GS Financial Corp - Quarterly Report (10-Q)

 

 

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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 June 30, 2008		Commission File Number: 0-22269
GS Financial Corp.
(Exact Name of  Issuer 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)
[phone]
(Issuer's Telephone Number)

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                       o No   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         o                                                                              Accelerated filer       o   Non-accelerated filer            o                                                                           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).Yes   o   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 August 14, 2008
Common Stock, par value $.01 per share		1,285,800 shares

 

 

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GS FINANCIAL CORP.

TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
	Item 1	Financial Statements
				Consolidated Statements of Financial Condition	1
				Consolidated Statements of (Loss) Income	2
				Consolidated Statements of Changes in Stockholders’ Equity	3
				Consolidated Statements of Cash Flows	4
				Notes to Consolidated Financial Statements	5
				Selected Consolidated Financial Data	7
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			8
	Item 3	Quantitative and Qualitative Disclosures about Market Risk			19
	Item 4	Controls and Procedures			20
PART II – OTHER INFORMATION
	Item 1		Legal Proceedings		20
	Item 1a		Risk Factors		20
	Item 2		Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		20
	Item 3		Defaults Upon Senior Securities		20
	Item 4		Submission of Matters to a Vote of Security Holders		20
	Item 5		Other Information		20
	Item 6		Exhibits		21
SIGNATURES EXHIBIT INDEX

 

 

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PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

GS Financial Corp.
Condensed Consolidated Statements of Financial Condition
($ in thousands)		6/30/2008 (Unaudited)				12/31/2007   (Audited)
ASSETS
Cash and Cash Equivalents
Cash & Amounts Due from Depository Institutions		$	2,738			$	2,485
Interest-Bearing Deposits from Other Banks			3,223				6,008
Federal Funds Sold			1,619				969
Total Cash and Cash Equivalents			7,580				9,462
Securities Available-for-Sale, at Fair Value			47,780				47,747
Loans, Net			138,838				118,477
Accrued Interest Receivable			1,516				1,828
Premises & Equipment, Net			5,695				5,874
Stock in Federal Home Loan Bank, at Cost			1,863				1,220
Foreclosed Assets			469				-
Real Estate Held-for-Investment, Net			443				450
Other Assets			1,452				1,429
Total Assets		$	205,636			$	186,487
LIABILITIES
Deposits
Interest-Bearing Deposits		$	126,793			$	123,825
Non-interest-Bearing Deposits			7,548				6,020
Total Deposits			134,341				129,845
FHLB Advances			42,438				26,986
Other Liabilities			1,395				1,492
Total Liabilities			178,174				158,323
STOCKHOLDERS' EQUITY
Preferred Stock - $.01 Par Value		$	-			$	-
Authorized - 5,000,000 shares
Issued - 0 shares
Common Stock - $.01 Par Value			34				34
Authorized - 20,000,000 shares
Issued - 3,438,500 shares
Additional Paid-in Capital			34,546				34,546
Unearned RRP Trust Stock			(158	)			(158	)
Treasury Stock (2,152,700 Shares at June 30, 2008 and December 31, 2007)			(32,062	)			(32,062	)
Retained Earnings			25,556				25,919
Accumulated Other Comprehensive Loss			(454	)			(115	)
Total Stockholders' Equity			27,462				28,164
Total Liabilities & Stockholders' Equity		$	205,636			$	186,487
The accompanying notes are an integral part of these financial statements.

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GS Financial Corp.
Consolidated Statements of (Loss) Income
(Unaudited)
		For the Three Months Ended  June 30,								For the Six Months Ended  June 30,
($ in thousands, except per share data)		2008				2007				2008				2007
INTEREST AND DIVIDEND INCOME
Loans, Including Fees		$	2,349			$	1,919			$	4,548			$	3,712
Investment Securities			621				731				1,338				1,453
Other Interest Income			49				83				120				222
Total Interest and Dividend Income			3,019				2,733				6,006				5,387
INTEREST EXPENSE
Deposits			979				1,131				2,070				2,194
Advances from Federal Home Loan Bank			401				211				806				433
Interest Expense			1,380				1,342				2,876				2,627
NET INTEREST INCOME			1,639				1,391				3,130				2,760
PROVISION (REVERSAL)  FOR LOAN LOSSES			-				(300	)			-				(300	)
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			1,639				1,691				3,130				3,060
NON-INTEREST EXPENSE
Salaries and Employee Benefits			868				817				1,732				1,610
Occupancy Expense			201				152				401				288
Other Expenses			396				345				748				692
Total Non-Interest Expense			1,465				1,314				2,881				2,590
NET INCOME BEFORE NON-INTEREST INCOME AND INCOME TAXES			174				377				249				470
NON-INTEREST INCOME (Loss)
Net (Loss) on Available-for-Sale Securities			(660	)			-				(660	)			-
Other Income			135				43				250				72
Total Non-Interest Income (Loss)			(525	)			43				(410	)			72
INCOME BEFORE INCOME TAXES			(351	)			420				(161	)			542
INCOME TAX (BENEFIT) EXPENSE			(119	)			127				(55	)			153
NET (LOSS) INCOME		$	(232	)		$	293			$	(106	)		$	389
(LOSS) EARNINGS PER SHARE
Basic		$	(0.18	)		$	0.24			$	(0.08	)		$	0.32
Diluted		$	(0.18	)		$	0.23			$	(0.08	)		$	0.31
The accompanying notes are an integral part of these financial statements.

