GS Financial (GSLA) 10-Q 2010 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2010			Commission File Number: 0-22269
GS Financial Corp.
(Exact Name of  Registrant as Specified in its Charter)
Louisiana				72-1341014
(State of Incorporation)				(IRS Employer Identification No.)
3798 Veterans Blvd.
Metairie, LA 70002
(Address of Principal Executive Offices)
(504) 457-6220
(Registrant’s Telephone Number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                      [X]  Yes       [  ]  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      60; [  ]  Yes [  ]  No                                                                                                                                               0;
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	[   ]	Smaller reporting company	[X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                                                                                                      &# 160;           Yes     [   ]                  No    [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 12, 2010
Common Stock, par value $.01 per share	1,252,429 shares

GS FINANCIAL CORP.

TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
	Item 1	Financial Statements (Unaudited)
				Consolidated Statements of Financial Condition	3
				Consolidated Statements of Income	4
				Consolidated Statements of Changes in Stockholders’ Equity	5
				Consolidated Statements of Cash Flows	6
				Notes to Unaudited Consolidated Financial Statements	7
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
	Item 3	Quantitative and Qualitative Disclosures about Market Risk			22
	Item 4	Controls and Procedures			22
PART II – OTHER INFORMATION
	Item 1		Legal Proceedings		23
	Item 1a		Risk Factors		23
	Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		23
	Item 3		Defaults Upon Senior Securities		23
	Item 4		Removed and Reserved		23
	Item 5		Other Information		23
	Item 6		Exhibits		23
SIGNATURES EXHIBIT INDEX

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
	September 30, 2010			December 31, 2009
	(Unaudited)			(See Note 1)
	(In Thousands)
ASSETS
Cash and Cash Equivalents
Cash and Amounts Due from Depository Institutions	$	6,408		$	7,158
Interest-Bearing Deposits in Other Banks		4,001			9,293
Federal Funds Sold		861			3,284
Total Cash and Cash Equivalents		11,270			19,735
Securities Available-for-Sale, at Fair Value		52,457			50,455
Loans, Net of Allowance for Loan Losses of $4,109 and
$2,380, Respectively		186,492			185,500
Accrued Interest Receivable		1,474			1,518
Other Real Estate Owned		1,408			2,489
Premises and Equipment, Net		6,615			5,934
Stock in Federal Home Loan Bank, at Cost		2,360			2,354
Real Estate Held-for-Investment, Net		421			427
Other Assets		4,549			3,192
Total Assets	$	267,046		$	271,604
LIABILITIES
Deposits
Noninterest-Bearing	$	19,443		$	14,812
Interest-Bearing		181,021			186,681
Total Deposits		200,464			201,493
Advance Payments by Borrowers for Taxes and Insurance		499			249
Advances from Federal Home Loan Bank		35,561			40,512
Other Liabilities		2,361			1,329
Total Liabilities		238,885			243,583
STOCKHOLDERS' EQUITY
Preferred Stock - $.01 Par Value; 5,000,000 Shares Authorized,	$	-		$	-
None Issued
Common Stock - $.01 Par Value; 20,000,000 Shares Authorized,		34			34
3,438,500 Shares Issued
Additional Paid-in Capital		34,541			34,550
Treasury Stock (2,180,562 Shares at September 30, 2010 and
December 31, 2009)		(32,449	)		(32,449	)
Unearned RRP Trust Stock		(105	)		(132	)
Retained Earnings		25,112			25,780
Accumulated Other Comprehensive Income		1,028			238
Total Stockholders' Equity		28,161			28,021
Total Liabilities & Stockholders' Equity	$	267,046		$	271,604
The accompanying notes are an integral part of these financial statements.

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GS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009
	(In Thousands, Except Per Share Data)
INTEREST AND DIVIDEND INCOME
Loans, Including Fees	$	2,952		$	3,036	$	8,905		$	8,775
Investment Securities		448			545		1,424			1,790
Other Interest Income		15			19		59			33
Total Interest and Dividend Income		3,415			3,600		10,388			10,598
INTEREST EXPENSE
Deposits		704			1,126		2,379			3,338
Advances from Federal Home Loan Bank		334			422		1,076			1,386
Total Interest Expense		1,038			1,548		3,455			4,724
NET INTEREST INCOME		2,377			2,052		6,933			5,874
PROVISION FOR LOAN LOSSES		1,150			200		2,300			200
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES		1,227			1,852		4,633			5,674
NONINTEREST INCOME
Gain on Sale of Loans		199			188		522			881
Gain (Loss) on Securities Transactions		5			8		322			(3	)
Gain on Sale of Premises and Equipment		-			-		-			134
Gain (Loss) on Sale of Other Real Estate		1			-		(87	)		3
Other Income		49			49		137			84
Total Noninterest Income		254			245		894			1,099
NONINTEREST EXPENSE
Salaries and Employee Benefits		980			1,042		2,963			2,915
Occupancy Expense		280			220		804			623
Ad Valorem Taxes		53			58		166			175
Loss on Write-Down of Other Real Estate		227			61		422			61
Other Expenses		545			547		1,713			1,603
Total Noninterest Expense		2,085			1,928		6,068			5,377
(LOSS) INCOME BEFORE INCOME TAX EXPENSE		(604	)		169		(541	)		1,396
INCOME TAX (BENEFIT) EXPENSE		(226	)		65		(249	)		411
NET (LOSS) INCOME	$	(378	)	$	104	$	(292	)	$	985
(LOSS) EARNINGS PER SHARE
Basic	$	(0.30	)	$	0.08	$	(0.23	)	$	0.78
Diluted	$	(0.30	)	$	0.08	$	(0.23	)	$	0.78
The accompanying notes are an integral part of these financial statements.

4

GS FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(In Thousands)	Common Stock		Additional Paid-in Capital			Treasury  Stock			Unearned RRP Trust Stock			Retained Earnings				Accumulated  Other Comprehensive  (Loss) Income			Total Stockholders' Equity
BALANCES AT DECEMBER 31, 2008	$	34	$	34,546		$	(32,062	)	$	(143	)	$	25,404			$	(221	)	$	27,558
Comprehensive Income:
Net Income		-		-			-			-			985				-			985
Other Comprehensive Income,
Net of Applicable Deferred Income Taxes		-		-			-			-			-				537			537
Total Comprehensive Income		-		-			-			-			985				537			1,522
Distribution of RRP Stock		-		4			-			11			-				-			15
Purchase of Treasury Stock		-		-			(387	)		-			-				-			(387	)
Dividends Declared		-		-			-			-			(384	)			-			(384	)
BALANCES AT SEPTEMBER 30, 2009	$	34	$	34,550		$	(32,449	)	$	(132	)	$	26,005			$	316		$	28,324
BALANCES AT DECEMBER 31, 2009	$	34	$	34,550		$	(32,449	)	$	(132	)	$	25,780			$	238		$	28,021
Comprehensive Income:
Net Loss		-		-			-			-			(292	)			-			(292	)
Other Comprehensive Income,
Net of Applicable Deferred Income Taxes		-		-			-			-			-				790			790
Total Comprehensive Income		-		-			-			-			(292	)	��		790			498
Distribution of RRP Stock		-		(9	)		-			27			-				-			18
Purchase of Treasury Stock		-		-			-			-			-				-			-
Dividends Declared		-		-			-			-			(376	)			-			(376	)
BALANCES AT SEPTEMBER 30, 2010	$	34	$	34,541		$	(32,449	)	$	(105	)	$	25,112			$	1,028		$	28,161
The accompanying notes are an intergral part of these financial statements.

