance for loan losses for the years ended September 30, 2013, 2012 and 2011 respectively.  The provision expense decrease of $1.5 million to $0.4 million during the year ended September 2013 as compared to $1.9 million for the fiscal year ended September 30, 2012 was primarily due to a decrease in non-performing loans as well as net charge-offs and improved credit metrics.  The provision expense decrease of $2.0 million to $1.9 million during the year ended September 2012 as compared to $3.9 million for the fiscal year ended September 30, 2011 was primarily due to lower non-performing loans along with improved net charge-offs and credit metrics.

 Management regularly estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb probable losses inherent in the existing portfolio.  Based on these estimates, an amount is charged or credited to the provision for loan losses and credited or charged to the allowance for loan losses in order to adjust the allowance to a level determined to adequately absorb probable inherent losses.

 While the Bank maintains its allowance for losses at a level that it considers to be adequate to provide for existing losses, there can be no assurance that further additions will not be made to the loss allowances and that such losses will not exceed the estimated amounts.  See Note 4 of the Notes to the Consolidated Financial Statements.

 Non-Interest Income.  Non-interest income during the years ended September 30, 2013, 2012 and 2011 amounted to $17.8 million, $15.5 million and $15.5 million, respectively.  Non-interest income in fiscal 2013 increased from fiscal 2012 due to the gain on sale of mortgage loans.  Non-interest income in fiscal 2012 decreased slightly from fiscal 2011 due to lower deposit fee income.      Non-interest income in the fiscal years ended September 30, 2013, 2012, and 2011 included gains on the sale of securities in the amount of $42,000, $167,000 and $96,000, respectively. The $42,000 recorded in fiscal 2013 resulted from the sale of equity securities. The $167,000 recorded in fiscal 2012 also resulted from gains from the sale of equity securities. See Note 3 of the Notes to Consolidated Financial Statements.

 Non-Interest Expense.  Non-interest expense totaled $35.0 million, $33.7 million and $31.1 million for the years ended September 30, 2013, 2012 and 2011, respectively.  The increase in fiscal year 2013 was primarily due to an increase in compensation cost. Compensation cost in fiscal year 2013 increased from $18.4 million to $19.8 million, mainly due to additional employees and increased incentive payments on both loan originations and deposit growth, along with increases in occupancy expense related to two new branches opened in fiscal 2013.

 The Bank is subject to the Louisiana Shares Tax, which amounted to an expense of $406,000, $568,000 and $577,000 in the fiscal years ended September 30, 2013, 2012 and 2011, respectively.

 Income Tax Expense.  For the years ended September 30, 2013, 2012 and 2011, the Company incurred income tax expense of $4.4 million, $3.7 million and $3.5 million, respectively.  There was a slight increase in 2013 and 2012 as compared to the previous fiscal year primarily due to an increase in taxable income at the maximum corporate rate of 35%.  The Company’s effective income tax rates have remained relatively constant at 33.49%, 33.41%, and 32.46% for the years ended September 30, 2013, 2012, and 2011, respectively. See Note 10 of the Notes to Consolidated Financial Statements for further explanation.

17

Liquidity and Capital Resources

 The Bank's average liquidity ratio is based on deposits and was approximately 12% during September 2013.  The liquidity ratio is calculated by dividing cash and cash equivalents plus securities less securities pledged by total assets.  The Bank manages its average liquidity ratio to meet its funding needs, including:  deposit outflows; disbursement of payments collected from borrowers for taxes and insurance; repayment of Federal Home Loan Bank advances and other borrowings; and loan principal disbursements.  The Bank also monitors its liquidity position in accordance with its asset/liability management objectives.

 In addition to funds provided from operations, the Bank's primary sources of funds are:  savings deposits, principal repayments on loans and mortgage-backed securities, and matured or called investment securities.  The Bank also borrows funds from the Federal Home Loan Bank of Dallas (the “FHLB”).

 Scheduled loan repayments and maturing investment securities are a relatively predictable source of funds.  However, savings deposit flows and prepayments on loans and mortgage-backed securities are significantly influenced by changes in market interest rates, economic conditions and competition.  The Bank strives to manage the pricing of its deposits to maintain a balanced stream of cash flows commensurate with its loan commitments and other predictable funding needs.

 The Bank usually maintains a portion of its cash on hand in interest-bearing demand deposits with the FHLB and other correspondent banks to meet immediate loan commitment and savings withdrawal funding requirements.  When applicable, cash in excess of immediate funding needs is invested into longer-term investment and mortgage-backed securities, some of which may also qualify as liquid investments under current OFI and FDIC regulations.

 Funds available under existing credit facilities from the FHLB totaled $184 million.  The Bank had total FHLB borrowings of $109 million, or 12.7% of the Bank’s assets at September 30, 2013.  Approximately $29.2 million is due in the year ending September 30, 2014. In the first fiscal quarter of 2013, the Bank increased its liquidity position with the sale of $46 million of performing mortgage loans. The management of interest rate risk and other factors, aside from liquidity contributions, motivated the transaction.

 Management believes the Bank has sufficient resources available to meet its foreseeable funding requirements.  At September 30, 2013, the Bank had outstanding loan commitments of $81.2 million, and certificates of deposit scheduled to mature within one year of $78.6 million, much of which management expects, based on past experience, will remain with the Bank upon maturity.

 Regulations of the OFI and FDIC require the Bank to meet or exceed three separate standards of capital adequacy.  To be considered well capitalized, these regulations require financial institutions to have Tier 1 capital equal to at least 5% of total average assets; Tier 1 capital equal to 6% of risk-weighted assets; and total risk-based capital equal to 10% of total risk-weighted assets.  The Company is also subject to minimum capital requirements prescribed by the Federal Reserve Board.  At September 30, 2013, the Company and the Bank exceeded all regulatory capital requirements.  See Note 17 of the Notes to Consolidated Financial Statements.

Economic Value of Equity Analysis - Interest Rate Risk

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

 The Bank believes it is critical to manage the relationship between interest rates and the effect on its economic value of equity (“EVE”). EVE is defined as the present value of expected cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the present value of net expected cash inflows from existing off-balance sheet contracts. The Bank manages assets and liabilities within the context of the marketplace, regulatory limitations and within its limits on the amount of change in EVE which is acceptable given certain interest rate changes.

 The Bank uses a third party model that provides an interest rate sensitivity report of EVE.  The third party simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of EVE. The Bank’s third party model estimates the economic value of each type of asset, liability, and off-balance sheet contract under the assumption that the Treasury yield curve shifts are instantaneous and parallel up and down 100 to 300 basis points in 100 basis point increments.

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

18

 In the Bank’s third party model, the value of deposit accounts appears on the liability side of the EVE analysis. In estimating the value of certificates of deposit accounts (“CD”), the liability portion of the CD is represented by the implied value when comparing the difference between the CD face rate and available wholesale CD rates.

 Other deposit accounts such as NOW accounts, money market demand accounts, passbook accounts, and non-interest-bearing accounts also are included on the asset and liability side of the EVE calculation in the third party model. These accounts are valued based on current pricing compared to current market rates by product on the liability side.

 The EVE sensitivity of borrowed funds is estimated by the Bank’s internal model based on a discounted cash flow approach.

 The Bank uses, as a critical point, a change of plus or minus 200 basis points in order to set its “normal” institutional results and peer comparisons. The Bank calculates the interest rate risk quarterly. The following table lists the Bank’s latest percentage change in EVE assuming an immediate change of plus 100, 200, and 300 basis points or minus 100 basis points from the level of interest rates at September 30, 2013.

			Economic Value of Equity					EVE as % of PV of Assets
Change in Rates(1)			$ Amount		$ Change(2)	% Change(3)		EVE   Ratio(4)		Change(5)
			(Dollars in Thousands)
	+300	bp	$	178,172	$(18,513)	-9.4	%	22.60	%	-29	bp
	+200	bp		185,952	(10,733)	-5.5	%	22.93	%	4	bp
	+100	bp		191,419	(5,266)	-2.7	%	22.91	%	2	bp
	0	bp		196,685				22.89	%		bp
	-100	bp		191,064	(5,621)	-2.9	%	21.54	%	-135	bp

(1) The -200bp and -300bp scenarios are not shown due to low interest rate environment.

(2) Represents the excess (deficiency) of the estimated EVE assuming the indicated change in interest rates minus the estimated EVE assuming no change in interest rates.

(3) Calculated as the amount of change in the estimated EVE divided by the estimated EVE assuming no change in interest rates.

(4) Calculated as the estimated EVE divided by average total assets.

(5) Calculated as the excess (deficiency) of the EVE ratio assuming the indicated change in interest rates over the estimated EVE ratio assuming no change in interest rates.

	September 30, 2013		September 30, 2012
*** RISK MEASURES: +200 BP RATE SHOCK ***
Pre-Shock EVE Ratio: EVE as % of PV of Assets	22.89	%	11.04	%
Exposure Measure: Post-Shock EVE Ratio	22.93	%	14.83	%
Sensitivity Measure: Increase in EVE Ratio	4	bp	379	bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in EVE as % of PV of Assets	-1.25	%	3.09	%

 As the table shows, increases in interest rates would result in net decreases in the Bank’s EVE. The Bank’s EVE decreases by 5.46% if interest rates increase by 200 basis points. Certain shortcomings are inherent in the methodology used in the above table. Modeling changes in EVE requires the making of certain assumptions that may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. First, the models assume that the composition of the Bank’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured. Second, the models assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or re-pricing of specific assets and liabilities. Accordingly, although the EVE measurements do provide an indication of the Bank’s interest rate risk exposure at a particular point in time, such measurements are not intended to provide a precise forecast of the effect of changes in market interest rates on the Bank’s net interest income.

 In times of increasing interest rates, the value of fixed-rate assets could decrease in value and the lag in re-pricing of interest rate sensitive assets could be expected to have a negative effect on the Bank.

19

Contractual Obligations

 The Company has various contractual obligations related to borrowings, deposits and operating lease payments.  These obligations are outlined in Notes 6, 7 and 8 of the Notes to Consolidated Financial Statements of the Company.

Critical Accounting Policies

 Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.  The Company’s most critical accounting policies are as follows:

 Allowance for Loan Losses - The allowance for loan losses is a valuation allowance available for losses incurred on loans.  Any losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is probable to occur.  Recoveries are credited to the allowance at the time of recovery.

 Management estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb losses inherent in the existing portfolio.  Based on the estimates, an amount is charged to or recovered from the provision for loan losses and credited or debited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb such losses.

 Management’s judgment as to the level of losses on existing loans involves the consideration of current and anticipated economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio, and the present level of the allowance; results of examination of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio.  In determining the collectability of certain loans, management also considers the fair value of any underlying collateral.

 It should be understood that estimates of loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses, which are substantial relative to the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated balance sheets is adequate to absorb probable losses inherent in the existing loan portfolio.

Goodwill – Goodwill does not require amortization but is subject to at least an annual assessment for impairment unless interim events or circumstances make it more likely than not that an impairment loss has occurred.  Impairment is defined as that amount by which the implied fair value of the goodwill is less than the goodwill’s carrying value.  Impairment losses would be charged to operating expense.  Goodwill is not deductible for income tax purposes.  The Company’s market value based upon the last trade on the last working day of the fiscal quarter was $45.68 or $2.21 above book value.   For the fiscal year ended September 30, 2013, the Company recorded record earnings of $8.7 million.  Management reviews various bank peer data to aid in management’s analysis of goodwill for possible impairment.  Management’s judgment is that goodwill is not impaired and no adjustment is necessary.

Impact of Off-Balance Sheet Instruments

 The Company has certain off-balance-sheet instruments in the form of contractual commitments to extend credit to customers.  These legally binding commitments have set expiration dates and are at predetermined interest rates.  The underwriting criteria for these commitments are the same as for loans in our loan portfolio.  Collateral is also obtained, if necessary, based on the credit evaluation of each borrower.  Although many of the commitments will expire unused, management believes that we have the necessary resources to fund these commitments.  See Note 15 of the Notes to Consolidated Financial Statements.

20

MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

 Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inthe 1992 version ofInternal Control- Integrated Framework,management concluded that our internal control over financial reporting was effective as of September 30, 2013.

 This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Patrick Little President and Chief Executive Officer	J. L. Chauvin Senior Vice President and Chief Financial Officer

21

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Teche Holding Company

New Iberia, Louisiana

We have audited the accompanying consolidated balance sheets of Teche Holding Company and subsidiary (hereinafter referred to as the “Company”) as of September 30, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended September 30, 2013.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Teche Holding Company and subsidiary as of September 30, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2013, in conformity with accounting principles generally accepted in the United States of America.

Atlanta, Georgia

December 20, 2013

22

 TECHE HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

September 30, 2013 and 2012

	2013		2012
	(Amounts in thousands,
	except share and per share data)
ASSETS
Cash and due from banks	$	18,293	$	15,661
Interest-bearing deposits		16,039		21,639
Securities available-for-sale-at estimated fair value
(amortized cost of $13,569 in 2013 and $18,584 in 2012)		14,447		19,967
Securities held-to-maturity – at amortized cost (estimated fair
value of $68,498 in 2013 and $68,390 in 2012)		67,732		66,813
Loans receivable – net of allowance for loans losses of
$7,868 in 2013 and $8,559 in 2012		676,535		665,842
Accrued interest receivable		2,091		2,514
Investment in Federal Home Loan Bank stock, at cost		5,068		6,809
Real estate owned, net		741		513
Prepaid expenses and other assets		4,394		4,540
Goodwill		3,647		3,647
Life insurance contracts		15,125		14,513
Premises and equipment, net		32,552		29,504
TOTAL ASSETS	$	856,664	$	851,962

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	650,791		$	617,722
Advances from Federal Home Loan Bank		108,997			142,751
Advance payments by borrowers for taxes and insurance		3,484			3,272
Accrued interest payable		353			370
Accounts payable and other liabilities		3,978			4,306
TOTAL LIABILITIES		767,603			768,421
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued		-			-
Common stock , $.01 par value, 10,000,000 shares authorized;
4,813,831 and 4,734,035 shares issued, 2,048,888 and 2,033,336 outstanding		47			47
Additional paid-in capital		57,593			54,878
Retained earnings		88,228			82,505
Treasury stock 2,764,943 and 2,700,699 shares – at cost		(57,377	)		(54,786	)
Accumulated other comprehensive income on available for sale
securities		570			897
TOTAL STOCKHOLDERS’ EQUITY		89,061			83,541
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	856,664		$	851,962

23

TECHE HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Years Ended September 30, 2013, 2012 and 2011

		2013		2012			2011
		(Amounts in thousands, except per share amounts)
INTEREST INCOME:
Interest and fees on loans		$	35,734	$	36,669		$	36,679
Interest and dividends on securities			1,204		1,872			2,070
Other interest income			490		593			609
	TOTAL INTEREST INCOME		37,428		39,134			39,358
INTEREST EXPENSE:
Deposits			2,872		4,101			5,290
Advances from Federal Home Loan Bank			3,878		3,979			3,878
	TOTAL INTEREST EXPENSE		6,750		8,080			9,168
	NET INTEREST INCOME		30,678		31,054			30,190
PROVISION FOR LOAN LOSSES			400		1,910			3,900
	NET INTEREST INCOME AFTER
	PROVISION FOR LOAN LOSSES		30,278		29,144			26,290
NON-INTEREST INCOME:
Total other-than temporary impairment losses			-		(35	)		(532	)
Portion of impairment losses recognized in other
comprehensive loss			-		(93	)		246
Net impairment losses recognized in earnings			-		(128	)		(286	)
Service charges and other			14,718		14,341			14,779
Gain on sale of premises and equipment			-		205			103
Gain on sale of securities			42		167			96
Gain on sale of loans			2,267		95			25
Other income			814		830			826
	TOTAL NON-INTEREST INCOME		17,841		15,510			15,543
NON-INTEREST EXPENSE:
Compensation and employee benefits			19,768		18,425			16,717
Occupancy, equipment and data processing expense			6,919		6,500			6,120
Marketing and professional fees			3,389		3,123			2,776
Deposit insurance premiums			480		550			725
Louisiana shares tax			406		568			577
Other operating expenses			4,029		4,548			4,216
	TOTAL NON-INTEREST EXPENSE		34,991		33,714			31,131
	INCOME BEFORE INCOME TAXES		13,128		10,940			10,702
INCOME TAXES			4,397		3,655			3,474
	NET INCOME	$	8,731	$	7,285		$	7,228
BASIC INCOME PER COMMON SHARE		$	4.29	$	3.55		$	3.49
DILUTED INCOME PER COMMON SHARE		$	4.22	$	3.51		$	3.45
DIVIDENDS PER SHARE		$	1.48	$	1.46		$	1.44

24

TECHE HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended September 30, 2013, 2012 and 2011

	2013		2012			2011
Net income	$	8,731	$	7,285		$	7,228
Gross change in unrealized loss on securities     held-to-maturity with OTTI, net of tax of  $0, $12, and  $182, respectively		-		(23	)		(352)	)
Less reclassification for OTTI losses on held-     to-maturity included in net income, net of tax of $0, $12 and $97, respectively		-		23			189
Previously recorded non-credit OTTI loss reclassed and     recognized as a loss in the statement of income, net of tax of $0, $33 and $0, respectively		-		60			-
Reduction in previously recorded non-credit OTTI for    Securities sold or fully settled net of tax of $0, $157 and $0, respectively		-		293			-
Gross change in unrealized gain (loss) on securities     available-for-sale, net of tax of  $163, $92, and $355, respectively		(300)		165			688
Less reclassification for gain on sale of available-     for-sale securities included in net income, net of tax of $15, $58, and $33, respectively		(27)		(109	)		(644	)
Other comprehensive income (loss)		(327)		409			461
Comprehensive income	$	8,404	$	7,694		$	7,689

25

TECHE HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended September 30, 2013 2012 and 2011

			Additional												Accumulated other
	Common		Paid-in			Retained			Unearned			Treasury				Comprehensive
	stock		Capital			earnings			compensation			stock				Income (loss)			Total
						(Dollars in thousands, except per share amounts)
BALANCE -  September 30, 2010	$	47	$	52,685		$	73,942		$	(326	)	$	(50,862	)		$	27		$	75,513
Unearned ESOP compensation		-		48			-			261			-				-			309
Exercise of stock options,
including tax benefit		-		138			-			-			-				-			138
Tax effect of restricted stock vesting		-		(30	)		-			-			-				-			(30	)
Stock based compensation		-		531			-			-			-				-			531
Purchase of common stock for treasury		-		-			-			-			(1,196	)			-			(1,196	)
Dividends declared - $1.44 per share		-		-			(2,967	)		-			-				-			(2,967	)
Net income		-		-			7,228			-			-				-			7,228
Other comprehensive income,
Net																	461			461
BALANCE – September 30, 2011	$	47	$	53,372		$	78,203		$	(65	)	$	(52,058	)		$	488		$	79,987
Unearned ESOP compensation		-		9			-			65			-				-			74
Exercise of stock options,
including tax benefit		-		1,023			-			-			-				-			1,023
Tax effect of restricted stock vesting		-		(29	)		-			-			-				-			(29	)
Stock based compensation		-		503			-			-			-				-			503
Purchase of common stock for treasury		-		-			-			-			(2,728	)			-			(2,728	)
Dividends declared - $1.46 per share		-		-			(2,983	)		-			-				-			(2,983	)
Net income		-		-			7,285			-			-				-			7,285
Other comprehensive income,
Net																	409			409
BALANCE – September 30, 2012	$	47	$	54,878		$	82,505		$	-		$	(54,786	)		$	897		$	83,541
Exercise of stock options,
including tax benefit		-		2,366			-			-			-				-			2,366
Tax effect of restricted stock vesting		-		(95	)		-			-			-				-			(95	)
Stock based compensation		-		444			-			-			-				-			444
Purchase of common stock for treasury		-		-			-			-			(2,591	)			-			(2,591	)
Dividends declared - $1.48 per share		-		-			(3,008	)		-			-				-			(3,008	)
Net income		-		-			8,731			-			-				-			8,731
Other comprehensive income,
Net																	(327	)		(327	)
BALANCE – September 30, 2013	$	47	$	57,593		$	88,228		$	-		$	(57,377	)		$	570		$	89,061

26

TECHE HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended September 30, 2013, 2012 and 2011

	2013			2012			2011
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,731		$	7,285		$	7,228
Adjustments to reconcile net income
to net cash provided by operating activities:
(Accretion of discount) amortization of premium
on investments and mortgage-backed securities		27			(167	)		(317	)
Provision for loan losses		400			1,910			3,900
Provision for loss on real estate owned		75			443			25
Stock-based compensation		444			503			531
Deferred income tax expense (benefit)		230			(268	)		388
Gain on sale of loans		(2,267	)		(95	)		(25	)
Gain on sale of securities		(42	)		(167	)		(96	)
Gain on sale of premises and equipment		-			(205	)		(103	)
(Gain)/Loss on sale of real estate owned		(63	)		117			47
Impairment of securities		-			128			286
Depreciation		1,659			1,597			1,442
Increase in bank owned life insurance		(612	)		(608	)		(595	)
Amortization of intangible assets		6			11			17
Change in prepaid expenses and other assets		140			481			1,474
(Increase) Decrease in accrued interest receivable		423			(194	)		160
Change in accounts payable and other liabilities		(328	)		610			(51	)
Increase (Decrease) in accrued interest payable		(17	)		51			(110	)
Excess tax benefits from share-based payment arrangements		95			29			30
Other, net		(652	)		646			478
NET CASH PROVIDED BY OPERATING ACTIVITIES		8,249			12,107			14,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities
available-for-sale		179			370			232
Proceeds from sales of investment securities held-to-maturity		-			1,767			-
Purchase of securities available-for-sale		(100	)		(186	)		(13,926	)
Principal repayments on securities available-for-sale		5,498			5,141			3,617
Purchase of securities held-to-maturity		(33,105	)		(8,358	)		(40,982	)
Principle repayments on securities held-to-maturity		32,144			20,438			20,001
Net loan originations		(70,147	)		(73,173	)		(21,515	)
Purchase of loans		(747	)		(1,380	)		(1,080	)
Proceeds from sales of loans		60,219			6,080			2,132
Decrease (Increase) in FHLB stock, net		1,741			(1,491	)		84
Purchase of premises and equipment		(4,707	)		(4,771	)		(1,499	)
Proceeds from sale of premises and equipment		-			290			499
Proceeds from sale of real estate owned		1,609			1,419			2,656
NET CASH (USED) PROVIDED IN
INVESTING ACTIVITIES		(7,416	)		(53,854	)		(49,781	)

See notes to consolidated financial statements.

27

TECHE HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended September 30, 2013, 2012 and 2011

	2013			2012			2011
	(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	$	(3,008	)	$	(2,983	)	$	(2,967	)
Prepayment (loan to) ESOP		-			65			261
Net increase in deposits		33,069			19,140			19,227
Proceeds of long-term FHLB advances		-			44,000			33,667
Repayment of long-term FHLB advances		(28,554	)		(32,332	)		(27,201	)
Net increase (decrease) in short-term FHLB advances		(5,200	)		22,900			1,700
Cash paid for purchase of common stock for treasury		(2,591	)		(2,728	)		(1,196	)
Proceeds from exercise of stock options		2,366			1,023			138
Excess tax benefit (expense) from share-based payment
arrangements		(95	)		(29	)		(30	)
Change in advance payments by
borrowers for taxes and insurance		212			836			(27	)
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES		(3,801	)		49,892			23,572
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS		(2,968	)		8,145			(11,500	)
CASH AND CASH EQUIVALENTS
Beginning of year		37,300			29,155			40,655
CASH AND CASH EQUIVALENTS
End of year	$	34,332		$	37,300		$	29,155
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest	$	6,772		$	8,029		$	9,278
Cash paid for taxes	$	4,700		$	3,400		$	2,900
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Accumulated other comprehensive income,
Net of income taxes	$	(327	)	$	409		$	461
Transfer from loans to real estate owned	$	2,055		$	1,582		$	3,220
Loans originated to sell real estate owned	$	206		$	495		$	268

28

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Company are described below.

Principles of Consolidation - The consolidated financial statements include the accounts of Teche Holding Company and its wholly-owned subsidiary, Teche Federal Bank (the “Bank” and together with Teche Holding Company “the Company”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates principally in the community bank segment by attracting deposits from the general public and using such deposits primarily to originate loans. These loans include those secured by first mortgages on owner-occupied, family residences as well as home improvement and other consumer loans. The Company also makes commercial mortgage and non-mortgage loans.

Concentrations of Credit Risk – The Company makes loans to individuals and small businesses located primarily in southern Louisiana for various personal and commercial purposes.  The Company has a diversified loan portfolio and the borrowers’ ability to repay their loans is not directly dependent upon any specific economic sector.  The Company will from time to time purchase loans from outside the market area.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents - Cash and cash equivalents comprise cash on hand and non-interest bearing and interest bearing demand deposits with other financial institutions.  The Company is required to maintain certain cash reserves relating to its deposit liabilities. At September 30, 2013 that Federal Reserve requirement was $9.2 million.

Securities - Securities are classified as held-to-maturity or available-for-sale. Management determines the classification of securities when they are purchased and reevaluates this classification periodically as conditions change that could require reclassification.

Securities which the Company both positively intends and has the ability to hold to maturity are classified as securities held-to-maturity and are carried at amortized cost. Intent and ability to hold are not considered satisfied when a security is available to be sold in response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management strategy.

Securities not meeting the criteria to be classified as securities held-to-maturity are classified as available-for-sale and are carried at fair value. Net unrealized holding gains or losses are excluded from net income and are recognized, net of income taxes, in other comprehensive income and in accumulated other comprehensive income, a separate component of stockholders’ equity.

Premiums and discounts on securities, both those held-to-maturity and those available-for-sale, are amortized and accreted to income as an adjustment to the securities’ yields using the interest method. Realized gains and losses on securities, including declines in value judged to be other than temporary, are reported as a component of income. The cost of securities sold is specifically identified for use in calculating realized gains and losses.

29

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

If the fair value of a debt security is below its amortized cost basis at the quarter end, the security is evaluated for other-than-temporary impairment (“OTTI”).  For debt securities, the Company considers its intention to sell the security.  If the Company does not intend on selling the security, then it is evaluated whether it is more likely than not it will be required to sell the security before recovery of the amortized cost.  If the Company fails either of those tests, then the Company records OTTI for the affected security equal to the difference between the fair value and amortized cost.

If it is not more likely than not that the Company will be required to sell a debt security, then it goes to the next step to determine if OTTI exists. In determining if OTTI exists, management considers: (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions related to the security, industry or geographic area, (3) the financial condition and near-term prospects of the issuer, (4) failure of the issuer to make scheduled interest or principal payments and the outlook for receiving the contractual cash flows of the investments, (5) changes in the rating of the security (for purposes of the evaluation, a drop in the rating below AA is considered adverse) and (6) historical and subsequent volatility of fair value of the security.  If these conditions provide an indication of a reduction in expected cash flows, then cash flows are evaluated to determine the amount of credit-related impairment equal to the present value of cash flows not expected to be received.  If OTTI has been identified, the credit-related impairment, to the extent it does not reduce the security below fair value, is charged to earnings and the non-credit-related impairment is adjusted through other comprehensive income for both held to maturity and available-for-sale securities.

For marketable equity securities, the Company evaluates its ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.  Evidence considered to determine anticipated recovery are analysts reports on the issuer and the financial condition of the issuer or the industry.  If OTTI is identified, the security is adjusted to fair value through a charge to earnings.

During the years ended September 30, 2012 and 2011, the Company recognized non-credit impairment charges in other comprehensive loss related to certain held-to-maturity securities.  The cumulative amount of these charges created a separate accumulated other comprehensive loss for held-to-maturity securities.  This accumulated other comprehensive loss is being accreted to other comprehensive income over the remaining life of the security in a prospective manner on the basis of the amount and timing of future estimated cash flows.  See Note 3 for further discussion of OTTI on investment securities.

Loans Receivable - Loans receivable are stated at the unpaid principal balances, less the allowance for loan losses, net deferred loan fees, and unearned premiums and discounts. The unearned premiums and discounts relate principally to purchased loans. Interest on loans is credited to income based on the principal amount outstanding using the interest method.

When doubt exists as to the collectability of a loan (typically when the loan is 90 days’ delinquent or impaired), the loan is placed on non-accrual status. When a loan is placed on non-accrual status, interest accrued prior to the determination of uncollectibility is reversed from income. Loans are returned to an accruing status only as payments are received and when collection of all principal and interest is no longer in doubt. Payments received on such non-accrual loans are applied first to recovery of lost interest and next to outstanding loan amounts.

30

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include troubled debt restructurings and non-homogeneous loans in which full payment of all scheduled amounts due is not expected. The Company calculates a reserve required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral if the loan is collateral dependent.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance available for losses incurred on loans. Any losses are charged to the allowance for loan losses when the loss is confirmed. Recoveries are credited to the allowance at the time of recovery.