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GS FINANCIAL CORP.
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 Income (Loss)				Total Stockholders' Equity
Balances At December 31, 2006		$	34			$	34,701			$	(32,493	)		$	(523	)		$	25,764			$	(319	)		$	27,164
Comprehensive Income:
Net Income			-				-				-				-				389				-				389
Other Comprehensive Loss
Unrealized net holding losses on securities, net of taxes			-				-				-				-				-				(316	)			(316	)
Total Comprehensive Income (Loss)			-				-				-				-				389				(316	)			73
Distribution of RRP Stock			-				-				-				-				-				-				-
Purchase of Treasury Stock			-				-				-				-				-				-				-
Dividends Declared			-				-				-				-				(251	)			-				(251	)
Balances at June 30, 2007		$	34			$	34,701			$	(32,493	)		$	(523	)		$	25,902			$	(635	)		$	26,986
Balances At December 31, 2007		$	34			$	34,546			$	(32,062	)		$	(158	)		$	25,919			$	(115	)		$	28,164
Comprehensive Loss:
Net Loss			-				-				-				-				(106	)			-				(106	)
Other Comprehensive Loss
Unrealized net holding losses on securities, net of taxes			-				-				-				-				-				(339	)			(339	)
Total Comprehensive Loss			-				-				-				-				(106	)			(339	)			(445	)
Distribution of RRP Stock			-				-				-				-				-				-				-
Purchase of Treasury Stock			-				-				-				-				-				-				-
Dividends Declared			-				-				-				-				(257	)			-				(257	)
Balances at June 30, 2008		$	34			$	34,546			$	(32,062	)		$	(158	)		$	25,556			$	(454	)		$	27,462

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GS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Six Months Ended June 30,
($ in thousands)		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income		$	(106	)		$	389
Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities
Depreciation			145				94
Discount Accretion Net of Premium Amortization			(19	)			6
Reversal of Provision for Loan Losses			-				(300	)
Non-Cash Dividend - FHLB Stock			(24	)			(27	)
Net Loan Fees			139				14
RRP Expense			9				61
Loss on Sale of Investments			9				-
Changes in Operating Assets and Liabilities
Decrease in Accrued Interest Receivable			312				121
Decrease in Other Assets			2				157
Increase in Accrued Income Tax			83				153
Decrease in Other Liabilities			(189	)			(390	)
Net Cash Provided by Operating Activities			345				278
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities			13,034				6,957
Proceeds from Sales of Investment Securities			5,003				10,921
Purchases of Investment Securities			(19,319	)			(8,118	)
Investment in Mutual Funds, Net			250				5,000
Loan Originations and Principal Collections, Net			(34,228	)			(12,729	)
Proceeds from the Sale of Loans			13,259				-
Purchases of Premises and Equipment			(85	)			(1,674	)
Proceeds from Disposal of Property and Equipment			142				-
Net Cash Used in Investing Activities			(21,944	)			(9,027	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Advances from Federal Home Loan Bank			15,452				(225	)
Payment of Cash Stock Dividends			(257	)			(251	)
Increase in Deposits			4,496				2,204
Increase in Deposits for Escrows			26				74
Net Cash Provided by Financing Activities			19,717				1,802
NET (DECREASE) IN CASH AND CASH EQUIVALENTS			(1,882	)			(6,947	)
CASH AND CASH EQUIVALENTS – Beginning of Period			9,462				11,116
CASH AND CASH EQUIVALENTS - End of Period		$	7,580			$	4,169
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest		$	2,852			$	2,628
Income Taxes			-				-
Loans Transferred to Foreclosed Real Estate During the Period			469				-
The accompanying notes are an integral part of these financial statements.

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GS FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 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”), which prior to June 2006 was known as Guaranty Savings and Homestead Association.  All significant intercompany balances and transactions have been eliminated.  Certain financial information for prior periods has been reclassified to conform with 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 six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the year ending December 31, 2008.  These unaudited financial statements should be read in conjunction with the Company’s 2007 annual report on Form 10-K.

NOTE 2 – EARNINGS PER SHARE

Earnings per share are computed using the weighted average number of shares outstanding as prescribed in Statement of Financial Accounting Standard (“SFAS”) 128.  The components used in this computation were as follows:

		Three Months Ended June 30								Six Months Ended June 30
($ in thousands, except per share data)		2008				2007				2008				2007
Numerator:
Net (Loss) Income		$	(232	)		$	293			$	(106	)		$	389
Effect of Dilutive Securities			-				-				-				-
Numerator for Diluted Earnings Per Share		$	(232	)		$	293			$	(106	)		$	389
Denominator
Weighted-Average Shares Outstanding			1,285,800				1,234,453				1,285,800				1,234,453
Effect of Potentially Dilutive Securities and Contingently Issuable Shares			-				38,389				-				38,017
Denominator for Diluted Earnings Per Share			1,285,800				1,272,842				1,285,800				1,272,470
Earnings (LOSS) Per Share
Basic		$	(0.18	)		$	0.24			$	(0.08	)		$	0.32
Diluted			(0.18	)			0.23				(0.08	)			0.31
Cash Dividends Per Share		$	0.10			$	0.10			$	0.20			$	0.20

NOTE 3 – 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 ESOP and 401(k) plan was $30,000 and $58,000 for the three and six month periods ended June 30, 2008, respectively, compared to $55,000 and $103,000 for the same time periods ended June 30, 2007.

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NOTE 4 – 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 were reserved for issuance pursuant to the exercise of stock options, of which 275,076 shares became fully vested and exercisable.  On October 15, 2007, the expiration date of the options, 30,000 options were exercised.

During 2005, the Company adopted SFAS No. 123(R) which replaced SFAS No. 123 and superseded APB Opinion No. 25.  Because all of the options that have been granted were vested as of June 30, 2007 and expired on October 15, 2007, there was no impact on net income and earnings per share for the three month periods ended June 30, 2008 and 2007.

NOTE 5 – 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 June 30, 2008 of the 125,028 shares awarded, 6,627 shares have been forfeited due to termination of employment or service as a director and 110,153 had been earned and issued.  Compensation expense related to the RRP was $4,000 and $9,000 for the three and six month periods ended June 30, 2008, respectively, compared to $31,000 and $61,000 for the same time periods ended June 30, 2007.

