GS Financial 10Q 2001 Q3 Quarterly report

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2001

Commission File Number: 0-22269

GS Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

Louisiana	72-1341014
(State or Other Jurisdiction	(IRS Employer ID Number)
of Incorporation or Organization)

3798 Veterans Blvd.

Metairie, LA 70002

(Address of Principal Executive Offices)

Registrant's Telephone Number: (504) 457-6220

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.

x Yes

As of November 9, 2001, there were 1,668,662 shares of the Registrant's common stock outstanding. The financial statements contained within this Form 10-Q for the three and nine months ended September 30, 2001 and 2000 represent the consolidated financial position and results of operations of GS Financial Corp.

GS Financial Corp.

Form 10-Q

Three and Nine Months ended September 30, 2001

Table of Contents

Part I - Financial Information

Item 1	Financial Statements

	Consolidated Balance Sheets
	(as of September 30, 2001, Unaudited and December 31, 2000, Audited)	3

	Consolidated Statements of Income
	(For the three and nine months ended September 30, 2001 and 2000, Unaudited)	4

	Consolidated Statements of Changes in Stockholders' Equity
	(For the nine months ended September 30, 2001 and 2000, Unaudited)	5

	Consolidated Statements of Cash Flows
	(For the nine months ended September 30, 2001 and 2000, Unaudited)	6-7

	Notes to Consolidated Financial Statements	7-12

Item 2	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	12-17

Item 3	Quantitative and Qualitative Disclosures about Market Risk	17

Part II - Other Information		17

Item 1	Legal Proceedings	17

Item 2	Changes in Securities	17

Item 3	Defaults Upon Senior Securities	17

Item 4	Submission of Matters to a Vote of Security Holders	17

Item 5	Other Information	17

Item 6	Exhibits and Reports on Form 8-K	18

GS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

ASSETS

			Sept. 30,2001		Dec. 31,2000
			(Unaudited)		(Audited)
Cash and Due from Banks		$	811	$	531
Interest-Bearing Deposits in Other Banks			4,462		1,417
Federal Funds Sold			825		1,455
Investment Securities			30,792		11,000
Loans (Net)			76,755		74,480
Mortgage-Backed Securities			995		4,115
Collateralized Mortgage Obligations			68,737		53,745
FHLB Stock			5,264		3,115
Accrued Interest Receivable			1,003		682
Premises and Equipment			2,525		2,527
Other Assets			962		433

	Total Assets	$	193,131	$	153,500

LIABILITIES AND STOCKHOLDERS' EQUITY


LIABILITIES
	Interest-Bearing Deposits		$	66,025	$	58,660
	Non-Interest Bearing Deposits			999		1,150
	Borrowings			88,699		54,191
	Other Liabilities			2,386		1,704

		Total Liabilities		158,109		115,705

STOCKHOLDERS' EQUITY
	Common Stock & Additional Paid in Capital			34,052		33,888
	Treasury Stock			(25,054)		(20,568)
	Accumulated Other Comprehensive Income			1,849		1,292
	Unllocated ESOP Stock			(1,435)		(1,646)
	Unearned RRP Trust Stock			(1,682)		(1,754)
	Other Stockholders' Equity			27,292		26,583

		Total Stockholders' Equity		35,022		37,795

		Total Liabilities and Stockholders' Equity	$	193,131	$	153,500

GS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, except per share data) (Unaudited)
				For The Three Months Ended September 30,				For the Nine Months Ended September 30,
				2001		2000		2001		2000

INTEREST INCOME (from)
	Loans		$	1,518	$	1,486	$	4,448	$	4,320
	Mortgage-Backed Securities			16		188		74		726
	Investment Securities			367		95		958		320
	Collateralized Mortgage Obligations			1,398		985		3,960		2,799
	Other Interest Income			77		94		470		303
		Total Interest Income		3,376		2,848		9,910		8,468

INTEREST EXPENSE (on)
	Deposits			726		686		2,155		1,942
	FHLB Advances			1,282		851		3,822		2,363
		Total Interest Expense		2,008		1,537		5,977		4,305