Management estimates the level of losses that is adequate to absorb probable losses inherent in the existing portfolio. Based on these estimates, an amount is charged to or recovered from the provision for loan losses and credited or debited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb such losses.

Management’s judgment as to the level of losses on existing loans involves the consideration of current economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio, and the present level of the allowance; results of examination of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral.

It should be understood that estimates of loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses which are substantially different from the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated balance sheets is adequate to absorb probable losses inherent in the loan portfolio.

Loan Fees, Loan Costs, Discounts and Premiums - Loan origination fees, certain direct loan origination costs and discounts and premiums on loans are deferred and amortized as an adjustment to the related loan’s yield using the interest method over the contractual life of the loan.

Federal Home Loan Bank Stock - Federal Home Loan Bank (“FHLB”) stock is recorded at cost and is periodically reviewed for impairment. The Company owns stock in the FHLB of Dallas in order to gain access to cost effective funding and liquidity sources.  The Company considers the capital position of the FHLB of Dallas as well as recent redemptions of the common stock when considering whether or not the investment is impaired.  As of September 30, 2013 the FHLB of Dallas was in compliance with its regulatory capital requirements, and was still redeeming excess activity-based common stock, therefore the Company concluded that the investment was not impaired.  The FHLB of Dallas received an S&P rating of AA+ which reflects its consistent risk-adjusted earnings, superior asset quality, and unique position as a key funding source to its member institutions, as well as the substantial support of the U.S. Government.

No ready market exists for the FHLB of Dallas stock.  It has no quoted market value and is carried at cost.  Cost approximates fair market value based upon the redemption policies and practices of the FHLB of Dallas, which provide redemption at par.

31

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Goodwill - Goodwill does not require amortization but is subject to at least an annual assessment for impairment, unless interim events or circumstances make it more likely than not that an impairment loss has occurred. Impairment is defined as that amount by which the implied fair value of the goodwill is less than the goodwill’s carrying value. Impairment losses would be charged to operating expense. The existing goodwill is not deductible for income tax purposes.  For the purposes of evaluating goodwill, the Company has determined that it operates only one reporting unit.  The Company performed a qualitative assessment and determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying amount at September 30, 2013.

Core Deposit Intangible - The core deposit intangible with a cost of $520 and accumulated amortization of $514 and $508 at September 30, 2013 and 2012, respectively, is included in prepaid expenses and other assets on the consolidated balance sheets.

Mortgage Servicing Rights - Servicing assets are recognized at fair value as separate assets when rights are acquired through purchase or sale of financial assets and are amortized over the estimated life of the underlying assets. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The present value of future earnings is the estimated market value for the loans, calculated by a third party using consensus assumptions that a third party purchaser would utilize in evaluating potential acquisition of the servicing such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, prepayment speeds, and default rates and losses. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. If the fair value is less than the amortized value of the servicing asset, a valuation allowance is established. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Capitalized servicing rights are amortized in proportion to and over the period of the estimated future net servicing income of the underlying financial asset.

Premises and Equipment - Land is carried at cost.  Buildings and equipment are carried at cost less accumulated depreciation.  The Company computes depreciation generally on the straight-line method for financial reporting. The estimated useful lives used to compute depreciation are:  buildings and improvements, twenty to forty years; and furniture, fixtures and equipment, three to ten years.

Real Estate Owned - Real estate acquired through, or in lieu of, foreclosure is initially recorded at the fair value at the time of foreclosure, less estimated selling costs, and any related write-down is charged to the allowance for loan losses.  Valuations are periodically performed by management and provisions for estimated losses on real estate owned are charged to income when fair value is determined to be less than the carrying value.  Costs relative to the development and improvement of properties are capitalized to the extent realizable, whereas, ordinary upkeep disbursements are charged to expense. The ability of the Company to recover the carrying value of real estate is based upon future sales of the real estate owned. The ability to affect such sales is subject to market conditions and other factors, many of which are beyond the Company’s control. Operating income of such properties, net of related expenses, and gains and losses on their disposition are included in the accompanying consolidated statements of income.

Life Insurance Contracts - Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Company. The Company is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in other non-interest income.

32

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Employee Stock Ownership Plan (“ESOP”) - The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of Teche Federal Bank’s employees who meet certain eligibility requirements. The Company records compensation expense associated with the ESOP based on the average market price (fair value) of the total Company shares committed to be released, and subsequently allocated to participants, during the year.  The Company further records as compensation expense any dividends declared on unallocated Company shares in the ESOP trust.  Earnings per share computations include any allocated shares in the ESOP trust.

Income Taxes - The Company follows the practice of filing a consolidated federal and state return.  Income taxes are allocated to each company as if filed separately for federal purposes.

Certain items of income and expense for financial reporting are recognized differently for income tax purposes (principally the provision for loan losses and depreciation). Provisions for deferred taxes are made in recognition of such temporary differences using the liability method.  Current income taxes are recorded based on amounts due with the current income tax returns. The need for a valuation allowance is considered when it is determined more likely than not that a deferred tax asset will not be realized.

The Company accounts for penalties and interest related to income tax liabilities as a component of other expense.  The Company and its subsidiaries’ tax filings for the years ended September 30, 2010 through 2012 are currently open to audit under statutes of limitation by the Internal Revenue Service.

Income Per Share - Basic net income per common share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Shares controlled by the ESOP are not considered in the weighted average shares outstanding until the shares are committed for allocation to an employee’s individual account. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. Diluted EPS is computed by dividing net income by the total of the weighted-average number of shares outstanding plus the effect of outstanding options and stock grants. The dilution effect of stock options and stock grants is determined using the treasury stock method.  The effect of any anti-dilutive common stock equivalents is excluded from the diluted EPS computation.

Comprehensive Income - Comprehensive income includes net income and other comprehensive income or loss, which in the case of the Company includes only unrealized gains and losses on securities, net of related income taxes. For the period September 30, 2013 and 2012 there were no items reclassified out of other comprehensive income with the exception of realized gains.

Stock-Based Compensation - The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). It also requires measurement of the cost of employee services received in exchange for an award based on the grant date fair value of the award.  Excess tax benefits are reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

33

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

NEW ACCOUNTING PRONOUNCEMENTS

ASU-Accounting Standards Update (2012-02), Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.  The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test.  Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible assets unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired.  The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment.  The amendments are effective for annual and interim impairment tests performed for fiscal year beginning after September 15, 2012.  The adoption of this ASU did not have a significant impact to the Company’s financial statements.

ASU – Accounting Standards Update (2013-02), Comprehensive Income (Topic 220):  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The amendments in this Update do not change the current reporting requirements for net income or other comprehensive income (OCI), but finalize reporting requirements related to reclassifications out of accumulated other  comprehensive income (AOCI).  Presentation requirements were originally addressed in ASU 2011-05, but delayed by ASU 2011-12 as a result of feedback received and have been modified in this Update to address those concerns.  This Update requires entities to provide information about significant amounts reclassified out of AOCI.  If the reclassified amount is required to be reclassified in its entirety to net income in the same reporting period, the entity is required to present, either on the face of the income statement or in the notes, the impact of the reclassification on the respective line items of net income.  For other amounts that are reclassified partially to the balance sheet and partially to the income statement (i.e. those amounts that are not reclassified in their entirety to net income in the same reporting period), the entity must cross-reference to other disclosures that provide additional detail about those amounts.  For public entities, the amendments in this Update are effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of this standard did not have a material impact on the consolidated financial statements.

2.INTEREST RATE RISK

The Company is engaged principally in providing first mortgage and other types of loans to individuals and business.  Loans are funded primarily with deposit accounts and borrowings from the FHLB.  At September 30, 2013 the Company was slightly liability sensitive which indicates that interest-bearing liabilities will re-price faster than interest earning assets with changes in market interest rates. In both declining and rising market interest rate environments the Company is exposed to interest rate risk because interest bearing liabilities re-price faster than interest earning assets resulting in slightly lower net interest income.

The Company manages interest rate risk exposure by monitoring the mix of loans, deposit and borrowings and reports to the Board of Directors quarterly.  The Company’s interest rate risk position at September 30, 2013 was within the limits established by the Board of Directors.

34

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

3.SECURITIES

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

	September 30, 2013
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,383	$	52	$	-	$	1,435
Federal Home Loan Mortgage Corp.		1,405		58		-		1,463
Federal National Mortgage Association		9,231		461		-		9,692
		12,019		571		-		12,590
CMOs:
Government National Mortgage Assoc.		1,175		121		-		1,296
Marketable equity securities		375		186		-		561
	$	13,569	$	878	$	-	$	14,447

	September 30, 2012
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,618	$	56	$	-		$	1,674
Federal Home Loan Mortgage Corp.		2,077		92		-			2,169
Federal National Mortgage Association		12,914		928		-			13,842
		16,609		1,076		-			17,685
CMOs:
Government National Mortgage Assoc.		1,604		184		-			1,788
Marketable equity securities		371		125		(2	)		494
	$	18,584	$	1,385	$	(2	)	$	19,967

35

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

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

	September 30, 2013
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Investment securities:
Time Deposits other banks	$	52,995	$	-	$	-		$	52,995
Mortgaged-backed securities:
Federal National Mortgage Association		11,650		578		(1	)		12,227
Federal Home Loan Mortgage Corp		2,528		155		-			2,683
CMOs:
Federal Home Loan Mortgage Corp.		43		1		-			44
Federal National Mortgage Association		516		33		-			549
	$	67,732	$	767	$	(1	)	$	68,498

	September 30, 2012
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment securities:
Time Deposits other banks	$	44,673	$	-	$	-	$	44,673
Mortgaged-backed securities:
Federal National Mortgage Association		17,364		1,180		-		18,544
Federal Home Loan Mortgage Corp.		3,874		321		-		4,195
CMOs:
Federal Home Loan Mortgage Corp.		76		5		-		81
Federal National Mortgage Association		826		71		-		897
	$	66,813	$	1,577	$	-	$	68,390

36

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Details concerning securities with unrealized losses as of September 30, 2013 are as follows:

	Securities with losses under 12 months				Securities with losses over 12 months					Total
			Gross				Gross					Gross
	Fair		unrealized		Fair		unrealized			Fair		unrealized
	Value		losses		value		losses			value		losses
Held-to-Maturity
Mortgaged-backed securities:
Federal National Mortgage Association	$	-	$	-	$	110	$	(1	)	$	110	$	(1	)
Total	$	-	$	-	$	110	$	(1	)	$	110	$	(1	)

The Company has 330 investments at September 30, 2013 of which one had immaterial unrealized losses.

Details concerning securities with unrealized losses as of September 30, 2012 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		$	-		$	-		$	5		$	(2	)		$	5		$	(2	)
Total		$	-		$	-		$	5		$	(2	)		$	5		$	(2	)

The Company had 325 investments at September 30, 2012 of which two immaterial had unrealized losses.

At September 30, 2013 and 2012, securities with a cost of approximately $17,000 and $18,850 were pledged to secure deposits and advances from the FHLB of Dallas as required or permitted by law.

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2013, has not been presented due to the investment in mortgage-backed securities.  Actual maturities of these securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.

37

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2013, is 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	$	26,531	$	26,531
Due after one year but within five years		26,464		26,464
Total		52,995		52,995
Mortgage-backed securities		14,737		15,503
	$	67,732	$	68,498

The following table presents a roll-forward of the amount of credit losses on debt securities held by the Company for which a portion of OTTI was recognized in other comprehensive income for the years ended September 30, 2013 and 2012:

Beginning balance of credit losses at October 1, 2012	$	-
Other-than-temporary impairment credit losses  on securities not previously OTTI		-
Increases for additional credit losses on securities  previously determined to be OTTI		-
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		-
Ending balance of cumulative credit losses recognized in earnings at September 30, 2013	$	-

38

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

The beginning balance includes credit related losses included in OTTI charges recognized on debt securities.

Beginning balance of credit losses at October 1, 2011	$	1,563
Other-than-temporary impairment credit losses  on securities not previously OTTI		35
Increases for additional credit losses on securities  previously determined to be OTTI		93
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		(1,691	)
Ending balance of cumulative credit losses recognized in earnings at September 30, 2012	$	-

Debt securities with unrealized losses are reviewed for OTTI at each reporting period. Management monitors these securities for evidence of credit deterioration that could indicate that an OTTI has occurred.  Among other factors, changes in the security’s credit rating from a credit rating agency are considered as evidence of potential credit deterioration.  For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management’s best estimate of future cash flows based on specific assumptions.  The assumptions used to determine the cash flows were based on estimates of loss severity, credit default, and prepayment speeds.  For each security, these assumptions were developed by taking the trailing six month historical average rate for the security.

Gains on sale of available for sale securities of $50, $167 and $96 were realized on sales of securities in the years ended September 30, 2013, 2012, and 2011 respectively.  Proceeds of $179, $370 and $232 were received from the sale of available for sale securities during the twelve months ended September 30, 2013, 2012, and 2011 respectively.  Losses on available for sale securities of $8, $0, and $0 were realized on sales of securities in the years ended September 30, 2013, 2012 and 2011.

Non-credit related OTTI losses in accumulated other comprehensive income were $0 as of September 30, 2013.  During the fourth quarter ended September 30, 2012, private-label mortgage backed securities in our held-to-maturity portfolio with a carrying amount of $1,766 were sold for an immaterial gain.  While the Company had the ability to hold these securities, due to the current uncertainties in the market place, management made the decision to move these securities out of the portfolio.

39

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

4.    LOANS RECEIVABLE

Loans receivable are summarized as follows:

	At Sept 30 '13		% Total	At Sept 30 '12		% Total
Commercial real estate loans	$	133,649	19.4%	$	120,557	17.8%
Commercial non-real estate loans		30,685	4.5%		34,032	5.0%
Commercial-construction loans		8,593	1.3%		7,357	1.1%
Commercial-land		10,349	1.5%		13,312	2.0%
Residential-construction loans		5,112	0.7%		9,478	1.4%
Residential-real estate loans		409,693	59.7%		413,500	61.1%
Consumer-Mobile home loans		43,198	6.3%		37,030	5.5%
Consumer-other		45,171	6.6%		41,110	6.1%
Total Loans		686,450	100.00%		676,376	100.0%
Less:
Allowance for loan losses		7,868			8,559
Deferred loan fees		2,047			1,975
Total Net Loans	$	676,535		$	665,842

Commercial real estate loans increased $13,092 from September 30, 2012 to September 30, 2013 mainly due to increased originations.  Commercial non-real estate loans decreased $3,347 from September 30, 2012 to September 30, 2013 mainly due to decreased originations.  Residential real estate loans decreased $3,807 from September 30, 2012 to September 30, 2013 mainly due to a loan sale to FNMA of $46,515 offset by increased loan originations.  At September 30, 2013 approximately $292,928 of loans receivable were pledged as collateral securing advances from the FHLB.  The Company has loans that it services for others which amounted to $66,917 and $25,235 at September 30, 2013 and 2012, respectively.

Changes in the allowance for loan losses were as follows:

	Year Ended September 30,
	2013			2012			2011
Beginning balance – October 1	$	8,559		$	8,331		$	9,256
Provision charged to operating expense		400			1,910			3,900
Recoveries		150			203			57
Loans charged off		(1,241	)		(1,885	)		(4,882	)
Ending balance – September 30	$	7,868		$	8,559		$	8,331

40

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

The amount of nonaccrual loans at September 30, 2013 and September 30, 2012 was $2,425 and $10,173, respectively.  The Company had total impaired loans of approximately $7,557 and $8,716 at September 30, 2013 and September 30, 2012, respectively.  The average investment in impaired loans was $8,038 and $10,962 for the years ended September 30, 2013 and 2012, respectively.  The amount of foregone interest on impaired loans was approximately $7 and $180, respectively.  The amount of loans over 90 days and still accruing was approximately $353 and $351 as of September 30, 2013 and 2012, respectively.  Specific reserves allocated to impaired loans totaled approximately $138 and $0 as of September 30, 2013 and 2012, respectively.  Impaired loans totaling approximately $6,579 and $8,716 had no specific reserves allocated as of September 30, 2013 and 2012, respectively.

The effect on net interest income of troubled debt restructurings was insignificant for the twelve months ended September 30, 2013.

Allowance for Loan Losses and Recorded Investment in Loans for the Twelve Months Ended September 30, 2013

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, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.  The methodology is based on 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 pools.

41

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

	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	$	2,045	$	141	$	437	$	80	$	4,390	$	265	$	609	$	592	$	8,559
Charge-offs		103		-		168		-		658		13		230		69		1,241
Recoveries		17		-		26		-		49		16		34		8		150
Provision		-		-		103		-		150		-		147		-		400
Ending balance		1,959		141		398		80		3,931		268		560		531		7,868
Ending balance allocation:
Individually evaluated for impairment		138		-		-		-		-		-		-		-		138
Collectively evaluated for impairment		1,821		141		398		80		3,931		268		560		531		7,730
Ending Balance individually evaluated for impairment		5,558		-		-		-		597		1,402		-		-		7,557
Loans: Ending Balance Collectively evaluated for impairment	$	128,091	$	8,593	$	10,349	$	5,112	$	409,096	$	29,283	$	43,198	$	45,171	$	678,893

The table below provides an allocation and rollforward of the allowance for loan losses by loan type as of and for the year ended September 30, 2013; however, allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:

42

The table below provides an allocation and rollforward of the allowance for loan losses by loan type as of and for the year ended September 30, 2012; however, allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:

	Real Estate
(in thousands)	Commercial- real estate		Commercial-construction		Commercial- Land		Residential-construction		Residential- real estate		Commercial- non real estate		Consumer-Mobile Homes		Consumer- Other		Total
Allowance for loan losses:
Beginning Balance	$	1,991	$	136	$	425	$	78	$	4,274	$	258	$	593	$	576	$	8,331
Charge-offs		426		-		250		-		753		165		209		82		1,885
Recoveries		159		5		-		-		12		-		16		11		203
Provision		321		-		262		2		857		172		209		87		1,910
Ending balance		2,045		141		437		80		4,390		265		609		592		8,559
Ending balance allocation:
Individually evaluated for impairment		-		-		-		-		-		-		-		-		-
Collectively evaluated for impairment		2,045		141		437		80		4,390		265		609		592		8,559
Loans: Ending Balance Collectively evaluated for impairment		117,034		7,357		8,654		9,478		413,119		33,878		37,030		41,110		667,660
Ending Balance individually evaluated for impairment	$	3,523	$	-	$	4,658	$	-	$	381	$	154	$	-	$	-	$	8,716

43

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Credit Quality Indicators

As of September 30, 2013

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 – Demonstrates exceptional credit fundamentals, including stable and predictable profit margins and cash flows, strong liquidity and conservative balance sheet. Significant historical cash flow coverage of existing and pro-forma debt service coverage. Credits rated 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 or collateral with low loan to value ratios and 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 business or 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 – Displays an acceptable degree of risk in the short-term. Unfavorable characteristics may exist, however, these are offset by the positive trends. Some unpredictability in earnings and cash flow may exist. Leverage may be higher than typical in the industry and liquidity less than desirable. Management, while competent, may not be experienced and lack depth. Secondary and tertiary sources of repayment may be limited. Companies in a start-up situation typically fit this classification. Other characteristics of this classification would be companies with volatility in earnings and/or increasing leverage.

Watch List – Assets considered on a “Watch List” are technically not classified in the usual sense of the term and are considered “Pass” assets. Assets in this category do not trigger a need for additional valuation allowances. The purpose of this list is to identify assets that warrant increased monitoring for minor exceptions or problems, which could worsen in the near future if left unattended.

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.

44

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

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 borrower’s 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.

45

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

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 home equity lines of credit (“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.

46

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade

As of September 30, 2013

	Commercial- Land		Commercial- Construction		Commercial- Non-Real Estate		Commercial- Real Estate		Total		% Total
Prime	$	-	$	-	$	3,074	$	-	$	3,074		1.7	%
Excellent		-		-		16		9		25		0.0
Average		624		-		638		3,851		5,113		2.8
Satisfactory		9,119		8,233		25,213		110,415		152,980		83.4
Watch		606		-		342		12,478		13,426		7.3
Special Mention		-		360		-		1,781		2,141		1.2
Substandard		-		-		1,402		5,115		6,517		3.6
Doubtful		-		-		-		-		-		0.0
Loss		-		-		-		-		-		0.0
Total	$	10,349	$	8,593	$	30,685	$	133,649	$	183,276		100.0	%

As of September 30, 2012

	Commercial- Land		Commercial- Construction		Commercial- Non-Real Estate		Commercial- Real Estate		Total		% Total
Prime	$	-	$	-	$	3,146	$	-	$	3,146		1.8	%
Excellent		-		-		118		-		118		0.1
Average		815		-		500		4,921		6,236		3.6
Satisfactory		7,231		6,927		28,008		92,494		134,660		76.8
Watch		601		65		2,056		18,733		21,455		12.2
Special Mention		17		365		50		872		1,304		0.7
Substandard		4,648		-		154		3,537		8,339		4.8
Doubtful		-		-		-		-		-		0.0
Loss		-		-		-		-		-		0.0
Total	$	13,312	$	7,357	$	34,032	$	120,557	$	175,258		100.0	%

47

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Consumer Credit Exposure Credit Risk Profile

By Creditworthiness Category

As of September 30, 2013

	Residential- Real Estate Construction		Residential- Real Estate		Total
Grade:
Pass	$	5,112	$	405,863	$	410,975
Special Mention		-		316		316
Substandard		-		3,514		3,514
Loss		-		-		-
Total	$	5,112	$	409,693	$	414,805

As of September 30, 2012

	Residential- Real Estate Construction		Residential -Real Estate		Total
Grade:
Pass	$	9,478	$	408,611	$	418,089
Special Mention		-		328		328
Substandard		-		4,561		4,561
Loss		-		-		-
Total	$	9,478	$	413,500	$	422,978

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

As of September 30, 2013

	Consumer- Mobile Homes		Consumer- Other Loans		Total
Performing	$	42,952	$	44,905	$	87,857
Nonperforming		246		266		512
Total	$	43,198	$	45,171	$	88,369

As of September 30, 2012

	Consumer-Mobile Homes		Consumer-Other Loans		Total
Performing	$	36,606	$	40,680	$	77,286
Nonperforming		424		430		854
Total	$	37,030	$	41,110	$	78,140

48

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Age Analysis of Past Due Loans

As of September 30, 2013

	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	$	783	$	-	$	783	$	132,866	$	133,649	$	-
Commercial non-real estate loans		50		-		50		30,635		30,685		-
Commercial-construction loans		-		-		-		8,593		8,593		-
Commercial-land		-		-		-		10,349		10,349		-
Residential-construction loans		-		-		-		5,112		5,112		-
Residential-real estate loans		5,582		1,678		7,260		402,433		409,693		353
Consumer-Mobile home loans		1,073		246		1,319		41,879		43,198		-
Consumer-other		262		206		468		44,703		45,171		-
Total	$	7,750	$	2,130	$	9,880	$	676,570	$	686,450	$	353

As of September 30, 2012

	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	$	35	$	810	$	845	$	119,712	$	120,557	$	-
Commercial non-real estate loans		28		2		30		34,002		34,032		-
Commercial-construction loans		-		-		-		7,357		7,357		-
Commercial-land		314		531		845		12,467		13,312		-
Residential-construction loans		-		-		-		9,478		9,478		-
Residential-real estate loans		4,410		4,249		8,659		404,841		413,500		351
Consumer-Mobile home loans		1,292		425		1,717		35,313		37,030		-
Consumer-other		332		343		675		40,435		41,110		-
Total	$	6,411	$	6,360	$	12,771	$	663,605	$	676,376	$	351

49

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Impaired Loans

For the Year ended September 30, 2013

							Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	$	4,580	$	4,639	$	-	$	3,872	$	190
Commercial non-real estate		1,402		1,402		-		791		53
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		2,069		-
Residential-real estate loans		597		873		-		584		34
Subtotal:		6,579		6,914		-		7,316		277
With an allowance recorded:
Commercial real estate loans		978		979		138		722		33
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-
Subtotal:		978		979		138		722		33
Totals:
Commercial		6,960		7,020		138		7,454		276
Residential		597		873		-		584		34
Total	$	7,557	$	7,893	$	138	$	8,038	$	310

For the Year ended September 30, 2012

							Year to Date
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	$	2,857	$	2,883	$	-	$	3,839	$	82
Commercial non-real estate		329		349		-		418		7
Commercial-construction loans		-		-		-		547		27
Commercial-land		4,658		6,274		-		4,959		11
Residential-real estate loans		872		1,266		-		1,199		40
Subtotal:		8,716		10,772		-		10,962		167
With an allowance recorded:
Commercial real estate loans		-		-		-		-		-
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-
Subtotal:		-		-		-		-		-
Totals:
Commercial		7,844		9,506		-		9,763		127
Residential		872		1,266		-		1,199		40
Total	$	8,716	$	10,772	$	-	$	10,962	$	167

50

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Troubled debt restructured loans (“TDR”) which are included in the impaired loan totals, were approximately $3,202 with all still accruing and approximately $6,316 with $2,373 still accruing at September 30, 2013 and 2012, respectively.  The decrease in TDRs was primarily due to the payoff of a non-performing loan in the amount of $3,813. The Company has not committed to lend additional funds to the customers with outstanding loans that are classified as a TDR.  As of September 30, 2013, no loans that were modified as troubled debt restructurings within the previous twelve months defaulted after their restructure.

Modifications

Year Ended September 30, 2013

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring occurring during the year ended September 30, 2013:
Commercial real estate loans	1	$	935	$	987
Commercial construction loans	-		-		-
Commercial non-real estate loans	-		-		-
Residential real estate loans
Total  *	1	$	935	$	987

* All of the troubled debt restructured loans presented above are still accruing.

Year Ended September 30, 2012

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring occurring during the year ended September 30, 2012:
Commercial real estate loans	3	$	2,248	$	2,248
Commercial construction loans	-		-		-
Commercial non-real estate loans	1		125		125
Residential real estate loans	-		-		-
Total  *	4	$	2,373	$	2,373

* All of the troubled debt restructured loans presented above are still accruing.

Three commercial loans totaling $2,373 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 $125 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.

51

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Loans on Nonaccrual Status

At September 30, 2013 and September 30, 2012

	September 30,
	2013		2012
Commercial real estate loans	$	-	$	810
Commercial non-real estate loans		-		2
Commercial-construction loans		-		-
Commercial-land		-		4,344
Residential-construction loans		-		-
Residential-real estate loans		1,973		4,249
Consumer-Mobile home loans		246		425
Consumer-other		206		343
Total	$	2,425	$	10,173

Total nonaccrual loans decreased $7,748 as of September 30, 2013 compared to September 30, 2012 primarily due to payoffs on commercial real estate loans in the amount of $5,156 along with a $2,276 reduction in residential real estate loans due to positive economic trends in our market area.

Related Party loans

The aggregate amount of loans to executive officers and directors of the Company and their related interests was approximately $533 and $400 at September 30, 2013 and 2012, respectively. During fiscal 2013 and 2012 new loans aggregating approximately $149 and $0, respectively, and amounts collected of approximately $16 and $267 respectively, were transacted with such parties.

5.     REAL ESTATE OWNED

Real estate owned consisted of the following:

	September 30,
	2013		2012
Real estate acquired through foreclosure:
One-to-four family units	$	302	$	478
Multi-family		-		-
Land loans		353		35
Commercial real estate loans		86		-
Less allowance for losses		-		-
Real estate owned - net	$	741	$	513

52

 

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

6.     PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	September 30,
	2013			2012
Land	$	13,270		$	11,674
Buildings and improvements		24,539			22,403
Furniture, fixtures and equipment		12,818			12,667
		50,627			46,744
Less accumulated depreciation		(18,075	)		(17,240	)
	$	32,552		$	29,504

Pursuant to the terms of non-cancelable lease agreements in effect at September 30, 2013 pertaining to banking premises and equipment, future minimum rent commitments under various operating leases are as follows:

2014	$	35
2015		35
2016		35
2017		27
2018		-
	$	132

All leases contain options to extend for periods from three to ten years.  Total rent expense for the years ended September 30, 2013, 2012, and 2011 amounted to $132, $93 and $101 respectively.

7.     DEPOSITS

Deposits are summarized as follows:                                                                           

	September 30,
	2013		2012
Non-interest bearing demand account	$	100,822	$	93,410
Interest bearing:
NOW accounts		144,571		126,858
Passbook and regular savings		203,009		198,667
Money funds accounts		50,652		55,252
Certificates of deposit		151,737		143,535
	$	650,791	$	617,722

53

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Certificates of deposit of $100 or more amounted to $69,643 and $58,752 at September 30, 2013 and 2012, respectively.