5

GS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	For the Nine Months Ended
	September 30,
	2010			2009
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income	$	(292	)	$	985
Adjustments to Reconcile Net (Loss) Income from Operations to Net Cash
Provided by Operatng Activities:
Depreciation and Amortization		265			210
Premium Amortization, Net		223			96
Amortization of Mortgage Servicing Rights		160			119
Provision for Loan Losses		2,300			200
Federal Home Loan Bank Stock Dividends		(6	)		(5	)
RRP Expense		18			15
Gain on Sales of Loans, Net		(522	)		(881	)
Loss (Gain) on Sales of Other Real Estate		87			(3	)
(Gain) Loss on Sales of Investments, Net		(322	)		3
Gain on Sales of Premises and Equipment		-			(134	)
Loss on Write-Down of Other Real Estate		422			61
Originations of Loans Held for Sale		(21,995	)		(49,048	)
Proceeds from Sales of Loans Held for Sale		22,304			49,369
Changes in Operating Assets and Liabilities:
Increase in Accrued Interest Receivable & Other Assets		(1,260	)		(921	)
Increase in Accrued Interest Payable & Other Liabilities		625			77
Net Cash Provided by Operating Activities		2,007			143
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Maturities of Investment Securities		8,229			17,015
Proceeds from Sales of Investment Securities		8,318			2,020
Purchases of Investment Securities		(18,003	)		(21,638	)
Redemption of Mutual Funds		750			750
Increase in Loan Receivable, Net		(4,383	)		(24,907	)
Proceeds from Sales of Premises and Equipment		-			191
Purchases of Premises and Equipment		(940	)		(330	)
Proceeds from Sales of Other Real Estate		1,663			23
Purchase of Federal Home Loan Bank Stock		-			(48	)
Net Cash Used in Investing Activities		(4,366	)		(26,924	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock		-			(387	)
Payment of Cash Stock Dividends		(376	)		(384	)
(Decrease) Increase in Deposits		(1,029	)		58,996
Decrease in Advances from Federal Home Loan Bank		(4,951	)		(11,376	)
Increase in Advance Payments for Insurance and Taxes		250			317
Net Cash (Used in) Provided by Financing Activities		(6,106	)		47,166
NET (DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS		(8,465	)		20,385
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		19,735			3,205
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,270		$	23,590
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest	$	3,512		$	4,747
Cash Paid During the Period for Income Taxes		25			289
Loans Transferred to Other Real Estate During the Period		1,196			1,461
The accompanying notes are an integral part of these statements.

6

GS FINANCIAL CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of GS Financial Corp. (the “Company”) and its subsidiary, Guaranty Savings Bank (the “Bank”). All significant intercompany balances and transactions have been eliminated. Certain financial information for prior periods has been reclassified to conform to the current presentation.

In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, changes in stockholders’ equity, and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Pursuant to rules and regulations of the Securities and Exchange Commission, certain financial information and disclosures have been condensed or omitted in preparing the consolidated financial statements presented in this quarterly report on Form 10-Q. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010.

The consolidated statement of financial condition at December 31, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These unaudited financial statements should be read in conjunction with the Company’s 2009 Annual Report on Form 10-K.

2. INVESTMENT SECURITIES

A summary of securities classified as available-for-sale at September 30, 2010 and December 31, 2009, with gross unrealized gains and losses, is as follows:

	September 30, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized				Fair
(dollars in thousands)	Cost		Gains		Losses				Value
					Less Than		More Than
Investment securities:					One Year		One Year
Debt securities:
U.S. Government and Federal agencies	$	5,053	$	240	$	-	$	-	$	5,293
Mortgage-backed securities		30,523		912		12		-		31,423
Collateralized mortgage obligations		3,302		57		-		117		3,242
Municipal securities		10,369		434		-		-		10,803
Total debt securities		49,247		1,643		12		117		50,761
Marketable equity securities:
Mutual funds		1,653		43		-		-		1,696
Total investment securities available-for-sale	$	50,900	$	1,686	$	12	$	117	$	52,457

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	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized				Fair
(dollars in thousands)	Cost		Gains		Losses				Value
					Less Than		More Than
Investment securities:					One Year		One Year
Debt securities:
U.S. Government and Federal agencies	$	7,132	$	-	$	195	$	-	$	6,937
Mortgage-backed securities		31,913		875		105		5		32,678
Collateralized mortgage obligations		1,612		-		1		178		1,433
Municipal securities		7,044		24		55		-		7,013
Total debt securities		47,701		899		356		183		48,061
Marketable equity securities:
Mutual funds		2,394		-		-		-		2,394
Total investment securities available-for-sale	$	50,095	$	899	$	356	$	183	$	50,455

The amortized cost and fair value of available-for-sale debt securities by contractual maturity at September 30, 2010 and December 31, 2009, follows. Debt securities with scheduled repayments, such as mortgage-backed-securities and collateralized mortgage obligations, are presented in separate totals.  The expected life of a security, in particular a Federal Agency or municipal security may differ from its contractual maturity because of the exercise of call options. Accordingly, actual maturities may differ from contractual maturities.

	Available-for-Sale
	September 30, 2010				December 31, 2009
	Amortized		Fair		Amortized		Fair
(dollars in thousands)	Cost		Value		Cost		Value
Debt securities:
Amounts maturing in:
Less than one year	$	-	$	-	$	-	$	-
One to five years		1,103		1,147		534		540
Five to ten years		7,134		7,528		5,949		5,897
Greater than ten years		7,185		7,421		7,693		7,513
Total		15,422		16,096		14,176		13,950
Mortgage-backed securities		30,523		31,423		31,913		32,678
Collateralized mortgage obligations		3,302		3,242		1,612		1,433
Total debt securities	$	49,247	$	50,761	$	47,701	$	48,061

The Company has procedures in place to identify securities that could have a credit impairment which is other than temporary. To the extent that the Company determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized. No impairment losses were recognized on the Company’s investment portfolio in 2009 or during the first nine months of 2010.

The unrealized losses associated with the Company’s available-for-sale securities at September 30, 2010 were caused by changes in interest rates and not by deterioration in credit quality. Because the Company has the ability to hold these investments for a reasonable period of time sufficient for recovery of fair value, which may be maturity for the collateralized mortgage obligations, it does not consider these investments to be other-than-temporarily impaired at September 30, 2010.

3. EARNINGS PER SHARE

Earnings per share are computed using the weighted average number of shares outstanding as prescribed in FASB ASC Topic 260. For the three and nine month periods ended September 30, 2010 and 2009, the Company did not have any potentially dilutive securities.