NET INTEREST INCOME BEFORE
	PROVISION FOR LOAN LOSSES			1,368		1,311		3,933		4,163

PROVISION FOR LOAN LOSSES				2		7		16		7

NET INTEREST INCOME AFTER
	PROVISION FOR LOAN LOSSES			1,366		1,304		3,917		4,156

NON-INTEREST INCOME
	Gain on Investments			16		287		607		28
	Other Income			15		5		29		10
		Total Non-Interest Income		31		292		636		38

OTHER EXPENSES
	Compensation and Benefits			597		525		1,765		1,578
	Net Occupancy Expense			89		83		262		239
	Other Expenses			254		256		719		750
		Total Other Expenses		940		864		2,746		2,567

INCOME BEFORE TAX EXPENSE				457		732		1,807		1,627

INCOME TAX EXPENSE				131		272		591		611

NET INCOME			$	326	$	460	$	1,216	$	1,016

BASIC EARNINGS PER SHARE			$	.22	$	.26	$	.76	$	.49
DILUTED EARNINGS PER SHARE			$	.22	$	.26	$	.76	$	.49

GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30, 2001, and 2000
(Dollars in Thousands) (Unaudited)

								Unearned		Accumulated
			Additional			Unallocated		RRP		Other	Total
		Common Stock		Paid in Capital	Treasury Stock		ESOP Stock	Trust Stock	Retained Earnings	Comprehensive Income (Loss)	Stockholders' Equity
BALANCE AT
DECEMBER 31, 1999		$ 34		$ 33,822	$ (11,978)		$ (1,927)	$ (1,974)	$ 26,151	$ (580)	$ 43,548

Net Income for Nine Months
	Ended Sept. 30, 2000	-		-	-		-	-	1,016	-	1,016

Other Comprehensive
	Income Net of Applicable Deferred
	Income Taxes	-		-	-		-	-	-	493	493

Purchase of Treasury Stock		-		-	(8,197)		-	-	-	-	(8,197)

Retirement of ESOP Debt		-		116	-		211	-	-	-	327

Cash Dividends Paid		-		-	-		-	-	(652)	-	(652)
BALANCE AT
SEPTEMBER 30, 2000		$ 34		$ 33,938	$ (20,175)		$ (1,716)	$ (1,974)	$ 26,515	$ (87)	$ 36,535
		==		=====	======		=====	=====	======	====	=====
BALANCE AT
DECEMBER 31, 2000		$ 34		$ 33,854	$ (20,568)		$ (1,646)	$ (1,754)	$ 26,583	$ 1,292	$ 37,795

Net Income for Nine Months
	Ended Sept. 30, 2001	-		-	-		-	-	1,216	-	1,216

Other Comprehensive
	Income Net of Applicable Deferred
	Income Taxes	-		-	-		-	-	-	557	557

Purchase of Treasury Stock		-		-	(4,486)		-	-	-	-	(4,486)

Retirement of ESOP Debt		-		185	-		211	-	-	-	396

Distribution of RRP Stock		-		(21)	-		-	72	-	-	51

Cash Dividends Paid		-		-	-		-	-	(507)	-	(507)
BALANCE AT
SEPTEMBER 30, 2001		$ 34		$ 34,018	$ (25,054)		$ (1,435)	$ (1,682)	$ 27,292	$ 1,849	$ 35,022
		==		=====	======		=====	=====	======	====	=====

GS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
							For The Nine Months Ended September 30,
							2001		2000