Certificates of deposit at September 30, 2013 mature as follows:

Less than one year	$	78,553
1-2 years	$	37,809
2-3 years	$	15,320
3-4 years	$	5,294
4-5 years	$	5,292
Over 5 years	$	9,469
TOTAL	$	151,737

8.     ADVANCES FROM FEDERAL HOME LOAN BANK OF DALLAS

At September 30, 2013 and 2012 respectively, the Company was indebted to the FHLB of Dallas for $108,997 and $142,751 of advances bearing interest at a weighted average rate of 3.38% and 2.82%, which are due as follows:

Year Ended September 30,
2014	$	29,247
2015		8,092
2016		10,349
2017		8,299
2018		5,871
Thereafter		47,139
	$	108,997

These advances are collateralized by a blanket-floating lien on the Company’s residential real estate first mortgage loans, certain investment securities and stock in the FHLB.

At September 30, 2013, the Company had an additional $183,931 available under its line of credit with the FHLB of Dallas.

54

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

9.     OTHER NON-INTEREST INCOME

Other non-interest income consisted of the following:

	Year Ended September 30,
	2013		2012		2011
Life insurance contracts	$	612	$	608	$	595
Other		202		222		231
	$	814	$	830	$	826

10.INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of September 30, 2013 and 2012 are as follows:

	September 30,
	2013		2012
Deferred tax assets:
Allowance for loan losses	$	2,386	$	2,557
Accruals and stock based compensation		1,137		1,288
Impairments on securities		7		12
Total deferred tax assets		3,530		3,857
Deferred tax liabilities:
Deferred loan fees and costs – net		246		261
Tax over book depreciation		1,400		1,392
Net unrealized gain on investment securities		308		485
Dividends on FHLB stock		38		101
Other		324		351
Total deferred tax liabilities		2,316		2,590
Net deferred tax asset	$	1,214	$	1,267

55

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

The components of income tax expense are as follows:

	Year Ended September 30,
	2013		2012			2011
Current	$	4,167	$	3,923		$	3,086
Deferred		230		(268	)		388
	$	4,397	$	3,655		$	3,474

Income taxes differ from the amounts computed by applying the applicable statutory U.S. Federal income tax rate to earnings before income taxes. The reasons for these differences are as follows:

	Year Ended September 30,
	2013			2012			2011
Taxes computed at statutory rates	$	4,595		$	3,720		$	3,639
Decrease in taxes due to net nontaxable income		(312	)		(330	)		(205	)
Increase in taxes due to nondeductible expenses		114			166			40
Tax credits		-			-			-
Other		-			99			-
	$	4,397		$	3,655		$	3,474
Effective tax rate		33.5	%		33.4	%		32.5	%

GAAP does not require that deferred income taxes be provided on certain portions of the allowance for loan losses that existed as of September 30, 1988. At September 30, 2013, retained earnings include approximately $4.4 million representing such allowances for which no deferred income taxes have been provided.

11.NON-INTEREST EXPENSE

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

	Year Ended September 30,
	2013		2012		2011
Occupancy, including depreciation, insurance,
rent, utilities, etc.	$	2,624	$	2,508	$	2,278
Equipment, including depreciation, telephone,
etc.		2,719		2,632		2,623
Data processing		1,576		1,360		1,219
	$	6,919	$	6,500	$	6,120

56

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Other operating expenses consisted of the following:

	Year Ended September 30,
	2013		2012		2011
Stationery, printing and postage	$	1,054	$	979	$	1,048
Debit card expense, and other deposit related costs		1,909		1,655		1,972
Other		1,066		1,914		1,196
	$	4,029	$	4,548	$	4,216

12.        RETIREMENT PLAN

The Company has a 401(k) Plan whereby substantially all employees participate in the Plan.  Employees may contribute up to 50 percent of their compensation subject to certain limits based on federal tax laws.  The Company makes matching contributions equal to 100 percent of the first 3 percent plus 50 percent after the next 2 percent of an employee’s compensation contributed to the Plan.  Matching contributions vest to the employee equally over a five-year period.  For the years ended September 30, 2013, 2012 and 2011, expense attributable to the Plan amounted to approximately $438, $397, and $382, respectively.

13.        INCOME PER SHARE

Following is a summary of the information used in the computation of basic and diluted income per common share for the years ended September 30, 2013, 2012, and 2011:

	Year Ended September 30,
	2013		2012		2011
Weighted average number of common shares   outstanding - used in computation of basic   income per common share		2,036,000		2,052,000		2,069,000
Effect of dilutive securities:
Stock options		16,000		17,000		12,000
Stock grants		16,000		7,000		11,000
Weighted average number of common shares   outstanding plus effect of dilutive securities -   used in computation of diluted income per   common share		2,068,000		2,076,000		2,092,000

57

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

At September 30, 2013 and 2012 and 2011, approximately 3,000, 73,000 and 234,000, respectively, of common stock equivalents were excluded from diluted earnings per share because the option price exceeded the average market price.

14.EMPLOYEE STOCK PLANS

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of the Bank’s employees who meet certain eligibility requirements.  During the fiscal year ended September 30, 2009 the ESOP Trust purchased an additional 20,408 shares of common stock in the Company with a loan from the Company.  Teche Federal Bank periodically made cash contributions to the ESOP on a basis sufficient to enable the ESOP to make the required loan payments to the Company.

The note payable referred to above bore interest at the prime rate adjusted quarterly with principal and interest payable quarterly for nine consecutive quarters with the final payment made in December 2011.  The loan was collateralized by the unreleased shares of the stock purchased.

As the debt was repaid, shares were released from collateral and allocated to qualified employees based on the proportion of principal paid in the year. The shares pledged as collateral are reported as a reduction of stockholders’ equity in the consolidated balance sheets. As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for income per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings and dividends on unallocated ESOP shares are recorded as a reduction of debt or as compensation expense if not used for debt service.

Compensation expense related to the ESOP was $250, $524 and $435 for the years ended September 30, 2013, 2012 and 2011, respectively.  The ESOP had no unreleased shares at September 30, 2013.

The Company has 4 share-based compensation plans in effect at September 30, 2013.  The compensation cost that has been charged against income for those plans was approximately $444, $503 and $531 for the years ended September 30, 2013, 2012 and 2011, respectively. The plans allow for the granting of both qualified and non-qualified stock options.

In 1998, the Company implemented the 1998 Stock Option Plan, which authorized the Board of Directors to grant up to 68,000 of stock options to employees, officers and directors of the Company. Options granted under the 1998 Stock Option Plan have a term of up to ten years from the date of grant. Vesting of options is determined at the time of grant and ranges from immediate to five years. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

58

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

In 2001, the Company implemented the 2001 Stock-Based Incentive Plan, which authorized the Board of Directors to grant up to 250,000 stock options or restricted stock (limited to 37,500 shares) to officers and employees of the Company. Options granted under the 2001 Stock Option Plan have a term of up to ten years from the date of grant. Vesting of options is determined at the time of grant and ranges from immediate to five years. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

In 2005, the Company implemented the 2004 Stock-Based Incentive Plan, which authorized the Board of Directors to grant up to 200,000 stock options or restricted stock (limited to 50,000 shares) to employees, officers and directors of the Company. Options granted under the 2004 Stock Based Incentive Plan will have a term of up to ten years from the date of grant and vesting of grants will be determined at the time of grant. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

In 2011, the Company implemented the 2011 Stock-Based Incentive Plan, which authorized the Board of Directors to grant up to 250,000 stock options or restricted stock (limited to 100,000 shares) to employees, officers and directors of the Company. Options granted under the 2011 Stock Based Incentive Plan will have a term of up to ten years from the date of grant and vesting of grants will be determined at the time of grant. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

The share-based awards granted under the aforementioned Plans have similar characteristics, except that some awards have been granted in options and certain awards have been granted in restricted stock. Therefore, the following disclosures have been disaggregated for the stock option and restricted stock awards of the Plans due to their dissimilar characteristics.

Stock Options

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model.  The Company granted 8,000 stock options for the year ended September 30, 2013 with a weighted average fair value of $5.82 per option.  The Company granted 50,220 stock options for the year ended September 30, 2012 with an average fair value of $5.05 per option. The Company granted 46,240 stock options for the year ended September 30, 2011 with an average fair value of $4.68 per option.

The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based upon the historical volatility of the Company based upon the previous 6 years trading history. The expected term of the options is based upon the average life of previously issued stock options. The expected dividend yield is based upon current yield on date of grant.  No post-vesting restrictions exist for these options. The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees in the years ended September 30, 2013, 2012, and 2011.

59

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

	Year Ended September 30, 2013	Year Ended September 30, 2012	Year Ended September 30, 2011
Dividend yield	3.35%	3.72%	4.29%
Risk-free interest rate	1.13%	1.12%	2.15%
Volatility	21.56%	22.54%	23.00%
Expected Life	6 years	6 years	6 years

A summary of option activity under the stock option plans as of September 30, 2013, and changes during the year ended September 30, 2013 is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2011	310,131		$	34.28	5.6 years	$	186
Exercised	(43,756	)		26.60
Forfeited	(10,698	)		35.82
Granted	50,220		$	39.67		$
Outstanding at September 30, 2012	305,897		$	36.17	6.01 years	$	1,365
Exercised	(71,371	)		34.45
Forfeited	(11,465	)		35.18
Granted	8,000		$	44.82		$
Outstanding at September 30, 2013	231,061		$	37.03	5.73 years	$	2,013
Exercisable at September 30, 2013	141,767		$	36.72	4.14 years	$	1,281

For the years ended September 30, 2013, 2012 and 2011 respectively, the intrinsic value of options exercised was approximately $547, $484 and $257.  The fair value of options vested during the years ended 2013, 2012 and 2011 was approximately $143, $518 and $333, respectively.

Net cash received from options exercised under all share-based payment arrangements for year ended September 30, 2013 was approximately $2,366.  The actual tax benefit in stockholders’ equity realized for the tax deductions from option exercise of the share-based payment arrangements and the tax effect of restricted stock vesting totaled $95 for the year ended September 30, 2013.

60

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

As of September 30, 2013, there was $477 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of 2.9 years.

Stock Awards

A summary of the status of the Company’s non-vested stock awards as of September 30, 2013, and changes during the year then ended is presented below:

	Shares			Weighted Average Grant Date Fair Value
Non-vested – September 30, 2011		28,285		$	32.31
Granted		16,068		$	32.41
Forfeited		(2,412	)	$	33.56
Vested		(13,871	)	$	33.00
Non-vested – September 30, 2012		28,070		$	31.92
Granted		9,547		$	39.76
Forfeited		(2,199	)	$	30.70
Vested		(9,596	)	$	32.07
Non-vested – September 30, 2013		25,822		$	34.86

The fair value of restricted stock vested and the fair value of shares vested as direct compensation for the years ended September 30, 2013, 2012 and 2011, respectively was $308, $458 and $139.

As of September 30, 2013, there was $698 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock award plans. That cost is expected to be recognized over a weighted-average period of 1.82 years.

The Company funds the option shares and restricted stock from authorized, but unissued shares. The Company does not typically purchase shares to fulfill the obligations of the stock benefit plans. Company policy does allow option holders to exercise options with seasoned shares.

15.FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business the Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. The financial instruments include commitments to extend credit and commitments to sell loans. Those instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of the involvement the Company has in particular classes of financial instruments.

61

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

As of September 30, 2013 the Company had made various commitments to extend credit totaling approximately $81,198 with an weighted average rate of 4.33% As of September 30, 2012, such commitments totaled approximately $58,550 with an weighted average rate of 4.26%.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being fully drawn upon, the total commitment amount disclosed above does not necessarily represent future cash requirements.

The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

16.DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The Company uses 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 orindirectly; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reportingentity 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 twelve months ended September 30, 2013, 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. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and encompass marketable equity

62

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

securities.  Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Impaired 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. Once a loan is identified as individually impaired; management measures impairment using one of several methods, including collateral value, market value of similar debt, or present values of cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.  At September 30, 2013, substantially all of the total impaired loans were evaluated based on the fair value of the collateral less estimated costs to sell.  Impaired loans where an allowance is established requires classification in the fair value hierarchy.  When the fair value of the collateral is based on the observable market price or a current appraised value, less estimated costs to sell, 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 appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (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.

63

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

	Fair Value At September		Fair Value Hierarchy
	30, 2013		Level 1		Level 2		Level 3
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,435	$	-	$	1,435	$	-
Federal Home Loan Mortgage Corp.		1,463		-		1,463		-
Federal National Mortgage Assoc.		9,692		-		9,692		-
		12,590		-		12,590		-
CMOs:
Government National Mortgage Assoc.		1,296		-		1,296		-
Marketable equity securities		561		561		-		-
Total recurring	$	14,447	$	561	$	13,886	$	-
Assets valued on a non-recurring basis:
Impaired loans	$	1,471	$	-	$	-	$	1,471
Other real estate owned		741		-		-		741
Total non-recurring	$	2,212	$	-	$	-	$	2,212

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range
(In thousands)
September 30, 2013:
Impaired Loans	$	1,333	Discounted expected cash flows	Interest rate and repayment term	Weighted average discount rate 6.59% Maturity range
Other real estate owned	$	741	Property appraisals	Management discount for property type and recent market volatility	60-72 months 10%-33% discount

64

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range
(In thousands)
September 30, 2012:
Impaired Loans	$	5,053	Property appraisals	Management discount for property type and recent market volatility	5%-30% discount
Other real estate owned	$	513	Property appraisals	Management discount for property type and recent market volatility	3%-61% discount

	Fair Value At September		Fair Value Hierarchy
		30, 2012	Level 1		Level 2		Level 3
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,674	$	-	$	1,674	$	-
Federal Home Loan Mortgage Corp.		2,169		-		2,169		-
Federal National Mortgage Assoc.		13,842		-		13,842		-
		17,685		-		17,685		-
CMOs:
Government National Mortgage Assoc.		1,788		-		1,788		-
Marketable equity securities		494		494		-		-
Total recurring	$	19,967	$	494	$	19,473	$	-
Assets valued on a non-recurring basis:
Impaired loans		5,053		-		-		5,053
Other real estate owned		513		-		-		513
Total non-recurring	$	5,566	$	-	$	-	$	5,566

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

65

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

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.  The aggregate fair value amounts presented below may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities - For investment securities, fair value is determined as disclosed in the previous investment security disclosure.

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 - The carrying value of the FHLB of Dallas stock approximates fair value based on the redemption provisions of the FHLB of Dallas.

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

Accrued Interest - The carrying amounts of accrued interest approximate fair value.

Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturities certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank - The fair value of advances is estimated using rates currently available for advances of similar remaining maturities.

Commitments - The fair value of commitments to extend credit was not significant.

The estimated fair values of the Company’s significant financial instruments are as follows at September 30, 2013 and 2012:

66

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

					Fair Value Measurements at September 30, 2013
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Financial assets:					(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	34,332	$	34,332	$	34,332	$	-	$	-
Investment securities		82,179		82,945		561		82,384		-
FHLB stock		5,068		5,068		-		5,068		-
Accrued interest receivable		2,091		2,091		-		2,091		-
Life Insurance contracts		15,125		15,125		-		15,125		-
Loans receivable, net		676,535		680,901		-		-		680,901
Financial liabilities:
Deposits		650,791		652,019		100,822		551,197		-
Advance from Federal Home Loan  Bank		108,997		113,774		-		113,774		-
Accrued interest payable		353		353		-		353		-

					Fair Value Measurements at September 30, 2012
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Financial assets:					(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	37,300	$	37,300	$	37,300	$	-	$	-
Investment securities		86,780		88,357		494		87,863		-
FHLB stock		6,809		6,809		-		6,809		-
Accrued interest receivable		2,514		2,514		-		2,514		-
Life Insurance contracts		14,513		14,513		-		14,513		-
Loans receivable, net		665,842		665,384		-		-		665,384
Financial liabilities:
Deposits		617,722		621,676		93,410		528,266		-
Advance from Federal Home Loan  Bank		142,751		153,855				153,855
Accrued interest payable		370		370		-		370		-

67

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

17.REGULATORY CAPITAL

On June 21, 2011, the Bank completed the conversion of its existing federal savings bank charter to that of a Louisiana commercial bank charter (the “Charter Conversion”).  Upon completion of the Charter Conversion, the Bank became a Louisiana state-chartered commercial bank regulated by the Commissioner of the Office of Financial Institutions of the State of Louisiana (the “Commissioner”) and the Federal Deposit Insurance Corporation (“FDIC”) and the Company became a bank holding company regulated by the Federal Reserve Board.

The Federal Reserve Board has adopted capital adequacy guidelines under which it assesses the adequacy of capital in examining and supervising bank holding companies and in processing applications to it under the Bank Holding Company Act.   Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to each of its subsidiary banks and to commit resources to support each such bank.  Consistent with its source of strength policy for subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the corporation’s capital needs, asset quality and overall financial condition.

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 OFI regulations and prior Office of Thrift Supervision regulations, the Bank is required to maintain certain levels of capital.  At September 30, 2013 and 2012 the Bank was in compliance with its regulatory capital requirements as follows:

68

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

	Actual			For capital Adequacy purposes			To be well capitalized under prompt corrective action provisions
				Required			Required
Bank:	Amount		%	Amount		%	Amount		%
As of September 30, 2013:
Total Risk based capital	$	83,540	14.31%	$	46,707	8.0%	$	58,384	10.0%
(to risk-weighted assets)
Tier 1 capital	$	76,235	13.05%	$	23,353	4.0%	$	35,030	6.0%
(to risk-weighted assets)
Tier 1 capital	$	76,235	9.07%	$	33,572	4.0%	$	41,965	5.0%
(to average assets)
Bank:
As of September 30, 2012:
Total Risk based capital	$	79,670	14.09%	$	45,260	8.0%	$	56,576	10.0%
(to risk-weighted assets)
Tier 1 capital	$	72,580	12.82%	$	22,630	4.0%	$	33,945	6.0%
(to risk-weighted assets)
Tier 1 capital	$	72,580	8.65%	$	33,513	4.0%	$	41,891	5.0%
(to average assets)

The Company is also subject to certain capital requirements.  At September 30, 2013 the Tier 1 risk-based capital ratio, Tier 1 capital ratio and the total risk-based capital ratio were 14.39%, 10.02% and 15.66%, respectively.  At September 30, 2012 the Tier 1 risk-based capital ratio, Tier 1 capital ratio and the total risk-based capital ratio were 13.86%, 9.36% and 15.13%, respectively.

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 September 30, 2013.  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 is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

69

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the previous table) of risk-based capital (as defined in the regulations) to risk weighted assets (as defined), total Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).  Management believes, as of September 30, 2013, that the Bank meets all capital adequacy requirements to which it is are subject.

As of September 30, 2013, the most recent notification from its regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 core capital and Tier 1 leverage ratios as set forth in the previous tables.  There are no conditions or events since the notification that management believes have changed the Bank’s category.  The Bank’s actual capital amounts and ratios as of September 30, 2013 and 2012 are also presented in the previous table.  In July 2013, the federal banking agencies adopted rules that will, on January 1, 2015, implement the Basel III risk-weighted framework and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act in place of the existing risk-based capital rules and Basel framework that currently apply to the Company and the Bank.   Basel III is intended to improve both the quality and quantity of banking organizations’ capital, as well as to strengthen various aspects of the international capital standards for calculating regulatory capital.  Although we continue to evaluate the anticipated impact the new capital rules will have on us, we currently anticipate the Bank will remain well-capitalized in accordance with the regulatory standards.

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. 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 September 30, 2013, FHLB borrowed funds totaled $109.0 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 $184 million is available from the FHLB based on current collateral levels.  The Bank, if the need arises, may also access a line of credit in the amount of $59.9 million provided by two banks 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.

70

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

18.SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY ONLY)

Balance Sheets
	Year ended September 30,
	2013		2012 _
Assets:
Investment in subsidiary	$	80,724	$	77,240
Cash and cash equivalents		7,120		5,303
Other		1,217		998
Total assets	$	89,061	$	83,541
Stockholder’s equity	$	89,061	$	83,541

Statements of Earnings
	Year Ended September 30,
	2013			2012			2011
Dividends received from subsidiary	$	5,500		$	4,400		$	4,000
Equity in earnings of subsidiary (less than) greater
than dividends received		3,580			3,090			3,578
Interest income from subsidiary		4			5			5
Management fees and other expenses allocated to the
parent		(77	)		(77	)		(77	)
Other expenses - net		(464	)		(245	)		(471	)
Income before income taxes		8,543			7,173			7,035
Income tax benefit		(188	)		(112	)		(193	)
Net Income	$	8,731		$	7,285		$	7,228

71

TECHE HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2013, 2012 and 2011

(in thousands except share and per share data)

Statements of Cash Flows
	Year Ended September 30,
	2013			2012			2011
Cash flows from operating activities	$	4,971		$	3,925		$	3,487
Cash flow from investing activities:
Purchase of securities available-for-sale		(100	)		(186	)		(150	)
Proceeds from sale of land to bank		-			1,023			-
Proceeds from sale of securities		179			370			232
Net cash provided by investing activities		79			1,207			82
Cash flows from financing activities:
Dividends paid		(3,008	)		(2,983	)		(2,967	)
Proceeds from exercise of stock options		2,366			1,023			138
Net loan activity with ESOP		-			65			261
Cash paid for purchase of common stock for treasury		(2,591	)		(2,728	)		(1,196	)
Net cash used in financing activities		(3,233	)		(4,623	)		(3,764	)
Net (decrease) increase in cash and cash equivalents		1,817			509			(195	)
Cash and cash equivalents – beginning of year		5,303			4,794			4,989
Cash and cash equivalents – end of year	$	7,120		$	5,303		$	4,794

72

DIRECTORS OF TECHE HOLDING COMPANY
AND
TECHE FEDERAL BANK
Patrick O. Little, Chairman	Mary Coon Biggs	Ernest Freyou	W. Ross Little, Jr.
William T. Allen	Donelson T. Caffery, Jr.	Henry L. Friedman	Robert L. Wolfe, Jr.
William A. Anderson, III	J. L. Chauvin	Dr. Thomas F. Kramer	Maunette B. Risher - Advisory

OFFICERS OF TECHE FEDERAL BANK

Patrick O. Little	Chairman, President/CEO		Jason Kennemer		Vice President
W. Ross Little, Jr.	Sr. Executive Officer/Secretary		D. Ross Landry		Vice President
Thomas Aldrich	Sr. Vice President/HR Director		Vicki L. Laubach		Vice President
Darryl Broussard	Sr. Vice President/CLO		Billie Lis		Vice President
Belinda Cavazos	Sr. Vice President/CRO		Jill Noel		Vice President
J. L. Chauvin	Sr. Vice President/Treasurer/CFO		Cindy F. North		Vice President
Jason P. Freyou	Sr. Vice President/Asst. Sec./ COO		Brayton Peltier		Vice President
Eddie R. LeBlanc	Sr. Vice President/Internal Auditor		Bryan Rowell		Vice President
Terry Albarado	Vice President		Lesley E. Schexnayder		Vice President
Ronald Arceneaux	Vice President		Martin M. Vasquez		Vice President
Angela Badeaux	Vice President		Tina M. Vidrine		Vice President
Montreen D. Badeaux	Vice President		Daniel E. Adler, Sr.		Assistant Vice President
F. William Ball	Vice President		Paulette A. Boudreaux		Assistant Vice President
Patricia O. Begnaud	Vice President		Toya Broussard		Assistant Vice President
Genevieve V. Bihm	Vice President		Chasity Dupuy		Assistant Vice President
Georgia B. Boudreaux	Vice President		Denise Guidry		Assistant Vice President
Elmo P. Boudreaux, Jr.	Vice President		Ryan Haydel		Assistant Vice President
Irma Nell Bourque	Vice President		Henrietta S. Hollier		Assistant Vice President
Bart C. Boyer	Vice President		Christy B. Istre		Assistant Vice President
Mary Beth Brady	Vice President		Barbara A. Jesset		Assistant Vice President
Judy V. Breaux	Vice President		Wardell Ladmirault		Assistant Vice President
Glen W. Brown	Vice President		Debbie M. Lancon		Assistant Vice President
Kevin T. Caswell	Vice President		Janna Leblanc		Assistant Vice President
Jeanette D. Charles	Vice President		Paul Ledoux		Assistant Vice President
S. Michael Comeaux	Vice President		Christine Lynn		Assistant Vice President
Stephanie Dandry	Vice President		Monique McBride		Assistant Vice President
Gwendoline Doucet	Vice President		Vanessa McGehee		Assistant Vice President
Christopher Gondran	Vice President		David Morris		Assistant Vice President
Felecia Gumpert	Vice President		Aaron Ortego		Assistant Vice President
Karen Hardy	Vice President		Marty Richard		Assistant Vice President
Constance E. Harris	Vice President		Wendell Richard		Assistant Vice President
Chad Hebert	Vice President		Tyrsi Richards		Assistant Vice President
David Henry	Vice President		Linda Roman		Assistant Vice President
Christina Irvin-Simpson	Vice President		Tanya Thibodeaux		Assistant Vice President
Anne P. Jones	Vice President		Ashley Townley		Assistant Vice President
INDEPENDENT AUDITORS		SPECIAL COUNSEL		ST. LANDRY ADVISORY BOARD
Dixon Hughes Goodman LLP		Spidi & Fisch, PC		Martin A. Roy, Jr., Chairman
225 Peachtree Street NE, Suite 600		1227 25th Street, NW		H. Kent Aguillard
Atlanta, GA 30303		Suite 200 West		Anna Lee Dunbar
		Washington, DC  20037		Lynette Young Feucht
				Patrick Fontenot
LEGAL COUNSEL		REGISTRAR AND STOCK		Simon Howard Fournier
Biggs, Supple, Cremaldi and Curet, LLP		TRANFER AGENT		Morgan J. Goudeau, III
Lawless Building		Registrar and Transfer Company		Marvin Schwartzenburg
Willow Street		10 Commerce Drive
Franklin, LA  70538		Cranford, NJ  07016-3572
		(800) 525-7686
		Fax (908) 272-1006

73

EX-23

- Consent of Independent Registered Public Accounting Firm -

The Board of Directors and Stockholders

Teche Holding Company

We consent to the incorporation by reference in the registration statements No. 333-87354, 333-55913, 333-95583, 333-125218 and 333-175315 on Form S-8 of Teche Holding Company of our report dated December 20, 2013 with respect to the consolidated financial statements of Teche Holding Company and Subsidiary, included in the 2013 Teche Holding Company annual report and incorporated by reference in the 2013 Form 10-K of Teche Holding Company.

Atlanta, Georgia

December 20, 2013

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION

I, Patrick O. Little, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Teche Holding Company;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknessesin the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  December 20, 2013	By:	/s/ Patrick O. Little
		Patrick O. Little President and Chief Executive Officer

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION

I, J.L. Chauvin, Vice President and Treasurer, certify that:

1. I have reviewed this annual report on Form 10-K of Teche Holding Company;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknessesin the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  December 20, 2013	By:	/s/ J.L. Chauvin
		J.L. Chauvin Senior Vice President and Treasurer

EX-32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended September 30, 2013 (the “Report”) of Teche Holding Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof, we, Patrick O. Little, President and Chief Executive Officer, and J. L. Chauvin, Senior Vice President and Treasurer, certify, pursuant to 18 U.S.C. ‘1350, as adopted pursuant to ‘906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick O. Little	/s/ J.L. Chauvin
Patrick O. Little President and Chief Executive Officer (Principal Executive Officer)	J.L. Chauvin Senior Vice President and Treasurer (Principal Financial and Accounting Officer)

December 20, 2013

XML

14. EMPLOYEE STOCK PLANS - Activity (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Number of Options
Number of Options Outstanding, Beginning	305,897	310,131
Number of Options Exercised	(71,371)	(43,756)
Number of Options Forfeited	(11,465)	(10,698)
Number of Options Granted	8,000	50,220	46,240
Number of Options Outstanding, Ending	231,061	305,897	310,131
Number of Options Exercisable, Ending	141,767
Weighted Average Exercise Price
Weighted Average Exercise Price Outstanding, Beginning	$ 36.17	$ 34.28
Weighted Average Exercise Price Granted	$ 34.45	$ 26.6
Weighted Average Exercise Price Excercised	$ 35.18	$ 35.82
Weighted Average Exercise Price Forfeited/canceled	$ 44.82	$ 39.67
Weighted Average Exercise Price Outstanding, Ending	$ 37.03	$ 36.17	$ 34.28
Weighted Average Exercise Price Exercisable, September 30, 2013	$ 36.72
Weighted Average Remaining Contractual Life (in years)
Weighted Average Remaining Contractual Life (in years) Outstanding, Beginning	6 years 4 days	5 years 7 months 6 days
Weighted Average Remaining Contractual Life (in years) Outstanding, Ending	5 years 8 months 23 days	6 years 4 days
Weighted Average Remaining Contractual Life (in years) Exercisable, Ending	4 years 1 month 20 days
Aggregate Intrinsic Value
Aggregate Intrinsic Value Outstanding, Beginning	$ 1,365	$ 186
Aggregate Intrinsic Value Outstanding, Ending	2,013	1,365	186
Aggregate Intrinsic Value Exercisable, Ending	$ 1,281

XML

14. EMPLOYEE STOCK PLANS (Details Narrative) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Employee Stock Plans Details Narrative
Compensation expense related to ESOP	$ 250	$ 524	$ 435
Compensation cost charged against income for share-based compensation plans	444	503	531
Stock options granted	8,000	50,220	46,240
Weighted average fair value Per option	$ 5.82	$ 5.05	$ 4.68
Intrinsic value of options exercised	547	484	257
Fair value of options vested	143	518	333
Net cash received from options exercised under all share-based payment arrangements	2,366
Actual tax benefit in stockholders' equity realized for the tax deductions from option exercise of the share based payment arrangements and the tax effect of restricted stock vesting	95
Unrecognized compensation cost related to non vested share based compensation arrangements granted under the Company's stock option plans	477
Weighted average period of unrecognized compensation cost related to non-vested share-based compensation arrangements	2 years 10 months 24 days
Fair value of restricted stock vested and the fair value of shares vested as direct compensation	308	458	139
Unrecognized compensation cost related to non vested share based compensation arrangements granted under the Company's stock award plans	$ 698
Weighted Average period of unrecognized compensation cost related to non vested share based compensation arrangements granted under the Company's stock award plans	1 year 9 months 25 days

XML

10. INCOME TAXES

12 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of September 30, 2013 and 2012 are as follows:

	September 30,
	2013	2012
Deferred tax assets:
Allowance for loan losses	$              2,386	$               2,557
Accruals and stock based compensation	1,137	1,288
Impairments on securities	7	12
Total deferred tax assets	3,530	3,857
Deferred tax liabilities:
Deferred loan fees and costs – net	246	261
Tax over book depreciation	1,400	1,392
Net unrealized gain on investment securities	308	485
Dividends on FHLB stock	38	101
Other	324	351
Total deferred tax liabilities	2,316	2,590
Net deferred tax asset	$              1,214	$              1,267

The components of income tax expense are as follows:

	Year Ended September 30,
	2013	2012	2011
Current	$           4,167	$         3,923	$         3,086
Deferred	230	(268)	388
	$          4,397	$        3,655	$         3,474

Income taxes differ from the amounts computed by applying the applicable statutory U.S. Federal income tax rate to earnings before income taxes. The reasons for these differences are as follows:

	Year Ended September 30,
	2013	2012		2011
Taxes computed at statutory rates	$         4,595	$      3,720	$     3,639
Decrease in taxes due to net nontaxable income	(312)	(330)	(205)
Increase in taxes due to nondeductible expenses	114	166	40
Tax credits	-	-	-
Other	-	99	-
	$       4,397	$      3,655	$     3,474
Effective tax rate	33.5%	33.4%	32.5%

GAAP does not require that deferred income taxes be provided on certain portions of the allowance for loan losses that existed as of September 30, 1988. At September 30, 2013, retained earnings include approximately $4.4 million representing such allowances for which no deferred income taxes have been provided.