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GS FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
		Three Months Ended												Six Months Ended
($ in thousands, except per share data)		June 30, 2008				March 31, 2008				June 30, 2007				June 30, 2008				June 30, 2007
SUMMARY OF INCOME
Interest Income		$	3,019			$	2,987			$	2,733			$	6,006			$	5,387
Interest Expense			1,380				1,495				1,342				2,876				2,627
Net Interest Income			1,639				1,492				1,391				3,130				2,760
Provision (Reversal) for Loan Losses			-				-				(300	)			-				(300	)
Net Interest Income After Provision for Loan  Losses			1,639				1,492				1,691				3,130				3,060
Non-Interest Income (Loss)			(525	)			115				43				(410	)			72
Non-Interest Expense			1,465				1,416				1,314				2,881				2,590
Net Income Before Taxes			(351	)			191				420				(161	)			542
Income Tax Expense			(119	)			65				127				(55	)			153
Net Income			(232	)			126				293				(106	)			389
SELECTED BALANCE SHEET DATA
Total Assets		$	205,636			$	200,521			$	169,924
Loans Receivable, Net			138,838				129,815				105,466
Investment Securities			47,780				47,964				50,852
Deposit Accounts			134,341				133,330				125,194
Borrowings			42,438				37,537				16,817
Stockholders' Equity			27,462				28,118				26,986
SELECTED AVERAGE BALANCES
Total Assets		$	201,195				195,421			$	168,213			$	198,324			$	167,643
Loans Receivable, Net			133,097				124,287				100,720				128,719				98,009
Investment Securities			46,654				51,091				51,388				48,860				51,778
Deposit Accounts			133,638				130,778				124,580				132,216				123,608
Borrowings			37,956				34,931				15,273				36,452				15,749
Stockholders’ Equity			28,106				28,515				27,150				28,309				27,202
KEY RATIOS (1)
Return on average assets			(0.23	%)			0.23	%			0.70	%			0.47	%			0.47	%
Return on average shareholders' equity			(1.70	%)			1.43	%			4.33	%			2.89	%			2.89	%
Net Interest Margin			3.43	%			3.44	%			3.50	%			3.32	%			3.49	%
Average loans to average deposits			102.06	%			97.66	%			83.84	%			99.90	%			81.67	%
Average Interest-earning assets to interest-bearing liabilities			116.61	%			117.75	%			119.31	%			117.17	%			119.24	%
Efficiency ratio			82.58	%			88.17	%			91.67	%			85.24	%			91.44	%
Non-interest expense to average assets			2.93	%			2.91	%			3.13	%			2.92	%			3.12	%
Allowance for loan losses to total loans			2.28	%			2.57	%			3.15	%
Stockholders' equity to total assets			13.35	%			14.02	%			15.88	%
COMMON SHARE DATA
Earnings Per Share
Basic		$	(0.18	)		$	0.10			$	0.24			$	(0.08	)		$	0.32
Diluted			(0.18	)			0.10				0.23				(0.08	)			0.41
Dividends Paid Per Share			0.10				0.10				0.10				0.20				0.20
Book Value Per Share			21.56				21.87				20.97
Average Shares Outstanding
Basic			1,285,800				1,285,800				1,234,453				1,285,800				1,215,707
Diluted			1,285,800				1,285,800				1,272,842				1,285,800				1,272,470

(1)  Amounts are annualized where appropriate

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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 first and second quarters of 2008 and 2007.  Virtually all of the Company’s operations are dependent on the operations of its subsidiary, Guaranty Savings Bank (“Guaranty” or the “Bank”).  Prior to June 15, 2006 the subsidiary was known as Guaranty Savings and Homestead Association.  The subsidiary had its name legally changed but remains a state-charted savings association.  This discussion is presented to highlight and supplement 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 2007 annual report on Form 10-K.

FORWARD-LOOKING STATEMENTS

In addition to the historical information, this discussion 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 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, and (f) changes or trends in certain expense levels.

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

·

expectations about overall economic strength and the performance of the economies in Guaranty’s market area,

·

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 Guaranty’s ability to execute its plans to respond effectively, and

·

expectations regarding the ability of Guaranty’s market area to recover economically from the damages caused by Hurricane Katrina.

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.

FINANCIAL CONDITION

LOANS AND ALLOWANCE FOR LOAN LOSSES

Total loans increased $20.2 million, or 16.5%, from year-end 2007 to the end of the second quarter of 2008.  Average loans for the second quarter of 2008 were $136.4 million, up $32.0 million (30.6%) compared to the second quarter of 2007.  Year-to-date average loans at June 30, 2008 totaled $132.1 million, up $30.4 million (29.9%) from the same time period in 2007. Table 1, which is based on regulatory reporting codes, shows loan balances at June 30, 2008 and at the end of the four prior quarters and average loans outstanding during each quarter.

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TABLE 1. COMPOSITION OF LOAN PORTFOLIO
		2008								2007
($ in thousands)		June 30				March 31				December 31				September 30				June 30
Real estate loans - residential		$	69,439			$	66,124			$	62,481			$	58,885			$	55,282
Real estate loans - commercial and other			58,683				53,445				45,757				43,528				42,822
Real estate loans - construction			7,069				7,695				9,074				7,392				7,859
Consumer loans			1,625				1,041				913				668				658
Commercial business loans			5,260				4,929				3,625				2,779				2,264
Total Loans		$	142,076			$	133,234			$	121,850			$	113,252			$	108,885
Average Total Loans During Period		$	136,395			$	127,719			$	117,442			$	111,274			$	104,448

The Bank has hired three experienced commercial loan officers, a mortgage banking manager and a residential loan officer since the beginning of 2006.  The loan growth since the beginning of 2006 reflects the post-Katrina economic recovery in the Bank’s market area subsequent to Hurricane Katrina and the efforts of the new loan officers.

All loans carry a degree of credit risk. Management’s evaluation of this risk ultimately is reflected in the estimate of probable loan losses that is reported in the Company’s financial statements as the allowance for loan losses.  Changes in this ongoing evaluation over time are reflected in the provision for loan losses charged to operating expense.  At June 30, 2008 the allowance for loan losses was $3.2 million, or 2.28% of total loans.  Table 2 presents an analysis of the activity in the allowance for loan losses for the past five quarters.  The allowance was reduced in the second quarter of 2008 as a specific reserve was assigned to a loan which was transferred to Other Real Estate owned upon foreclosure.  Reductions in the allowance were taken in the second quarter of 2007 and in the third quarter of 2006 to reflect improvements in the quality of the loan portfolio as borrowers have exceeded management’s initial expectations in meeting their obligations subsequent to Hurricane Katrina.