CASH FLOWS FROM OPERATING ACTIVITIES
	Net Income					$	1,216	$	1,016
	Adjustments to Reconcile Net Income to Net Cash
		Provided by Operating Activities:
			Depreciation				104		104
			Discount Accretion Net of Premiums Amortized				(376)		(90)
			Provision for Loan Losses				16		7
			Gain on Sale of Premises and Equipment				-		(8)
			Net Loan Fees				-		(2)
			Dividend on ARM Fund				(208)		(24)
			Dividend on IMF Fund				(16)		(43)
			Non-Cash Dividend - FHLB				(159)		(186)
			ESOP Expense				322		277
			RRP Expense				161		117
			Gain on Sale of Investments				(607)		(20)
			(Gain)/Loss on Sale of Foreclosed Real Estate				(10)		12
			Changes in Deferred Income Tax				155		(227)
			Changes in Operating Assets and Liabilities:
				Increase in Accrued Interest Receivable			(93)		(7)
				Increase in Deferred Charges			(53)		(17)
				Increase in Accrued Income Tax			101		157
				Increase in Other Liabilities			108		368
				Decrease/(Increase) in Other Assets			2		(8)

					Net Cash Provided by Operating Activities		663		1,426

CASH FLOWS FROM INVESTING ACTIVITIES
	Proceeds from Maturities of Available-for-Sale Securities					$	1,586	$	455
	Net (Investment) Redemption of Adjustable Rate Mutual Fund						(9,157)		651
	Purchase of CMOs						(35,711)		(8,647)
	Proceeds from Maturities of CMOs						19,813		7,341
	Proceeds from Maturities of Mortgage-Backed Securities						814		1,613
	Proceeds from Sale of CMOs						2,316
	Proceeds from Sale of Mortgage-Backed Securities						2,739		6,394
	Proceeds from Sale of FHLMC Common Stock						632		413
	Proceeds from Sale of Premises and Equipment						-		16
	Proceeds from Sales of Foreclosed Real Estate						186		2
	Investment in Foreclosed Real Estate						(389)		(116)
	Net Loan Originations						(2,278)		(3,482)
	Net Redemption of IMF Mutual Fund						10		2,615
	Purchase of FHLB Stock						(1,990)		(13)
	Purchase of FHLMC Preferred Stock						(12,718)		-
	Purchase of Other Equity Investments						(173)		-
	Investment in Real Estate Held for Investment						(276)		-
	Purchases of Premises and Equipment						(102)		(21)

					Net Cash (Used in)/Provided by Investing Activities		(34,698)		7,221

GS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in Thousands) (Unaudited)
					For The Nine Months Ended September 30,
					2001		2000

CASH FLOWS FROM FINANCING ACTIVITIES
	Net Increase in Deposits			$	7,383	$	174
	Net Decrease in Unapplied Loan Payments				(7)		(4)
	Net Increase/(Decrease) in Advance Payments by Borrowers for
		Taxes and Insurance			(162)		57
	Net Increase in FHLB Advances				34,509		3,835
	Payment of Cash Stock Dividends				(507)		(652)
	Purchase of Treasury Stock				(4,486)		(8,197)

			Net Cash Provided by/(Used in) Financing Activities		36,730		(4,787)

NET CASH EQUIVALENTS					2,695		3,860

CASH AND CASH EQUIVALENTS - January 1,					3,403		2,504

CASH AND CASH EQUIVALENTS - September 30,				$	6,098	$	6,364

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GS Financial Corp. (the Company) was organized and incorporated under the laws of the State of Louisiana on December 24, 1996, for the purpose of becoming the holding company of Guaranty Savings and Homestead Association (the Association). The Association is a state-chartered savings and loan association whose primary regulators are the Office of Thrift Supervision (OTS) and Louisiana Office of Financial Institutions (OFI).

The accompanying financial statements represent the consolidated financial position, results of operations and cash flows of the Company. The accompanying financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, all adjustments, consisting only of normally recurring accruals, which, in the opinion of management are necessary for a fair presentation of the financial statements, have been included.

The results of operations for the three and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001. The unaudited consolidated financial statements and the notes included herein should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000.