8

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
(dollars in thousands, except per share data)	2010			2009		2010			2009
Numerator:
Net (Loss) Income	$	(378	)	$	104	$	(292	)	$	985
Effect of Dilutive Securities		-			-		-			-
Numerator for Diluted (Loss) Earnings Per Share	$	(378	)	$	104	$	(292	)	$	985
Denominator:
Weighted Average Shares Outstanding		1,252,429			1,257,286		1,252,188			1,266,884
Effect of Dilutive Securities		-			-		-			-
Denominator for Diluted (Loss) Earnings Per Share		1,252,429			1,257,286		1,252,188			1,266,884
(Loss) Earnings Per Share
Basic	$	(0.30	)	$	0.08	$	(0.23	)	$	0.78
Diluted	$	(0.30	)	$	0.08	$	(0.23	)	$	0.78
Cash Dividends Per Share	$	0.10		$	0.10	$	0.10		$	0.10

4. FAIR VALUE DISCLOSURES

Under FASB ASC Topic 820, the Company must determine the appropriate level in the fair value hierarchy for each fair value measurement in the financial statements. To increase consistency and comparability in fair value measurements, FASB ASC Topic 820 established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels.  It gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The level in the fair value hierarchy within which a fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurem ent in its entirety.

The levels are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

Fair Value of Assets Measured on a Recurring Basis

Available-for-Sale Securities - Estimated fair value of securities is based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on market prices of comparable instruments. The Company’s available-for-sale securities are valued primarily based upon readily observable market parameters and are classified as Level 2 fair values.

Fair Value of Assets Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a non-recurring basis. In accordance with the provisions of FASB ASC Topic 310, the Company records loans considered impaired at their fair value.  A loan is considered impaired if it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the fair value of the collateral for collateral-dependent loans.  Impaired loans and other real estate owned are Level 2 assets measured using appraisals of the collateral prepared by external parties less any prior liens.

9

The following table summarizes the valuation methodologies used for the Company’s financial instruments measured at fair value as well as the general classification of such instruments at September 30, 2010 and December 31, 2009 pursuant to the valuation hierarchy.

	September 30, 2010						December 31, 2009
(dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Available for Sale Securities:1
U.S. Agency Securities	$	-	$	5,293	$	-	$	-	$	6,937	$	-
Mortgage Backed Securities		-		31,423		-		-		32,678		-
Collateralized Mortgage Obligations		-		3,242		-		-		1,433		-
Municipal Securities		-		10,803		-		-		7,013		-
Mutual Funds		-		1,696		-		-		2,394		-
Loans2		-		7,842		-		-		4,729		-
Other Real Estate3		-		1,408		-		-		2,489		-
1 Securities are measured at fair value on a recurring basis, generally monthly.
2 Includes impaired loans that have been measured for impairment at the fair value of the loan's collateral.
3 Other real estate is transferred from loans to real estate owned at the lower of carrying value or market value.

5. 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 was secured by those shares not yet allocated to plan participants and was paid in full as of December 31, 2006. Effective January 1, 2007, the Company amended and restated its ESOP, added a 401(k) feature, and renamed the plan the “Guaranty Savings Bank 401(k) Plan” (the “401(k) Plan”). Compensation expense related to the 401(k) plan was $29,000 and $89,000 for the three and nine month periods ended September 30, 2010, respectively, compared to $28,000 and $80,000 for the same time periods ended September 30, 2009.

6. RECOGNITION AND RETENTION PLAN

On October 15, 1997 the Company established the Recognition and Retention Plan and Trust (“RRP” or the “Plan”) 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 Plan generally provides that, Plan share awards are earned by recipients at a rate of 20% of the aggregate number of shares covered by the Plan over five years. Pursuant to agreements with the Plan participants, all outstanding Plan share awards are being earned by recipients at a rate of 10% of the aggregate number of shares covered by the Plan over ten years.  If the employment of an employee or service as a non-employee director is terminated prior to the tenth anniversary of the grant date of the Plan share award for any reason (except for death, disability, or a change in control), the recipient would forfeit the right to any shares subject to the awards which had not been earned. As of September 30, 2010, of the 134,159 shares awarded, 7,127 shares have been forfeited due to termination of employment or service as a director and 121,523 have been earned and issued. No further shares are available for award under the RRP. Compensation expense related to the RRP was $4,000 and $14,000 for the three and nine months, respectively, for each of the periods ended September 30, 2010 and 2009.

7. SUBSEQUENT EVENTS

In accordance with the subsequent events disclosure requirement of FASB ASC Topic 855, the Company evaluates events and transactions that occur after the balance sheet date for potential recognition in the financial statements.  The effects of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date are recognized in the financial statements as of September 30, 2010. In preparing these financial statements, the Company evaluated subsequent events through the date these financial statements were issued.

10

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

The purpose of this discussion and analysis is to provide information necessary to gain an understanding of the financial condition, changes in financial condition, and results of operations of GS Financial Corp. (“GS Financial” or the “Company”), and its subsidiary during the third quarter and first nine months of 2010 and 2009. Virtually all of the Company’s operations are dependent on the operations of its subsidiary, Guaranty Savings Bank (“Guaranty” or the “Bank”). Effective December 31, 2008, the Bank converted its charter from a Louisiana state savings and loan association to a Federally-chartered savings bank. As a result of the charter conversion, the Bank’s primary regulator became the Office of Thrift Supervision. This discussion is presented to highlight and supple ment information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes in Item 1. This discussion and analysis should be read in conjunction with accompanying tables and the Company’s 2009 Annual Report on Form 10-K.

FORWARD-LOOKING STATEMENTS

In addition to the historical information, this quarterly report includes certain forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Such statements include, but may not be limited to comments regarding (a) the potential for earnings volatility from, among other factors, changes in the estimated allowance for loan losses over time, (b) the expected growth rate of the loan portfolio, (c) future changes in the mix of deposits, (d) the results of net interest income simulations run by the Company to measure interest rate sensitivity, (e) the performance of Guaranty’s net interest income and net interest margin assuming certain future conditions, (f) the future prospects of metropolitan New Orleans, and (g) changes or trends in certain expense levels.

Forward-looking statements are based on numerous assumptions, which may be referred to specifically in connection with a particular statement.  Some of the more important assumptions include:

● expectations about the overall economy in the Company’s market area,

● expectations about the ability of the Bank’s borrowers to make payments on outstanding loans and the sufficiency of the allowance for loan losses,

● expectations about the current values of collateral securing the Bank’s outstanding loans,

●   expectations about the movement of interest rates, including actions that may be taken by the Federal Reserve Board in response to changing economic conditions,

●   reliance on existing or anticipated changes in laws or regulations affecting the activities of the banking industry and other financial service providers,

● expectations regarding the nature and level of competition, changes in customer behavior and preferences, and the Company’s ability to execute its plans to respond effectively, and

● expectations regarding theadverse effects in the Company’s market area as a result of the recent oil spill in the Gulf of Mexico.