XML

4. LOANS RECEIVABLE - Consumer Credit Exposure Credit Risk Profile - Payment Activity (Details 6) (USD $) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Consumer-Mobile Homes	$ 43,198	$ 37,030
Consumer-Other Loans	45,171	41,110
Total	88,369	78,140
Performing
Consumer-Mobile Homes	42,952	36,606
Consumer-Other Loans	44,905	40,680
Total	87,857	77,286
Nonperforming
Consumer-Mobile Homes	246	424
Consumer-Other Loans	266	430
Total	$ 512	$ 854

XML

Unaudited Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
INTEREST INCOME:
Interest and fees on loans	$ 35,734	$ 36,669	$ 36,679
Interest and dividends on securities	1,204	1,872	2,070
Other interest income	490	593	609
TOTAL INTEREST INCOME	37,428	39,134	39,358
INTEREST EXPENSE:
Deposits	2,872	4,101	5,290
Advances from Federal Home Loan Bank	3,878	3,979	3,878
TOTAL INTEREST EXPENSE	6,750	8,080	9,168
NET INTEREST INCOME	30,678	31,054	30,190
PROVISION FOR LOAN LOSSES	400	1,910	3,900
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	30,278	29,144	26,290
NON-INTEREST INCOME:
Total other-than temporary impairment losses	0	(35)	(532)
Portion of impairment losses recognized in other comprehensive loss	0	(93)	246
Net impairment losses recognized in earnings	0	(128)	(286)
Service charges and other	14,718	14,341	14,779
Gain on sale of premises and equipment	0	205	103
Gain on equity securities	42	167	96
Gain on sale of loans	2,267	95	25
Other income	814	830	826
TOTAL NON-INTEREST INCOME	17,841	15,510	15,543
NON-INTEREST EXPENSE:
Compensation and employee benefits	19,768	18,425	16,717
Occupancy, equipment and data processing expense	6,919	6,500	6,120
Marketing and professional fees	3,389	3,123	2,776
Deposit insurance premiums	480	550	725
Louisiana shares tax	406	568	577
Other operating expenses	4,029	4,548	4,216
TOTAL NON-INTEREST EXPENSE	34,991	33,714	31,131
INCOME BEFORE INCOME TAXES	13,128	10,940	10,702
INCOME TAXES	4,397	3,655	3,474
NET INCOME	$ 8,731	$ 7,285	$ 7,228
BASIC EARNINGS PER COMMON SHARE	$ 4.29	$ 3.55	$ 3.49
DILUTED EARNINGS PER COMMON SHARE	$ 4.22	$ 3.51	$ 3.45
DIVIDENDS PER SHARE	$ 1.48	$ 1.46	$ 1.44

XML

3. SECURITIES

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

SECURITIES

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

	September 30, 2013
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.		$	1,383	$	52	$	-	$	1,435
Federal Home Loan Mortgage Corp.			1,405		58		-		1,463
Federal National Mortgage Association			9,231		461		-		9,692
			12,019		571		-		12,590
CMOs:
Government National Mortgage Assoc.			1,175		121		-		1,296
Marketable equity securities			375		186		-		561
		$	13,569	$	878	$	-	$	14,447

	September 30, 2012
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.		$	1,618	$	56	$	-	$	1,674
Federal Home Loan Mortgage Corp.			2,077		92		-		2,169
Federal National Mortgage Association			12,914		928		-		13,842
			16,609		1,076		-		17,685
CMOs:
Government National Mortgage Assoc.			1,604		184		-		1,788
Marketable equity securities			371		125		(2)		494
		$	18,584	$	1,385	$	(2)	$	19,967

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

	September 30, 2013
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment securities:
Time Deposits other banks		$	52,995	$	-	$	-	$	52,995
Mortgaged-backed securities:
Federal National Mortgage Association			11,650		578		(1)		12,227
Federal Home Loan Mortgage Corp			2,528		155		-		2,683
CMOs:
Federal Home Loan Mortgage Corp.			43		1		-		44
Federal National Mortgage Association			516		33		-		549
		$	67,732	$	767	$	(1)	$	68,498

	September 30, 2012
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment securities:
Time Deposits other banks		$	44,673	$	-	$	-	$	44,673
Mortgaged-backed securities:
Federal National Mortgage Association			17,364		1,180		-		18,544
Federal Home Loan Mortgage Corp.			3,874		321		-		4,195
CMOs:
Federal Home Loan Mortgage Corp.			76		5		-		81
Federal National Mortgage Association			826		71		-		897
		$	66,813	$	1,577	$	-	$	68,390

Details concerning securities with unrealized losses as of September 30, 2013 are as follows:

	Securities with losses					Securities with losses
	under 12 months					over 12 months						Total
(In thousands)	Fair Value		Gross unrealized losses			Fair    value			Gross Unrealized losses			Fair   value			Gross unrealized losses
Held-to-Maturity
Mortgaged-backed securities:
Federal National Mortgage Association	$	-		$	-		$	110		$	(1)		$	110		$	(1)
Total	$	-		$	-		$	110		$	(1)		$	110		$	(1)

The Company has 330 investments at September 30, 2013 of which one had immaterial unrealized losses.

Details concerning securities with unrealized losses as of September 30, 2012 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	$	-	$	-	$	5	$	(2)	$	5	$	(2)
Total	$	-	$	-	$	5	$	(2)	$	5	$	(2)

The Company had 325 investments at September 30, 2012 of which two immaterial had unrealized losses.

At September 30, 2013 and 2012, securities with a cost of approximately $17,000 and $18,850 were pledged to secure deposits and advances from the FHLB of Dallas as required or permitted by law.

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2013, has not been presented due to the investment in mortgage-backed securities. Actual maturities of these securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2013, is 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	$	26,531	$	26,531
Due after one year but within five years		26,464		26,464
Total		52,995		52,995
Mortgage-backed securities		14,737		15,503
	$	67,732	$	68,498

The following table presents a roll-forward of the amount of credit losses on debt securities held by the Company for which a portion of OTTI was recognized in other comprehensive income for the years ended September 30, 2013 and 2012:

Beginning balance of credit losses at October 1, 2012	$	-
Other-than-temporary impairment credit losses on securities not previously OTTI		-
Increases for additional credit losses on securities previously determined to be OTTI		-
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		-
Ending balance of cumulative credit losses recognized in earnings at September 30, 2013	$	-

The beginning balance includes credit related losses included in OTTI charges recognized on debt securities.

Beginning balance of credit losses at October 1, 2011	$	1,563
Other-than-temporary impairment credit losses on securities not previously OTTI		35
Increases for additional credit losses on securities previously determined to be OTTI		93
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		(1,691)
Ending balance of cumulative credit losses recognized in earnings at September 30, 2012	$	-

Debt securities with unrealized losses are reviewed for OTTI at each reporting period. Management monitors these securities for evidence of credit deterioration that could indicate that an OTTI has occurred. Among other factors, changes in the security’s credit rating from a credit rating agency are considered as evidence of potential credit deterioration. For securities that have indications of credit related impairment, management analyzes future expected cash flows to determine if any credit related impairment is evident. Estimated cash flows are determined using management’s best estimate of future cash flows based on specific assumptions. The assumptions used to determine the cash flows were based on estimates of loss severity, credit default, and prepayment speeds. For each security, these assumptions were developed by taking the trailing six month historical average rate for the security.

Gains on sale of available for sale securities of $50, $167 and $96 were realized on sales of securities in the years ended September 30, 2013, 2012, and 2011 respectively. Proceeds of $179, $370 and $232 were received from the sale of available for sale securities during the twelve months ended September 30, 2013, 2012, and 2011 respectively. Losses on available for sale securities of $8, $0, and $0 were realized on sales of securities in the years ended September 30, 2013, 2012 and 2011.

Non-credit related OTTI losses in accumulated other comprehensive income were $0 as of September 30, 2013. During the fourth quarter ended September 30, 2012, private-label mortgage backed securities in our held-to-maturity portfolio with a carrying amount of $1,766 were sold for an immaterial gain. While the Company had the ability to hold these securities, due to the current uncertainties in the market place, management made the decision to move these securities out of the portfolio.

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17. REGULATORY CAPITAL

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

REGULATORY CAPITAL

On June 21, 2011, the Bank completed the conversion of its existing federal savings bank charter to that of a Louisiana commercial bank charter (the “Charter Conversion”).  Upon completion of the Charter Conversion, the Bank became a Louisiana state-chartered commercial bank regulated by the Commissioner of the Office of Financial Institutions of the State of Louisiana (the “Commissioner”) and the Federal Deposit Insurance Corporation (“FDIC”) and the Company became a bank holding company regulated by the Federal Reserve Board.

The Federal Reserve Board has adopted capital adequacy guidelines under which it assesses the adequacy of capital in examining and supervising bank holding companies and in processing applications to it under the Bank Holding Company Act. Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to each of its subsidiary banks and to commit resources to support each such bank.  Consistent with its source of strength policy for subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the corporation’s capital needs, asset quality and overall financial condition.

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 OFI regulations and prior Office of Thrift Supervision regulations, the Bank is required to maintain certain levels of capital. At September 30, 2013 and 2012 the Bank was in compliance with its regulatory capital requirements as follows:

	Actual				For capital Adequacy purposes				To be well capitalized under prompt corrective action provisions
					Required				Required
Bank:	Amount		%		Amount		%		Amount		%
As of September 30, 2013:
Total Risk based capital	$	83,540		14.31%	$	46,707		8.0%	$	58,384		10.0%
(to risk-weighted assets)
Tier 1 capital	$	76,235		13.05%	$	23,353		4.0%	$	35,030		6.0%
(to risk-weighted assets)
Tier 1 capital	$	76,235		9.07%	$	33,572		4.0%	$	41,965		5.0%
(to average assets)
Bank:
As of September 30, 2012:
Total Risk based capital	$	79,670		14.09%	$	45,260		8.0%	$	56,576		10.0%
(to risk-weighted assets)
Tier 1 capital	$	72,580		12.82%	$	22,630		4.0%	$	33,945		6.0%
(to risk-weighted assets)
Tier 1 capital	$	72,580		8.65%	$	33,513		4.0%	$	41,891		5.0%
(to average assets)

The Company is also subject to certain capital requirements. At September 30, 2013 the Tier 1 risk-based capital ratio, Tier 1 capital ratio and the total risk-based capital ratio were 14.39%, 10.02% and 15.66%, respectively. At September 30, 2012 the Tier 1 risk-based capital ratio, Tier 1 capital ratio and the total risk-based capital ratio were 13.86%, 9.36% and 15.13%, respectively.

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 September 30, 2013. 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 is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital

amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the previous table) of risk-based capital (as defined in the regulations) to risk weighted assets (as defined), total Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2013, that the Bank meets all capital adequacy requirements to which it is are subject.

As of September 30, 2013, the most recent notification from its regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 core capital and Tier 1 leverage ratios as set forth in the previous tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of September 30, 2013 and 2012 are also presented in the previous table. In July 2013, the federal banking agencies adopted rules that will, on January 1, 2015, implement the Basel III risk-weighted framework and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act in place of the existing risk-based capital rules and Basel framework that currently apply to the Company and the Bank.   Basel III is intended to improve both the quality and quantity of banking organizations’ capital, as well as to strengthen various aspects of the international capital standards for calculating regulatory capital.  Although we continue to evaluate the anticipated impact the new capital rules will have on us, we currently anticipate the Bank will remain well-capitalized in accordance with the regulatory standards.

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. 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 September 30, 2013, FHLB borrowed funds totaled $109.0 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 $184 million is available from the FHLB based on current collateral levels. The Bank, if the need arises, may also access a line of credit in the amount of $59.9 million provided by two banks 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.

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10. INCOME TAXES - Deferred Tax Assets (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Deferred tax assets:
Allowance for loan losses	$ 2,386	$ 2,557
Accruals and stock based compensation	1,137	1,288
Impairments on securities	7	12
Total deferred tax assets	3,530	3,857
Deferred tax liabilities:
Deferred loan fees and costs – net	246	261
Tax over book depreciation	1,400	1,392
Net unrealized gain on investment securities	308	485
Dividends on FHLB stock	38	101
Other	324	351
Total deferred tax liabilities	2,316	2,590
Net deferred tax asset	$ 1,214	$ 1,267

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4. LOANS RECEIVABLE - Modifications (Details 9) (USD $)	12 Months Ended
	Sep. 30, 2013 Contract	Sep. 30, 2012 Contract
Number of Contracts	1	4
Pre-Modification Outstanding Recorded Investment	$ 935	$ 2,373
Post-Modification Outstanding Recorded Investment	987	2,373
Commercial real estate loans [Member]
Number of Contracts	1	3
Pre-Modification Outstanding Recorded Investment	935	2,248
Post-Modification Outstanding Recorded Investment	987	2,248
Commercial non-real estate [Member]
Number of Contracts	0	1
Pre-Modification Outstanding Recorded Investment	0	125
Post-Modification Outstanding Recorded Investment	0	125
Commercial construction loans
Number of Contracts	0	0
Pre-Modification Outstanding Recorded Investment	0	0
Post-Modification Outstanding Recorded Investment	0	0
Residential real estate loans
Number of Contracts	0	0
Pre-Modification Outstanding Recorded Investment	0	0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0

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11. NON-INTEREST EXPENSE

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

NON-INTEREST EXPENSE

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

	Year Ended September 30,
	2013	2012	2011
Occupancy, including depreciation, insurance,
rent, utilities, etc.	$          2,624	$        2,508	$        2,278
Equipment, including depreciation, telephone,
etc.	2,719	2,632	2,623
Data processing	1,576	1,360	1,219
	$         6,919	$        6,500	$       6,120

Other operating expenses consisted of the following:

	Year Ended September 30,
	2013	2012	2011
Stationery, printing and postage	$         1,054	$            979	$        1,048
Debit card expense, and other deposit related costs	1,909	1,655	1,972
Other	1,066	1,914	1,196
	$        4,029	$         4,548	$       4,216

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4. LOANS RECEIVABLE - Allowance for loan losses (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Loans Receivable - Allowance For Loan Losses Details 1
Beginning balance	$ 8,559	$ 8,331	$ 9,256
Provision for Loan Losses	400	1,910	3,900
Recoveries	150	203	57
Loans Charged-offs	(1,241)	(1,885)	(4,882)
Ending balance	$ 7,868	$ 8,559	$ 8,331

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16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Quantitative Information about Level 3 (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Impaired Loans
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Estimate	$ 1,333	$ 5,053
Valuation Techniques	Discounted expected cash flows	Property appraisals
Unobservable Input	Interest rate and repayment term	Management discount for property type and recent market volatility
Range (Weighted Average)	Weighted average discount rate 6.59%	5%-30% discount
Other Real Estate Owned
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Estimate	$ 741	$ 513
Valuation Techniques	Property appraisals	Property appraisals
Unobservable Input	Management discount for property type and recent market volatility	Management discount for property type and recent market volatility
Range (Weighted Average)	10%-33% discount	3%-61% discount

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4. LOANS RECEIVABLE (Details 10) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Loans Receivable Details 10
Commercial real estate loans	$ 0	$ 810
Commercial non-real estate loans	0	2
Commercial-construction loans	0	0
Commercial-land	0	4,344
Residential-construction loans	0	0
Residential-real estate loans	1,973	4,249
Consumer-Mobile home loans	246	425
Consumer-other	206	343
Total	$ 2,425	$ 10,173

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16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Fair value measurements of financial assets measured at fair value on a recurring and nonrecurring basis

	Fair Value At September		Fair Value Hierarchy
	30, 2013		Level 1		Level 2		Level 3
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,435	$	-	$	1,435	$	-
Federal Home Loan Mortgage Corp.		1,463		-		1,463		-
Federal National Mortgage Assoc.		9,692		-		9,692		-
		12,590		-		12,590		-
CMOs:
Government National Mortgage Assoc.		1,296		-		1,296		-
Marketable equity securities		561		561		-		-
Total recurring	$	14,447	$	561	$	13,886	$	-
Assets valued on a non-recurring basis:
Impaired loans	$	1,471	$	-	$	-	$	1,471
Other real estate owned		741		-		-		741
Total non-recurring	$	2,212	$	-	$	-	$	2,212

Quantitative Information about Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate	Valuation Techniques		Unobservable Input		Range
(In thousands)
September 30, 2013:
Impaired Loans	$1,333		Discounted expected cash flows	Interest rate and repayment term	Weighted average discount rate 6.59% Maturity range 60-72 months
Other real estate owned	$741		Property appraisals	Management discount for property type and recent market volatility	10%-33% discount

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate	Valuation Techniques		Unobservable Input		Range
(In thousands)
September 30, 2012:
Impaired Loans	$5,053		Property appraisals	Management discount for property type and recent market volatility	5%-30% discount
Other real estate owned	$513		Property appraisals	Management discount for property type and recent market volatility	3%-61% discount

The estimated fair values of the Company's financial instruments

	Fair Value At September		Fair Value Hierarchy
	30, 2012		Level 1		Level 2		Level 3
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,674	$	-	$	1,674	$	-
Federal Home Loan Mortgage Corp.		2,169		-		2,169		-
Federal National Mortgage Assoc.		13,842		-		13,842		-
		17,685		-		17,685		-
CMOs:
Government National Mortgage Assoc.		1,788		-		1,788		-
Marketable equity securities		494		494		-		-
Total recurring	$	19,967	$	494	$	19,473	$	-
Assets valued on a non-recurring basis:
Impaired loans		5,053		-		-		5,053
Other real estate owned		513		-		-		513
Total non-recurring	$	5,566	$	-	$	-	$	5,566

			Fair Value Measurements at September 30, 2013
	Carrying Amount	Estimated Fair Value	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
Financial assets:			(Level 1)	(Level 2)	(Level 3)
Cash and cash equivalents	$   34,332	$   34,332	$                 34,332	$                                  -	$                           -
Investment securities	82,179	82,945	561	82,384	-
FHLB stock	5,068	5,068	-	5,068	-
Accrued interest receivable	2,091	2,091	-	2,091	-
Life Insurance contracts	15,125	15,125	-	15,125	-
Loans receivable, net	676,535	680,901	-	-	680,901
Financial liabilities:
Deposits	650,791	652,019	100,822	551,197	-
Advance from Federal Home Loan  Bank	108,997	113,774	-	113,774	-
Accrued interest payable	353	353	-	353	-
			Fair Value Measurements at September 30, 2012
	Carrying Amount	Estimated Fair Value	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
Financial assets:			(Level 1)	(Level 2)	(Level 3)
Cash and cash equivalents	$     37,300	$    37,300	$          37,300	$                          -	$                   -
Investment securities	86,780	88,357	494	87,863	-
FHLB stock	6,809	6,809	-	6,809	-
Accrued interest receivable	2,514	2,514	-	2,514	-
Life Insurance contracts	14,513	14,513	-	14,513	-
Loans receivable, net	665,842	665,384	-	-	665,384
Financial liabilities:
Deposits	617,722	621,676	93,410	528,266	-
Advance from Federal Home Loan  Bank	142,751	153,855		153,855
Accrued interest payable	370	370	-	370	-

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3. Securities (Tables)

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Available-for-sale Securities

	September 30, 2013
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.		$	1,383	$	52	$	-	$	1,435
Federal Home Loan Mortgage Corp.			1,405		58		-		1,463
Federal National Mortgage Association			9,231		461		-		9,692
			12,019		571		-		12,590
CMOs:
Government National Mortgage Assoc.			1,175		121		-		1,296
Marketable equity securities			375		186		-		561
		$	13,569	$	878	$	-	$	14,447

	September 30, 2012
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.		$	1,618	$	56	$	-	$	1,674
Federal Home Loan Mortgage Corp.			2,077		92		-		2,169
Federal National Mortgage Association			12,914		928		-		13,842
			16,609		1,076		-		17,685
CMOs:
Government National Mortgage Assoc.			1,604		184		-		1,788
Marketable equity securities			371		125		(2)		494
		$	18,584	$	1,385	$	(2)	$	19,967

Held-to-maturity securities

	September 30, 2013
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment securities:
Time Deposits other banks		$	52,995	$	-	$	-	$	52,995
Mortgaged-backed securities:
Federal National Mortgage Association			11,650		578		(1)		12,227
Federal Home Loan Mortgage Corp			2,528		155		-		2,683
CMOs:
Federal Home Loan Mortgage Corp.			43		1		-		44
Federal National Mortgage Association			516		33		-		549
		$	67,732	$	767	$	(1)	$	68,498

	September 30, 2012
(In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment securities:
Time Deposits other banks		$	44,673	$	-	$	-	$	44,673
Mortgaged-backed securities:
Federal National Mortgage Association			17,364		1,180		-		18,544
Federal Home Loan Mortgage Corp.			3,874		321		-		4,195
CMOs:
Federal Home Loan Mortgage Corp.			76		5		-		81
Federal National Mortgage Association			826		71		-		897
		$	66,813	$	1,577	$	-	$	68,390

Held-to-Maturity with unrealized losses

	Securities with losses					Securities with losses
	under 12 months					over 12 months						Total
(In thousands)	Fair Value		Gross unrealized losses			Fair    value			Gross Unrealized losses			Fair   value			Gross unrealized losses
Held-to-Maturity
Mortgaged-backed securities:
Federal National Mortgage Association	$	-		$	-		$	110		$	(1)		$	110		$	(1)
Total	$	-		$	-		$	110		$	(1)		$	110		$	(1)

Available-for-sale securities with unrealized losses

	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	$	-	$	-	$	5	$	(2)	$	5	$	(2)
Total	$	-	$	-	$	5	$	(2)	$	5	$	(2)

Securities by contractual maturity

(In thousands)		Amortized Cost		Fair Value
Due within one year	$	26,531	$	26,531
Due after one year but within five years		26,464		26,464
Total		52,995		52,995
Mortgage-backed securities		14,737		15,503
	$	67,732	$	68,498

Cumulative credit losses recognized in earnings

Beginning balance of credit losses at October 1, 2012	$	-
Other-than-temporary impairment credit losses on securities not previously OTTI		-
Increases for additional credit losses on securities previously determined to be OTTI		-
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		-
Ending balance of cumulative credit losses recognized in earnings at September 30, 2013	$	-

Beginning balance of credit losses at October 1, 2011	$	1,563
Other-than-temporary impairment credit losses on securities not previously OTTI		35
Increases for additional credit losses on securities previously determined to be OTTI		93
Reduction for increases in cash flows		-
Reduction due to credit impaired securities sold or fully settled		(1,691)
Ending balance of cumulative credit losses recognized in earnings at September 30, 2012	$	-

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation - The consolidated financial statements include the accounts of Teche Holding Company and its wholly-owned subsidiary, Teche Federal Bank (the “Bank” and together with Teche Holding Company “the Company”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates principally in the community bank segment by attracting deposits from the general public and using such deposits primarily to originate loans. These loans include those secured by first mortgages on owner-occupied, family residences as well as home improvement and other consumer loans. The Company also makes commercial mortgage and non-mortgage loans.

Concentrations of Credit Risk

Concentrations of Credit Risk – The Company makes loans to individuals and small businesses located primarily in southern Louisiana for various personal and commercial purposes. The Company has a diversified loan portfolio and the borrowers’ ability to repay their loans is not directly dependent upon any specific economic sector. The Company will from time to time purchase loans from outside the market area.

Use of Estimates

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents - Cash and cash equivalents comprise cash on hand and non-interest bearing and interest bearing demand deposits with other financial institutions. The Company is required to maintain certain cash reserves relating to its deposit liabilities. At September 30, 2013 that Federal Reserve requirement was $9.2 million.

Securities

Securities - Securities are classified as held-to-maturity or available-for-sale. Management determines the classification of securities when they are purchased and reevaluates this classification periodically as conditions change that could require reclassification.

Securities which the Company both positively intends and has the ability to hold to maturity are classified as securities held-to-maturity and are carried at amortized cost. Intent and ability to hold are not considered satisfied when a security is available to be sold in response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management strategy.

Securities not meeting the criteria to be classified as securities held-to-maturity are classified as available-for-sale and are carried at fair value. Net unrealized holding gains or losses are excluded from net income and are recognized, net of income taxes, in other comprehensive income and in accumulated other comprehensive income, a separate component of stockholders’ equity.

Premiums and discounts on securities, both those held-to-maturity and those available-for-sale, are amortized and accreted to income as an adjustment to the securities’ yields using the interest method. Realized gains and losses on securities, including declines in value judged to be other than temporary, are reported as a component of income. The cost of securities sold is specifically identified for use in calculating realized gains and losses.

If the fair value of a debt security is below its amortized cost basis at the quarter end, the security is evaluated for other-than-temporary impairment (“OTTI”). For debt securities, the Company considers its intention to sell the security. If the Company does not intend on selling the security, then it is evaluated whether it is more likely than not it will be required to sell the security before recovery of the amortized cost. If the Company fails either of those tests, then the Company records OTTI for the affected security equal to the difference between the fair value and amortized cost.

If it is not more likely than not that the Company will be required to sell a debt security, then it goes to the next step to determine if OTTI exists. In determining if OTTI exists, management considers: (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions related to the security, industry or geographic area, (3) the financial condition and near-term prospects of the issuer, (4) failure of the issuer to make scheduled interest or principal payments and the outlook for receiving the contractual cash flows of the investments, (5) changes in the rating of the security (for purposes of the evaluation, a drop in the rating below AA is considered adverse) and (6) historical and subsequent volatility of fair value of the security. If these conditions provide an indication of a reduction in expected cash flows, then cash flows are evaluated to determine the amount of credit-related impairment equal to the present value of cash flows not expected to be received. If OTTI has been identified, the credit-related impairment, to the extent it does not reduce the security below fair value, is charged to earnings and the non-credit-related impairment is adjusted through other comprehensive income for both held to maturity and available-for-sale securities.

For marketable equity securities, the Company evaluates its ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Evidence considered to determine anticipated recovery are analysts reports on the issuer and the financial condition of the issuer or the industry. If OTTI is identified, the security is adjusted to fair value through a charge to earnings.

During the years ended September 30, 2012 and 2011, the Company recognized non-credit impairment charges in other comprehensive loss related to certain held-to-maturity securities. The cumulative amount of these charges created a separate accumulated other comprehensive loss for held-to-maturity securities. This accumulated other comprehensive loss is being accreted to other comprehensive income over the remaining life of the security in a prospective manner on the basis of the amount and timing of future estimated cash flows. See Note 3 for further discussion of OTTI on investment securities.

