Exhibit
      13.0




GS
      Financial Corp.




2006
      Annual Report









*To
                our shareholders: A message from The President and
                CEO*





2006
      - A
      YEAR OF UNCERTAINTY AND PROMISE





We
      began
      2006 with a tremendous amount of uncertainty as we were significantly impacted
      by Hurricane Katrina. The devastation wrought by this hurricane was without
      question our nation’s largest natural disaster. I was proud of how our employees
      responded to this tremendous challenge and helped each other, our customers
      and
      our community to recover. The year 2006 proved to be a successful year for
      Guaranty Savings Bank as we enhanced our profitability and began to implement
      a
      long term strategy to transition our company from a traditional homestead
      association into a community bank. It was more than a name change because we
      plan to deliver on our promise to grow our company and increase shareholder
      value by focusing on our core business.





In
      fact,
      we grew total loans by $22.4 million (29.7%) and deposits by $3.9 million
      (3.3%). Our earnings improved to $2.1 million in 2006, which included both
      improved core earnings and a reversal of a portion of the allowance for loan
      losses taken due to Katrina in 2005. We managed to improve our credit quality
      by
      reducing loans past due 30 days or more from $10.2 million at December 31,
      2005
      to $1.6 million by year-end 2006. Our capital position was $27.2 million at
      December 31, 2006, resulting in tier 1 capital of 15.90%, our investment
      portfolio was more diversified and our net interest margin improved by 46 basis
      points compared with 2005. Our borrowings from the FHLB were significantly
      reduced from $32.1 million at December 31, 2005 to $17.0 million at December
      31,
      2006. In 2006, the Company’s market capitalization increased by over $5.9
      million and our stock price increased from $15.00 at December 31, 2005 to $19.80
      at year-end 2006





This
      annual report includes a full set of our consolidated, audited financial
      statements and notes explaining in detail how we performed
      financially.





2006
      - A
      YEAR TO IMPLEMENT OUR STRATEGIC INTIATIVES





In
      2006,
      we experienced positive growth and created value for shareholders by building
      and expanding customer relationships throughout our market area. We focused
      our
      efforts on the implementation of our six (6) strategic initiatives to enhance
      our revenue growth. These initiatives include the following:





·
            Grow
                residential mortgage banking; loans and fee
                income


·
            Grow
                commercial banking; loans, deposits and fee
                income


·
            Grow
                consumer banking; loans, deposits and fee
                income


·
            Utilize
                new and existing information
                technology


·
            Attract,
                train and retain quality employees


·
            Rebuild,
                remodel, and construct new bank
                branches





As
      promised, we made significant investments in the Company in the form of new
      technology, personnel, and training. This increased our capabilities and
      resulted in a wider array of products and services as well as even more business
      expertise for our clients. We have talented people and the right products and
      systems in place to distinguish ourselves from our competitors.





Now
      more
      than ever, we are placing increased focus on understanding the needs of our
      clients. Rather than just selling and servicing products, we are taking a
      solutions-based approach to develop a true “relationship banking” concept which
      will drive customer satisfaction.





1


2006
      -
      EXECUTING ON THE PROMISE OF A COMMUNITY BANK





We
      believe that our clients and our community are best served by a local, strong
      financial institution that re-invests its deposits into the local community.
      We
      understand how comforting it is to our clients to know that local lending
      decisions are being made by experienced bankers who understand our neighborhoods
      and our business community. After all, we are friends and neighbors serving
      friends and neighbors. That’s why in our 70 year history we have always tried to
      invest more in our community - whether it is through support of charitable
      organizations or the commitment to rebuild our Canal Street branch in New
      Orleans to support the city’s revitalization efforts. We were one of the first
      financial institutions in our area large or small to begin making loans to
      rebuild flood damaged residential and commercial properties. We believe in
      the
      promise of a brighter future for all of us. In fact, we invest our assets here
      because we want to be a part of the greatest rebuilding effort in the history
      of
      the United States, and it’s happening right here, right now.





2007
      and
      beyond - BUILDING OUR FRANCHISE AND SHAREHOLDER VALUE





In
      2007
      our management team will focus on the continued implementation and execution
      of
      our strategic initiatives, developed through a collaborative effort of
      management and our Board of Directors. It’s a new way to do business that will
      allow us to take advantage of the many opportunities for growth that lie ahead
      of us.





As
      part
      of our commitment to providing better service to our clients, we converted
      our
      Ponchatoula Loan Production Office to a full service branch, and we are
      currently in the process of rebuilding our Canal Street branch, which was
      flooded in Hurricane Katrina, and project that it will re-open in July 2007.
      We
      also plan to build and develop new branches in Covington, and on the west bank
      of Jefferson Parish. We believe that these branch sites are located in
      fast-growing markets that will provide great long term returns for our
      company.