Because it is uncertain whether future conditions and events will confirm these assumptions, there is a risk that the Company’s future results will differ materially from what is stated or implied by such forward-looking statements.  The Company cautions the reader to consider this risk.

The Company undertakes no obligation to update any forward-looking statement included in this quarterly report, whether as a result of new information, future events or developments, or for any other reason.

OVERVIEW

The Company reported a loss of $378,000 for the quarter ended September 30, 2010, compared with earnings of $104,000 for the quarter ended September 30, 2009. The basic and diluted loss per share for the third quarter of 2010 were ($0.30) compared with basic and diluted earnings of $0.08 per share for the same period in the prior year. For the first nine months of 2010, the basic and diluted loss per share were ($0.23) compared with basic and diluted earnings of $0.78 for the first nine months of 2009. The recordation of a $2.3 million provision for loan losses, $1.2 million of which was during the third quarter of 2010, the write-down of other real estate by $422,000, and the additional personnel and occupancy costs associated with the Bank’s opening a new branch location during the fourth quarter of 2009 were the primary reason s for the decrease in earnings when comparing the three and nine month periods ended September 30, 2010 and 2009. The $1.1 million improvement in net interest income for the year-to-date period ended September 30, 2010, when compared to the same period in the prior year, reflects the Company’s continued effort to reduce the cost of funding interest-earning assets and increase net interest margin.

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Total assets at September 30, 2010 were $267.0 million, which is a decrease of approximately $4.6 million, or 1.7%, from December 31, 2009. Loans, net of the allowance for loan losses, increased by $1.0 million, or 0.5%, during the first nine months of 2010, with the majority of the growth concentrated in one- to four-family first mortgages and commercial real estate secured loans. Total deposits decreased by $1.0 million, or 0.5%, from $201.5 million at December 31, 2009 to $200.5 million at September 30, 2010. This decrease was net of a $4.6 million, or 31.3%, increase in the balance of noninterest-bearing deposits. The ratio of average loans to average deposits decreased from 98.38% to 93.91% for the nine month periods ended September 30, 2009 and September 30, 2010, respectively, and the ratio of average interest-earnings assets to average interest-bearing liabilities decreased from 113.21% to 112.81% when comparing those same respective periods.

FINANCIAL CONDITION

LOANS

The outstanding balance of net loans increased from $185.5 million at December 31, 2009 to $186.5 million at September 30, 2010. Total real estate secured loans increased by $1.8 million, or 1.0%, from December 31, 2009 to September 30, 2010 and total other loans increased from $7.2 million at December 31, 2009 to $8.1 million at September 30, 2010. The following table, which is based on regulatory reporting codes, shows the loan balances at September 30, 2010 and December 31, 2009.

	September 30,			December 31,			Increase (Decrease)
(dollars in thousands)	2010			2009			Amount			Percent
Loans:
Real estate loans:
One-to-four family first mortgages	$	83,256		$	77,650		$	5,606			7.2	%
Home equity loans and junior liens		13,762			13,270			492			3.7
Commercial		58,802			54,640			4,162			7.6
Construction and land		19,174			27,205			(8,031	)		(29.5	)
Multi-family residential		7,101			7,541			(440	)		(5.8	)
Total real estate loans		182,095			180,306			1,789			1.0
Other loans:
Commercial		6,295			5,422			873			16.1
Consumer		1,774			1,728			46			2.7
Total other loans		8,069			7,150			919			12.9
Total loans		190,164			187,456			2,708			1.4
Allowance for loan losses		(4,109	)		(2,380	)		(1,729	)		72.6
Net deferred loan origination costs		437			424			13			3.1
Loans, net	$	186,492		$	185,500		$	992			0.5	%

Residential real estate loans increased primarily due to the continued efforts of the Bank’s residential loan originators and the relatively low level of market rates of interest during the first nine months of 2010. The increase in commercial real estate loans is attributable to the loan origination efforts of the Bank’s commercial lenders and consisted of both owner-occupied and non-owner-occupied properties. Construction and land loans, which includes construction loans for one- to four-family, multi-family, and commercial real estate, decreased by $8.0 million, or 29.5%, from $27.2 million at December 31, 2009 to $19.2 million at September 30, 2010. Construction loans for one- to four-family dwellings constitute the large majority of this segment of the portfolio. The decrease in the balance of construction loans was du e to a large number of construction project completions during the first nine months of 2010 which, upon completion, were either replaced by long-term mortgage loans provided by the Company or were repaid from the proceeds of a new third-party mortgage loan.

ALLOWANCE FOR LOAN LOSSES

All loans carry a certain degree of credit risk. Management’s evaluation of this risk is ultimately reflected in the estimate of probable loan losses that is reported in the Company’s financial statements as the allowance for loan losses. As a result of this ongoing evaluation, any additions to the allowance for loan losses are reflected in the provision for loan losses and charged to operating expense. At September 30, 2010, the allowance for loan losses was $4.1 million, or 2.2% of total loans. The following table presents an analysis of the activity in the allowance for loan losses for the nine months ended September 30, 2010 and for the year ended December 31, 2009.

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	For the			For the
	Nine Months Ended			Year Ended
(dollars in thousands)	September 30, 2010			December 31, 2009
Allowance for loan losses:
Beginning balance	$	2,380		$	2,719
Provision for loan losses		2,300			500
Charge-offs		577			854
Recoveries of loans previously charged-off		6			15
Ending balance	$	4,109		$	2,380
Ratios:
Allowance for loan losses to nonperforming loans		36.78	%		57.16	%
Allowance for loan losses to total loans		2.16	%		1.27	%

Based on the Company’s assessment of its credit risk and the continued increase in the level of loan delinquencies and adversely classified loans, a provision for loan losses of $1.2 million was recorded during the third quarter of 2010. The provision primarily reflected updated collateral values received on impaired loans. Through the first nine months of 2010, the Company has recorded $2.3 million in provisions for loan losses. The Company recorded a total of $500,000 in loan loss provisions during 2009, $200,000 of which was recorded during the first nine months of 2009. As of September 30, 2010, the Company’s allowance for losses was $4.1 million, or 36.8% of nonperforming loans, compared to $2.4 million or 57.2% of nonperforming loans, at December 31, 2009. The allowance was reduced by charge-offs totaling $577,000 dur ing the year-to-date period ended September 30, 2010. Total charge-offs for the annual period ended December 31, 2009 were $854,000. The Company believes that the allowance for loan losses recorded as of September 30, 2010 is sufficient to cover the potential losses in its loan portfolio.

ASSET QUALITY

Nonperforming assets consist of loans on nonaccrual status, accruing loans greater than ninety days past due, and foreclosed assets. The following table summarizes the Company’s nonperforming assets at September 30, 2010 and December 31, 2009 as well as troubled debt restructurings, $2.1 million of which was included in nonperforming assets at September 30, 2010.  The balances presented reflect the total principal balances outstanding on the loans rather than the amount of principal past due.