(2) EMPLOYEE STOCK OWNERSHIP PLAN

The GS Financial Employee Stock Ownership Plan (ESOP) purchased 275,080 shares of the Company's common stock on April 1, 1997 financed by a loan from the Company. The loan is secured by those shares not yet allocated to plan participants. At September 30, 2001, there were 164,583 unallocated shares and the balance of the loan was $1.7 million. The Association bears the cost of the ESOP as compensation expense which is based on principal and interest payments on the corresponding debt as well as the market value of the stock. Compensation expense related to the ESOP was $322,000 for the nine months ended September 30, 2001, compared to $277,000 for the nine months ended September 30, 2000. Compensation expense related to the ESOP was $107,000 for the three months ended September 30, 2001, compared to $92,000 for the three months ended September 30, 2000.The increase was attributable to the rise in the market value of the stock.

(3) EARNINGS PER SHARE AND PAYMENTS OF DIVIDENDS

Earnings per share are computed using the weighted average number of shares outstanding as prescribed in Statement of Financial Accounting Standard ("SFAS") 128. In accordance with SFAS 128, the average weighted shares outstanding were approximately 1.5 million for the three months ended September 30, 2001, and 1.8 million shares for the three months ended September 30, 2000. For the three months ended September 30, 2001, earnings per common share were $.22 compared to $.26 for the three months ended September 30, 2000 (basic and diluted). Average weighted shares outstanding for the nine months ended September 30, 2001 were 1.6 million compared to 2.1 million for the nine months ended September 30, 2000. Earnings were $.76 per common share for the nine months ended September 30, 2001, compared to $.49 per common share for the nine months ended September 30, 2000 (basic and diluted). During the three months ended September 30, 2001 and 2000, the Company declared and paid cash dividends in th e amount of $.09 per common share in each period.

(4) INVESTMENT SECURITIES

(Dollars in thousands)		September 30, 2001				December 31, 2000

		Amortized		Market		Amortized		Market
AVAILABLE FOR SALE		Cost		Value		Cost		Value

US Government and
	Agency Obligations	$	801	$	904	$	2,389	$	2,461
ARM Mutual Fund			11,998		12,030		2,831		2,823
IMF Mutual Fund			389		396		400		370
FHLMC Common Stock			16		1,040		25		1,792
FHLMC Preferred Stock			16,224		16,271		3,506		3,504
Equity Investments-Other			173		151		50		50

TOTAL INVESTMENTS		$	29,601	$	30,792	$	9,201	$	11,000

(5) LOANS

	September 30,		December 31,
(Dollars in thousands)	2001		2000

Total Loans	$ 77,172		$ 74,892
Allowance for Loan Losses	(426)		(420)
Net Unearned Fees	9		8
	--------		--------
TOTAL NET LOANS	$ 76,755		$ 74,480
	=====		=====

Permanent Mortgages (1-4 family)	$ 72,562		$ 71,144
Construction (1-4 family)	860		619
Commercial Mortgages	1,088		1,006
Other Mortgages	1,888		1,505
Commercial	578		381
Consumer (secured by deposits)	196		237
	--------		--------
TOTAL LOANS	$ 77,172		$ 74,892
	=====		=====

ALLOWANCE FOR LOAN LOSSES
For the Three Months Ended		September 30,
(Dollars in thousands)	2001		2000
	-----		-----
Beginning Balance, July 1,	$ 424		$ 413
Provision for Losses	-		-
Loans Charged Off	2		7
	-----		-----
Ending Balance, September 30,	$ 426		$ 420
	===		===

(6) MORTGAGE-BACKED SECURITIES

(Dollars in thousands)		September 30, 2001				December 31, 2000
		Amortized		Market		Amortized		Market
AVAILABLE FOR SALE		Cost		Value		Cost		Value

GNMA Fixed Rate (1-4 family)		$	971	$	995	$	1,541	$	1,545
FHLMC Fixed Rate (1-4 family)			-		-		1,096		1,094
FNMA Fixed Rate (1-4 family)			-		-		1,481		1,476

TOTAL MORTGAGE-
	BACKED SECURITIES	$	971	$	995	$	4,118	$	4,115

(7) COLLATERALIZED MORTGAGE OBLIGATIONS

(Dollars in thousands)		September 30, 2001		December 31, 2000
		Amortized	Market	Amortized	Market
AVAILABLE FOR SALE		Cost	Value	Cost	Value