TABLE 2. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
		2008								2007
($ in thousands)		Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter
Beginning Balance		$	3,419			$	3,432			$	3,432			$	3,432			$	3,732
Provision for Losses			-				-				-				-				(300	)
Loans Charged Off			181				13				-				-				-
Recoveries of loans previously charged off			-				-				-				-				-
Ending Balance		$	3,238			$	3,419			$	3,432			$	3,432			$	3,432
Ratios
Charge-offs to average loans			0.53	%			0.04	%			0.00	%			0.00	%			0.00	%
Provision for loan losses to charge-offs			n/a				n/a				n/a				n/a				n/a
Allowance for loan losses to charge-offs (annualized)			447.23	%			n/a				n/a				n/a				n/a
Allowance for loan losses to ending loans			2.28	%			2.57	%			2.82	%			3.03	%			3.15	%

Tables 3 and 4 set forth the Company’s delinquent loans and nonperforming assets at June 30, 2008 and at the end of the preceding four quarters.   The balances presented in Table 3 are total principal balances outstanding on the loans rather than the actual principal past due.  Nonperforming assets consist of loans on non-accrual status and foreclosed assets.  There were no loans 90 days delinquent and still accruing interest at the end of any of the five quarters presented.

 

9

 

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TABLE 3. DELINQUENT LOANS
		2008								2007
($ in thousands)		June 30				March 31				December 31				September 30				June 30
30-89 Days		$	265			$	5,574			$	3,305			$	4,054			$	2,577
90+ Days			2,821				3,162				1,438				990				502
Total		$	3,086			$	8,736			$	4,743			$	5,044			$	3,079
Ratios
Loans delinquent 90 days to total loans			1.99	%			2.37	%			1.18	%			0.87	%			0.46	%
Total delinquent loans to total loans			2.17	%			6.56	%			3.89	%			4.45	%			2.83	%
Allowance for loan losses to 90+ day delinquent loans			114.78	%			108.13	%			238.66	%			346.67	%			683.67	%
Allowance for loan losses to total delinquent loans			104.92	%			39.14	%			72.36	%			68.04	%			111.46	%

TABLE 4. NONPERFORMING ASSETS
		2008								2007
($ in thousands)		June 30				March 31				December 31				September 30				June 30
Loans accounted for on a nonaccrual basis		$	2,821			$	3,162			$	1,438			$	1,310			$	502
Foreclosed assets			469				85				-				-				-
Total nonperforming assets		$	3,290			$	3,247			$	1,438			$	1,310			$	502
Ratios
Nonperforming assets to loans plus foreclosed assets			2.31	%			2.44	%			1.18	%			1.16	%			0.46	%
Nonperforming assets to total assets			1.60	%			1.62	%			0.77	%			0.74	%			0.30	%
Allowance for loan losses to nonperforming assets			98.42	%			105.30	%			238.66	%			261.98	%			683.67	%

INVESTMENT IN SECURITIES

At June 30, 2008, the Company’s total securities available-for-sale were $47.8 million, compared to $47.7 million at December 31, 2007 and $50.9 million at June 30, 2007.

Effective June 30, 2008, the Company took an other-than-temporary impairment loss on its investment in mutual funds of $430,000, net of tax.  These mutual funds are invested primarily in adjustable-rate mortgage-backed securities.  The substantial price declines and an analysis of the underlying assets in the funds led management to make the determination that the losses in these funds were “other-than-temporary.”

At June 30, 2008, the net unrealized losses on the Company’s entire securities portfolio was $762,000 or 1.57% of amortized cost, compared to net unrealized losses of $167,000, or 0.35% of amortized cost at December 31, 2007.  These losses consist primarily of losses on collateralized mortgage obligations and agency securities as there has been some discounting in values relating to private CMO’s as a result of concerns with the overall mortgage market, and also rises in long-term interest rates in the second quarter of 2008 that have adversely affected longer-term investments with fixed coupon payments.  Management believes that these losses are temporary in nature and will reverse themselves when interest rates become more favorable for those types of investments.

TABLE 5. COMPOSITION OF INVESTMENT PORTFOLIO
		June 30, 2008								December 31, 2007								June 30, 2007
($ in thousands)		Amortized Cost				Market Value				Amortized Cost				Market Value				Amortized Cost				Market Value
U.S. Agency Securities		$	12,511			$	12,293			$	18,492			$	18,421			$	23,486			$	22,949
Mortgage Backed Securities			17,171				17,057				8,849				8,912				6,536				6,512
Collateralized Mortgage Obligations			13,880				13,375				14,736				14,633				15,950				15,607
Mutual funds			4,891				5,055				5,837				5,781				5,836				5,784
Total Investments		$	48,453			$	47,780			$	47,914			$	47,747			$	51,808			$	50,852

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DEPOSITS

At June 30, 2008, deposits were 3.7%, or $4.8 million, above the level at December 31, 2007 and up $9.1 million, or 7.3% from the level at the end of the second quarter of 2007.  Average deposits totaled $133.6 million in the second quarter of 2008, up $2.9 million (2.2%) from the first quarter of 2008 and up $9.1 million (7.5%) from the second quarter of 2007.

Table 6 presents the composition of average deposits for the quarters ended June 30, 2008, March 31, 2008 and June 30, 2007.