	September 30,			December 31,
(dollars in thousands)	2010			2009
Nonperforming assets:
Nonaccrual loans:
Real estate loans:
One-to-four family first mortgage	$	5,099		$	2,171
Home equity loans and junior liens		177			100
Commercial		4,027			1,548
Construction and land		1,430			80
Multi-family residential		-			193
Total nonaccrual real estate loans		10,733			4,092
Other loans:
Commercial		339			58
Consumer		-			14
Total nonaccrual other loans		339			72
Total nonaccrual loans		11,072			4,164
Accruing loans greater than 90 days past due		-			-
Total nonperforming loans		11,072			4,164
Foreclosed assets		1,408			2,489
Total nonperforming assets	$	12,480		$	6,653
Troubled debt restructurings	$	590		$	-
Ratios:
Nonaccrual loans to total loans		5.81	%		2.22	%
Nonperforming assets to loans plus foreclosed assets		6.50	%		3.50	%
Nonperforming assets to total assets		4.67	%		2.45	%
Nonperforming assets and troubled debt restructurings to total assets		4.89	%		2.45	%

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Nonperforming assets increased $5.8 million, or 87.6%, from $6.7 million at December 31, 2009 to $12.5 million at September 30, 2010. There was a $2.9 million increase in nonperforming loans secured by one- to four-family residential real estate from December 31, 2009 to September 30, 2010. This consisted primarily of smaller balance loans secured by residences located in the Greater New Orleans Area and its neighboring parishes. Nonperforming commercial real estate loans increased from $1.5 million at December 31, 2009 to $4.0 million at September 30, 2010. This increase is primarily due to a $1.4 million loan secured by a non-owner-occupied, commercial warehouse located in New Orleans, Louisiana and a $749,000 loan secured by non-owner-occupied, commercial real estate, located in New Orleans, Louisiana. There was a $1.4 million incre ase in nonperforming construction and land loans from December 31, 2009 to September 30, 2010. This was largely attributable to two loans aggregating $744,000 to the same commercial borrower which are secured by one parcel of vacant land located in Mandeville, Louisiana, and one parcel of vacant land located in Covington, Louisiana as well as a $495,000 loan secured by vacant land located in New Orleans.

Nonaccrual loans as of September 30, 2010, included troubled debt restructurings of $2.1 million. Performing troubled debt restructurings as of September 30, 2010, consisted of one $590,000 loan relationship to a commercial borrower secured by five properties located in New Orleans. The Company did not have any commitments to lend additional funds in conjunction with the troubled debt restructuring as of September 30, 2010. There were no troubled debt restructurings as of December 31, 2009.

Foreclosed assets decreased by $1.1 million from $2.5 million at December 31, 2009 to $1.4 million September 30, 2010. This is primarily due to the sale of a multi-family dwelling located in a historic district of New Orleans, Louisiana, which had a cost basis of $756,000 and the sale of a one-to-four family dwelling located in New Orleans, Louisiana, which had a cost basis of $563,000. The Company has realized losses on the sale of real estate owned aggregating $87,000 for the year-to-date period ended September 30, 2010. For the nine month period ended September 30, 2009, the Company realized a net gain of $2,000 on the sale of real estate owned.

As of September 30, 2010 real estate owned included two properties that were previously under renovation totaling $315,000. These properties were obtained through foreclosure proceedings completed in December 2009 and are secured by residential real estate located in New Orleans, Louisiana, and in Algiers, Louisiana. The Company recognized impairment losses aggregating $221,000 on these two properties during the third quarter of 2010. The remaining components of other real estate owned as of September 30, 2010 included: two parcels of vacant land located in New Orleans, Louisiana, and one parcel of vacant land located in Abita Springs, Louisiana; a one-to-four family dwelling located in Westwego, Louisiana, and a one-to-four family dwelling located in New Orleans, Louisiana; two multi-family dwellings located in New Orleans, Louisiana; and a commercial property located in Chalmette, Louisiana. For the year-to-date period ended September 30, 2010, the Bank has recorded aggregate impairment losses of $422,000 on real estate owned, which represents an increase of $361,000 when compared to the same period in prior year.

INVESTMENT SECURITIES

All of the Company’s investment securities were classified as available-for-sale during 2009 and 2010. At September 30, 2010, the fair value of the Company’s total securities available-for-sale was $52.5 million, compared to $50.5 million at December 31, 2009, which represents an increase of $2.0 million, or 4.0%. The following table sets forth the amortized and fair value of the Company’s investment securities portfolio at September 30, 2010 and December 31, 2009.

	September 30, 2010				December 31, 2009
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities:
U.S. Agency securities	$	5,053	$	5,293	$	7,132	$	6,937
Mortgage-backed securities		30,523		31,423		31,913		32,678
Collateralized mortgage obligations		3,302		3,242		1,612		1,433
Municipal securities		10,369		10,803		7,044		7,013
Mutual funds		1,653		1,696		2,394		2,394
Total investment securities	$	50,900	$	52,457	$	50,095	$	50,455

The net unrealized gain on the Company’s entire securities portfolio as of September 30, 2010 was $1.6 million, or 3.1% of amortized cost, compared to the net unrealized gain of $360,000, or 0.7% of amortized cost at December 31, 2009. The gains in the securities portfolio consist primarily of increases in the market value of mortgage-backed securities issued by government agencies and municipal securities. The losses in the securities portfolio are attributable to the reduced values of certain private-label collateralized mortgage obligations as a result of concerns with the overall mortgage market. Management believes that these losses are temporary in nature and will reverse themselves when market conditions become more favorable for those types of investments.

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The Company began investing in municipal securities in 2009 in order to benefit from their tax-preferred status. The Company’s total holdings in municipal securities at September 30, 2010 and December 31, 2009 were $10.8 million and $7.0 million, respectively.

The Company’s investment in mutual funds includes the AMF Ultra Short Mortgage Fund (ticker: ASARX). Prior to 2008, this investment was redeemable immediately at its current market value. In 2008, the fund managers, Shay Assets Management, Inc., imposed a restriction on this fund which limited redemptions for cash to $250,000 per quarter based on the current market price at the time of redemption. Approximately $750,000 of the holdings in this fund were redeemed for cash during the first nine months of 2010. The market value of the Company’s remaining investment in this fund was $1.7 million as of September 30, 2010. Effective October 1, 2010, the fund reopened and the liquidation limitations were removed.

During the second quarter of 2010, the Company sold approximately $8.0 million of its holdings in U.S. Agency and mortgage-backed securities at a net gain of approximately $313,000. These investments, which primarily consisted of securities with lower coupon rates and longer estimated durations, were sold in an effort to reduce the Company’s exposure to both extension risk and interest rate risk. These funds were subsequently reinvested in mortgage-backed securities with lower coupon rates and shorter estimated durations.

DEPOSITS

At September 30, 2010, deposits totaled $200.5 million, a decrease of $1.0 million, or 0.5%, from $201.5 million at December 31, 2009. Certificates of deposit totaled $110.8 million at September 30, 2010, up $11.2 million, or 11.2%, from December 31, 2009. The balance of NOW and MMDA deposit accounts decreased $16.9 million or 22.8% from $74.3 million at December 31, 2009 to $57.4 million at September 30, 2010. Noninterest-bearing demand deposits increased during the first nine months of 2010 to $19.4 million from $14.8 million at year end.