Loans Receivable - Loans receivable are stated at the unpaid principal balances, less the allowance for loan losses, net deferred loan fees, and unearned premiums and discounts. The unearned premiums and discounts relate principally to purchased loans. Interest on loans is credited to income based on the principal amount outstanding using the interest method.

When doubt exists as to the collectability of a loan (typically when the loan is 90 days’ delinquent or impaired), the loan is placed on non-accrual status. When a loan is placed on non-accrual status, interest accrued prior to the determination of uncollectibility is reversed from income. Loans are returned to an accruing status only as payments are received and when collection of all principal and interest is no longer in doubt. Payments received on such non-accrual loans are applied first to recovery of lost interest and next to outstanding loan amounts.

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include troubled debt restructurings and non-homogeneous loans in which full payment of all scheduled amounts due is not expected. The Company calculates a reserve required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral if the loan is collateral dependent.

Loans Receivable

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance available for losses incurred on loans. Any losses are charged to the allowance for loan losses when the loss is confirmed. Recoveries are credited to the allowance at the time of recovery.

Management estimates the level of losses that is adequate to absorb probable losses inherent in the existing portfolio. Based on these estimates, an amount is charged to or recovered from the provision for loan losses and credited or debited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb such losses.

Management’s judgment as to the level of losses on existing loans involves the consideration of current economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio, and the present level of the allowance; results of examination of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral.

It should be understood that estimates of loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses which are substantially different from the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated balance sheets is adequate to absorb probable losses inherent in the loan portfolio.

Allowance for Loan Losses

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance available for losses incurred on loans. Any losses are charged to the allowance for loan losses when the loss is confirmed. Recoveries are credited to the allowance at the time of recovery.

Management estimates the level of losses that is adequate to absorb probable losses inherent in the existing portfolio. Based on these estimates, an amount is charged to or recovered from the provision for loan losses and credited or debited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb such losses.

Management’s judgment as to the level of losses on existing loans involves the consideration of current economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio, and the present level of the allowance; results of examination of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral.

It should be understood that estimates of loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses which are substantially different from the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated balance sheets is adequate to absorb probable losses inherent in the loan portfolio.

Loan Fees, Loan Costs, Discounts and Premiums

Loan Fees, Loan Costs, Discounts and Premiums - Loan origination fees, certain direct loan origination costs and discounts and premiums on loans are deferred and amortized as an adjustment to the related loan’s yield using the interest method over the contractual life of the loan.

Federal Home Loan Bank Stock

Federal Home Loan Bank Stock - Federal Home Loan Bank (“FHLB”) stock is recorded at cost and is periodically reviewed for impairment. The Company owns stock in the FHLB of Dallas in order to gain access to cost effective funding and liquidity sources. The Company considers the capital position of the FHLB of Dallas as well as recent redemptions of the common stock when considering whether or not the investment is impaired. As of September 30, 2013 the FHLB of Dallas was in compliance with its regulatory capital requirements, and was still redeeming excess activity-based common stock, therefore the Company concluded that the investment was not impaired. The FHLB of Dallas received an S&P rating of AA+ which reflects its consistent risk-adjusted earnings, superior asset quality, and unique position as a key funding source to its member institutions, as well as the substantial support of the U.S. Government.

No ready market exists for the FHLB of Dallas stock. It has no quoted market value and is carried at cost. Cost approximates fair market value based upon the redemption policies and practices of the FHLB of Dallas, which provide redemption at par.

Goodwill

Goodwill - Goodwill does not require amortization but is subject to at least an annual assessment for impairment, unless interim events or circumstances make it more likely than not that an impairment loss has occurred. Impairment is defined as that amount by which the implied fair value of the goodwill is less than the goodwill’s carrying value. Impairment losses would be charged to operating expense. The existing goodwill is not deductible for income tax purposes. For the purposes of evaluating goodwill, the Company has determined that it operates only one reporting unit. The Company performed a qualitative assessment and determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying amount at September 30, 2013.

Core Deposit Intangible

Core Deposit Intangible - The core deposit intangible with a cost of $520 and accumulated amortization of $514 and $508 at September 30, 2013 and 2012, respectively, is included in prepaid expenses and other assets on the consolidated balance sheets.

Mortgage Servicing Rights

Mortgage Servicing Rights - Servicing assets are recognized at fair value as separate assets when rights are acquired through purchase or sale of financial assets and are amortized over the estimated life of the underlying assets. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The present value of future earnings is the estimated market value for the loans, calculated by a third party using consensus assumptions that a third party purchaser would utilize in evaluating potential acquisition of the servicing such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, prepayment speeds, and default rates and losses. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. If the fair value is less than the amortized value of the servicing asset, a valuation allowance is established. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Capitalized servicing rights are amortized in proportion to and over the period of the estimated future net servicing income of the underlying financial asset.

Premises and Equipment

Premises and Equipment - Land is carried at cost. Buildings and equipment are carried at cost less accumulated depreciation. The Company computes depreciation generally on the straight-line method for financial reporting. The estimated useful lives used to compute depreciation are: buildings and improvements, twenty to forty years; and furniture, fixtures and equipment, three to ten years.

Real Estate Owned

Real Estate Owned - Real estate acquired through, or in lieu of, foreclosure is initially recorded at the fair value at the time of foreclosure, less estimated selling costs, and any related write-down is charged to the allowance for loan losses. Valuations are periodically performed by management and provisions for estimated losses on real estate owned are charged to income when fair value is determined to be less than the carrying value. Costs relative to the development and improvement of properties are capitalized to the extent realizable, whereas, ordinary upkeep disbursements are charged to expense. The ability of the Company to recover the carrying value of real estate is based upon future sales of the real estate owned. The ability to affect such sales is subject to market conditions and other factors, many of which are beyond the Company’s control. Operating income of such properties, net of related expenses, and gains and losses on their disposition are included in the accompanying consolidated statements of income.

Life Insurance Contracts

Life Insurance Contracts - Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Company. The Company is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in other non-interest income.

Employee Stock Ownership Plan "ESOP"

Employee Stock Ownership Plan (“ESOP”) - The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of Teche Federal Bank’s employees who meet certain eligibility requirements. The Company records compensation expense associated with the ESOP based on the average market price (fair value) of the total Company shares committed to be released, and subsequently allocated to participants, during the year. The Company further records as compensation expense any dividends declared on unallocated Company shares in the ESOP trust. Earnings per share computations include any allocated shares in the ESOP trust.

Income Taxes

Income Taxes - The Company follows the practice of filing a consolidated federal and state return. Income taxes are allocated to each company as if filed separately for federal purposes.

Certain items of income and expense for financial reporting are recognized differently for income tax purposes (principally the provision for loan losses and depreciation). Provisions for deferred taxes are made in recognition of such temporary differences using the liability method. Current income taxes are recorded based on amounts due with the current income tax returns. The need for a valuation allowance is considered when it is determined more likely than not that a deferred tax asset will not be realized.

The Company accounts for penalties and interest related to income tax liabilities as a component of other expense. The Company and its subsidiaries’ tax filings for the years ended September 30, 2010 through 2012 are currently open to audit under statutes of limitation by the Internal Revenue Service.

Income Per Share

Income Per Share - Basic net income per common share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Shares controlled by the ESOP are not considered in the weighted average shares outstanding until the shares are committed for allocation to an employee’s individual account. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. Diluted EPS is computed by dividing net income by the total of the weighted-average number of shares outstanding plus the effect of outstanding options and stock grants. The dilution effect of stock options and stock grants is determined using the treasury stock method. The effect of any anti-dilutive common stock equivalents is excluded from the diluted EPS computation.

Comprehensive Income

Comprehensive Income - Comprehensive income includes net income and other comprehensive income or loss, which in the case of the Company includes only unrealized gains and losses on securities, net of related income taxes. For the period September 30, 2013 and 2012 there were no items reclassified out of other comprehensive income with the exception of realized gains.

Stock-Based Compensation

Stock-Based Compensation - The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). It also requires measurement of the cost of employee services received in exchange for an award based on the grant date fair value of the award. Excess tax benefits are reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

New Accounting Pronouncements

NEW ACCOUNTING PRONOUNCEMENTS

ASU-Accounting Standards Update (2012-02), Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible assets unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim impairment tests performed for fiscal year beginning after September 15, 2012. The adoption of this ASU did not have a significant impact to the Company’s financial statements.

ASU – Accounting Standards Update (2013-02), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update do not change the current reporting requirements for net income or other comprehensive income (OCI), but finalize reporting requirements related to reclassifications out of accumulated other comprehensive income (AOCI). Presentation requirements were originally addressed in ASU 2011-05, but delayed by ASU 2011-12 as a result of feedback received and have been modified in this Update to address those concerns. This Update requires entities to provide information about significant amounts reclassified out of AOCI. If the reclassified amount is required to be reclassified in its entirety to net income in the same reporting period, the entity is required to present, either on the face of the income statement or in the notes, the impact of the reclassification on the respective line items of net income. For other amounts that are reclassified partially to the balance sheet and partially to the income statement (i.e. those amounts that are not reclassified in their entirety to net income in the same reporting period), the entity must cross-reference to other disclosures that provide additional detail about those amounts. For public entities, the amendments in this Update are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this standard did not have a material impact on the consolidated financial statements.

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3. Securities (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Securities Details Narrative
Securities pledged to secure deposits and advances from FHLB	$ 17,000	$ 18,850

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10. INCOME TAXES (Tables)

12 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Deferred tax assets and liabilities

	September 30,
	2013	2012
Deferred tax assets:
Allowance for loan losses	$       2,386	$               2,557
Accruals and stock based compensation	1,137	1,288
Impairments on securities	7	12
Total deferred tax assets	3,530	3,857
Deferred tax liabilities:
Deferred loan fees and costs – net	246	261
Tax over book depreciation	1,400	1,392
Net unrealized gain on investment securities	308	485
Dividends on FHLB stock	38	101
Other	324	351
Total deferred tax liabilities	2,316	2,590
Net deferred tax asset	$              1,214	$              1,267

Components of income tax expense

The components of income tax expense are as follows:
	Year Ended September 30,
	2013		2012			2011
Current	$	4,167	$	3,923		$	3,086
Deferred		230		(268	)		388
	$	4,397	$	3,655		$	3,474

Effective tax rate reconciliation

	Year Ended September 30,
	2013			2012						2011
Taxes computed at statutory rates	$	4,595		$	3,720		$	3,639
Decrease in taxes due to net nontaxable income		(312	)		(330	)		(205	)
Increase in taxes due to nondeductible expenses		114			166			40
Tax credits		—			—			—
Other		—			99			—
	$	4,397		$	3,655		$	3,474
Effective tax rate		33.5	%		33.4	%		32.5	%

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18. SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY ONLY) (Tables)

12 Months Ended

Sep. 30, 2013

Summarized Financial Information Of Teche Holding Company Parent Company Only Tables

PARENT COMPANY

Balance Sheets
	Year ended September 30,
	2013	2012 _
Assets:
Investment in subsidiary	$           80,724	$            77,240
Cash and cash equivalents	7,120	5,303
Other	1,217	998
Total assets	$          89,061	$             83,541
Stockholder’s equity	$          89,061	$            83,541

Statements of Earnings
	Year Ended September 30,
	2013	2012	2011
Dividends received from subsidiary	$      5,500	$      4,400	$       4,000
Equity in earnings of subsidiary (less than) greater
than dividends received	3,580	3,090	3,578
Interest income from subsidiary	4	5	5
Management fees and other expenses allocated to the
parent	(77)	(77)	(77)
Other expenses - net	(464)	(245)	(471)
Income before income taxes	8,543	7,173	7,035
Income tax benefit	(188)	(112)	(193)
Net Income	$      8,731	$      7,285	$      7,228

Statements of Cash Flows
	Year Ended September 30,
	2013	2012	2011
Cash flows from operating activities	$     4,971	$    3,925	$      3,487
Cash flow from investing activities:
Purchase of securities available-for-sale	(100)	(186)	(150)
Proceeds from sale of land to bank	-	1,023	-
Proceeds from sale of securities	179	370	232
Net cash provided by investing activities	79	1,207	82
Cash flows from financing activities:
Dividends paid	(3,008)	(2,983)	(2,967)
Proceeds from exercise of stock options	2,366	1,023	138
Net loan activity with ESOP	-	65	261
Cash paid for purchase of common stock for treasury	(2,591)	(2,728)	(1,196)
Net cash used in financing activities	(3,233)	(4,623)	(3,764)
Net (decrease) increase in cash and cash equivalents	1,817	509	(195)
Cash and cash equivalents – beginning of year	5,303	4,794	4,989
Cash and cash equivalents – end of year	$     7,120	$      5,303	$     4,794

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4. LOANS RECEIVABLE - Allowance for loan losses by loan type (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Allowance for loan losses:
Beginning balance	$ 8,559	$ 8,331
Charge-offs	1,241	1,885
Recoveries	150	203
Provision for loan losses	400	1,910
Ending balance	7,868	8,559
Real Estate-Commercial-real estate
Allowance for loan losses:
Beginning balance	2,045	1,991
Charge-offs	103	426
Recoveries	17	159
Provision for loan losses	0	321
Ending balance	1,959	2,045
Real Estate-Commercial-construction
Allowance for loan losses:
Beginning balance	141	136
Charge-offs	0	0
Recoveries	0	5
Provision for loan losses	0	0
Ending balance	141	141
Real Estate-Commercial Land
Allowance for loan losses:
Beginning balance	437	425
Charge-offs	168	250
Recoveries	26	0
Provision for loan losses	103	262
Ending balance	398	437
Real Estate-Residential-construction
Allowance for loan losses:
Beginning balance	80	78
Charge-offs	0	0
Recoveries	0	0
Provision for loan losses	0	2
Ending balance	80	80
Real Estate-Residential-real estate
Allowance for loan losses:
Beginning balance	4,390	4,274
Charge-offs	658	753
Recoveries	49	12
Provision for loan losses	150	857
Ending balance	3,931	4,390
Commercial-non real estate
Allowance for loan losses:
Beginning balance	265	258
Charge-offs	13	165
Recoveries	16	0
Provision for loan losses	0	172
Ending balance	268	265
Consumer-Mobile Homes
Allowance for loan losses:
Beginning balance	609	593
Charge-offs	230	209
Recoveries	34	16
Provision for loan losses	147	209
Ending balance	560	609
Consumer-Other
Allowance for loan losses:
Beginning balance	592	576
Charge-offs	69	82
Recoveries	8	11
Provision for loan losses	0	87
Ending balance	$ 531	$ 592

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7. DEPOSITS (Tables)

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

Deposits

	September 30,
	2013	2012
Non-interest bearing demand account	$ 100,822	$ 93,410
Interest bearing:
NOW accounts	144,571	126,858
Passbook and regular savings	203,009	198,667
Money funds accounts	50,652	55,252
Certificates of deposit	151,737	143,535
	$        650,791	$       617,722

Certificates of deposit maturity

Certificates of deposit at September 30, 2013 mature as follows:

Less than one year	$	78,553
1-2 years	$	37,809
2-3 years	$	15,320
3-4 years	$	5,294
4-5 years	$	5,292
Over 5 years	$	9,469
TOTAL	$	151,737

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8. ADVANCES FROM FEDERAL HOME LOAN BANK OF DALLAS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Advances From Federal Home Loan Bank Of Dallas Details
2014	$ 29,247
2015	8,092
2016	10,349
2017	8,299
2018	5,871
Thereafter	47,139
Total	$ 108,997	$ 142,751

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12. RETIREMENT PLAN (Details Narrative) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Retirement Plan Details Narrative
Retirement plan expense	$ 438	$ 397	$ 382

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7. DEPOSITS - Certificates of deposit (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Deposits - Certificates Of Deposit Details 1
Less than one year	$ 78,553
1-2 years	37,809
2-3 years	15,320
3-4 years	5,294
4-5 years	5,292
Over 5 years	9,469
TOTAL	$ 151,737

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3. Securities - securities with unrealized losses (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Securities With Losses Under 12 Months | Fair Value
Held-to-Maturity
Mortgaged-backed securities: Federal National Mortgage Association	$ 0
Total	0
Available-for-sale
Marketable equity securities		0
Total		0
Securities With Losses Under 12 Months | Unrealized
Held-to-Maturity
Mortgaged-backed securities: Federal National Mortgage Association	0
Total	0
Available-for-sale
Marketable equity securities		0
Total		0
Securities With Losses Over 12 Months | Fair Value
Held-to-Maturity
Mortgaged-backed securities: Federal National Mortgage Association	110
Total	110
Available-for-sale
Marketable equity securities		5
Total		5
Securities With Losses Over 12 Months | Unrealized
Held-to-Maturity
Mortgaged-backed securities: Federal National Mortgage Association	(1)
Total	(1)
Available-for-sale
Marketable equity securities		(2)
Total		(2)
Total | Fair Value
Held-to-Maturity
Mortgaged-backed securities: Federal National Mortgage Association	110
Total	110
Available-for-sale
Marketable equity securities		5
Total		5
Total | Unrealized
Held-to-Maturity
Mortgaged-backed securities: Federal National Mortgage Association	(1)
Total	(1)
Available-for-sale
Marketable equity securities		(2)
Total		$ (2)

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10. INCOME TAXES (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Income Taxes Details 2
Taxes computed at statutory rates	$ 4,595	$ 3,720	$ 3,639
Decrease in taxes due to net nontaxable income	(312)	(330)	(205)
Increase in taxes due to nondeductible expenses	114	166	40
Tax credits	0	0	0
Other	0	99	0
Income tax expense	$ 4,397	$ 3,655	$ 3,474
Effective tax rate	33.50%	33.40%	32.50%

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18. SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY ONLY)

12 Months Ended

Sep. 30, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY ONLY)

Balance Sheets
	Year ended September 30,
	2013	2012 _
Assets:
Investment in subsidiary	$           80,724	$            77,240
Cash and cash equivalents	7,120	5,303
Other	1,217	998
Total assets	$          89,061	$             83,541
Stockholder’s equity	$          89,061	$            83,541

Statements of Earnings
	Year Ended September 30,
	2013	2012	2011
Dividends received from subsidiary	$      5,500	$      4,400	$       4,000
Equity in earnings of subsidiary (less than) greater
than dividends received	3,580	3,090	3,578
Interest income from subsidiary	4	5	5
Management fees and other expenses allocated to the
parent	(77)	(77)	(77)
Other expenses - net	(464)	(245)	(471)
Income before income taxes	8,543	7,173	7,035
Income tax benefit	(188)	(112)	(193)
Net Income	$      8,731	$      7,285	$      7,228

Statements of Cash Flows
	Year Ended September 30,
	2013	2012	2011
Cash flows from operating activities	$     4,971	$    3,925	$      3,487
Cash flow from investing activities:
Purchase of securities available-for-sale	(100)	(186)	(150)
Proceeds from sale of land to bank	-	1,023	-
Proceeds from sale of securities	179	370	232
Net cash provided by investing activities	79	1,207	82
Cash flows from financing activities:
Dividends paid	(3,008)	(2,983)	(2,967)
Proceeds from exercise of stock options	2,366	1,023	138
Net loan activity with ESOP	-	65	261
Cash paid for purchase of common stock for treasury	(2,591)	(2,728)	(1,196)
Net cash used in financing activities	(3,233)	(4,623)	(3,764)
Net (decrease) increase in cash and cash equivalents	1,817	509	(195)
Cash and cash equivalents – beginning of year	5,303	4,794	4,989
Cash and cash equivalents – end of year	$     7,120	$      5,303	$     4,794

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (USD $) In Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Unearned Compensation	Treasury Stock	Accumulated Other Comprehensive Income / Loss	Total
Beginning Balance at Sep. 30, 2010	$ 47	$ 52,685	$ 73,942	$ (326)	$ (50,862)	$ 27	$ 75,513
Unearned ESOP compensation	0	48	0	261	0	0	309
Exercise of stock options, including tax benefit	0	138	0	0	0	0	138
Tax effect of restricted stock vesting	0	(30)	0	0	0	0	(30)
Stock based compensation	0	531	0	0	0	0	531
Purchase of common stock for treasury	0	0	0	0	(1,196)	0	(1,196)
Dividends declared	0	0	(2,967)	0	0	0	(2,967)
Net income	0	0	7,228	0	0	0	7,228
Other comprehensive income, Net	0	0	0	0	0	461	461
Ending Balance, Amount at Sep. 30, 2011	47	53,372	78,203	(65)	(52,058)	488	79,987
Unearned ESOP compensation	0	9	0	65	0	0	74
Exercise of stock options, including tax benefit	0	1,023	0	0	0	0	1,023
Tax effect of restricted stock vesting	0	(29)	0	0	0	0	(29)
Stock based compensation	0	503	0	0	0	0	503
Purchase of common stock for treasury	0	0	0	0	(2,728)	0	(2,728)
Dividends declared	0	0	(2,983)	0	0	0	(2,983)
Net income	0	0	7,285	0	0	0	7,285
Other comprehensive income, Net	0	0	0	0	0	409	409
Ending Balance, Amount at Sep. 30, 2012	47	54,878	82,505	0	(54,786)	897	83,541
Exercise of stock options, including tax benefit	0	2,366	0	0	0	0	2,366
Tax effect of restricted stock vesting	0	(95)	0	0	0	0	(95)
Stock based compensation	0	444	0	0	0	0	444
Purchase of common stock for treasury	0	0	0	0	(2,591)	0	(2,591)
Dividends declared	0	0	(3,008)	0	0	0	(3,008)
Net income	0	0	8,731	0	0	0	8,731
Other comprehensive income, Net						(327)	(327)
Ending Balance, Amount at Sep. 30, 2013	$ 47	$ 57,593	$ 88,228	$ 0	$ (57,377)	$ 570	$ 89,061

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Company are described below.

Principles of Consolidation - The consolidated financial statements include the accounts of Teche Holding Company and its wholly-owned subsidiary, Teche Federal Bank (the “Bank” and together with Teche Holding Company “the Company”). All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates principally in the community bank segment by attracting deposits from the general public and using such deposits primarily to originate loans. These loans include those secured by first mortgages on owner-occupied, family residences as well as home improvement and other consumer loans. The Company also makes commercial mortgage and non-mortgage loans.

Concentrations of Credit Risk – The Company makes loans to individuals and small businesses located primarily in southern Louisiana for various personal and commercial purposes. The Company has a diversified loan portfolio and the borrowers’ ability to repay their loans is not directly dependent upon any specific economic sector. The Company will from time to time purchase loans from outside the market area.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents - Cash and cash equivalents comprise cash on hand and non-interest bearing and interest bearing demand deposits with other financial institutions. The Company is required to maintain certain cash reserves relating to its deposit liabilities. At September 30, 2013 that Federal Reserve requirement was $9.2 million.

Securities - Securities are classified as held-to-maturity or available-for-sale. Management determines the classification of securities when they are purchased and reevaluates this classification periodically as conditions change that could require reclassification.

Securities which the Company both positively intends and has the ability to hold to maturity are classified as securities held-to-maturity and are carried at amortized cost. Intent and ability to hold are not considered satisfied when a security is available to be sold in response to changes in interest rates, prepayment rates, liquidity needs or other reasons as part of an overall asset/liability management strategy.

Securities not meeting the criteria to be classified as securities held-to-maturity are classified as available-for-sale and are carried at fair value. Net unrealized holding gains or losses are excluded from net income and are recognized, net of income taxes, in other comprehensive income and in accumulated other comprehensive income, a separate component of stockholders’ equity.

Premiums and discounts on securities, both those held-to-maturity and those available-for-sale, are amortized and accreted to income as an adjustment to the securities’ yields using the interest method. Realized gains and losses on securities, including declines in value judged to be other than temporary, are reported as a component of income. The cost of securities sold is specifically identified for use in calculating realized gains and losses.

If the fair value of a debt security is below its amortized cost basis at the quarter end, the security is evaluated for other-than-temporary impairment (“OTTI”). For debt securities, the Company considers its intention to sell the security. If the Company does not intend on selling the security, then it is evaluated whether it is more likely than not it will be required to sell the security before recovery of the amortized cost. If the Company fails either of those tests, then the Company records OTTI for the affected security equal to the difference between the fair value and amortized cost.

If it is not more likely than not that the Company will be required to sell a debt security, then it goes to the next step to determine if OTTI exists. In determining if OTTI exists, management considers: (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions related to the security, industry or geographic area, (3) the financial condition and near-term prospects of the issuer, (4) failure of the issuer to make scheduled interest or principal payments and the outlook for receiving the contractual cash flows of the investments, (5) changes in the rating of the security (for purposes of the evaluation, a drop in the rating below AA is considered adverse) and (6) historical and subsequent volatility of fair value of the security. If these conditions provide an indication of a reduction in expected cash flows, then cash flows are evaluated to determine the amount of credit-related impairment equal to the present value of cash flows not expected to be received. If OTTI has been identified, the credit-related impairment, to the extent it does not reduce the security below fair value, is charged to earnings and the non-credit-related impairment is adjusted through other comprehensive income for both held to maturity and available-for-sale securities.

For marketable equity securities, the Company evaluates its ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Evidence considered to determine anticipated recovery are analysts reports on the issuer and the financial condition of the issuer or the industry. If OTTI is identified, the security is adjusted to fair value through a charge to earnings.

During the years ended September 30, 2012 and 2011, the Company recognized non-credit impairment charges in other comprehensive loss related to certain held-to-maturity securities. The cumulative amount of these charges created a separate accumulated other comprehensive loss for held-to-maturity securities. This accumulated other comprehensive loss is being accreted to other comprehensive income over the remaining life of the security in a prospective manner on the basis of the amount and timing of future estimated cash flows. See Note 3 for further discussion of OTTI on investment securities.

Loans Receivable - Loans receivable are stated at the unpaid principal balances, less the allowance for loan losses, net deferred loan fees, and unearned premiums and discounts. The unearned premiums and discounts relate principally to purchased loans. Interest on loans is credited to income based on the principal amount outstanding using the interest method.

When doubt exists as to the collectability of a loan (typically when the loan is 90 days’ delinquent or impaired), the loan is placed on non-accrual status. When a loan is placed on non-accrual status, interest accrued prior to the determination of uncollectibility is reversed from income. Loans are returned to an accruing status only as payments are received and when collection of all principal and interest is no longer in doubt. Payments received on such non-accrual loans are applied first to recovery of lost interest and next to outstanding loan amounts. 

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include troubled debt restructurings and non-homogeneous loans in which full payment of all scheduled amounts due is not expected. The Company calculates a reserve required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral if the loan is collateral dependent.

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance available for losses incurred on loans. Any losses are charged to the allowance for loan losses when the loss is confirmed. Recoveries are credited to the allowance at the time of recovery.

Management estimates the level of losses that is adequate to absorb probable losses inherent in the existing portfolio. Based on these estimates, an amount is charged to or recovered from the provision for loan losses and credited or debited to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb such losses.

Management’s judgment as to the level of losses on existing loans involves the consideration of current economic conditions and their potential effects on specific borrowers; an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio, and the present level of the allowance; results of examination of the loan portfolio by regulatory agencies; and management’s internal review of the loan portfolio. In determining the collectability of certain loans, management also considers the fair value of any underlying collateral.

It should be understood that estimates of loan losses involve an exercise of judgment. While it is possible that in particular periods the Company may sustain losses which are substantially different from the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated balance sheets is adequate to absorb probable losses inherent in the loan portfolio.

Loan Fees, Loan Costs, Discounts and Premiums - Loan origination fees, certain direct loan origination costs and discounts and premiums on loans are deferred and amortized as an adjustment to the related loan’s yield using the interest method over the contractual life of the loan.

Federal Home Loan Bank Stock - Federal Home Loan Bank (“FHLB”) stock is recorded at cost and is periodically reviewed for impairment. The Company owns stock in the FHLB of Dallas in order to gain access to cost effective funding and liquidity sources. The Company considers the capital position of the FHLB of Dallas as well as recent redemptions of the common stock when considering whether or not the investment is impaired. As of September 30, 2013 the FHLB of Dallas was in compliance with its regulatory capital requirements, and was still redeeming excess activity-based common stock, therefore the Company concluded that the investment was not impaired. The FHLB of Dallas received an S&P rating of AA+ which reflects its consistent risk-adjusted earnings, superior asset quality, and unique position as a key funding source to its member institutions, as well as the substantial support of the U.S. Government.

No ready market exists for the FHLB of Dallas stock. It has no quoted market value and is carried at cost. Cost approximates fair market value based upon the redemption policies and practices of the FHLB of Dallas, which provide redemption at par. 

Goodwill - Goodwill does not require amortization but is subject to at least an annual assessment for impairment, unless interim events or circumstances make it more likely than not that an impairment loss has occurred. Impairment is defined as that amount by which the implied fair value of the goodwill is less than the goodwill’s carrying value. Impairment losses would be charged to operating expense. The existing goodwill is not deductible for income tax purposes. For the purposes of evaluating goodwill, the Company has determined that it operates only one reporting unit. The Company performed a qualitative assessment and determined that it was not more likely than not that the fair value of the reporting unit was less than the carrying amount at September 30, 2013.