FNMA		$ 3,009	$ 2,969	$ 5,766	$ 5,579
FHLMC		16,676	16,835	14,254	14,141
Private Issue		47,464	48,933	33,562	34,025
		--------	--------	--------	-------
TOTAL COLLATERALIZED MORTGAGE
	OBLIGATIONS	$ 67,149	$ 68,737	$ 53,582	$ 53,745
		=====	=====	=====	=====

(8) INTEREST-BEARING DEPOSITS

	September 30,	December 31,
(Dollars in thousands)	2001	2000

Passbook Savings	$ 16,865	$ 17,431
Certificates of Deposits	40,660	38,263
NOW Accounts	8,500	2,966
	--------	--------
TOTAL INTEREST-BEARING DEPOSITS	$ 66,025	$ 58,660
	=====	=====

(9) BORROWINGS

	September 30,	December 31,
(Dollars in thousands)	2001	2000

Amounts maturing within 1 year	$ 24,221	$ 19,318
Amounts maturing over 1 year	64,478	34,873
	--------	--------
TOTAL BORROWINGS	$ 88,699	$ 54,191
	=====	=====

(10) STOCK OPTION PLAN

On October 15, 1997, the stockholders approved the adoption of the GS Financial Corp. 1997 Stock Option Plan for the benefit of directors, officers and other key employees. Under this plan, 343,850 shares of common stock have been reserved for issuance pursuant to the exercise of stock options with 275,076 shares granted to vest over five years. To date no options have been exercised.

(11) RECOGNITION AND RETENTION PLAN

On October 15, 1997 the Company established the Recognition and Retention Plan and Trust (RRP) as an incentive to retain personnel of experience and ability in key positions. Stockholders approved a total of 137,540 shares of stock to be granted pursuant to the RRP. The Company acquired a total of 137,500 shares of common stock for issuance under the RRP. The Company is accruing this expense over the ten-year vesting period based on the price of the stock ($12.50/share) when the plan was modified in September, 1998. As of September 30, 2001, 125,028 shares had been awarded of which 41,632 had been earned and issued. Compensation expense related to the RRP was $161,000 for the nine months ended September 30, 2001 compared to $117,000 for the nine months ended September 30, 2000.

(12) TREASURY STOCK

As of September 30, 2001, the Company had repurchased approximately 1.8 million shares at an average price of $14.18 per share. During the quarter ended September 30, 2001, the Company repurchased 131,000 shares at a cost of $2.0 million. The following table summarizes the repurchase of shares of its common stock by year:

GS Financial Corp.

Common Stock Repurchases

	Shares	Average
Year	Repurchased	Price
1998	491,054	$ 16.95
1999	299,000	$ 12.22
2000	679,600	$ 12.64
2001	297,384	$ 15.09
	------------	-------
Total	1,767,038	$ 14.18

All purchases were open market transactions. Due to the highly capitalized condition of the Company, management felt that these purchases, most of which were at a discount to book value, were an effective way to reduce capital while still enhancing shareholder value. Management believes that reducing capital through stock repurchases is a more conservative use of capital than alternatives such as expanding the banking activities of the Company's subsidiary through acquisitions, given the premium nature of current financial institution buyouts. These shares have not been retired and could potentially serve as a source of capital funding should the need arise in the future.

(13) OTHER EXPENSES

Listed below are major recurring components comprising Other Expenses.

	For the Nine Months
	Ended September 30,
	2001		2000
Office Supplies and Telephone	$	104,726	$	85,498
Bank Shares and Franchise Tax		226,701		312,406
Data Processing		100,518		97,654
Advertising		75,127		51,634
Supervisory Fees		60,935		49,164

Item 2

Management's Discussion and Analysis of

Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

In addition to the historical information contained herein, the following discussion contains forward-looking statements that involve risk and uncertainties. Economic circumstances, the Company's operations, and actual results could differ significantly from those discussed in the forward-looking statements. The major factors that could cause or contribute to such differences include, but are not limited to, changes in the local economy as well as fluctuations in prevailing interest rates. Other forward-looking statements are made concerning the amount and adequacy of the allowance for loan losses.