The following table presents the composition of deposits at September 30, 2010 and December 31, 2009.

	September 30,		December 31,		Increase (Decrease)
(dollars in thousands)	2010		2009		Amount			Percent
Deposit accounts:
Noninterest-bearing demand deposits	$	19,443	$	14,812	$	4,631			31.3	%
NOW and MMDA deposits		57,352		74,260		(16,908	)		(22.8	)
Savings deposits		12,884		12,832		52			0.4
Certificates of deposit		110,785		99,589		11,196			11.2
Total deposit accounts	$	200,464	$	201,493	$	(1,029	)		(0.5	) %

The increase in noninterest-bearing demand deposits during the year-to-date period ended September 30, 2010 was due to the continued efforts of our commercial account officers to increase the Company’s transactional account base as well as the efforts of our staff, which has increased in number due to our expanded branch network as a result of our opening a new banking location in the fourth quarter of 2009. The increase in the balance of certificates of deposit is primarily due to the Bank’s participation in a wholesale, Internet-based, certificate of deposit marketing program which allowed it to attract deposits on a nationwide basis that totaled $20.8 million at September 30, 2010. Certificates of deposit at September 30, 2010, also included $1.5 million of brokered deposits in the Certificate of Deposit Account Registry Service (“CDARS”) administered by the Promontory Interfinancial Network that represented two customer relationships.

BORROWINGS

The Bank is a member of the Federal Home Loan Bank of Dallas (“FHLB”).  This membership provides access to a variety of Federal Home Loan Bank advance products as an alternative source of funds.  At September 30, 2010 and December 31, 2009, the Company’s borrowings from the Federal Home Loan Bank were $35.6 million and $40.5 million, respectively, which represents a decrease of $5.0 million, or 12.2%. The decrease in FHLB borrowings during the nine month period ended September 30, 2010 was due to the nonrenewal of maturing advances and principal payments made on amortizing advances.

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In January 2010, the Company modified the terms of $24.6 million of its outstanding advances with the Federal Home Loan Bank in order to lower the average interest rate paid and extend the duration of those borrowings. This transaction required that a prepayment penalty be paid to the FHLB in the amount of $995,000 which is being amortized to interest expense using the interest method over the term of the modified advances. After the modification was executed, the weighted average interest rate of the modified advances decreased by 198 basis points from 4.17% to 2.19%, and the effective duration was extended from approximately one year to three years. The effective interest rate, including the amortization of the prepayment penalty, on the average outstanding advances during the first nine months of 2010 was 3.65%.

The Company continually evaluates its funding options to determine the most cost-effective means of funding its growth while actively managing the ratio of average loans to average deposits. The Company’s utilization of borrowings continues to be within the parameters determined by management to be prudent in terms of liquidity and interest rate sensitivity. In addition, the Company has significant remaining borrowing capacity should borrowing needs arise.

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

At September 30, 2010, stockholders’ equity totaled $28.2 million, compared to $28.0 million at December 31, 2009. This increase of $140,000, or 0.5%, was primarily due to an increase in the unrealized gains, net of tax, on investment securities of $790,000 that was substantially offset by cash dividends paid of $376,000 and a net loss of $292,000 during the nine months ended September 30, 2010.

From 1998 through 2009, the Company has repurchased a total of 2,180,562 shares of its common stock, net of stock options exercised, at a cost of $32.4 million when shares have been available at prices and amounts deemed prudent by management. The Company announced a stock repurchase program in October 2008 of up to 64,250 shares, or approximately 5.0%, of GS Financial Corp.’s outstanding common stock through open market or privately negotiated transactions. A total of 27,862 shares were purchased at a cost of $387,000 in conjunction with this program during 2009. All of the purchases were open market transactions, other than the 15,614 shares purchased in the quarter ended September 30, 2009, and most were at a discount to book value. The Company has not repurchased any shares during the first nine months of 2010.

The following table details the Bank’s actual levels and current capital requirements as of September 30, 2010 and December 31, 2009. As of September 30, 2010, the Bank had regulatory capital that was well in excess of the regulatory requirements and was categorized as “well-capitalized” in the most recent report received from its primary regulatory agency.

	Actual					Minimum for Capital Adequacy Purposes					Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Regulatory capital:
September 30, 2010
Tangible capital	$	26,325		10.01	%	$	3,945		1.50	%		N/A		N/A
Core/leverage capital		26,325		10.01	%		7,889		3.00	%	$	13,149		5.00	%
Tier 1 risk-based capital		26,325		16.20	%		6,501		4.00	%		9,751		6.00	%
Total risk-based capital		28,113		17.30	%		13,002		8.00	%		16,252		10.00	%
December 31, 2009
Tangible capital	$	26,510		9.79	%	$	4,064		1.50	%		N/A		N/A
Core/leverage capital		26,510		9.79	%		8,128		3.00	%	$	13,546		5.00	%
Tier 1 risk-based capital		26,510		16.13	%		6,575		4.00	%		9,862		6.00	%
Total risk-based capital		28,123		17.11	%		13,150		8.00	%		16,437		10.00	%

LIQUIDITY AND CAPITAL RESOURCES

The objective of liquidity management is to ensure that funds are available to meet the cash flow requirements of depositors and borrowers, while at the same time meeting the operating, capital, and strategic cash flow needs of the Company and the Bank, in the most cost-effective manner possible. The Company develops its liquidity management strategies and measures and monitors liquidity risk as part of its overall asset/liability management process by making use of quantitative modeling tools to project cash flows under a variety of possible scenarios.

On the liability side, liquidity management focuses on growing the base of more stable core deposits at competitive rates, while at the same time ensuring access to economical wholesale funding sources. The sections above on deposits and borrowings discuss changes in these liability-funding sources during the first nine months of 2010.

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Liquidity management on the asset side primarily addresses the composition and maturity structure of the loan and investment securities portfolios and their impact on the Company’s ability to generate cash flows from scheduled payments, contractual maturities and prepayments, their use as collateral for borrowings, and possible outright sales in the secondary market.

Cash generated from operations is an important source of funds to meet liquidity needs. The consolidated statements of cash flows present operating cash flows and summarize all significant sources and uses of funds for the year-to-date periods ended September 30, 2010 and 2009. The Company reported a net loss of $292,000 for the first nine months of 2010 and had net cash of $2.0 million provided by operating activities. Certain adjustments are made to net income to reach the level of cash provided by operating activities, including non-cash expenses (depreciation, employee compensation made in the form of stock, deferred tax provisions, etc.) and revenues (accretion of discounts, dividends received in the form of stock, etc.).

In addition, management monitors its liquidity position by tracking certain financial data. The following table illustrates some of the factors that the Company uses to measure liquidity.