Core Deposit Intangible - The core deposit intangible with a cost of $520 and accumulated amortization of $514 and $508 at September 30, 2013 and 2012, respectively, is included in prepaid expenses and other assets on the consolidated balance sheets.

Mortgage Servicing Rights - Servicing assets are recognized at fair value as separate assets when rights are acquired through purchase or sale of financial assets and are amortized over the estimated life of the underlying assets. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The present value of future earnings is the estimated market value for the loans, calculated by a third party using consensus assumptions that a third party purchaser would utilize in evaluating potential acquisition of the servicing such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, prepayment speeds, and default rates and losses. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. If the fair value is less than the amortized value of the servicing asset, a valuation allowance is established. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Capitalized servicing rights are amortized in proportion to and over the period of the estimated future net servicing income of the underlying financial asset.

Premises and Equipment - Land is carried at cost. Buildings and equipment are carried at cost less accumulated depreciation. The Company computes depreciation generally on the straight-line method for financial reporting. The estimated useful lives used to compute depreciation are: buildings and improvements, twenty to forty years; and furniture, fixtures and equipment, three to ten years.

Real Estate Owned - Real estate acquired through, or in lieu of, foreclosure is initially recorded at the fair value at the time of foreclosure, less estimated selling costs, and any related write-down is charged to the allowance for loan losses. Valuations are periodically performed by management and provisions for estimated losses on real estate owned are charged to income when fair value is determined to be less than the carrying value. Costs relative to the development and improvement of properties are capitalized to the extent realizable, whereas, ordinary upkeep disbursements are charged to expense. The ability of the Company to recover the carrying value of real estate is based upon future sales of the real estate owned. The ability to affect such sales is subject to market conditions and other factors, many of which are beyond the Company’s control. Operating income of such properties, net of related expenses, and gains and losses on their disposition are included in the accompanying consolidated statements of income.

Life Insurance Contracts - Life insurance contracts represent single premium life insurance contracts on the lives of certain officers of the Company. The Company is the beneficiary of these policies. These contracts are reported at their cash surrender value and changes in the cash surrender value are included in other non-interest income. 

Employee Stock Ownership Plan (“ESOP”) - The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of Teche Federal Bank’s employees who meet certain eligibility requirements. The Company records compensation expense associated with the ESOP based on the average market price (fair value) of the total Company shares committed to be released, and subsequently allocated to participants, during the year. The Company further records as compensation expense any dividends declared on unallocated Company shares in the ESOP trust. Earnings per share computations include any allocated shares in the ESOP trust.

Income Taxes - The Company follows the practice of filing a consolidated federal and state return. Income taxes are allocated to each company as if filed separately for federal purposes.

Certain items of income and expense for financial reporting are recognized differently for income tax purposes (principally the provision for loan losses and depreciation). Provisions for deferred taxes are made in recognition of such temporary differences using the liability method. Current income taxes are recorded based on amounts due with the current income tax returns. The need for a valuation allowance is considered when it is determined more likely than not that a deferred tax asset will not be realized.

The Company accounts for penalties and interest related to income tax liabilities as a component of other expense. The Company and its subsidiaries’ tax filings for the years ended September 30, 2010 through 2012 are currently open to audit under statutes of limitation by the Internal Revenue Service.

Income Per Share - Basic net income per common share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Shares controlled by the ESOP are not considered in the weighted average shares outstanding until the shares are committed for allocation to an employee’s individual account. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. Diluted EPS is computed by dividing net income by the total of the weighted-average number of shares outstanding plus the effect of outstanding options and stock grants. The dilution effect of stock options and stock grants is determined using the treasury stock method. The effect of any anti-dilutive common stock equivalents is excluded from the diluted EPS computation.

Comprehensive Income - Comprehensive income includes net income and other comprehensive income or loss, which in the case of the Company includes only unrealized gains and losses on securities, net of related income taxes. For the period September 30, 2013 and 2012 there were no items reclassified out of other comprehensive income with the exception of realized gains.

Stock-Based Compensation - The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). It also requires measurement of the cost of employee services received in exchange for an award based on the grant date fair value of the award. Excess tax benefits are reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

ASU-Accounting Standards Update (2012-02), Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible assets unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim impairment tests performed for fiscal year beginning after September 15, 2012. The adoption of this ASU did not have a significant impact to the Company’s financial statements.

ASU – Accounting Standards Update (2013-02), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Update do not change the current reporting requirements for net income or other comprehensive income (OCI), but finalize reporting requirements related to reclassifications out of accumulated other comprehensive income (AOCI). Presentation requirements were originally addressed in ASU 2011-05, but delayed by ASU 2011-12 as a result of feedback received and have been modified in this Update to address those concerns. This Update requires entities to provide information about significant amounts reclassified out of AOCI. If the reclassified amount is required to be reclassified in its entirety to net income in the same reporting period, the entity is required to present, either on the face of the income statement or in the notes, the impact of the reclassification on the respective line items of net income. For other amounts that are reclassified partially to the balance sheet and partially to the income statement (i.e. those amounts that are not reclassified in their entirety to net income in the same reporting period), the entity must cross-reference to other disclosures that provide additional detail about those amounts. For public entities, the amendments in this Update are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this standard did not have a material impact on the consolidated financial statements.

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4. LOANS RECEIVABLE

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

LOANS RECEIVABLE

Loans receivable are summarized as follows:

	At Sept 30 ‘13			% Total		At Sept 30 ‘12			%Total
Commercial real estate loans	$	133,649	19.4%		$		120,557	17.8%
Commercial non-real estate loans		30,685	4.5%				34,032	5.0%
Commercial-construction loans		8,593	1.3%				7,357	1.1%
Commercial-land		10,349	1.5%				13,312	2.0%
Residential-construction loans		5,112	0.7%				9,478	1.4%
Residential-real estate loans		409,693	59.7%				413,500	61.1%
Consumer-Mobile home loans		43,198	6.3%				37,030	5.5%
Consumer-other		45,171	6.6%				41,110	6.1%
Total Loans		686,450	100.00%				676,376	100.0%
Less:
Allowance for loan losses		7,868					8,559
Deferred loan fees		2,047					1,975
Total Net Loans	$	676,535			$		665,842

Commercial real estate loans increased $13,092 from September 30, 2012 to September 30, 2013 mainly due to increased originations. Commercial non-real estate loans decreased $3,347 from September 30, 2012 to September 30, 2013 mainly due to decreased originations. Residential real estate loans decreased $3,807 from September 30, 2012 to September 30, 2013 mainly due to a loan sale to FNMA of $46,515 offset by increased loan originations. At September 30, 2013 approximately $292,928 of loans receivable were pledged as collateral securing advances from the FHLB. The Company has loans that it services for others which amounted to $66,917 and $25,235 at September 30, 2013 and 2012, respectively. 

Changes in the allowance for loan losses were as follows:

	Year Ended September 30,
	2013	2012  _	2011  _
Beginning balance – October 1	$       8,559	$         8,331	$       9,256
Provision charged to operating expense	400	1,910	3,900
Recoveries	150	203	57
Loans charged off	(1,241)	(1,885)	(4,882)
Ending balance – September 30	$      7,868	$       8,559	$        8,331

The amount of nonaccrual loans at September 30, 2013 and September 30, 2012 was $2,425 and $10,173, respectively. The Company had total impaired loans of approximately $7,557 and $8,716 at September 30, 2013 and September 30, 2012, respectively. The average investment in impaired loans was $8,038 and $10,962 for the years ended September 30, 2013 and 2012, respectively. The amount of foregone interest on impaired loans was approximately $7 and $180, respectively. The amount of loans over 90 days and still accruing was approximately $353 and $351 as of September 30, 2013 and 2012, respectively. Specific reserves allocated to impaired loans totaled approximately $138 and $0 as of September 30, 2013 and 2012, respectively. Impaired loans totaling approximately $6,579 and $8,716 had no specific reserves allocated as of September 30, 2013 and 2012, respectively.

The effect on net interest income of troubled debt restructurings was insignificant for the twelve months ended September 30, 2013. 

Allowance for Loan Losses and Recorded Investment in Loans for the Twelve Months Ended September 30, 2013

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, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The methodology is based on 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 pools.

	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	$	2,045	$	141	$	437	$	80	$	4,390	$	265	$	609	$	592	$	8,559
Charge-offs		103		-		168		-		658		13		230		69		1,241
Recoveries		17		-		26		-		49		16		34		8		150
Provision		-		-		103		-		150		-		147		-		400
Ending balance		1,959		141		398		80		3,931		268		560		531		7,868
Ending balance allocation:
Individually evaluated for impairment		138		-		-		-		-		-		-		-		138
Collectively evaluated for impairment		1,821		141		398		80		3,931		268		560		531		7,730
Ending Balance individually evaluated for impairment		5,558		-		-		-		597		1,402		-		-		7,557
Loans: Ending Balance Collectively evaluated for impairment	$	128,091	$	8,593	$	10,349	$	5,112	$	409,096	$	29,283	$	43,198	$	45,171	$	678,893

The table below provides an allocation and rollforward of the allowance for loan losses by loan type as of and for the year ended September 30, 2013; however, allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:

The table below provides an allocation and rollforward of the allowance for loan losses by loan type as of and for the year ended September 30, 2012; however, allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:

	Real Estate
(in thousands)	Commercial- real estate		Commercial-construction		Commercial- Land		Residential-construction		Residential-real estate		Commercial-non real estate		Consumer-Mobile Homes		Consumer-Other		Total
Allowance for loan losses:
Beginning Balance	$	1,991	$	136	$	425	$	78	$	4,274	$	258	$	593	$	576	$	8,331
Charge-offs		426		-		250		-		753		165		209		82		1,885
Recoveries		159		5		-		-		12		-		16		11		203
Provision		321		-		262		2		857		172		209		87		1,910
Ending balance		2,045		141		437		80		4,390		265		609		592		8,559
Ending balance allocation:
Individually evaluated for impairment		-		-		-		-		-		-		-		-		-
Collectively evaluated for impairment		2,045		141		437		80		4,390		265		609		592		8,559
Loans: Ending Balance Collectively evaluated for impairment		117,034		7,357		8,654		9,478		413,119		33,878		37,030		41,110		667,660
Ending Balance individually evaluated for impairment	$	3,523	$	-	$	4,658	$	-	$	381	$	154	$	-	$	-	$	8,716

Credit Quality Indicators

As of September 30, 2013

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 – Demonstrates exceptional credit fundamentals, including stable and predictable profit margins and cash flows, strong liquidity and conservative balance sheet. Significant historical cash flow coverage of existing and pro-forma debt service coverage. Credits rated 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 or collateral with low loan to value ratios and 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 business or 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 – Displays an acceptable degree of risk in the short-term. Unfavorable characteristics may exist, however, these are offset by the positive trends. Some unpredictability in earnings and cash flow may exist. Leverage may be higher than typical in the industry and liquidity less than desirable. Management, while competent, may not be experienced and lack depth. Secondary and tertiary sources of repayment may be limited. Companies in a start-up situation typically fit this classification. Other characteristics of this classification would be companies with volatility in earnings and/or increasing leverage.

Watch List – Assets considered on a “Watch List” are technically not classified in the usual sense of the term and are considered “Pass” assets. Assets in this category do not trigger a need for additional valuation allowances. The purpose of this list is to identify assets that warrant increased monitoring for minor exceptions or problems, which could worsen in the near future if left unattended.

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 borrower’s 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 home equity lines of credit (“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

As of September 30, 2013

		Commercial-Land		Commercial- Construction		Commercial-Non-Real Estate		Commercial-Real Estate		Total	% Total
Prime	$	-	$	-	$	3,074	$	-	$	3,074	1.7	%
Excellent		-		-		16		9		25	0.0
Average		624		-		638		3,851		5,113	2.8
Satisfactory		9,119		8,233		25,213		110,415		152,980	83.4
Watch		606		-		342		12,478		13,426	7.3
Special Mention		-		360		-		1,781		2,141	1.2
Substandard		-		-		1,402		5,115		6,517	3.6
Doubtful		-		-		-		-		-	0.0
Loss		-		-		-		-		-	0.0
Total	$	10,349	$	8,593	$	30,685	$	133,649	$	183,276	100.0	%

As of September 30, 2012

		Commercial-Land		Commercial- Construction		Commercial-Non-Real Estate		Commercial-Real Estate		Total	% Total
Prime	$	-	$	-	$	3,146	$	-	$	3,146	1.8	%
Excellent		-		-		118		-		118	0.1
Average		815		-		500		4,921		6,236	3.6
Satisfactory		7,231		6,927		28,008		92,494		134,660	76.8
Watch		601		65		2,056		18,733		21,455	12.2
Special Mention		17		365		50		872		1,304	0.7
Substandard		4,648		-		154		3,537		8,339	4.8
Doubtful		-		-		-		-		-	0.0
Loss		-		-		-		-		-	0.0
Total	$	13,312	$	7,357	$	34,032	$	120,557	$	175,258	100.0	%

Consumer Credit Exposure Credit Risk Profile

By Creditworthiness Category

As of September 30, 2013

	Residential-Real Estate Construction		Residential-Real Estate		Total
Grade:
Pass	$	5,112	$	405,863	$	410,975
Special Mention		-		316		316
Substandard		-		3,514		3,514
Loss		-		-		-
Total	$	5,112	$	409,693	$	414,805

As of September 30, 2012

	Residential-Real Estate Construction		Residential-Real Estate		Total
Grade:
Pass	$	9,478	$	408,611	$	418,089
Special Mention		-		328		328
Substandard		-		4,561		4,561
Loss		-		-		-
Total	$	9,478	$	413,500	$	422,978

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

As of September 30, 2013

	Consumer-Mobile Homes		Consumer-Other Loans		Total
Performing	$	42,952	$	44,905	$	87,857
Nonperforming		246		266		512
Total	$	43,198	$	45,171	$	88,369

As of September 30, 2012

	Consumer-Mobile Homes		Consumer-Other Loans		Total
Performing	$	36,606	$	40,680	$	77,286
Nonperforming		424		430		854
Total	$	37,030	$	41,110	$	78,140

Age Analysis of Past Due Loans

As of September 30, 2013

		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	$	783	$	-	$	783	$	132,866	$	133,649	$	-
Commercial non-real estate loans		50		-		50		30,635		30,685		-
Commercial-construction loans		-		-		-		8,593		8,593		-
Commercial-land		-		-		-		10,349		10,349		-
Residential-construction loans		-		-		-		5,112		5,112		-
Residential-real estate loans		5,582		1,678		7,260		402,433		409,693		353
Consumer-Mobile home loans		1,073		246		1,319		41,879		43,198		-
Consumer-other		262		206		468		44,703		45,171		-
Total	$	7,750	$	2,130	$	9,880	$	676,570	$	686,450	$	353

As of September 30, 2012

		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	$	35	$	810	$	845	$	119,712	$	120,557	$	-
Commercial non-real estate loans		28		2		30		34,002		34,032		-
Commercial-construction loans		-		-		-		7,357		7,357		-
Commercial-land		314		531		845		12,467		13,312		-
Residential-construction loans		-		-		-		9,478		9,478		-
Residential-real estate loans		4,410		4,249		8,659		404,841		413,500		351
Consumer-Mobile home loans		1,292		425		1,717		35,313		37,030		-
Consumer-other		332		343		675		40,435		41,110		-
Total	$	6,411	$	6,360	$	12,771	$	663,605	$	676,376	$	351

Impaired Loans

For the Year ended September 30, 2013

								Year to Date
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	$	4,580	$	4,639	$	-	$	3,872	$	190
Commercial non-real estate		1,402		1,402		-		791		53
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		2,069		-
Residential-real estate loans		597		873		-		584		34
Subtotal:		6,579		6,914		-		7,316		277
With an allowance recorded:
Commercial real estate loans		978		979		138		722		33
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-
Subtotal:		978		979		138		722		33
Totals:
Commercial		6,960		7,020		138		7,454		276
Residential		597		873		-		584		34
Total	$	7,557	$	7,893	$	138	$	8,038	$	310

For the Year ended September 30, 2012

								Year to Date
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	$	2,857	$	2,883	$	-	$	3,839	$	82
Commercial non-real estate		329		349		-		418		7
Commercial-construction loans		-		-		-		547		27
Commercial-land		4,658		6,274		-		4,959		11
Residential-real estate loans		872		1,266		-		1,199		40
Subtotal:		8,716		10,772		-		10,962		167
With an allowance recorded:
Commercial real estate loans		-		-		-		-		-
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-
Subtotal:		-		-		-		-		-
Totals:
Commercial		7,844		9,506		-		9,763		127
Residential		872		1,266		-		1,199		40
Total	$	8,716	$	10,772	$	-	$	10,962	$	167

Troubled debt restructured loans (“TDR”) which are included in the impaired loan totals, were approximately $3,202 with all still accruing and approximately $6,316 with $2,373 still accruing at September 30, 2013 and 2012, respectively. The decrease in TDRs was primarily due to the payoff of a non-performing loan in the amount of $3,813. The Company has not committed to lend additional funds to the customers with outstanding loans that are classified as a TDR. As of September 30, 2013, no loans that were modified as troubled debt restructurings within the previous twelve months defaulted after their restructure.

Modifications

Year Ended September 30, 2013

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring occurring during the year ended September 30, 2013:
Commercial real estate loans	1	$	935	$	987
Commercial construction loans	-		-		-
Commercial non-real estate loans	-		-		-
Residential real estate loans
Total  *	1	$	935	$	987

* All of the troubled debt restructured loans presented above are still accruing.

Year Ended September 30, 2012

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring occurring during the year ended September 30, 2012:
Commercial real estate loans	3	$	2,248	$	2,248
Commercial construction loans	-		-		-
Commercial non-real estate loans	1		125		125
Residential real estate loans	-		-		-
Total  *	4	$	2,373	$	2,373

* All of the troubled debt restructured loans presented above are still accruing.

Three commercial loans totaling $2,373 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 $125 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.

Loans on Nonaccrual Status

At September 30, 2013 and September 30, 2012

	September 30,
	2013		2012
Commercial real estate loans	$	-	$	810
Commercial non-real estate loans		-		2
Commercial-construction loans		-		-
Commercial-land		-		4,344
Residential-construction loans		-		-
Residential-real estate loans		1,973		4,249
Consumer-Mobile home loans		246		425
Consumer-other		206		343
Total	$	2,425	$	10,173

Total nonaccrual loans decreased $7,748 as of September 30, 2013 compared to September 30, 2012 primarily due to payoffs on commercial real estate loans in the amount of $5,156 along with a $2,276 reduction in residential real estate loans due to positive economic trends in our market area.

Related Party loans

The aggregate amount of loans to executive officers and directors of the Company and their related interests was approximately $533 and $400 at September 30, 2013 and 2012, respectively. During fiscal 2013 and 2012 new loans aggregating approximately $149 and $0, respectively, and amounts collected of approximately $16 and $267 respectively, were transacted with such parties.

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13. Income Per Share (Details)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Income Per Share Details
Weighted average number of common shares outstanding - used in computation of basic income per common share	2,036,000	2,052,000	2,069,000
Effect of dilutive securities:
Stock options	16,000	17,000	12,000
Stock grants	16,000	7,000	11,000
Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted net income per common share	2,068,000	2,076,000	2,092,000

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2. INTEREST RATE RISK

12 Months Ended

Sep. 30, 2013

Risks and Uncertainties [Abstract]

INTEREST RATE RISK

The Company is engaged principally in providing first mortgage and other types of loans to individuals and business. Loans are funded primarily with deposit accounts and borrowings from the FHLB. At September 30, 2013 the Company was slightly liability sensitive which indicates that interest-bearing liabilities will re-price faster than interest earning assets with changes in market interest rates. In both declining and rising market interest rate environments the Company is exposed to interest rate risk because interest bearing liabilities re-price faster than interest earning assets resulting in slightly lower net interest income.

The Company manages interest rate risk exposure by monitoring the mix of loans, deposit and borrowings and reports to the Board of Directors quarterly. The Company’s interest rate risk position at September 30, 2013 was within the limits established by the Board of Directors.

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3. Securities - Amortized cost and estimated fair values of securities available-for-sale (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Amortized Cost
Mortgage-backed securities:
Government National Mortgage Assoc.	$ 1,383	$ 1,618
Federal Home Loan Mortgage Corp.	1,405	2,077
Federal National Mortgage Assoc.	9,231	12,914
Total Mortgage-backed securities	12,019	16,609
CMOs:
Government National Mortgage Assoc.	1,175	1,604
Marketable equity securities	375	371
Total	13,569	18,584
Gross Unrealized Gains
Mortgage-backed securities:
Government National Mortgage Assoc.	52	56
Federal Home Loan Mortgage Corp.	58	92
Federal National Mortgage Assoc.	461	928
Total Mortgage-backed securities	571	1,076
CMOs:
Government National Mortgage Assoc.	121	184
Marketable equity securities	186	125
Total	878	1,385
Gross Unrealized Losses
Mortgage-backed securities:
Government National Mortgage Assoc.	0	0
Federal Home Loan Mortgage Corp.	0	0
Federal National Mortgage Assoc.	0	0
Total Mortgage-backed securities	0	0
CMOs:
Government National Mortgage Assoc.	0	0
Marketable equity securities	0	(2)
Total	0	(2)
Estimated Fair Value
Mortgage-backed securities:
Government National Mortgage Assoc.	1,435	1,674
Federal Home Loan Mortgage Corp.	1,463	2,169
Federal National Mortgage Assoc.	9,692	13,842
Total Mortgage-backed securities	12,590	17,685
CMOs:
Government National Mortgage Assoc.	1,296	1,788
Marketable equity securities	561	494
Total	$ 14,447	$ 19,967

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4. LOANS RECEIVABLE (Tables)

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Loans receivable

	At Sept 30 ‘13			% Total		At Sept 30 ‘12			%Total
Commercial real estate loans	$	133,649	19.4%		$		120,557	17.8%
Commercial non-real estate loans		30,685	4.5%				34,032	5.0%
Commercial-construction loans		8,593	1.3%				7,357	1.1%
Commercial-land		10,349	1.5%				13,312	2.0%
Residential-construction loans		5,112	0.7%				9,478	1.4%
Residential-real estate loans		409,693	59.7%				413,500	61.1%
Consumer-Mobile home loans		43,198	6.3%				37,030	5.5%
Consumer-other		45,171	6.6%				41,110	6.1%
Total Loans		686,450	100.00%				676,376	100.0%
Less:
Allowance for loan losses		7,868					8,559
Deferred loan fees		2,047					1,975
Total Net Loans	$	676,535			$		665,842

Allowance for loan losses

	Year Ended September 30,
	2013			2012_			2011_
Beginning balance – October 1	$	8,559		$	8,331		$	9,256
Provision charged to operating expense		400			1,910			3,900
Recoveries		150			203			57
Loans charged off		(1,241	)		(1,885	)		(4,882	)
Ending balance – September 30	$	7,868		$	8,559		$	8,331

Allowance for loan losses - evaluated for impairment

	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	$	2,045	$	141	$	437	$	80	$	4,390	$	265	$	609	$	592	$	8,559
Charge-offs		103		-		168		-		658		13		230		69		1,241
Recoveries		17		-		26		-		49		16		34		8		150
Provision		-		-		103		-		150		-		147		-		400
Ending balance		1,959		141		398		80		3,931		268		560		531		7,868
Ending balance allocation:
Individually evaluated for impairment		138		-		-		-		-		-		-		-		138
Collectively evaluated for impairment		1,821		141		398		80		3,931		268		560		531		7,730
Ending Balance individually evaluated for impairment		5,558		-		-		-		597		1,402		-		-		7,557
Loans: Ending Balance Collectively evaluated for impairment	$	128,091	$	8,593	$	10,349	$	5,112	$	409,096	$	29,283	$	43,198	$	45,171	$	678,893

	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		426		-		250		-		753		165		209		82		1,885
Recoveries		159		5		-		-		12		-		16		11		203
Provision		321		-		262		2		857		172		209		87		1,910
Ending balance		2,045		141		437		80		4,390		265		609		592		8,559
Ending balance allocation:
Individually evaluated for impairment		-		-		-		-		-		-		-		-		-
Collectively evaluated for impairment		2,045		141		437		80		4,390		265		609		592		8,559
Loans: Ending Balance Collectively evaluated for impairment		117,034		7,357		8,654		9,478		413,119		33,878		37,030		41,110		667,660
Ending Balance individually evaluated for impairment	$	3,523	$	-	$	4,658	$	-	$	381	$	154	$	-	$	-	$	8,716

Credit Exposure

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade

As of September 30, 2013

		Commercial-Land		Commercial- Construction		Commercial-Non-Real Estate		Commercial-Real Estate		Total	% Total
Prime	$	-	$	-	$	3,074	$	-	$	3,074	1.7	%
Excellent		-		-		16		9		25	0.0
Average		624		-		638		3,851		5,113	2.8
Satisfactory		9,119		8,233		25,213		110,415		152,980	83.4
Watch		606		-		342		12,478		13,426	7.3
Special Mention		-		360		-		1,781		2,141	1.2
Substandard		-		-		1,402		5,115		6,517	3.6
Doubtful		-		-		-		-		-	0.0
Loss		-		-		-		-		-	0.0
Total	$	10,349	$	8,593	$	30,685	$	133,649	$	183,276	100.0	%

As of September 30, 2012

		Commercial-Land		Commercial- Construction		Commercial-Non-Real Estate		Commercial-Real Estate		Total	% Total
Prime	$	-	$	-	$	3,146	$	-	$	3,146	1.8	%
Excellent		-		-		118		-		118	0.1
Average		815		-		500		4,921		6,236	3.6
Satisfactory		7,231		6,927		28,008		92,494		134,660	76.8
Watch		601		65		2,056		18,733		21,455	12.2
Special Mention		17		365		50		872		1,304	0.7
Substandard		4,648		-		154		3,537		8,339	4.8
Doubtful		-		-		-		-		-	0.0
Loss		-		-		-		-		-	0.0
Total	$	13,312	$	7,357	$	34,032	$	120,557	$	175,258	100.0	%

Consumer Credit Exposure Credit Risk Profile

By Creditworthiness Category

As of September 30, 2013

	Residential-Real Estate Construction		Residential-Real Estate		Total
Grade:
Pass	$	5,112	$	405,863	$	410,975
Special Mention		-		316		316
Substandard		-		3,514		3,514
Loss		-		-		-
Total	$	5,112	$	409,693	$	414,805

As of September 30, 2012

	Residential-Real Estate Construction		Residential-Real Estate		Total
Grade:
Pass	$	9,478	$	408,611	$	418,089
Special Mention		-		328		328
Substandard		-		4,561		4,561
Loss		-		-		-
Total	$	9,478	$	413,500	$	422,978

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

As of September 30, 2013

	Consumer-Mobile Homes		Consumer-Other Loans		Total
Performing	$	42,952	$	44,905	$	87,857
Nonperforming		246		266		512
Total	$	43,198	$	45,171	$	88,369

As of September 30, 2012

	Consumer-Mobile Homes		Consumer-Other Loans		Total
Performing	$	36,606	$	40,680	$	77,286
Nonperforming		424		430		854
Total	$	37,030	$	41,110	$	78,140

Past due loans

Age Analysis of Past Due Loans

As of September 30, 2013

		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	$	783	$	-	$	783	$	132,866	$	133,649	$	-
Commercial non-real estate loans		50		-		50		30,635		30,685		-
Commercial-construction loans		-		-		-		8,593		8,593		-
Commercial-land		-		-		-		10,349		10,349		-
Residential-construction loans		-		-		-		5,112		5,112		-
Residential-real estate loans		5,582		1,678		7,260		402,433		409,693		353
Consumer-Mobile home loans		1,073		246		1,319		41,879		43,198		-
Consumer-other		262		206		468		44,703		45,171		-
Total	$	7,750	$	2,130	$	9,880	$	676,570	$	686,450	$	353

As of September 30, 2012

		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	$	35	$	810	$	845	$	119,712	$	120,557	$	-
Commercial non-real estate loans		28		2		30		34,002		34,032		-
Commercial-construction loans		-		-		-		7,357		7,357		-
Commercial-land		314		531		845		12,467		13,312		-
Residential-construction loans		-		-		-		9,478		9,478		-
Residential-real estate loans		4,410		4,249		8,659		404,841		413,500		351
Consumer-Mobile home loans		1,292		425		1,717		35,313		37,030		-
Consumer-other		332		343		675		40,435		41,110		-
Total	$	6,411	$	6,360	$	12,771	$	663,605	$	676,376	$	351

Impaired loans

Impaired Loans

For the Year ended September 30, 2013

								Year to Date
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	$	4,580	$	4,639	$	-	$	3,872	$	190
Commercial non-real estate		1,402		1,402		-		791		53
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		2,069		-
Residential-real estate loans		597		873		-		584		34
Subtotal:		6,579		6,914		-		7,316		277
With an allowance recorded:
Commercial real estate loans		978		979		138		722		33
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-
Subtotal:		978		979		138		722		33
Totals:
Commercial		6,960		7,020		138		7,454		276
Residential		597		873		-		584		34
Total	$	7,557	$	7,893	$	138	$	8,038	$	310

For the Year ended September 30, 2012

								Year to Date
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	$	2,857	$	2,883	$	-	$	3,839	$	82
Commercial non-real estate		329		349		-		418		7
Commercial-construction loans		-		-		-		547		27
Commercial-land		4,658		6,274		-		4,959		11
Residential-real estate loans		872		1,266		-		1,199		40
Subtotal:		8,716		10,772		-		10,962		167
With an allowance recorded:
Commercial real estate loans		-		-		-		-		-
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-
Subtotal:		-		-		-		-		-
Totals:
Commercial		7,844		9,506		-		9,763		127
Residential		872		1,266		-		1,199		40
Total	$	8,716	$	10,772	$	-	$	10,962	$	167

Troubled debt restructuring

Modifications

Year Ended September 30, 2013

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring occurring during the year ended September 30, 2013:
Commercial real estate loans	1	$	935	$	987
Commercial construction loans	-		-		-
Commercial non-real estate loans	-		-		-
Residential real estate loans
Total  *	1	$	935	$	987

* All of the troubled debt restructured loans presented above are still accruing.