TABLE 6. DEPOSIT COMPOSITION
		Second Quarter 2008								First Quarter 2008								Second Quarter 2007
($ in thousands)		Average Balances				% of Deposits				Average Balances				% of Deposits				Average Balances				% of Deposits
Noninterest bearing demand deposits		$	8,335				6.2	%		$	8,072				6.2	%		$	3,952				3.2	%
NOW account deposits			24,470				18.3				23,345				17.8				20,606				16.5
Savings deposits			17,458				13.1				18,600				14.2				20,707				16.6
Time deposits			83,375				62.4				80,761				61.8				79,315				63.7
Total		$	133,638				100.0	%		$	130,778				100.0	%		$	124,580				100.0	%

BORROWINGS

At June 30, 2008, the Company’s borrowings from the Federal Home Loan Bank increased $15.5 million, or 57.3%, from December 31, 2007 and $25.6 million, or 152.4%, from June 30, 2007.  Average advances for the second quarter of 2008 were $38.0 million, an increase of $3.0 million, or 8.7%, from the first quarter of 2008 and an increase of $22.7 million, or 148.5%, from the prior year’s second quarter.  The increases were primarily to fund loan growth.  The Company is constantly evaluating its funding options to determine the most cost-effective means of funding its growth, and in the past year FHLB advances have been a cost-effective funding source.

STOCKHOLDERS’ EQUITY AND CAPITAL ADEQUACY

At June 30, 2008, stockholders’ equity totaled $27.5 million, a decrease of $702,000 from December 31, 2007.  This decrease was due to a net loss of $106,000 for the six months ended June 30, 2008, an increase in unrealized losses on investment securities of $339,000 and cash dividends paid of $257,000.

From 1998 through 2003, the Company was regularly repurchasing shares of its common stock when shares were available at prices and amounts deemed prudent by management.  Purchases from 2004 through 2006 were primarily purchases of ESOP shares which had been allocated to the accounts of terminated employees.  Due to the highly capitalized condition of the Company, management believed in the past 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.  These shares have not been retired and could potentially serve as a source of capital funding should the need arise in the future.  Table 7 summarizes the repurchase of the shares of its common stock by year.

TABLE 7. SUMMARY OF STOCK REPURCHASES
Year Ended December 31,		Shares				Cost ($000)				Average Price Per Share
1998			491,054			$	8,324			$	16.95
1999			299,000				3,653				12.22
2000			679,600				8,590				12.64
2001			305,684				4,612				15.09
2002			142,201				2,516				17.69
2003			216,181				4,109				19.01
2004			16,842				315				18.70
2005			3,907				74				19.06
2006			17,763				300				16.87
2007			10,468				188				18.00
2008			-				-				-
Total Stock Repurchases			2,182,700			$	32,681			$	14.97

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The ratios in Table 8 indicate that the Bank remained well capitalized for regulatory compliance purposes at June 30, 2008.   The regulatory capital ratios of Guaranty Savings Bank exceed the minimum required ratios, and the Bank has been categorized as “well-capitalized” in the most recent notice received from its primary regulatory agency.

TABLE 8. REGULATORY CAPITAL AND CAPITAL RATIOS
		2008				2007
($ in thousands)		June 30				December 31				June 30
Tier 1 regulatory capital		$	27,023			$	27,197			$	26,797
Tier 2 regulatory capital			1,600				1,260				1,154
Total regulatory capital		$	28,623			$	28,457			$	27,951
Adjusted total assets		$	204,879			$	184,285			$	169,373
Risk-weighted assets		$	128,027			$	103,236			$	93,322
Ratios
Tier 1 capital to total assets			13.19	%			14.76	%			15.82	%
Tier 1 capital to risk-weighted assets			21.11	%			26.34	%			28.71	%
Total capital to risk-weighted assets			22.36	%			27.57	%			29.95	%
Shareholders' equity to total assets			13.40	%			15.26	%			15.93	%

LIQUIDITY AND CAPITAL RESOURCES

The objective of liquidity management is to ensure that funds are available to meet 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, all in the most cost-effective manner.  The Company develops its liquidity management strategies and measures and monitors liquidity risk as part of its overall asset/liability management process.

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 in the first three and six months of 2008.

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 sales on the secondary market.

Cash generated from operations is another 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 first six months of 2008 and 2007.  The Company reported a net loss of $106,000 for the six months ended June 30, 2008, and generated a net cash increase of $383,000 from operations.  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, and deferred tax provisions) and revenues (accretion of discounts, and dividends received in the form of stock).

In addition, management monitors its liquidity position by tracking certain financial data.  Table 9 illustrates some of the factors that the Company uses to measure liquidity.  The Company remains very liquid, though some liquidity is being utilized to fund loan growth.

TABLE 9. KEY LIQUIDITY INDICATORS
		2008				2007
($ in thousands)		June 30				December 31				June 30
Cash and cash equivalents		$	7,580			$	9,462			$	4,169
Total loans			142,076				121,850				108,885
Total deposits			134,341				129,845				125,194
Deposits $100,000 and over			43,386				35,586				29,822
Ratios
Total loans to total deposits			105.76	%			93.84	%			86.98	%
Deposits $100,000 and over to total deposits			32.30	%			27.41	%			23.82	%

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RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income for the second quarter of 2008 increased $146,000, or 9.8%, from the first quarter of 2008, with a 2.6% increase in earning assets and a 42 basis point reduction in cost of funds only being partially offset by a 3 basis point decrease in the yield on earning assets.  Second quarter net interest income for 2008 was up $248,000 or 17.8%, on average earning assets that were up 18.4% compared with the second quarter of 2007.  The year-to-year increase is thus primarily attributable to the increase in earning assets, as there was a one basis point drop in net interest margin from 3.44% for the second quarter of 2007 to 3.43% for the second quarter of 2008.  Tables 10 and 11 show the components of the Company’s net interest margin and the changes in those components from the first quarter of 2008 and the second quarter of 2007.

During the second quarter of 2008, interest income from earning assets was up $32,000, or 1.1%, from the first quarter of 2008.  This increase was due to the Company’s increased investment in loans.  The Company’s average investment in loans was up $8.7 million in the second quarter of 2008 compared to the first quarter of 2008 and average yield increased 8 basis points, resulting in a $150,000 increase in interest income.  This increase was partially offset by a $95,000 decrease in interest income from investment securities caused by both a reduction in the balances maintained in these assets as well as a 28 basis point decrease in average yield.  Interest income from earning assets was up $286,000, or 10.5%, from the second quarter of 2007.  This was primarily due to $30.0 million in growth in average earning assets only partially being offset by a 44 basis point decline in yield on earning assets, which was caused by significant rate declines, particularly in short-term rates.