(dollars in thousands)	September 30, 2010			December 31, 2009
Key liquidity indicators:
Cash and cash equivalents	$	11,270		$	19,735
Total loans		190,164			187,456
Total deposits		200,464			201,493
Deposits $100,000 and greater		98,082			99,182
Ratios:
Total loans to total deposits		95.08	%		93.03	%
Deposits $100,000 and greater to total deposits		48.93	%		49.22	%

The Company remains highly liquid, as additional liquidity has been obtained through its deposit account offerings that were developed, in part, to increase the Company’s deposit balances and, thereby, reduce the Bank’s loan to deposit ratio.  However, liquidity is being used to fund loan growth and payoff maturing FHLB advances when appropriate.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income for the quarter ended September 30, 2010 was $2.4 million, which represents an increase of $325,000 compared to the quarter ended September 30, 2009. Net interest income increased by $1.1 million to $6.9 million for the first nine months of 2010 compared to $5.9 million for the first nine months of 2009. The increases in net interest income when comparing both the three and nine month periods ended September 30, 2010 to the same periods in the prior year are primarily due to a decrease in the cost of interest-bearing deposits combined with an increase in the average balance of loans. This was partially offset by a decrease in the average yield on interest-earning assets and, for the nine month period, an increase in the average balance of interest-bearing deposits.

Interest and dividend income decreased by $185,000, or 5.1%, and interest expense decreased by $510,000, or 32.9%, for the third quarter of 2010 compared to the third quarter of 2009. For the first nine months of 2010, interest and dividend income was $10.4 million, a decrease of $210,000, or 2.0%, from $10.6 million for the first nine months of 2009. Interest expense for the year-to-date period ended September 30, 2010 was $3.5 million, which represents a decrease of $1.3 million, or 26.9%, when compared to the same period in the prior year.

The net interest margin improved by 56 basis points from 3.19% for the three months ended September 30, 2009 to 3.75% for the three months ended September 30, 2010. The net interest margin for the year-to-date period ended September 30, 2010 improved to 3.60% from 3.20% for the same period in the prior year. The increase in net interest margin for the quarter ended September 30, 2010 compared to the quarter ended September 30, 2009 was primarily attributable to an 85 basis point decrease in the average cost of interest-bearing deposits and a $6.7 million increase in the average balance of loans. This was partially offset by a 41 basis point decrease in the average yield on loans and a 111 basis point decrease in the average yield on mortgage-backed securities. The 40 basis point improvement in the net interest margin when comparing the first nine months of 2009 to the same period in 2010 was primarily due to a 95 basis point decrease in the average cost of interest-bearing deposits and a $14.4 million increase in the average balance of loans. This was partially offset by 41 and 114 basis point decreases in the average yields on loans and mortgage-backed securities, respectively, and a $12.2 million increase in the average balance of time deposits.

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	For the Three Months Ended September 30,
	2010							2009
(dollars in thousands)	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
Assets:
Interest-earning assets:
Loans	$	189,973	$	2,952		6.22	%	$	183,256	$	3,036		6.63	%
Investments:
U.S. Agency securities		5,532		52		3.76			8,313		78		3.75
Mortgage-backed securities		32,944		256		3.11			32,239		340		4.22
Collateralized mortgage obligations		3,314		33		3.98			5,621		82		5.84
Municipal securities		10,731		93		3.47			1,840		17		3.70
Mutual funds		1,815		14		3.09			2,731		28		4.10
Total investment in securities		54,336		448		3.30			50,744		545		4.30
FHLB stock		2,358		2		0.34			2,352		1		0.17
Federal funds sold and
interest-bearing deposits in other banks		6,551		13		0.79			21,374		18		0.34
Total interest-earning assets		253,218		3,415		5.39	%		257,726		3,600		5.59	%
Noninterest earning assets		15,027							13,251
Total assets	$	268,245						$	270,977
Liabilities and stockholders' equity:
Liabilities:
Interest-bearing liabilities:
NOW and MMDA account deposits	$	62,454	$	128		0.82	%	$	73,791	$	363		1.97	%
Savings deposits		12,811		16		0.50			13,310		17		0.51
Certificates of Deposit		107,265		560		2.09			101,313		746		2.95
Total interest-bearing deposits		182,530		704		1.54			188,414		1,126		2.39
Borrowings		37,174		334		3.59			41,554		422		4.06
Total interest-bearing liabilities		219,704		1,038		1.89	%		229,968		1,548		2.69	%
Noninterest-bearing liabilities		19,740							12,679
Total liabilities		239,444							242,647
Stockholders' equity		28,801							28,330
Total liabilities and stockholders' equity	$	268,245						$	270,977
Net interest income and margin			$	2,377		3.75	%			$	2,052		3.19	%
Net interest-earning assets and spread	$	33,514				3.50	%	$	27,758				2.90	%

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	For the Nine Months Ended September 30,
	2010							2009
(dollars in thousands)	Average Balance		Interest		Average Yield/ Cost			Average Balance		Interest		Average Yield/ Cost
Assets:
Interest-earning assets:
Loans	$	190,023	$	8,905		6.25	%	$	175,655	$	8,775		6.66	%
Investments:
U.S. Agency securities		6,311		161		3.40			9,896		338		4.55
Mortgage-backed securities		33,157		875		3.52			29,392		1,028		4.66
Collateralized mortgage obligations		2,878		98		4.54			6,896		308		5.96
Municipal securities		9,433		239		3.38			780		22		3.76
Mutual funds		2,045		51		3.33			2,975		94		4.21
Total investment in securities		53,824		1,424		3.53			49,939		1,790		4.78
FHLB stock		2,356		6		0.34			2,349		5		0.28
Federal funds sold and
interest-bearing deposits in other banks		10,263		53		0.69			16,522		28		0.23
Total interest-earning assets		256,466		10,388		5.40	%		244,465		10,598		5.78	%
Noninterest earning assets		15,989							11,936
Total assets	$	272,455						$	256,401
Liabilities and stockholders' equity:
Liabilities:
Interest-bearing liabilities:
NOW and MMDA account deposits	$	68,776	$	561		1.09	%	$	60,697	$	1,071		2.35	%
Savings deposits		12,824		48		0.50			13,938		52		0.50
Certificates of Deposit		106,472		1,770		2.22			94,252		2,215		3.13
Total interest-bearing deposits		188,072		2,379		1.69			168,887		3,338		2.64
Borrowings		39,261		1,076		3.65			47,045		1,386		3.93
Total interest-bearing liabilities		227,333		3,455		2.03	%		215,932		4,724		2.92	%
Noninterest-bearing liabilities		16,577							12,282
Total liabilities		243,910							228,214
Stockholders' equity		28,545							28,187
Total liabilities and stockholders' equity	$	272,455						$	256,401
Net interest income and margin			$	6,933		3.60	%			$	5,874		3.20	%
Net interest-earning assets and spread	$	29,133				3.37	%	$	28,533				2.86	%

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PROVISION FOR LOAN LOSSES

The Company recorded a $1.2 million provision for loan losses during the third quarter of 2010. The total provision for loan losses recorded during the nine month period ended September 30, 2010 was $2.3 million. As previously indicated, the Company’s provision for loan losses was based on its assessment of the credit risk in its portfolio and the overall increased levels of loan delinquencies, nonperforming loans and loan charge-offs. In addition, the provision for loan losses reflected updated collateral values received on impaired loans. The total provision for loan losses recorded in 2009 was $500,000, $200,000 of which was recorded during the first nine months of the year. The local market area has been negatively impacted by the national recession and still remains in a state of uncertainty regarding the level of recovery f rom Hurricane Katrina. Although the Company’s exposure to the oil spill in the Gulf of Mexico appears to be low, this is a preliminary assessment and will continue to be updated as additional information regarding this event becomes available. The Bank’s asset quality committee meets monthly to review the risk elements of its loan portfolio, including: impaired loans, nonperforming loans, and potential nonperforming and impaired loans, and adjusts the allowance for loan losses accordingly based on the best information available at the time.