GENERAL

The Company's principal business is conducted through its wholly owned subsidiary, Guaranty Savings and Homestead Association. The Association, founded in New Orleans, Louisiana in 1937, provides financial services primarily to individuals. It's principal products include mortgage loans, passbook savings accounts, certificates of deposit, and demand deposit accounts. The Association also invests in short-term and long-term liquid investments such as overnight Federal Funds, United States Treasury and Agency issued securities, collateralized mortgage obligations and mortgage-backed securities.

The following discussion compares the financial condition of GS Financial Corp. at September 30, 2001 to December 31, 2000 and the results of operations for the three and nine months ended September 30, 2001 and 2000.

CHANGES IN FINANCIAL CONDITION

At September 30, 2001, the assets of the Company totaled $193.1 million, increasing $39.6 million from December 31, 2000, when total assets were $153.5 million. The increase in total assets has been facilitated by the decrease in market interest rates in 2001. Customer deposit accounts at the Company have grown $7 million during the ninth months ended September 30, 2001, while lower rates allowed the Company to borrow additional funds from the Federal Home Loan Bank to expand its leveraged investing program. These new funds have been invested in collateralized mortgage obligations (CMOs), Federal Home Loan Mortgage Corporation (FHLMC) preferred stock and other short-term investments. With short-term and overnight interest rates currently below 3%, the Company has attempted to minimize its investment in these types of money market investments. Instead the Company has invested its liquid assets in short-term mutual funds backed by qualified thrift investments. Typically, these funds carry higher yie lds than money market investments such as Federal Funds sold. During the nine months ended September 30, 2001, the Company's loan portfolio has grown 3%. With lending rates at low levels, the Company has concentrated on growing its commercial portfolio, which typically carries higher yields than residential loans.

Net loans increased $2.3 million to $76.8 million at September 30, 2001, compared to $74.5 million at December 31, 2000. Increases to the loan portfolio include $1.5 million in residential, $.4 million in other mortgages and $.2 million in commercial loans. At the end of the third quarter, 2001, the Company had approximately $3 million in outstanding commercial and mortgage loan commitments which it anticipates funding during October and November.

Collateralized mortgage obligations increased $15.0 million, or 28%, to $68.7 million at September 30, 2001 compared to $53.7 million at December 31, 2000. Under current market conditions of falling interest rates and rapid repayments, the Company has been able to supplement its base of interest-earning assets with CMOs at yields similar to or above its mortgage loans with much shorter durations. Most of these investments are funded by and matched to FHLB advances with spreads ranging from 150 to 250 basis points.

During 2001, the Company has largely divested itself of fixed-rate pass through mortgage-backed instruments to invest in higher yielding CMOs and loans. At September 30, 2001, mortgage-backed securities were $1.0 million, compared to $4.1 million at December 31, 2000. The decrease was facilitated through the sale of $2.3 million of seasoned fixed-rate mortgage-backed securities at a loss of $5,000, and $.8 million in regular monthly pay-downs.

Investment securities increased $19.8 million to $30.8 million at September 30, 2001 compared to $11.0 million at December 31, 2000. The increase was due to purchases of FHLMC preferred stock of $12.7 million and net purchases of shares in an Adjustable Rate Mortgage-backed (ARM) Mutual Fund totaling $9.1 million. Much of the investment in the ARM Fund was funded by cash from the recent increase in deposits. The FHLMC preferred stock purchased in 2001 by the Company has yields between 7% and 8% taking into account the 70% dividend tax exclusion. The FHLMC preferred stock has call features ranging from 2003 to 2011.

The Company's decrease in Federal Funds Sold is the result of the Company attempting to minimize such investments considering current yields which are below 3%. The increased level of interest-bearing deposits in other banks is due to monies being accumulated in the Company's demand deposit account at the FHLB to meet advances maturing in October, 2001 of approximately $7.3 million.