During the second quarter of 2008, interest expense decreased $114,000, or 7.6%, from the first quarter of 2008 and increased $38,000, or 2.8%, from the second quarter of 2007.  The decrease from the first quarter was driven by decreases in deposit rates and certificates of deposit maturing and repricing into higher-yielding certificates, as well as the maturities and refinancing of some higher-yielding borrowings into borrowings with a lower yield.  The increase from the second quarter of 2007 is volume driven as the Company increased its average interest-bearing liabilities by $27.4 million from period to period.

The average cost on interest bearing deposits decreased to 3.15% for the second quarter of 2008, from 3.58% in the first quarter of 2008 and 3.76% in the second quarter of 2007.  These changes in rates contributed $125,000 and $192,000 of decreases in interest expense from the first quarter of 2008 and the second quarter of 2007, respectively.

Net interest income for the first six months of 2008 increased $370,000, or 13.4%, from the first six months of 2007 on average earning assets that were $27.8 million (17.2%) higher.  Table 12 shows the components of the Company’s net interest margin for the first six months of 2008 and 2007.  Net interest margin was 3.32% for the six months ended June 30, 2008 and 3.44% for the prior year’s period.  The yield on average earning assets decreased 34 basis points and the total interest cost of funding earning assets decreased 30 basis points compared to the first six months of 2007.

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TABLE 10. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
		Second Quarter 2008												First Quarter 2008												Second Quarter 2007
($ in thousands)		Average Balance				Interest				Average Yield/ Cost				Average Balance				Interest				Average Yield/ Cost				Average Balance				Interest				Average Yield/ Cost
ASSETS
INTEREST-EARNING ASSETS
Loans		$	136,395			$	2,349				6.93	%		$	127,725				2,199				6.85	%		$	104,448			$	1,919				7.37	%
U.S. Agency securities			16,467				239				5.84				21,981				333				6.03				23,039				339				5.90
Mortgage-backed securities			11,123				143				5.17				8,804				120				5.42				6,323				87				5.52
Collateralized mortgage obligations			13,601				179				5.29				14,537				197				5.39				16,218				229				5.66
Mutual funds			5,463				61				4.49				5,769				67				4.62				5,808				76				5.24
Total investment in securities			46,654				622				5.36				51,091				717				5.64				51,388				731				5.70
FHLB stock			1,726				12				2.80				1,547				12				3.09				996				13				5.13
Federal funds sold and demand deposits			7,332				36				1.97				6,805				59				3.45				5,311				70				5.32
Total interest-earning assets			192,107				3,019				6.32	%			187,168				2,987				6.35	%			162,143				2,733				6.76	%
NONINTEREST-EARNING ASSETS
Other assets			12,386												11,685												9,799
Allowance for loan losses			(3,298	)											(3,432	)											(3,729	)
Total assets		$	201,195											$	195,421											$	168,213
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits		$	24,471				128				2.10	%		$	23,345				159				2.71	%		$	20,606				171				3.34	%
Savings deposits			17,458				32				0.74				18,601				40				0.86				20,707				65				1.25
Time deposits			83,374				820				3.96				80,761				891				4.39				79,315				895				4.53
Total interest-bearing deposits			125,303				980				3.15				122,707				1,090				3.58				120,628				1,131				3.76
Borrowings			37,956				401				4.25				34,931				405				4.61				15,273				211				5.54
Total interest-bearing liabilities			163,259				1,381				3.40	%			157,638				1,495				3.82	%			135,901				1,342				3.96	%
NONINTEREST-BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits			8,335												8,072												3,946
Other liabilities			1,495												1,196												1,216
Shareholders' equity			28,106												28,515												27,150
Total liabilities and shareholders' equity		$	201,195											$	195,421											$	168,213
Net interest income and margin						$	1,638				3.43	%						$	1,492				3.21	%						$	1,391				3.44	%
Net interest-earning assets and spread		$	28,848								2.92	%		$	29,670								2.53	%		$	26,243								2.80	%
Cost of funding interest-earning assets											2.89	%											3.20	%											3.32	%

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TABLE 11. SUMMARY OF CHANGES IN NET INTEREST MARGIN
		Second Quarter 2008 Compared to:
		First Quarter of 2008												Second Quarter of 2007
		Due to Change in								Total Increase (Decrease)				Due to Change in								Total  Increase (Decrease)
($ in thousands)		Volume				Rate								Volume				Rate
INTEREST INCOME
Loans		$	78			$	72			$	150			$	491			$	(61	)		$	430
U.S. Agency securities			(34	)			(60	)			(94	)			(48	)			(52	)			(100	)
Mortgage-backed securities			17				6				23				52				4				56
Collateralized mortgage obligations			(6	)			(12	)			(18	)			(27	)			(23	)			(50	)
Mutual funds			(2	)			(4	)			(6	)			(2	)			(13	)			(15	)
Total investment in securities			(25	)			(70	)			(95	)			(25	)			(84	)			(109	)
FHLB stock			1				(1	)			-				5				(6	)			(1	)
Federal funds sold and demand deposits			1				(24	)			(23	)			9				(43	)			(34	)
Total interest income			55				(23	)			32				480				(194	)			286
INTEREST EXPENSE
NOW account deposits		$	3			$	(34	)		$	(31	)		$	18			$	(61	)		$	(43	)
Savings deposits			(1	)			(7	)			(8	)			(5	)			(28	)			(33	)
Time deposits			13				(84	)			(71	)			28				(103	)			(75	)
Total interest-bearing deposits			15				(125	)			(110	)			41				(192	)			(151	)
Borrowings			17				(21	)			(4	)			233				(43	)			190
Total interest expense			32				(146	)			(114	)			274				(235	)			39
Change in net interest income			23				123				146				206				41				247