For a more detailed discussion of the changes in the allowance for loan losses, nonperforming assets, and general credit quality, see the earlier sections on Loans and Allowance for Loan Losses.  The future level of the allowance and provisions for loan losses will reflect management’s ongoing evaluation of credit risk, based on established internal policies and practices.

NONINTEREST INCOME

Noninterest income increased by $9,000 during the third quarter of 2010 to $254,000 compared to $245,000 for the third quarter of 2009. This increase was due to a slight increase in the gains recognized on the sale of mortgage loans in the secondary market when comparing those respective periods.  Noninterest income for the year-to-date period ended September 30, 2010 was $894,000, which is a decrease of $205,000 from $1.1 million for the same period in the prior year.  This was primarily due to a $360,000 decrease in the gain on sales of mortgage loans in the secondary market when comparing these periods which is attributable to the nationwide recession and a decline in the local real estate market. In addition, the Company sold $1.3 million of real estate owned during the first nine months of 2010 at a net loss of $87,000.

During the second quarter of 2010, the Company recognized $313,000 in net gains on the sales of investment securities, primarily U.S. Agency and mortgage-backed securities, with longer durations. See the section “Investment Securities” above, for additional information regarding this transaction. In addition, the Company’s noninterest income during the first nine months of 2009 was elevated due to a $134,000 gain recorded on the sale of vacant land located in Metairie, Louisiana.

The major categories of noninterest income for the three and nine months ended September 30, 2010 and 2009 are presented in the following table.

	For the Three Months Ended				For the Nine Months Ended
	September 30,		September 30,		September 30,			September 30,
(dollars in thousands)	2010		2009		2010			2009
Noninterest income:
Service charges on deposit accounts	$	18	$	17	$	47		$	47
Early closing penalties		1		4		8			9
Electronic banking fees		7		5		19			16
Gain (loss) on securities transactions		5		8		322			(3	)
Gain on sale of premises and equipment		-		-		-			134
Gain (loss) on sale of real estate owned		1		-		(87	)		3
Gain on sale of mortgage loans		199		188		522			881
Mortage servicing fees, net		2		1		(10	)		(38	)
Income from real estate held for investment		14		14		42			42
Miscellaneous		7		8		31			8
Total noninterest income	$	254	$	245	$	894		$	1,099

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NONINTEREST EXPENSE

Noninterest expense for the third quarter of 2010 totaled $2.1 million which represents a $157,000 increase from $1.9 million for the third quarter of 2009. For the year-to-date periods ended September 30, 2010 and 2009, noninterest expense increased $691,000 from $5.4 million to $6.1 million. Noninterest expense for the three and nine months ended September 30, 2010 and 2009 are presented in the following table.

	For the Three Months Ended				For the Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
(dollars in thousands)	2010		2009		2010		2009
Noninterest expense:
Employee compensation and benefits	$	980	$	1,042	$	2,963	$	2,915
Net occupancy expense		280		220		804		623
Data processing costs		114		103		328		285
ATM expenses		13		13		39		39
Telephone and security expense		29		29		82		79
Printing and office supplies		24		25		99		93
Ad Valorem taxes		53		58		166		175
Deposit insurance and supervisory fees		101		83		310		305
Professional fees		124		155		398		454
Advertising and business development expense		28		46		114		121
Dues and subscriptions		19		23		62		61
Loss on write-down of other real estate		227		61		422		61
Other operating expenses		93		70		281		166
Total noninterest expense	$	2,085	$	1,928	$	6,068	$	5,377

Employee compensation and benefits, which represent the largest component of noninterest expense, increased $48,000 to $3.0 million for the first nine months of 2010 compared to $2.9 million for the same period in the prior year. The increase in personnel costs during the 2010 period was primarily due to the hiring of additional staff for a new branch location which was opened during the fourth quarter of 2009. The opening of this new branch location was largely responsible for the $181,000 increase in occupancy expense to $804,000 for the first nine months of 2010 from $623,000 for the same period in the prior year and the $43,000 increase in data processing costs when comparing those respective periods.

On September 30, 2010, the Company closed its Ponchatoula, Louisiana, branch location. The Company does not anticipate that the closure of this branch will have a significant impact on its ability to service its existing customer base or in attracting new loan and deposit customers. However, the closure of this branch is expected to provide a slight improvement in the overall level of noninterest expense in future periods.

The Company recorded a non-cash impairment charge of approximately $227,000 on other real estate during the third quarter of 2010 compared with a $61,000 impairment charge recorded in the third quarter of 2009. The total impairment charges recorded on other real estate during the year-to-date period ended September 30, 2010 were $422,000 compared with $61,000 for the same period in the prior year. See the section “Asset Quality” above, for additional information regarding this impairment charge.

Included in other operating expenses for the first nine months of 2010 was $116,000 of expenses for the payment of taxes and insurance on foreclosed properties. This represents an increase of approximately $79,000 from $37,000 for the same period in 2009 which was due to the payment of insurance and taxes on foreclosed assets that were acquired primarily during the fourth quarter of 2009 and the first nine months of 2010.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a–15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There are no matters required to be reported under this item.

Item 1a. Risk Factors

Not applicable.

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

(a) Not applicable

(b) Not applicable

(c) Purchases of Equity Securities

The Company’s repurchases of its common stock made during the quarter ended September 30, 2010 are set forth in the table below:

Period	Total Number of Shares Purchased		Average  Price  Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2010 – July 31, 2010		-	$	-		-		36,388
August 1, 2010 – August 31, 2010		-		-		-		36,388
September 1, 2010 – September 30, 2010		-		-		-		36,388
Total		-		-		-		36,388

Notes to this table:

(1)   On October 22, 2008 the Company announced by press release a stock repurchase program to repurchase 64,250 shares, or 5.0% of its outstanding common stock over a one year period, or such longer amount of time as may be necessary to complete the repurchase plan. The program became effective November 6, 2008.

Item 3. Defaults Upon Senior Securities

There are no matters required to be reported under this item.

Item 4. (Removed and Reserved)

Item 5. Other Information

There are no matters required to be reported under this item.

Item 6. Exhibits

31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.0	Certification pursuant to 18 U.S.C. Section 1350

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GS FINANCIAL CORP.

Date:	November 12, 2010	By:	/s/ Stephen E. Wessel
			Stephen E. Wessel President and Chief Executive Officer
Date:	November 12, 2010	By:	/s/ Stephen F. Theriot
			Stephen F. Theriot Chief Financial Officer

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