Year Ended September 30, 2012

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructuring occurring during the year ended September 30, 2012:
Commercial real estate loans	3	$	2,248	$	2,248
Commercial construction loans	-		-		-
Commercial non-real estate loans	1		125		125
Residential real estate loans	-		-		-
Total  *	4	$	2,373	$	2,373

* All of the troubled debt restructured loans presented above are still accruing.

Loans on Nonaccrual Status

Loans on Nonaccrual Status

At September 30, 2013 and September 30, 2012

	September 30,
	2013		2012
Commercial real estate loans	$	-	$	810
Commercial non-real estate loans		-		2
Commercial-construction loans		-		-
Commercial-land		-		4,344
Residential-construction loans		-		-
Residential-real estate loans		1,973		4,249
Consumer-Mobile home loans		246		425
Consumer-other		206		343
Total	$	2,425	$	10,173

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8. ADVANCES FROM FEDERAL HOME LOAN BANK OF DALLAS (Tables)

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

Advances from FHLB of Dallas

Year Ended September 30,
2014	$	29,247
2015		8,092
2016		10,349
2017		8,299
2018		5,871
Thereafter		47,139
	$	108,997

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11. NON-INTEREST EXPENSE - Other operating expenses (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Non-Interest Expense - Other Operating Expenses Details 1
Stationery, printing and postage	$ 1,054	$ 979	$ 1,048
Debit card expense, and other deposit related costs	1,909	1,655	1,972
Other	1,066	1,914	1,196
Other operating expenses	$ 4,029	$ 4,548	$ 4,216

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14. EMPLOYEE STOCK PLANS (Tables)

12 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Assumptions for the Black Scholes model used in determining the fair value of options granted to employees

	Year Ended September 30, 2013	Year Ended September 30, 2012	Year Ended September 30, 2011
Dividend yield	3.35%	3.72%	4.29%
Risk-free interest rate	1.13%	1.12%	2.15%
Volatility	21.56%	22.54%	23.00%
Expected Life	6 years	6 years	6 years

Summary of option activity

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2011	310,131	$	34.28	5.6 years	$	186
Exercised	(43,756)		26.60
Forfeited	(10,698)		35.82
Granted	50,220	$	39.67		$
Outstanding at September 30, 2012	305,897	$	36.17	6.01 years	$	1,365
Exercised	(71,371)		34.45
Forfeited	(11,465)		35.18
Granted	8,000	$	44.82		$
Outstanding at September 30, 2013	231,061	$	37.03	5.73 years	$	2,013
Exercisable at September 30, 2013	141,767	$	36.72	4.14 years	$	1,281

Summary of the status of the Company’s non vested stock awards

	Shares	Weighted Average Grant Date Fair Value
Non-vested – September 30, 2011	28,285	$	32.31
Granted	16,068	$	32.41
Forfeited	(2,412)	$	33.56
Vested	(13,871)	$	33.00
Non-vested – September 30, 2012	28,070	$	31.92
Granted	9,547	$	39.76
Forfeited	(2,199)	$	30.70
Vested	(9,596)	$	32.07
Non-vested – September 30, 2013	25,822	$	34.86

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11. NON-INTEREST EXPENSE - Occupancy, equipment and data processing expenses (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Non-Interest Expense - Occupancy Equipment And Data Processing Expenses Details
Occupancy, including depreciation, insurance, rent, utilities, etc.	$ 2,624	$ 2,508	$ 2,278
Equipment, including depreciation, telephone, etc.	2,719	2,632	2,623
Data processing	1,576	1,360	1,219
Occupancy, equipment and date processing expense	$ 6,919	$ 6,500	$ 6,120

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4. LOANS RECEIVABLE - Impaired Loans (Details 8) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Recorded Investment
With no related allowance recorded:
Commercial real estate loans	$ 4,580	$ 2,857
Commercial non-real estate	1,402	329
Commercial-construction loans	0	0
Commercial-land	0	4,658
Residential-real estate loans	597	872
Subtotal:	6,579	8,716
With an allowance recorded:
Commercial real estate loans	978	0
Commercial non-real estate	0	0
Commercial-construction loans	0	0
Commercial-land	0	0
Residential-real estate loans	0	0
Subtotal:	978	0
Totals:
Commercial	6,960	7,844
Residential	597	872
Total	7,557	8,716
Unpaid Principal Balance
With no related allowance recorded:
Commercial real estate loans	4,639	2,883
Commercial non-real estate	1,402	349
Commercial-construction loans	0	0
Commercial-land	0	6,274
Residential-real estate loans	873	1,266
Subtotal:	6,914	10,772
With an allowance recorded:
Commercial real estate loans	979	0
Commercial non-real estate	0	0
Commercial-construction loans	0	0
Commercial-land	0	0
Residential-real estate loans	0	0
Subtotal:	979	0
Totals:
Commercial	7,020	9,506
Residential	873	1,266
Total	7,893	10,772
Related Allowance
With no related allowance recorded:
Commercial real estate loans	0	0
Commercial non-real estate	0	0
Commercial-construction loans	0	0
Commercial-land	0	0
Residential-real estate loans	0	0
Subtotal:	0	0
With an allowance recorded:
Commercial real estate loans	138	0
Commercial non-real estate	0	0
Commercial-construction loans	0	0
Commercial-land	0	0
Residential-real estate loans	0	0
Subtotal:	138	0
Totals:
Commercial	138	0
Residential	0	0
Total	138	0
Average Recorded Investment
With no related allowance recorded:
Commercial real estate loans	3,872
Commercial non-real estate	791
Commercial-construction loans	0
Commercial-land	2,069
Residential-real estate loans	584
Subtotal:	7,316
With an allowance recorded:
Commercial real estate loans	722
Commercial non-real estate	0
Commercial-construction loans	0
Commercial-land	0
Residential-real estate loans	0
Subtotal:	722
Totals:
Commercial	7,454
Residential	584
Total	8,038
Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans	190
Commercial non-real estate	53
Commercial-construction loans	0
Commercial-land	0
Residential-real estate loans	34
Subtotal:	277
With an allowance recorded:
Commercial real estate loans	33
Commercial non-real estate	0
Commercial-construction loans	0
Commercial-land	0
Residential-real estate loans	0
Subtotal:	33
Totals:
Commercial	276
Residential	34
Total	310
Year to Date-Average Recorded Investment
With no related allowance recorded:
Commercial real estate loans		3,839
Commercial non-real estate		418
Commercial-construction loans		547
Commercial-land		4,959
Residential-real estate loans		1,199
Subtotal:		10,962
With an allowance recorded:
Commercial real estate loans		0
Commercial non-real estate		0
Commercial-construction loans		0
Commercial-land		0
Residential-real estate loans		0
Subtotal:		0
Totals:
Commercial		9,763
Residential		1,199
Total		10,962
Year to Date-Interest Income Recognized
With no related allowance recorded:
Commercial real estate loans		82
Commercial non-real estate		7
Commercial-construction loans		27
Commercial-land		11
Residential-real estate loans		40
Subtotal:		167
With an allowance recorded:
Commercial real estate loans		0
Commercial non-real estate		0
Commercial-construction loans		0
Commercial-land		0
Residential-real estate loans		0
Subtotal:		0
Totals:
Commercial		127
Residential		40
Total		$ 167

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4. LOANS RECEIVABLE - Allocation of the allowance for loan losses by loan type (Details 3) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Ending balance allocation:
Individually evaluated for impairment	$ 138	$ 0
Collectively evaluated for impairment	7,730	8,559
Loans:
Ending Balance individually evaluated for impairment	7,557	8,717
Ending Balance Collectively evaluated for impairment	678,893	667,660
Real Estate-Commercial-real estate [Member]
Ending balance allocation:
Individually evaluated for impairment	138	0
Collectively evaluated for impairment	1,821	2,045
Loans:
Ending Balance individually evaluated for impairment	5,558	3,523
Ending Balance Collectively evaluated for impairment	128,091	117,034
Real Estate-Commercial-construction [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	141	141
Loans:
Ending Balance individually evaluated for impairment	0	0
Ending Balance Collectively evaluated for impairment	8,593	7,357
Real Estate-Commercial-Land [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	398	437
Loans:
Ending Balance individually evaluated for impairment	0	4,658
Ending Balance Collectively evaluated for impairment	10,349	8,654
Real Estate-Residential-construction [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	80	80
Loans:
Ending Balance individually evaluated for impairment	0	0
Ending Balance Collectively evaluated for impairment	5,112	9,478
Real Estate-Residential-real estate [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	3,931	4,390
Loans:
Ending Balance individually evaluated for impairment	597	381
Ending Balance Collectively evaluated for impairment	409,096	413,119
Commercial-non real estate [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	268	265
Loans:
Ending Balance individually evaluated for impairment	1,402	154
Ending Balance Collectively evaluated for impairment	29,283	33,878
Consumer-Mobile Homes [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	560	609
Loans:
Ending Balance individually evaluated for impairment	0	0
Ending Balance Collectively evaluated for impairment	43,198	37,030
Consumer-Other [Member]
Ending balance allocation:
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	531	592
Loans:
Ending Balance individually evaluated for impairment	0	0
Ending Balance Collectively evaluated for impairment	$ 45,171	$ 41,110

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3. Securities - OTTI (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Notes to Financial Statements
Beginning balance of credit losses	$ 0	$ 1,563
Other-than-temporary impairment credit losses on securities not previously OTTI	0	35
Increases for additional credit losses on securities previously determined to be OTTI	0	93
Reduction for increases in cash flows	0	0
Reduction due to credit impaired securities sold or fully settled	0	(1,691)
Ending balance of cumulative credit losses recognized in earnings	$ 0	$ 0

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Consolidated Balance Sheets (unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Assets
Securities available-for-sale amortized cost	$ 13,569	$ 18,584
Securities held-to-maturity estimated fair value	68,498	68,390
Allowance for loan losses	$ 7,868	$ 8,559
Stockholders Equity
Preferred Stock shares Authorized	5,000,000	5,000,000
Preferred Stock shares Issued	0	0
Common Stock Shares par value	$ 0.01	$ 0.01
Common Stock Shares Authorized	10,000,000	10,000,000
Common Stock Shares Issued	4,813,831	4,734,035
Common Stock Shares Outstanding	2,048,888	2,033,336
Treasury Stock	2,764,943	2,700,669

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7. DEPOSITS

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

DEPOSITS

Deposits are summarized as follows:

	September 30,
	2013	2012
Non-interest bearing demand account	$ 100,822	$ 93,410
Interest bearing:
NOW accounts	144,571	126,858
Passbook and regular savings	203,009	198,667
Money funds accounts	50,652	55,252
Certificates of deposit	151,737	143,535
	$        650,791	$       617,722

Certificates of deposit of $100 or more amounted to $69,643 and $58,752 at September 30, 2013 and 2012, respectively.

Certificates of deposit at September 30, 2013 mature as follows:

Less than one year	$	78,553
1-2 years	$	37,809
2-3 years	$	15,320
3-4 years	$	5,294
4-5 years	$	5,292
Over 5 years	$	9,469
TOTAL	$	151,737

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Unaudited Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Unaudited Consolidated Statements Of Comprehensive Income
Net income	$ 8,731	$ 7,285	$ 7,228
Gross change in unrealized loss on securities held-to-maturity with OTTI, net of tax of $0, $12, and $182, respectively	0	(23)	(352)
Less reclassification for OTTI losses on held-to-maturity included in net income, net of tax of $0, $12 and $97, respectively	0	23	189
Previously recorded non-credit OTTI loss reclassed and recognized as a loss in the statement of income, net of tax of $0, $33 and $0, respectively	0	60	0
Reduction in previously recorded non-credit OTTI for Securities sold or fully settled net of tax of $0, $157 and $0, respectively	0	293	0
Gross change in unrealized gain (loss) on securities available-for-sale, net of tax of $163, $92, and $355, respectively	(300)	165	688
Less reclassification for gain on sale of available-for-sale securities included in net income, net of tax of $15, $58, and $33, respectively	(27)	(109)	(64)
Other comprehensive income (loss)	(327)	409	461
Comprehensive income	$ 8,404	$ 7,694	$ 7,689

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4. LOANS RECEIVABLE (Details Narrative) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Loans Receivable Details Narrative
Loans receivable pledged as collateral	$ 292,928
Non-accrual loans	2,425	10,173
Total impaired loans	7,557	8,716
Average investment in impaired loans	8,038	10,962
Non-accrual loans decreased	7,748
Related Party loans	533	400
Loans originated during period with related parties	149	0
Amounts collected from related party loans	$ 16	$ 267

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Consolidated Balance Sheets (unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
ASSETS
Cash and due from banks	$ 18,293	$ 15,661
Interest-bearing deposits	16,039	21,639
Securities available-for-sale at estimated fair value (amortized cost of $13,569 in 2013 and $18,584 in 2012)	14,447	19,967
Securities held-to-maturity-at amortized cost (estimated fair value of $68,498 in 2013 and $68,390 in 2012)	67,732	66,813
Loans receivable-net of allowance for loan losses of $7,868 in 2013 and $8,559 in 2012	676,535	665,842
Accrued interest receivable	2,091	2,514
Investment in Federal Home Loan Bank stock, at cost	5,068	6,809
Real estate owned, net	741	513
Prepaid expenses and other assets	4,394	4,540
Goodwill	3,647	3,647
Life insurance contracts	15,125	14,513
Premises and equipment, net	32,552	29,504
TOTAL ASSETS	856,664	851,962
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits	650,791	617,722
Advances from Federal Home Loan Bank	108,997	142,751
Advance payments by borrowers for taxes and insurance	3,484	3,272
Accrued interest payable	353	370
Accounts payable and other liabilities	3,978	4,306
TOTAL LIABILITIES	767,603	768,421
COMMITMENTS AND CONTINGENCIES	0	0
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued	0	0
Common stock, $.01 par value, 10,000,000 shares authorized; 4,813,831 and 4,734,035 shares issued, 2,048,888 and 2,033,336 outstanding	47	47
Additional paid-in capital	57,593	54,878
Retained earnings	88,228	82,505
Treasury stock, 2,764,943 and 2,700,669 shares - at cost	(57,377)	(54,786)
Accumulated other comprehensive income on available for sale securities	570	897
TOTAL STOCKHOLDERS' EQUITY	89,061	83,541
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 856,664	$ 851,962

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4. LOANS RECEIVABLE - Residential Construction and Permanent Mortgages (Details 4) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Commercial-Land	$ 10,349	$ 13,312
Commercial-Construction	8,593	7,357
Commercial-Non-Real Estate	30,685	34,032
Commercial-Real Estate	133,649	120,557
Total	183,276	175,258
% of Total	100.00%	100.00%
Prime
Commercial-Land	0	0
Commercial-Construction	0	0
Commercial-Non-Real Estate	3,074	3,146
Commercial-Real Estate	0	0
Total	3,074	3,146
% of Total	1.70%	1.80%
Excellent
Commercial-Land	0	0
Commercial-Construction	0	0
Commercial-Non-Real Estate	16	118
Commercial-Real Estate	9	0
Total	25	118
% of Total	0.00%	0.10%
Average
Commercial-Land	624	815
Commercial-Construction	0	0
Commercial-Non-Real Estate	638	500
Commercial-Real Estate	3,851	4,921
Total	5,113	6,236
% of Total	2.80%	3.60%
Satisfactory
Commercial-Land	9,119	7,231
Commercial-Construction	8,233	6,927
Commercial-Non-Real Estate	25,213	28,008
Commercial-Real Estate	110,415	92,494
Total	152,980	134,660
% of Total	83.40%	76.80%
Watch
Commercial-Land	606	601
Commercial-Construction	0	65
Commercial-Non-Real Estate	342	2,056
Commercial-Real Estate	12,478	18,733
Total	13,426	21,455
% of Total	7.30%	12.20%
Special Mention
Commercial-Land	0	17
Commercial-Construction	360	365
Commercial-Non-Real Estate	0	50
Commercial-Real Estate	1,781	872
Total	2,141	1,304
% of Total	1.20%	0.70%
Substandard
Commercial-Land	0	4,648
Commercial-Construction	0	0
Commercial-Non-Real Estate	1,402	154
Commercial-Real Estate	5,115	3,537
Total	6,517	8,339
% of Total	3.60%	4.80%
Doubtful
Commercial-Land	0	0
Commercial-Construction	0	0
Commercial-Non-Real Estate	0	0
Commercial-Real Estate	0	0
Total	0	0
% of Total	0.00%	0.00%
Loss
Commercial-Land	0	0
Commercial-Construction	0	0
Commercial-Non-Real Estate	0	0
Commercial-Real Estate	0	0
Total	$ 0	$ 0
% of Total	0.00%	0.00%

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16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Assets valued on a recurring and non-recurring basis (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Fair Value At
Assets valued on a recurring basis: Mortgage-backed securities:
Government National Mortgage Assoc.	$ 1,435	$ 1,674
Federal Home Loan Mortgage Corp.	1,463	2,169
Federal National mortgage Assoc.	9,692	13,842
Total mortgage-backed securities	12,590	17,685
CMOs:
Government National Mortgage Assoc.	1,296	1,788
Marketable equity securities	561	494
Total recurring	14,447	19,967
Assets valued on a non-recurring basis:
Impaired loans	1,471	5,053
Other real estate owned	741	513
Total non-recurring	2,212	5,566
Quoted price in active markets for identical assets (Level 1)
Assets valued on a recurring basis: Mortgage-backed securities:
Government National Mortgage Assoc.	0	0
Federal Home Loan Mortgage Corp.	0	0
Federal National mortgage Assoc.	0	0
Total mortgage-backed securities	0	0
CMOs:
Government National Mortgage Assoc.	0	0
Marketable equity securities	561	494
Total recurring	561	494
Assets valued on a non-recurring basis:
Impaired loans	0	0
Other real estate owned	0	0
Total non-recurring	0	0
Significant other observable inputs (Level 2)
Assets valued on a recurring basis: Mortgage-backed securities:
Government National Mortgage Assoc.	1,435	1,674
Federal Home Loan Mortgage Corp.	1,463	2,169
Federal National mortgage Assoc.	9,692	13,842
Total mortgage-backed securities	12,590	17,685
CMOs:
Government National Mortgage Assoc.	1,296	1,788
Marketable equity securities	0	0
Total recurring	13,886	19,473
Assets valued on a non-recurring basis:
Impaired loans	0	0
Other real estate owned	0	0
Total non-recurring	0	0
Significant unobservable inputs (Level 3)
Assets valued on a recurring basis: Mortgage-backed securities:
Government National Mortgage Assoc.	0	0
Federal Home Loan Mortgage Corp.	0	0
Federal National mortgage Assoc.	0	0
Total mortgage-backed securities	0	0
CMOs:
Government National Mortgage Assoc.	0	0
Marketable equity securities	0	0
Total recurring	0	0
Assets valued on a non-recurring basis:
Impaired loans	1,471	5,053
Other real estate owned	741	513
Total non-recurring	$ 2,212	$ 5,566

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14. EMPLOYEE STOCK PLANS - Assumptions (Details)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Employee Stock Plans - Assumptions Details
Dividend yield	3.35%	3.72%	4.29%
Risk-free interest rate	1.13%	1.12%	2.15%
Volatility	21.56%	22.54%	23.00%
Expected Life	6 years	6 years	6 years

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5. REAL ESTATE OWNED (Tables)

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

Real estate owned

	September 30,
	2013	2012
Real estate acquired through foreclosure:
One-to-four family units	$             302	$           478
Multi-family	-	-
Land loans	353	35
Commercial real estate loans	86	-
Less allowance for losses	-	-
Real estate owned - net	$             741	$            513

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16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The Company uses 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 twelve months ended September 30, 2013, 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. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and encompass marketable equity securities. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Impaired 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. Once a loan is identified as individually impaired; management measures impairment using one of several methods, including collateral value, market value of similar debt, or present values of cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2013, substantially all of the total impaired loans were evaluated based on the fair value of the collateral less estimated costs to sell. Impaired loans where an allowance is established requires classification in the fair value hierarchy. When the fair value of the collateral is based on the observable market price or a current appraised value, less estimated costs to sell, 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 appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (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. 

	Fair Value At September		Fair Value Hierarchy
	30, 2013		Level 1		Level 2		Level 3
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,435	$	-	$	1,435	$	-
Federal Home Loan Mortgage Corp.		1,463		-		1,463		-
Federal National Mortgage Assoc.		9,692		-		9,692		-
		12,590		-		12,590		-
CMOs:
Government National Mortgage Assoc.		1,296		-		1,296		-
Marketable equity securities		561		561		-		-
Total recurring	$	14,447	$	561	$	13,886	$	-
Assets valued on a non-recurring basis:
Impaired loans	$	1,471	$	-	$	-	$	1,471
Other real estate owned		741		-		-		741
Total non-recurring	$	2,212	$	-	$	-	$	2,212

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate	Valuation Techniques		Unobservable Input		Range
(In thousands)
September 30, 2013:
Impaired Loans	$1,333		Discounted expected cash flows	Interest rate and repayment term	Weighted average discount rate 6.59% Maturity range 60-72 months
Other real estate owned	$741		Property appraisals	Management discount for property type and recent market volatility	10%-33% discount

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate	Valuation Techniques		Unobservable Input		Range
(In thousands)
September 30, 2012:
Impaired Loans	$5,053		Property appraisals	Management discount for property type and recent market volatility	5%-30% discount
Other real estate owned	$513		Property appraisals	Management discount for property type and recent market volatility	3%-61% discount

	Fair Value At September		Fair Value Hierarchy
	30, 2012		Level 1		Level 2		Level 3
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,674	$	-	$	1,674	$	-
Federal Home Loan Mortgage Corp.		2,169		-		2,169		-
Federal National Mortgage Assoc.		13,842		-		13,842		-
		17,685		-		17,685		-
CMOs:
Government National Mortgage Assoc.		1,788		-		1,788		-
Marketable equity securities		494		494		-		-
Total recurring	$	19,967	$	494	$	19,473	$	-
Assets valued on a non-recurring basis:
Impaired loans		5,053		-		-		5,053
Other real estate owned		513		-		-		513
Total non-recurring	$	5,566	$	-	$	-	$	5,566

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. The aggregate fair value amounts presented below may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities - For investment securities, fair value is determined as disclosed in the previous investment security disclosure.

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 - The carrying value of the FHLB of Dallas stock approximates fair value based on the redemption provisions of the FHLB of Dallas.

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

Accrued Interest - The carrying amounts of accrued interest approximate fair value.

Deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturities certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank - The fair value of advances is estimated using rates currently available for advances of similar remaining maturities.

Commitments - The fair value of commitments to extend credit was not significant.

The estimated fair values of the Company’s significant financial instruments are as follows at September 30, 2013 and 2012:

			Fair Value Measurements at September 30, 2013
	Carrying Amount	Estimated Fair Value	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
Financial assets:			(Level 1)	(Level 2)	(Level 3)
Cash and cash equivalents	$   34,332	$   34,332	$                 34,332	$                                  -	$                           -
Investment securities	82,179	82,945	561	82,384	-
FHLB stock	5,068	5,068	-	5,068	-
Accrued interest receivable	2,091	2,091	-	2,091	-
Life Insurance contracts	15,125	15,125	-	15,125	-
Loans receivable, net	676,535	680,901	-	-	680,901
Financial liabilities:
Deposits	650,791	652,019	100,822	551,197	-
Advance from Federal Home Loan  Bank	108,997	113,774	-	113,774	-
Accrued interest payable	353	353	-	353	-
			Fair Value Measurements at September 30, 2012
	Carrying Amount	Estimated Fair Value	Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
Financial assets:			(Level 1)	(Level 2)	(Level 3)
Cash and cash equivalents	$     37,300	$    37,300	$          37,300	$                          -	$                   -
Investment securities	86,780	88,357	494	87,863	-
FHLB stock	6,809	6,809	-	6,809	-
Accrued interest receivable	2,514	2,514	-	2,514	-
Life Insurance contracts	14,513	14,513	-	14,513	-
Loans receivable, net	665,842	665,384	-	-	665,384
Financial liabilities:
Deposits	617,722	621,676	93,410	528,266	-
Advance from Federal Home Loan  Bank	142,751	153,855		153,855
Accrued interest payable	370	370	-	370	-

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3. Securities - Aamortized cost and estimated fair value of held-to-maturity securities (Details 3) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Amortized Cost
Held-to-maturity Securities
Due within one year	$ 26,531
Due after one year but within five years	26,464
Total	52,995
Mortgage-backed securities	14,737
Total	67,732
Fair Value
Held-to-maturity Securities
Due within one year	26,531
Due after one year but within five years	26,464
Total	52,995
Mortgage-backed securities	15,503
Total	$ 68,498

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14. EMPLOYEE STOCK PLANS - Non-vested (Details 2) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Shares:
Non-vested – Beginning	28,070	28,285
Granted	9,547	16,068
Forfeited	(2,199)	(2,412)
Vested	(9,596)	(13,871)
Non-vested – Ending	25,822	28,070
Weighted Average Grant Date Fair Value:
Non-vested – Beginning	$ 31.92	$ 32.31
Granted	$ 39.76	$ 32.41
Forfeited	$ 30.7	$ 33.56
Vested	32.07	33
Non-vested – End	$ 34.86	$ 31.92

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4. LOANS RECEIVABLE - Age Analysis of Past Due Loans (Details 7) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Commercial real estate loans	$ 133,649	$ 120,557
Commercial non-real estate loans	30,685	34,032
Commercial-construction loans	8,593	7,357
Commercial-land	10,349	13,312
Residential-construction loans	5,112	9,478
Residential-real estate loans	409,693	413,500
Consumer-Mobile home loans	43,198	37,030
Consumer-other	45,171	41,110
Total Loans	686,450	676,376
30-89 Days Past Due
Commercial real estate loans	783	35
Commercial non-real estate loans	50	28
Commercial-construction loans	0	0
Commercial-land	0	314
Residential-construction loans	0	0
Residential-real estate loans	5,582	4,410
Consumer-Mobile home loans	1,073	1,292
Consumer-other	262	332
Total Loans	7,750	6,411
Greater than 90 days Past Due
Commercial real estate loans	0	810
Commercial non-real estate loans	0	2
Commercial-construction loans	0	0
Commercial-land	0	531
Residential-construction loans	0	0
Residential-real estate loans	1,678	4,249
Consumer-Mobile home loans	246	425
Consumer-other	206	343
Total Loans	2,130	6,360
Total Past Due
Commercial real estate loans	783	845
Commercial non-real estate loans	50	30
Commercial-construction loans	0	0
Commercial-land	0	845
Residential-construction loans	0	0
Residential-real estate loans	7,260	8,659
Consumer-Mobile home loans	1,319	1,717
Consumer-other	468	675
Total Loans	9,880	12,771
Current
Commercial real estate loans	132,866	119,712
Commercial non-real estate loans	30,635	34,002
Commercial-construction loans	8,593	7,357
Commercial-land	10,349	12,467
Residential-construction loans	5,112	9,478
Residential-real estate loans	402,433	404,841
Consumer-Mobile home loans	41,879	35,313
Consumer-other	44,703	40,435
Total Loans	676,570	663,605
Recorded Investment more than 90 days and Accruing
Commercial real estate loans	0	0
Commercial non-real estate loans	0	0
Commercial-construction loans	0	0
Commercial-land	0	0
Residential-construction loans	0	0
Residential-real estate loans	353	351
Consumer-Mobile home loans	0	0
Consumer-other	0	0
Total Loans	$ 353	$ 351

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8. ADVANCES FROM FEDERAL HOME LOAN BANK OF DALLAS (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Advances From Federal Home Loan Bank Of Dallas Details Narrative
FHLB of Dallas debt	$ 108,997	$ 142,751
Advances interest at weighted average	3.38%	2.82%
Aditional amount available under line of credit with the FHLB of Dallas	$ 183,931

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17. REGULATORY CAPITAL (Tables)

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

Regulatory capital requirements

	Actual				For capital Adequacy purposes				To be well capitalized under prompt corrective action provisions
					Required				Required
Bank:	Amount		%		Amount		%		Amount		%
As of September 30, 2013:
Total Risk based capital	$	83,540		14.31%	$	46,707		8.0%	$	58,384		10.0%
(to risk-weighted assets)
Tier 1 capital	$	76,235		13.05%	$	23,353		4.0%	$	35,030		6.0%
(to risk-weighted assets)
Tier 1 capital	$	76,235		9.07%	$	33,572		4.0%	$	41,965		5.0%
(to average assets)
Bank:
As of September 30, 2012:
Total Risk based capital	$	79,670		14.09%	$	45,260		8.0%	$	56,576		10.0%
(to risk-weighted assets)
Tier 1 capital	$	72,580		12.82%	$	22,630		4.0%	$	33,945		6.0%
(to risk-weighted assets)
Tier 1 capital	$	72,580		8.65%	$	33,513		4.0%	$	41,891		5.0%
(to average assets)

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11. NON-INTEREST EXPENSE (Tables)

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Occupancy, equipment and data processing expenses

	Year Ended September 30,
	2013		2012		2011
Occupancy, including depreciation, insurance,
rent, utilities, etc.	$	2,624	$	2,508	$	2,278
Equipment, including depreciation, telephone,
etc.		2,719		2,632		2,623
Data processing		1,576		1,360		1,219
	$	6,919	$	6,500	$	6,120

Other operating expenses

Other operating expenses consisted of the following:

	Year Ended September 30,
	2013		2012		2011
Stationery, printing and postage	$	1,054	$	979	$	1,048
Debit card expense, and other deposit related costs		1,909		1,655		1,972
Other		1,066		1,914		1,196
	$	4,029	$	4,548	$	4,216

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13. Income Per Share (Tables)

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Computation of basic and diluted income per common share

	Year Ended September 30,
		2013	2012	2011
Weighted average number of common shares outstanding - used in computation of basic income per common share		2,036,000	2,052,000	2,069,000
Effect of dilutive securities:
Stock options		16,000	17,000	12,000
Stock grants		16,000	7,000	11,000
Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted income per common share		2,068,000	2,076,000	2,092,000

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6. PREMISES AND EQUIPMENT

12 Months Ended

Sep. 30, 2013

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	September 30,
	2013	2012
Land	$     13,270	$     11,674
Buildings and improvements	24,539	22,403
Furniture, fixtures and equipment	12,818	12,667
	50,627	46,744
Less accumulated depreciation	(18,075)	(17,240)
	$    32,552	$     29,504

Pursuant to the terms of non-cancelable lease agreements in effect at September 30, 2013 pertaining to banking premises and equipment, future minimum rent commitments under various operating leases are as follows:

2014	$              35
2015	35
2016	35
2017	27
2018	-
	$            132

All leases contain options to extend for periods from three to ten years. Total rent expense for the years ended September 30, 2013, 2012, and 2011 amounted to $132, $93 and $101 respectively.