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TABLE 12. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
		Six Months Ended  June 30, 2008												Six Months Ended  June 30, 2007
($ in thousands)		Average Balance				Interest				Average Yield/ Cost				Average Balance				Interest				Average Yield/ Cost
ASSETS
INTEREST-EARNING ASSETS
Loans		$	132,084			$	4,548				6.92	%		$	101,741			$	3,712				7.36	%
U.S. Agency securities			19,209				571				5.99				22,193				646				5.87
Mortgage-backed securities			9,970				263				5.30				5,119				144				5.67
Collateralized mortgage obligations			14,066				376				5.38				16,532				459				5.60
Mutual funds			5,615				128				4.58				7,323				204				5.18
Total investment in securities			48,860				1,338				5.51				51,167				1,453				5.65
FHLB stock			1,637				24				2.95				989				27				5.45
Federal funds sold and demand deposits			7,070				95				2.70				7,323				195				5.38
Total interest-earning assets			189,651				6,006				6.37	%			161,220				5,387				6.71	%
NONINTEREST-EARNING ASSETS
Other assets			12,037												10,153
Allowance for loan losses			(3,364	)											(3,730	)
Total assets		$	198,324											$	167,643
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
NOW account deposits		$	23,911			$	287				2.41	%		$	19,724			$	313				3.20	%
Savings deposits			18,026				72				0.80				21,340				133				1.25
Time deposits			82,075				1,711				4.19				78,904				1,747				4.47
Total interest-bearing deposits			124,012				2,070				3.36				119,968				2,193				3.69
Borrowings			36,458				806				4.45				15,749				433				5.54
Total interest-bearing liabilities			160,470				2,876				3.60	%			135,717				2,626				3.90	%
NONINTEREST-BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits			8,204												3,640
Other liabilities			1,341												1,084
Shareholders' equity			28,309												27,202
Total liabilities and shareholders' equity		$	198,324											$	167,643
Net interest income and margin						$	3,130				3.32	%						$	2,760				3.44	%
Net interest-earning assets and spread		$	26,263								2.77	%		$	26,263								2.81	%
Cost of funding interest-earning assets											3.05	%											3.23	%

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TABLE 13. SUMMARY OF CHANGES IN NET INTEREST MARGIN
		First Six Months 2008 Compared to:
		First Six Months of 2007
		Due to Change in								Total Increase (Decrease)
($ in thousands)		Volume				Rate
INTEREST INCOME (LOSS)
Loans		$	1,045			$	(209	)		$	836
U.S. Agency securities			(89	)			15				(74	)
Mortgage-backed securities			128				(9	)			119
Collateralized mortgage obligations			(66	)			(17	)			(83	)
Mutual funds			(39	)			(37	)			(76	)
Total investment in securities			(66	)			(48	)			(114	)
FHLB stock			10				(13	)			(3	)
Federal funds sold and demand deposits			(3	)			(97	)			(100	)
Total interest income (loss)			986				(367	)			619
INTEREST EXPENSE
NOW account deposits		$	50			$	(76	)		$	(26	)
Savings deposits			(13	)			(48	)			(61	)
Time deposits			66				(102	)			(36	)
Total interest-bearing deposits			103				(226	)			(123	)
Borrowings			458				(85	)			373
Total interest expense			561				(311	)			250
Change in net interest income			425				(56	)			369

PROVISION FOR LOAN LOSSES

The Company has made no provision for loan losses in 2008.  The Company made a reversal of $300,000 of its provision for loan losses in the second quarter of 2007 due to the ongoing improvement in credit quality as the Company’s borrowers continue to recover from the impact of Hurricane Katrina.

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

NON-INTEREST INCOME

Non-interest income, excluding securities transactions, increased $92,000 for the second quarter of 2008 compared to the same time period in 2007 and increased $178,000 for the first six months of 2008 compared to the first six months of 2007, both primarily the result of increased gains on sales of mortgage loans in the secondary market.  Losses from securities transactions in the second quarter of 2008 of $660,000 include a $651,000 other-than-temporary impairment loss relating to the Company’s investments in mortgage-related mutual funds and $9,000 from the sales of certain securities.  There were no security sales in the first six months of 2007.  The major categories of non-interest income for the three and six months ended June 30, 2008 and 2007 are presented in Table 14.

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TABLE 14. NON-INTEREST INCOME
		Three Months Ended												Six Months Ended
($ in thousands)		June 30, 2008				June 30, 2007				Percentage Increase (Decrease)				June 30, 2008				June 30, 2007				Percentage Increase (Decrease)
Service charges on deposit accounts		$	11			$	6				83	%		$	16			$	10				60	%
ATM fees			4				3				33				7				4				75
Early closing penalties			1				2				(50	)			2				6				(67	)
Income from real estate held for investment			14				13				8				28				26				8
Gain on Sales of Mortgage Loans			92				18				411				187				22				750
Miscellaneous			13				1				1,200				10				4				150
Total noninterest income before securities transactions			135				43				214				250				72				247
Securities impairments and losses, net of gains from sales			(660	)			-			(a)					(660	)			-			(a)
Total noninterest income		$	(525	)		$	43			(a)				$	(410	)		$	72			(a)
(a) Not meaningful

NON-INTEREST EXPENSE

Non-interest expense for the second quarter of 2008 totaled $1.5 million, a $151,000 (11%) increase from the second quarter of 2007.    For the first six months of 2008, non-interest expenses were $2.9 million, a $291,000 (11%) increase from 2007.    Non-interest expense for the three and six months ended June 30, 2008 and 2007 are presented in Table 15 below.