We
      are
      optimistic about the future of our region and we plan to participate in a
      significant way to help people and businesses rebuild and expand throughout
      the
      entire metropolitan area.





All
      of us
      at GS Financial Corp. remain dedicated to improving long-term shareholder value.
      Thank you for your continued confidence in Guaranty Savings Bank and for your
      support of GS Financial Corp., your company.








/s/ Stephen
      E. Wessel





Stephen
      E. Wessel


President
      and CEO








2





*Index
                to Annual Report*Business
                Description
            4Shareholder
                Information
            4Selected
                Consolidated Financial Data
            5Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            6Report
                of Independent Registered Public Accounting Firm
            27Consolidated
                Balance Sheets
            28Consolidated
                Statements of Income
            30Consolidated
                Statements of Comprehensive Income
            31Consolidated
                Statements of Changes in Stockholders’ Equity
            32Consolidated
                Statements of Cash Flows
            33Notes
                to the Consolidated Financial Statements
            35Banking
                Locations
            65GS
                Financial Corp. Stock Performance
            65Board
                of Directors
            66Executive
                Officers Who Are Not Directors
            66








3





*Business
                Description*





GS
      Financial Corp. (“GS Financial” or the “Company”) provides community banking
      services through its wholly-owned subsidiary, Guaranty Savings Bank, a Louisiana
      chartered savings association, at its five locations in the metropolitan New
      Orleans area.





The
      Company, a thrift holding company organized and incorporated under the laws
      of
      the State of Louisiana, is subject to the supervision and regulation of the
      Office of Thrift Supervision as well as other federal and state agencies
      governing the banking industry and public companies.





*Shareholder
                Information*





**TRANSFER
      AGENT, REGISTRAR, AND DIVIDEND PAYING AGENT FOR COMMON
      STOCK**


Registered
      shareholder inquiries related to stock transfers, address changes, lost stock
      certificates, dividend payments or account consolidations should be directed
      to:


Registrar
      and Transfer Company


10
      Commerce Drive


Cranford,
      New Jersey 07016


(800)
      368-5948


www.rtco.com





**FORM
      10-K AND OTHER FINANCIAL INFORMATION**


Shareholders
      are advised to review financial information and other disclosures about GS
      Financial contained in its Annual Report on Form 10-K. A copy of the Form 10-K
      for the year ended December 31, 2006 and other financial reports filed by GS
      Financial with the SEC is available on the Company’s web site at
      www.gsfinancialcorp.com or the SEC’s web site at www.sec.gov, or may be obtained
      without charge by calling Lettie Moll, Corporate Secretary, or Andrew Bower,
      Chief Financial Officer, at (504) 457-6220 or by writing to:


GS
      Financial Corp.


Investor
      Relations


3798
      Veterans Boulevard


Metairie,
      Louisiana 70002





**INDEPENDENT
      AUDITORS**


LaPorte,
      Sehrt, Romig and Hand


A
      Professional Accounting Corporation


110
      Veterans Boulevard, Suite 200


Metairie,
      Louisiana 70005





**COMMON
      STOCK**


GS
      Financial’s common stock is traded on The Nasdaq Global Market under the ticker
      symbol GSLA. At December 31, 2006, the closing price was $19.80 per share and
      there were 441 shareholders of record.





**MARKET
      PRICES AND DIVIDENDS**


Set
      forth
      below are the high and low bid quotations for GS Financial’s common stock on the
      Nasdaq Global Market and dividends paid for the periods presented.


**Year
                2006**
            
            **Stock
                Price**
            
            **Dividends****Quarter
                Ended**
            
            
            **High**
            
            
            **Low**March
                31
            
            **$**
            **17.68**
            
            **$**
            **14.99**
            
            **$**
            **0.10**June
                30
            
            
            **18.15**
            
            
            **16.74**
            
            
            **0.10**September
                30
            
            
            **18.50**
            
            
            **16.50**
            
            
            **0.10**December
                31
            
            
            **21.76**
            
            
            **18.20**
            
            
            **0.10****Year
                2005**
            
            **Stock
                Price**
            
            **Dividends****Quarter
                Ended**
            
            
            **High**
            
            
            **Low**March
                31
            
            **$**
            **19.66**
            
            **$**
            **17.87**
            
            **$**
            **0.10**June
                30
            
            
            **18.99**
            
            
            **17.70**
            
            
            **0.10**September
                30
            
            
            **18.45**
            
            
            **12.86**
            
            
            **0.10**December
                31
            
            
            **15.80**
            
            
            **14.67**
            
            
            **0.10**





**ANNUAL
      MEETING**


The
      Annual Meeting of Shareholders of GS Financial Corp. will be held Tuesday,
      April
      24, 2007, at 10:00 a.m. CST at its corporate office. The address
      is:


Guaranty
      Savings Bank


3798
      Veterans Boulevard


Metairie,
      Louisiana 70002





4










*At
                or For Years Ended December 31,**($
                in thousands, except per share data)*
            
            
            **2006**
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002**BALANCE
                SHEET DATA**Total
                assets
            
            **$**
            **168,380**
            
            $
            177,614
            
            $
            200,066
            
            $
            214,714
            
            $
            210,029Cash
                and cash equivalents
            
            
            **11,117**
            
            
            22,555
            
            
            7,024
            
            
            11,371
            
            
            13,352Loans
                receivable, net
            
            
            **93,987**
            
            
            69,657
            
            
            92,158
            
            
            77,367
            
            
            78,334Investment
                securities
            
            
            **55,090**
            
            
            77,344
            
            
            94,557
            
            
            119,271
            
            
            108,726Deposit
                accounts
            
            
            **122,754**
            
            
            118,866
            
            
            130,723
            
            
            142,108
            
            
            106,781Borrowings
            
            
            **17,042**
            
            
            32,106
            
            
            39,689
            
            
            42,135
            
            
            66,392Stockholders'
                equity
            
            
            **27,164**
            
            
            25,407
            
            
            28,944
            
            
            29,308
            
            
            34,384**INCOME
                STATEMENT DATA**Interest
                income
            
            **$**
            **11,000**
            
            $
            10,466
            
            $
            10,989
            
            $
            9,993
            
            $
            12,433Interest
                expense
            
            
            **4,904**
            
            
            4,856
            
            
            5,436
            
            
            6,178
            
            
            6,804Net
                interest income
            
            
            **6,096**
            
            
            5,610
            
            
            5,553
            
            
            3,815
            
            
            5,629Provision
                (reversal) for loan losses
            
            
            **(1,981**
            **)**
            
            4,793
            
            
            343
            
            
            118
            
            
            48Non-interest
                income (loss)
            
            
            **51**
            
            
            (1,294
            )
            
            (691
            )
            
            1,476
            
            
            102Non-interest
                expense
            
            
            **4,926**
            
            
            4,707
            
            
            4,483
            
            
            4,419
            
            
            4,188Net
                income (loss) before taxes
            
            
            **3,202**
            
            
            (5,184
            )
            
            36
            
            
            754
            
            
            1,495Net
                income (loss)
            
            
            **2,114**
            
            
            (3,676
            )
            
            199
            
            
            691
            
            
            1,177**KEY
                RATIOS**Return
                on average assets
            
            
            **1.21**
            **%**
            
            (1.96
            )%
            
            0.10
            %
            
            0.32
            %
            
            0.60
            %Return
                on average shareholders' equity
            
            
            **8.15**
            
            
            (13.76
            )
            
            0.70
            
            
            2.17
            
            
            3.35Net
                interest margin
            
            
            **3.58**
            
            
            3.12
            
            
            2.73
            
            
            1.84
            
            
            2.94Average
                loans to average deposits
            
            
            **70.74**
            
            
            71.74
            
            
            62.69
            
            
            60.15
            
            
            93.77Earning
                assets to interest-bearing liabilities
            
            
            **117.88**
            
            
            115.04
            
            
            114.37
            
            
            115.53
            
            
            120.68Efficiency
                ratio
            
            
            **80.14**
            
            
            109.06
            
            
            92.20
            
            
            83.52
            
            
            73.08Non-interest
                expense to average assets
            
            
            **2.82**
            
            
            2.51
            
            
            2.12
            
            
            2.06
            
            
            2.13Allowance
                for loan losses to loans
            
            
            **3.82**
            
            
            7.58
            
            
            0.99
            
            
            0.77
            
            
            0.62Stockholders'
                equity to total assets
            
            
            **16.16**
            
            
            14.30
            
            
            14.47
            
            
            13.65
            
            
            16.37**COMMON
                SHARE DATA**Earnings
                (loss) per share:Basic
            
            **$**
            **1.74**
            
            $
            (3.11
            )
            $
            0.17
            
            $
            0.58
            
            $
            0.86Diluted
            
            
            **1.73**
            
            
            (3.11
            )
            