Interest-bearing deposits increased $7.3 million to $66.0 million at September 30, 2001, compared to $58.7 million at December 31, 2000. This change was made up of increases in NOW accounts of $5.5 million, certificates of deposits increasing $2.4 million and decreases in passbook savings accounts of $.6 million.

The Company's borrowings from the Federal Home Loan Bank have increased $34.5 million from $54.2 million at December 31, 2000 compared to $88.7 million at September 30, 2001. The Company's borrowings consisted of $54.1 million of fully amortizing advances from the Federal Home Loan Bank (FHLB), $29.7 in bullet (interest only until maturity) advances, and $4.9 million in balloon obligations from the FHLB. The increase in advances was due to the expansion of the Company's leveraged investing program utilizing falling borrowing rates.

Stockholders' equity decreased $2.8 million to $35.0 million at September 30, 2001 compared to $37.8 million at December 31, 2000. This was the net result during the nine months ended September 30, 2001 of net income of $1.2 million, increase in other accumulated comprehensive income of $.6 million and increases due to retirement of ESOP debt of $.4 million, offset by decreases attributable to dividends paid of $.5 million and treasury stock purchases of $4.5 million.

RESULTS OF OPERATIONS

GENERAL

Net income for the three months ended September 30, 2001 was $330,000 compared to $460,000 for the three months ended September 30, 2000. Basic earnings per common share were $.22 for the three months ended September 30, 2001 on average shares outstanding of 1,511,461 compared to $.26 per common share for the three months ended September 30, 2000 on average shares outstanding of 1,766,578. The results for third quarter of 2000 included gains on the sale of investment securities of $287,000, while the third quarter of 2001 included $16,000 of similar gains.

For the nine months ended September 30, 2001, basic earnings per common share were $.76 compared to $.49 for the nine months ended September 30, 2000. Average shares outstanding for the nine months ended September 30, 2001 were 1,602,612, compared to 2,063,967 average shares outstanding for the nine months ended September 30, 2000. Net income for the nine months ended September 30, 2001 was $1.2 million, compared to $1.0 million for the nine months ended September 30, 2000.

INTEREST INCOME

Total interest income for the quarter ended September 30, 2001 was $3.4 million compared to $2.8 million for the quarter ended September 30, 2000. Average interest-earning assets were $186.5 million yielding 7.2% for the three months ended September 30, 2001 compared to average interest-earning assets of $151.1 million which yielded 7.5% for the three months ended September 30, 2000.

For the nine months ended September 30, 2001, average interest-earning assets were $184.0 million with an annualized yield of 7.2%. For the same period in 2000 average total interest-earning assets were $152.2 million yielding an annualized 7.4%.

Interest income from loans was $1.5 million for the three months ended September 30, 2001 and 2000. During the third quarter of 2001, the average loan portfolio balance was $75.4 million and yielded 8.05%. The average balance of the loan portfolio for the third quarter of 2000 was $72.8 million which yielded 8.17%.

During 2001, the Company has divested itself of approximately 76% of its investment in mortgage-backed securities. During the three months ended September 30, 2001, interest from mortgage-backed securities was $16,000 on an average investment of $1.0 million which yielded 6.2%. During the same three months in 2000, the average balance of mortgage-backed securities was $11.6 million which netted $188,000 for a yield of 6.5%.

Interest income from CMOs increased to $1.4 million for the three months ended September 30, 2001, compared to $1.0 million for the three months ended September 30, 2000. During the three months ended September 30, 2001 the average balance of the Company's portfolio of CMOs was $75.0 million with an annualized yield of 7.5%. For the same period in 2000, the average balance was $54.0 million which yielded 7.3%. The increase in yield of the CMO portfolio has been bolstered by accelerated prepayments, causing discounts to be earned at an accelerated rate.

Interest income from investment securities was $367,000 for the three months ended September 30, 2001 compared to $95,000 for the three months ended September 30, 2000. The average balance of investment securities was $26.6 million which yielded 5.5% during the three months ended September 30, 2001 compared to $6.8 million yielding 5.6% for the three months ended September 30, 2000.