TABLE 15. NON-INTEREST EXPENSE
		Three Months Ended												Six Months Ended
($ in thousands)		June 30, 2008				June 30, 2007				Percentage Increase (Decrease)				June 30, 2008				June 30, 2007				Percentage Increase (Decrease)
Employee compensation		$	661			$	583				13	%		$	1,300			$	1,129				15	%
Employee benefits			207				234				(12	)			432				481				(10	)
Total personnel expense			868				817				6				1,732				1,610				8
Net occupancy expense			201				152				32				401				288				39
Ad Valorem taxes			75				64				17				150				129				16
Data processing costs			74				67				10				145				138				5
Advertising			13				23				(43	)			25				44				(43	)
ATM server expenses			10				11				(9	)			19				17				12
Professional fees			64				51				25				112				100				12
Deposit insurance and supervisory fees			29				26				12				58				53				9
Printing and office supplies			32				30				7				54				60				(10	)
Telephone			20				18				11				37				32				16
Dues and subscriptions			23				27				(15	)			48				52				(8	)
Other operating expenses			56				28				100				100				67				49
Total non-interest expense		$	1,465			$	1,314				11	%		$	2,881			$	2,590				11	%
Efficiency Ratio			82.58	%			91.67	%							85.24	%			91.44	%

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Personnel costs, which represent the largest component of non-interest expense, increased $51,000, or 6.2% to $868,000 in the second quarter of 2008 compared to $817,000 in the second quarter of 2007.  Personnel costs increased $122,000, or 7.6%, to $1.6 million in the first half of 2008.  Both increases relate to the Company’s increase in headcount as it added two banking locations in the second half of 2007.

Occupancy expense increased $49,000, or 32.2%, in the second quarter of 2008 compared with the same period in 2007 and increased $113,000, or 39.2% for the first six months of 2008 compared with the first six months of 2007.  This is the result of increases in utilities, maintenance and repairs, insurance and depreciation primarily relating to the re-opening of the Canal St. location and the opening of the Westbank branch in the latter half of 2007.

While non-interest expense increased in both the three month and six month periods ended June 30, 2008, compared with the same periods in the prior year, the rate of increase was slower than that of asset and revenue growth.  This is evidenced by the improvement in the Company’s efficiency ratio to 82.58% and 85.24% for the three and six month periods ended June 30, 2008, compared with 91.67% and 91.44% for the same periods in 2007.

Although operating earnings are not a measure of performance calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), we believe that the operating earnings are an important indication of our ability to generate earnings through our fundamental banking business.  Since operating earnings exclude the effects of certain items that are unusual and/or difficult to predict, we believe that our operating earnings provide useful supplemental information to both management and investors in evaluating the Company’s financial results.

Operating earnings should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other income or cash flow statement data calculated in accordance with GAAP.  Moreover, the manner in which we calculate our operating earnings may differ from that of other companies reporting measures with similar names.

Reconciliations of the Company’s GAAP and operating earnings for the three months ended June 30, 2008, March 31, 2008 and June 30, 2007 and for the six months ended June 30, 2008 and 2007 follow in Table 16:

TABLE 16. RECONCILIATION OF GAAP EARNINGS TO OPERATING EARNINGS

		For the Three Months Ended												For the Six Months Ended
(in thousands, except per share data)		June 30, 2008				March 31, 2008				June 30, 2007				June 30, 2008				June 30, 2007
GAAP (Loss) Earnings		$	(232	)		$	126			$	293			$	(106	)		$	389
Adjustments to GAAP (loss) earnings:
Loss on other-than-temporary impairment of securities			651				-				-				651				-
Reversal of provision for loan losses			-				-				(300	)			-				(300	)
Income tax effect			(221	)			-				102				(221	)			102
Operating Earnings		$	198			$	126			$	95			$	324			$	191
Diluted GAAP (Loss) Earnings per Share		$	(.18	)		$	.10			$	.23			$	(.08	)		$	.31
Adjustments to diluted GAAP (loss) earnings per share:
Loss on other-than-temporary impairment of securities			.33				-				-				.33				-
Reversal of provision for loan losses			-				-				(.16	)			-				(.16	)
Diluted operating earnings per share		$	.15			$	.10			$	.07			$	.25			$	.15

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risk are presented at December 31, 2007 in the Company’s Annual Report on Form 10-K, filed with the SEC on March 30, 2008.  Management believes there have been no material changes in the Company’s market risk since December 31, 2007.

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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.

Part II - Other Information

Item 1 - Legal Proceedings

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

Item 1a.  Risk Factors

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-k for the year ended December 31, 2007.

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

(a) Not applicable

(b) Not applicable

(c) Not applicable

Item 3 - Defaults Upon Senior Securities

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

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

On April 22, 2008, the Company held an Annual Meeting of Stockholders to obtain approval for two proxy proposals submitted on behalf of the Company’s Board of Directors.  Shareholders of record as of March 7, 2008, received proxy materials and were considered eligible to vote on these proposals.  The following is a brief summary of each proposal and the result of the vote.

		For	Withhold	Against	Abstain
1.	To elect two directors for a three year term expiring in 2011:
	Bradford A. Glazer	1,058,045	203,890	n/a	-
	Bruce A. Scott	1,077,211	184,724	n/a	-
2.	To ratify the appointment of the Company’s independent registered public accounting firm:	1,170,644	-	90,239	1,052

Item 5 - Other Information

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

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Item 6 - Exhibits

3.1*	Articles of Incorporation of GS Financial Corp.
3.2*	Bylaws of GS Financial Corp.
4.1*	Stock Certificate of GS Financial Corp.
10.1**	GS Financial Corp. Stock Option Plan
10.2**	GS Financial Corp. Recognition and Retention Plan and Trust Agreement for Employees and Non-Employee Directors
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

*	Incorporated herein by reference from the Registration Statement on Form SB-2 (Registration number 333-18841) filed by the Registrant with the SEC on December 26, 1996, as subsequently amended.

**	Incorporated herein by reference from the definitive proxy statement, dated September 16, 1997, filed by the Registrant with the SEC (Commission File No. 000-22269)

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:	August 14, 2008	By:	/s/ Stephen E. Wessel
			Stephen E. Wessel President and Chief Executive Officer
Date:	August 14, 2008	By:	/s/ J. Andrew Bower
			J. Andrew Bower Chief Financial Officer

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