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7. DEPOSITS - Summary (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Deposits - Summary Details
Non-interest bearing demand account	$ 100,822	$ 93,410
Interest bearing:
NOW accounts	144,571	126,858
Passbook and regular savings	203,009	198,667
Money funds accounts	50,652	55,252
Certificates of deposit	151,737	143,535
Deposits	$ 650,791	$ 617,722

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6. PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Sep. 30, 2013

Property, Plant and Equipment [Abstract]

Premises and equipment

	September 30,
	2013	2012
Land	$     13,270	$     11,674
Buildings and improvements	24,539	22,403
Furniture, fixtures and equipment	12,818	12,667
	50,627	46,744
Less accumulated depreciation	(18,075)	(17,240)
	$    32,552	$     29,504

Future minimum rent commitments

2014	$	35
2015		35
2016		35
2017		27
2018		—
	$	132

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3. Securities - Amortized cost and estimated fair values of securities held-to-maturity (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Amortized Cost
Investment securities:
Time deposits other banks	$ 52,995	$ 44,673
Mortgage-backed securities:
Federal National Mortgage Assoc.	11,650	17,364
Federal Home Loan Mortgage Corp.	2,528	3,874
CMOs:
Federal Home Loan Mortgage Corp.	43	76
Federal National Mortgage Assoc.	516	826
Total	67,732	66,813
Gross Unrealized Gains
Investment securities:
Time deposits other banks	0	0
Mortgage-backed securities:
Federal National Mortgage Assoc.	578	1,180
Federal Home Loan Mortgage Corp.	155	321
CMOs:
Federal Home Loan Mortgage Corp.	1	5
Federal National Mortgage Assoc.	33	71
Total	767	1,577
Gross Unrealized Losses
Investment securities:
Time deposits other banks	0	0
Mortgage-backed securities:
Federal National Mortgage Assoc.	(1)	0
Federal Home Loan Mortgage Corp.	0	0
CMOs:
Federal Home Loan Mortgage Corp.	0	0
Federal National Mortgage Assoc.	0	0
Total	(1)	0
Estimated Fair Value
Investment securities:
Time deposits other banks	52,995	44,673
Mortgage-backed securities:
Federal National Mortgage Assoc.	12,227	18,544
Federal Home Loan Mortgage Corp.	2,683	4,195
CMOs:
Federal Home Loan Mortgage Corp.	44	81
Federal National Mortgage Assoc.	549	897
Total	$ 68,498	$ 68,390

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9. OTHER NON-INTEREST INCOME

12 Months Ended

Sep. 30, 2013

Other Income and Expenses [Abstract]

OTHER NON-INTEREST INCOME

Other non-interest income consisted of the following:

	Year Ended September 30,
	2013	2012	2011
Life insurance contracts	$             612	$            608	$            595
Other	202	222	231
	$            814	$           830	$           826

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13. Income Per Share (Details Narrative)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Income Per Share Details Narrative
Shares excluded from diluted earnings	3,000	73,000	234,000

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5. REAL ESTATE OWNED

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

REAL ESTATE OWNED

Real estate owned consisted of the following:

	September 30,
	2013	2012
Real estate acquired through foreclosure:
One-to-four family units	$             302	$           478
Multi-family	-	-
Land loans	353	35
Commercial real estate loans	86	-
Less allowance for losses	-	-
Real estate owned - net	$             741	$            513

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Unaudited Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 8,731	$ 7,285	$ 7,228
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion of discount) and amortization of premium on investments and mortgage-backed securities	27	(167)	(317)
Provision for loan losses	400	1,910	3,900
Provision for loss on real estate owned	75	443	25
Stock-based compensation	444	503	531
Deferred income tax expense (benefit)	230	(268)	388
Gain on sale of loans	(2,267)	(95)	(25)
Gain on securities	(42)	(167)	(96)
Gain on sale of premises and equipment	0	(205)	(103)
(Gain)/Loss on sale of real estate owned	(63)	117	47
Impairment of securities	0	128	286
Depreciation	1,659	1,597	1,442
Increase in bank owned life insurance	(612)	(608)	(595)
Amortization of intangible assets	6	11	17
Change in prepaid expenses and other assets	140	481	1,474
(Increase) Decrease in accrued interest receivable	423	(194)	160
Change in accounts payable and other liabilities	(328)	610	(51)
Change in accrued interest payable	(17)	51	(110)
Excess tax benefits from share-based payment arrangements	95	29	30
Other net	(652)	646	478
Net cash provided by operating activities	8,249	12,107	14,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities available-for-sale	179	370	232
Proceeds from sales of investment securities held-to-maturity	0	1,767	0
Purchase of securities available for sale	(100)	(186)	(13,926)
Principal repayments on securities available-for-sale	5,498	5,141	3,617
Purchase of securities held to maturity	(33,105)	(8,358)	(40,982)
Principal repayments on securities available for sale	32,144	20,438	20,001
Principal repayments on securities held to maturity	(70,147)	(73,173)	(21,515)
Net loan originations	(747)	(1,380)	(1,080)
Purchase of loans	60,219	6,080	2,132
Proceeds from sales of loans	1,741	(1,491)	84
Decrease (Increase) in FHLB stock, net	(4,707)	(4,771)	(1,499)
Purchase of premises and equipment	0	290	499
Proceeds from sale of real estate owned	1,609	1,419	2,656
Net cash provided by (used) provided in investing activities	(7,416)	(53,854)	(49,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(3,008)	(2,983)	(2,967)
Prepayment (loan to) ESOP	0	65	261
Net increase in deposits	33,069	19,140	19,227
Proceeds of long-term FHLB advances	0	44,000	33,667
Repayment of long-term FHLB advances	(28,554)	(32,332)	(27,201)
Net increase (decrease) in short-term FHLB advances	(5,200)	22,900	1,700
Cash paid for purchase of common stock for treasury	(2,591)	(2,728)	(1,196)
Proceeds from exercise of stock options	2,366	1,023	138
Excess tax benefit (expense) from share-based payment arrangements	(95)	(29)	(30)
Change in advance payments by borrowers for taxes and insurance	212	836	(27)
NET CASH PROVIDED (USED BY) FINANCING ACTIVITIES	(3,801)	49,892	23,572
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(2,968)	8,145	(11,500)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	37,300	29,155	40,655
CASH AND CASH EQUIVALENTS, END OF PERIOD	34,332	37,300	29,155
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	6,772	8,029	9,278
Cash paid for taxes	4,700	3,400	2,900
Supplemental schedule of noncash investing activities:
Accumulated other comprehensive income, net of income taxes	(327)	409	461
Transfer from loans to real estate owned	2,055	1,582	3,220
Loans originated to sell real estate owned	$ 206	$ 495	$ 268

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4. LOANS RECEIVABLE - Consumer Credit Exposure Credit Risk Profile (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Residential-Real Estate Construction	$ 5,112	$ 9,478
Residential-Real Estate	409,693	413,500
Total	414,805	422,978
Pass
Residential-Real Estate Construction	5,112	9,478
Residential-Real Estate	405,863	408,611
Total	410,975	418,089
Special Mention
Residential-Real Estate Construction	0	0
Residential-Real Estate	316	328
Total	316	328
Substandard
Residential-Real Estate Construction	0	0
Residential-Real Estate	3,514	4,561
Total	3,514	4,561
Loss
Residential-Real Estate Construction	0	0
Residential-Real Estate	0	0
Total	$ 0	$ 0

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4. LOANS RECEIVABLE - Summary (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Loans Receivable Value
Commercial real estate loans	$ 133,649	$ 120,557
Commercial non-real estate loans	30,685	34,032
Commercial-construction loans	8,593	7,357
Commercial-land	10,349	13,312
Residential-construction loans	5,112	9,478
Residential-real estate loans	409,693	413,500
Consumer-Mobile home loans	43,198	37,030
Consumer-other	45,171	41,110
Total Loans	686,450	676,376
Less:
Allowance for loan losses	7,868	8,559
Deferred loan fees	2,047	1,975
Total Net Loans	$ 676,535	$ 665,842
Loans Receivable Percentage of Total
Commercial real estate loans	19.40%	17.80%
Commercial non-real estate loans	4.50%	5.00%
Commercial-construction loans	1.30%	1.10%
Commercial-land	1.50%	2.00%
Residential-construction loans	0.70%	1.40%
Residential-real estate loans	59.70%	61.10%
Consumer-Mobile home loans	6.30%	5.50%
Consumer-other	6.60%	6.10%
Total Loans	100.00%	100.00%

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17. REGULATORY CAPITAL (Details) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Actual
Total risk based capital (to risk-weighted assets)	$ 83,540	$ 79,670
Total risk based capital (to risk-weighted assets) Percentage	14.31%	14.09%
Tier one capital (to risk-weighted assets)	76,235	72,580
Tier one capital (to risk-weighted assets) Percentage	13.05%	12.82%
Tier one capital (to average assets)	76,235	72,580
Tier one capital (to average assets) Percentage	9.07%	8.65%
For capital adequacy purposes required
Total risk based capital (to risk-weighted assets)	46,707	45,260
Total risk based capital (to risk-weighted assets) Percentage	8.00%	8.00%
Tier one capital (to risk-weighted assets)	23,353	22,630
Tier one capital (to risk-weighted assets) Percentage	4.00%	4.00%
Tier one capital (to average assets)	33,572	33,513
Tier one capital (to average assets) Percentage	4.00%	4.00%
To be well capitalized under prompt corrective action provisions required
Total risk based capital (to risk-weighted assets)	58,384	56,576
Total risk based capital (to risk-weighted assets) Percentage	10.00%	10.00%
Tier one capital (to risk-weighted assets)	35,030	33,945
Tier one capital (to risk-weighted assets) Percentage	6.00%	6.00%
Tier one capital (to average assets)	$ 41,965	$ 41,891
Tier one capital (to average assets) Percentage	5.00%	5.00%

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9. OTHER NON-INTEREST INCOME (Tables)

12 Months Ended

Sep. 30, 2013

Other Income and Expenses [Abstract]

Other non-interest income

	Year Ended September 30,
	2013	2012	2011
Life insurance contracts	$             612	$            608	$            595
Other	202	222	231
	$            814	$           830	$           826

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16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Estimated fair values of financial instruments (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Carrying Amount
Financial assets:
Cash and cash equivalents	$ 34,332	$ 37,300
Investment securities	82,179	86,780
FHLB stock	5,068	6,809
Accrued interest receivable	2,091	2,514
Life Insurance contracts	15,125	14,513
Loans receivable, net	676,535	665,842
Financial liabilities:
Deposits	650,791	617,722
Advance from Federal Home Loan Bank	108,997	142,751
Accrued interest payable	353	370
Estimated Fair Value
Financial assets:
Cash and cash equivalents	34,332	37,300
Investment securities	82,945	88,357
FHLB stock	5,068	6,809
Accrued interest receivable	2,091	2,514
Life Insurance contracts	15,125	14,513
Loans receivable, net	680,901	665,384
Financial liabilities:
Deposits	652,019	621,676
Advance from Federal Home Loan Bank	113,774	153,855
Accrued interest payable	353	370
Fair Value Measurements of Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and cash equivalents	34,332	37,300
Investment securities	561	494
FHLB stock	0	0
Accrued interest receivable	0	0
Life Insurance contracts	0	0
Loans receivable, net	0	0
Financial liabilities:
Deposits	100,822	93,410
Advance from Federal Home Loan Bank	0	0
Accrued interest payable	0	0
Fair Value Measurements of Significant Other Observable Inputs (Level 2)
Financial assets:
Cash and cash equivalents	0	0
Investment securities	82,384	87,863
FHLB stock	5,068	6,809
Accrued interest receivable	2,091	2,514
Life Insurance contracts	15,125	14,513
Loans receivable, net	0	0
Financial liabilities:
Deposits	551,197	528,266
Advance from Federal Home Loan Bank	113,774	153,855
Accrued interest payable	353	370
Fair Value Measurements of Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	0	0
Investment securities	0	0
FHLB stock	0	0
Accrued interest receivable	0	0
Life Insurance contracts	0	0
Loans receivable, net	680,901	665,384
Financial liabilities:
Deposits	0	0
Advance from Federal Home Loan Bank	0	0
Accrued interest payable	$ 0	$ 0

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9. OTHER NON-INTEREST INCOME (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Other Non-Interest Income Details
Life insurance contracts	$ 612	$ 608	$ 595
Other	202	222	231
Other income	$ 814	$ 830	$ 826

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5. REAL ESTATE OWNED (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Real estate acquired through foreclosure:
One-to-four family units	$ 302	$ 478
Multi-family	0	0
Land loans	353	35
Commercial real estate loans	86	0
Less allowance for losses	0	0
Real estate owned - net	$ 741	$ 513

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17. REGULATORY CAPITAL (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Regulatory Capital Details Narrative
Tier one risk-based capital ratio	14.39%	13.86%
Tier one capital ratio	10.02%	9.36%
Total risk-based capital ratio	15.66%	15.13%
FHLB borrowed funds	$ 109,000

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12. RETIREMENT PLAN

12 Months Ended

Sep. 30, 2013

Compensation and Retirement Disclosure [Abstract]

RETIREMENT PLAN

The Company has a 401(k) Plan whereby substantially all employees participate in the Plan. Employees may contribute up to 50 percent of their compensation subject to certain limits based on federal tax laws. The Company makes matching contributions equal to 100 percent of the first 3 percent plus 50 percent after the next 2 percent of an employee’s compensation contributed to the Plan. Matching contributions vest to the employee equally over a five-year period. For the years ended September 30, 2013, 2012 and 2011, expense attributable to the Plan amounted to approximately $438, $397, and $382, respectively.

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8. ADVANCES FROM FEDERAL HOME LOAN BANK OF DALLAS

12 Months Ended

Sep. 30, 2013

Banking and Thrift [Abstract]

ADVANCES FROM FEDERAL HOME LOAN BANK OF DALLAS

At September 30, 2013 and 2012 respectively, the Company was indebted to the FHLB of Dallas for $108,997 and $142,751 of advances bearing interest at a weighted average rate of 3.38% and 2.82%, which are due as follows:

Year Ended September 30,
2014	$	29,247
2015		8,092
2016		10,349
2017		8,299
2018		5,871
Thereafter		47,139
	$	108,997

These advances are collateralized by a blanket-floating lien on the Company’s residential real estate first mortgage loans, certain investment securities and stock in the FHLB.

At September 30, 2013, the Company had an additional $183,931 available under its line of credit with the FHLB of Dallas.

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10. INCOME TAXES - Income tax expense (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011
Income Taxes - Income Tax Expense Details 1
Current	$ 4,167	$ 3,923	$ 3,086
Deferred	230	(268)	388
Income tax expense	$ 4,397	$ 3,655	$ 3,474

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15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

12 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business the Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. The financial instruments include commitments to extend credit and commitments to sell loans. Those instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of the involvement the Company has in particular classes of financial instruments.

As of September 30, 2013 the Company had made various commitments to extend credit totaling approximately $81,198 with an weighted average rate of 4.33% As of September 30, 2012, such commitments totaled approximately $58,550 with an weighted average rate of 4.26%.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being fully drawn upon, the total commitment amount disclosed above does not necessarily represent future cash requirements.

The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

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13. INCOME PER SHARE

12 Months Ended

Sep. 30, 2013

Notes to Financial Statements

INCOME PER SHARE

Following is a summary of the information used in the computation of basic and diluted income per common share for the years ended September 30, 2013, 2012, and 2011:

	Year Ended September 30,
		2013	2012	2011
Weighted average number of common shares outstanding - used in computation of basic income per common share		2,036,000	2,052,000	2,069,000
Effect of dilutive securities:
Stock options		16,000	17,000	12,000
Stock grants		16,000	7,000	11,000
Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted income per common share		2,068,000	2,076,000	2,092,000

At September 30, 2013 and 2012 and 2011, approximately 3,000, 73,000 and 234,000, respectively, of common stock equivalents were excluded from diluted earnings per share because the option price exceeded the average market price.

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Document and Entity Information (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Dec. 09, 2013	Mar. 31, 2013
Document And Entity Information
Entity Registrant Name	TECHE HOLDING CO
Entity Central Index Key	0000934538
Document Type	10-K
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,063,269
Public Float			$ 5,100,000
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2013

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18. SUMMARIZED FINANCIAL INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY ONLY) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2010
Assets:
Cash and cash equivalents	$ 34,332	$ 37,300	$ 29,155	$ 40,655
Total assets	856,664	851,962
Stockholder’ equity	89,061	83,541	79,987	75,513
Interest income from subsidiary	37,428	39,134	39,358
Income tax benefit	4,397	3,655	3,474
Net Income	8,731	7,285	7,228
Cash flows from operating activities	8,249	12,107	14,709
Cash flow from investing activities:
Proceeds from sale of securities	179	370	232
Net cash provided by investing activities	(7,416)	(53,854)	(49,781)
Cash flows from financing activities:
Proceeds from exercise of stock options	2,366	1,023	138
Cash paid for purchase of common stock for treasury	2,591	2,728	1,196
Net cash used in financing activities	(3,801)	49,892	23,572
Net (decrease) increase in cash and cash equivalents	(2,968)	8,145	(11,500)
Balance Sheets
Assets:
Investment in subsidiary	80,724	77,240
Cash and cash equivalents	7,120	5,303
Other	1,217	998
Total assets	89,061	83,541
Stockholder’ equity	89,061	83,541
Statement of Earnings
Assets:
Dividends received from subsidiary	5,500	4,400	4,000
Equity in earnings of subsidiary (less than) greater than dividends received	3,580	3,090	3,578
Interest income from subsidiary	4	5	5
Management fees and other expenses allocated to the parent	(77)	(77)	(77)
Other expenses - net	(464)	(245)	(471)
Income before income taxes	8,543	7,173	7,035
Income tax benefit	(188)	(112)	(193)
Net Income	8,731	7,285	7,228
Statements of Cash Flows
Assets:
Cash flows from operating activities	4,971	3,925	3,487
Cash flow from investing activities:
Purchase of securities available-for-sale	(100)	(186)	(150)
Proceeds from sale of land to bank	0	1,023	0
Proceeds from sale of securities	179	370	232
Net cash provided by investing activities	79	1,207	82
Cash flows from financing activities:
Dividends paid	(3,008)	(2,983)	(2,967)
Proceeds from exercise of stock options	2,366	1,023	138
Net loan activity with ESOP	0	65	261
Cash paid for purchase of common stock for treasury	(2,591)	(2,728)	(1,196)
Net cash used in financing activities	(3,233)	(4,623)	(3,764)
Net (decrease) increase in cash and cash equivalents	1,817	509	(195)
Cash and cash equivalents – beginning of year	5,303	4,794	4,989
Cash and cash equivalents – end of year	$ 7,120	$ 5,303	$ 4,794

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14. EMPLOYEE STOCK PLANS

12 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

EMPLOYEE STOCK PLANS

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of the Bank’s employees who meet certain eligibility requirements. During the fiscal year ended September 30, 2009 the ESOP Trust purchased an additional 20,408 shares of common stock in the Company with a loan from the Company. Teche Federal Bank periodically made cash contributions to the ESOP on a basis sufficient to enable the ESOP to make the required loan payments to the Company.

The note payable referred to above bore interest at the prime rate adjusted quarterly with principal and interest payable quarterly for nine consecutive quarters with the final payment made in December 2011. The loan was collateralized by the unreleased shares of the stock purchased.

As the debt was repaid, shares were released from collateral and allocated to qualified employees based on the proportion of principal paid in the year. The shares pledged as collateral are reported as a reduction of stockholders’ equity in the consolidated balance sheets. As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for income per share computations. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings and dividends on unallocated ESOP shares are recorded as a reduction of debt or as compensation expense if not used for debt service.

Compensation expense related to the ESOP was $250, $524 and $435 for the years ended September 30, 2013, 2012 and 2011, respectively. The ESOP had no unreleased shares at September 30, 2013.

The Company has 4 share-based compensation plans in effect at September 30, 2013. The compensation cost that has been charged against income for those plans was approximately $444, $503 and $531 for the years ended September 30, 2013, 2012 and 2011, respectively. The plans allow for the granting of both qualified and non-qualified stock options.

In 1998, the Company implemented the 1998 Stock Option Plan, which authorized the Board of Directors to grant up to 68,000 of stock options to employees, officers and directors of the Company. Options granted under the 1998 Stock Option Plan have a term of up to ten years from the date of grant. Vesting of options is determined at the time of grant and ranges from immediate to five years. Options under this plan must be granted at a price not less than the fair market value at the date of grant. 

In 2001, the Company implemented the 2001 Stock-Based Incentive Plan, which authorized the Board of Directors to grant up to 250,000 stock options or restricted stock (limited to 37,500 shares) to officers and employees of the Company. Options granted under the 2001 Stock Option Plan have a term of up to ten years from the date of grant. Vesting of options is determined at the time of grant and ranges from immediate to five years. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

In 2005, the Company implemented the 2004 Stock-Based Incentive Plan, which authorized the Board of Directors to grant up to 200,000 stock options or restricted stock (limited to 50,000 shares) to employees, officers and directors of the Company. Options granted under the 2004 Stock Based Incentive Plan will have a term of up to ten years from the date of grant and vesting of grants will be determined at the time of grant. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

In 2011, the Company implemented the 2011 Stock-Based Incentive Plan, which authorized the Board of Directors to grant up to 250,000 stock options or restricted stock (limited to 100,000 shares) to employees, officers and directors of the Company. Options granted under the 2011 Stock Based Incentive Plan will have a term of up to ten years from the date of grant and vesting of grants will be determined at the time of grant. Options under this plan must be granted at a price not less than the fair market value at the date of grant.

The share-based awards granted under the aforementioned Plans have similar characteristics, except that some awards have been granted in options and certain awards have been granted in restricted stock. Therefore, the following disclosures have been disaggregated for the stock option and restricted stock awards of the Plans due to their dissimilar characteristics.

Stock Options

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Company granted 8,000 stock options for the year ended September 30, 2013 with a weighted average fair value of $5.82 per option. The Company granted 50,220 stock options for the year ended September 30, 2012 with an average fair value of $5.05 per option. The Company granted 46,240 stock options for the year ended September 30, 2011 with an average fair value of $4.68 per option.

The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based upon the historical volatility of the Company based upon the previous 6 years trading history. The expected term of the options is based upon the average life of previously issued stock options. The expected dividend yield is based upon current yield on date of grant. No post-vesting restrictions exist for these options. The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees in the years ended September 30, 2013, 2012, and 2011.

	Year Ended September 30, 2013	Year Ended September 30, 2012	Year Ended September 30, 2011
Dividend yield	3.35%	3.72%	4.29%
Risk-free interest rate	1.13%	1.12%	2.15%
Volatility	21.56%	22.54%	23.00%
Expected Life	6 years	6 years	6 years

A summary of option activity under the stock option plans as of September 30, 2013, and changes during the year ended September 30, 2013 is presented below:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2011	310,131	$	34.28	5.6 years	$	186
Exercised	(43,756)		26.60
Forfeited	(10,698)		35.82
Granted	50,220	$	39.67		$
Outstanding at September 30, 2012	305,897	$	36.17	6.01 years	$	1,365
Exercised	(71,371)		34.45
Forfeited	(11,465)		35.18
Granted	8,000	$	44.82		$
Outstanding at September 30, 2013	231,061	$	37.03	5.73 years	$	2,013
Exercisable at September 30, 2013	141,767	$	36.72	4.14 years	$	1,281

For the years ended September 30, 2013, 2012 and 2011 respectively, the intrinsic value of options exercised was approximately $547, $484 and $257. The fair value of options vested during the years ended 2013, 2012 and 2011 was approximately $143, $518 and $333, respectively.

Net cash received from options exercised under all share-based payment arrangements for year ended September 30, 2013 was approximately $2,366. The actual tax benefit in stockholders’ equity realized for the tax deductions from option exercise of the share-based payment arrangements and the tax effect of restricted stock vesting totaled $95 for the year ended September 30, 2013.

As of September 30, 2013, there was $477 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock option plans. That cost is expected to be recognized over a weighted-average period of 2.9 years.

Stock Awards

A summary of the status of the Company’s non-vested stock awards as of September 30, 2013, and changes during the year then ended is presented below:

	Shares	Weighted Average Grant Date Fair Value
Non-vested – September 30, 2011	28,285	$	32.31
Granted	16,068	$	32.41
Forfeited	(2,412)	$	33.56
Vested	(13,871)	$	33.00
Non-vested – September 30, 2012	28,070	$	31.92
Granted	9,547	$	39.76
Forfeited	(2,199)	$	30.70
Vested	(9,596)	$	32.07
Non-vested – September 30, 2013	25,822	$	34.86

The fair value of restricted stock vested and the fair value of shares vested as direct compensation for the years ended September 30, 2013, 2012 and 2011, respectively was $308, $458 and $139.

As of September 30, 2013, there was $698 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock award plans. That cost is expected to be recognized over a weighted-average period of 1.82 years.

The Company funds the option shares and restricted stock from authorized, but unissued shares. The Company does not typically purchase shares to fulfill the obligations of the stock benefit plans. Company policy does allow option holders to exercise options with seasoned shares.

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6. PREMISES AND EQUIPMENT - Non-cancelable lease agreements (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Premises And Equipment - Non-Cancelable Lease Agreements Details 1
2014	$ 35
2015	35
2016	35
2017	27
2018	0
Future minimum rent commitments	$ 132

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6. PREMISES AND EQUIPMENT - Summary (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012
Premises And Equipment - Summary Details
Land	$ 13,270	$ 11,674
Buildings and improvements	24,539	22,403
Furniture, fixtures and equipment	12,818	12,667
Premises and equipment, Gross	50,627	46,744
Less accumulated depreciation	(18,075)	(17,240)
Premises and equipment, net	$ 32,552	$ 29,504