Other interest income, consisting of interest income on overnight Federal Funds Sold, interest-bearing deposits in other banks, and dividends on FHLB stock, was essentially unchanged from 2000 to 2001 at $100,000.

PROVISION FOR LOAN LOSSES

The Company had an allocation to provision for loan losses of $2,000 for the three months ended September 30, 2001 and $7,000 for the three months ended September 30, 2000. Both provisions were made necessary from the growth of the loan portfolio. Asset quality remains strong with two foreclosures thus far in 2001 and no increase in delinquencies from 2000 to 2001. Loans classified as substandard, for which a specific potential for loss has been identified are considered "special assets." Special assets were $320,000 at December 31, 2000 with an allocated allowance for loan loss (ALL) of $68,000 compared to $233,000 at September 30, 2001 with an allocated ALL of $61,000.

INTEREST EXPENSE

The Company's total interest expense increased $.5 million to $2.0 million for the three months ended September 30, 2001 compared to $1.5 million for the three months ended September 30, 2000. The average balance of total interest-bearing liabilities was $154.5 million at a cost of 5.2% for the three months ended September 30, 2001. For the same period in 2000 the average balance of interest-bearing liabilities was $114.2 million costing 5.4%. The decrease in cost of funds was due to the effects of lower rates paid on certificates of deposit, NOW accounts and FHLB advances.

The average balance of interest-bearing deposits was $64.2 million for the three months ended September 30, 2001 costing 4.5%. Average interest-bearing deposits for the three months ended September 30, 2000 was $58.0 million costing 4.7%. Interest expense on interest bearing deposits was $.7 million for the three months ended September 30, 2001 and 2000.

The average balance of FHLB advances was $90.3 million at an annualized cost of 5.7% for the three months ended September 30, 2001. The average balance of FHLB advances for the three months ended September 30, 2000 was $56.2 million with an annualized cost of 6.0%.

OTHER EXPENSES

Other expenses for the three months ended September 30, 2001 were $940,000 for the three months ended September 30, 2001 compared to $864,000 for the three months ended September 30, 2000. There were many categories of overhead expenses showing small increases and decreases. Compensation expense, with the net addition of four full-time employees, showed the largest increase. The additions to the staff were necessary to facilitate the opening of the Association's commercial loan department, opening of the Ponchatoula Loan Production Office, and anticipated opening of another branch in Metairie, Louisiana in January, 2002. Please refer to the consolidated statement of operations or Note 13, Other Expenses, included in this report, for further detail on the differences in the nine months ending September 30, 2001 and 2000.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures the Company's ability to meet its short-term obligations with ready cash. These commitments and obligations include loan disbursements, savings withdrawals by customers, the payment of dividends and the daily operating expenses of the Company.

The Company's primary sources of funds are interest-bearing customer deposits, FHLB advances and maturities of existing investments including mortgage loans, mortgage-backed securities, investment securities and collateralized mortgage obligations. The Company does not utilize brokered deposits nor does it offer special rates for "jumbo" deposits of $100,000 or more.

The Association is required under Federal regulations to maintain certain levels of "liquid" investments, specifically not less than 4% of its average daily balance of net withdrawable deposit accounts. For its liquid investments, the Association utilizes a combination of cash on hand, certain money market investments, and deposits in other banks, as well as U.S. Government and Agency issued securities. As of September 30, 2001, the Association's liquidity stood at 59.0%, or $79.8 million in excess of the minimum requirement.

The Association is required to maintain regulatory capital sufficient to meet all three of the regulatory capital requirements, those being tangible capital (1.5%), core capital (3.0%), and risk-based capital (8.0%). As of September 30, 2001, the Association's tangible and core capital amounted to $25.8 million, or 13.8% of adjusted total assets, while the Association's risk-based capital was $26.3 million, or 29.9% of total adjusted risk-weighted assets.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risk are presented at December 31, 2000 in the Company's Annual Report on Form 10-K, filed with the SEC on March 31, 2001. Management believes there have been no material changes in the Company's market risk since December 31, 2000.

Part II - Other Information

Item 1 - Legal Proceedings