            0.17
            
            
            0.57
            
            
            0.86Dividends
                paid per share
            
            
            **0.40**
            
            
            0.40
            
            
            0.40
            
            
            0.40
            
            
            0.36Dividend
                payout ratio
            
            
            **22.99**
            **%**
            
            n/a
            
            
            235.29
            %
            
            68.97
            %
            
            41.86
            %Book
                value per share
            
            **$**
            **22.00**
            
            $
            20.99
            
            $
            22.47
            
            $
            22.46
            
            $
            22.61Trading
                data:High
                closing price
            
            **$**
            **21.76**
            
            $
            19.66
            
            $
            19.90
            
            $
            19.50
            
            $
            18.60Low
                closing price
            
            
            **14.99**
            
            
            12.86
            
            
            17.90
            
            
            18.00
            
            
            14.70End
                of period closing price
            
            
            **19.80**
            
            
            15.00
            
            
            18.00
            
            
            19.44
            
            
            18.15Average
                shares outstanding:Basic
            
            
            **1,212,174**
            
            
            1,181,313
            
            
            1,156,441
            
            
            1,194,296
            
            
            1,371,800Diluted
            
            
            **1,222,950**
            
            
            1,181,313
            
            
            1,178,013
            
            
            1,214,443
            
            
            1,371,800








5


The
      purpose of this discussion and analysis is to focus on significant changes
      in
      the financial condition of GS Financial Corp. (“GS Financial” or the “Company”),
      and its subsidiary and on their results of operations during 2006, 2005 and
      2004. Virtually all of the Company’s operations are dependent on the operations
      of its subsidiary, Guaranty Savings Bank (“Guaranty” or the “Bank”), formerly
      known as Guaranty Savings and Homestead Association. This discussion is
      presented to highlight and supplement information presented elsewhere in this
      annual report, particularly the consolidated audited financial statements and
      related notes. This discussion should be read in conjunction with the
      accompanying tables and our consolidated, audited financial statements. Certain
      financial information in prior years has been reclassified to conform to the
      current year’s presentation.





**FORWARD-LOOKING
      STATEMENTS**


In
      addition to the historical information, this annual 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 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 after Hurricane Katrina and (g) 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 recovery in Guaranty’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,
                and


·
            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.





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 annual report, whether as a result of new information, future
      events or developments, or for any other reason.





**OVERVIEW**





The
      Company reported earnings of $2.1 million, or $1.74 per share, for the year
      ended December 31, 2006. The Company’s results of operations for 2005 were
      significantly impacted by the effects of Hurricane Katrina which struck in
      August 2005. Hurricane Katrina resulted in substantial property damage in the
      greater New Orleans market area that the Company operates in and has displaced
      a
      significant number of people and businesses. Based upon its assessment of the
      property damage caused by Hurricane Katrina, and taking into consideration
      its
      estimates of the potential economic impact on its borrowers, the Company made
      provisions for loan losses of $4.8 million for the year ended December 31,
      2005.
      In 2006, $2.0 million of these provisions were reversed as conditions in the
      Bank’s area improved and the level of actual loan impairment was less than what
      management expected at the end of 2005.  The
      Bank’s mid-city New Orleans office was damaged extensively by Katrina-related
      flooding in 2005 and remains closed, but construction is in progress and the
      office is expected to reopen in July of 2007. Our other four offices suffered
      minor damage and reopened shortly after the hurricane.




6


During
      the year ended December 31, 2005, the Company’s results also were adversely
      affected by its recognition of a charge of $1.3 million as the result of an
      other-than-temporary impairment of $49 million in securities available for
      sale.
      In 2006 approximately $38 million of these securities were sold at an additional
      loss of $93,000.





The
      Company’s net loan portfolio amounted to $94.0 million at December 31, 2006
      compared to $69.7 million at December 31, 2005. The increase in net loans
      receivable was due to a substantial increase in the volume of both residential
      and non-residential real estate loan originations and the decrease in the
      allowance for loan losses. In December 2005, Stephen Wessel was hired as the
      Bank’s new President and Chief Executive Officer. In addition, in January, 2006,
      two **** new
      commercial loan officers were hired and, in March, 2006, a mortgage banking
      manager was hired. During 2006 the Bank was approved as an originator to sell
      loans to Fannie Mae and Freddie Mac and, in the fourth quarter of 2006, the
      Bank
      sold its first loans in the secondary market. The Bank anticipates continuing
      to
      sell loans in the secondary market while retaining servicing on these loans
      to
      maintain customer relationships and earn servicing fee income.





**CRITICAL
      ACCOUNTING POLICIES**


The
      Company prepares its financial statements in accordance with accounting
      principles generally accepted in the United States of America. Note A to the
      consolidated financial statements discusses certain accounting principles and
      methods of applying those principles that are particularly important to this
      process. In applying these principles to determine the amounts and other
      disclosures that are presented in the financial statements and discussed in
      this
      section, the Company is required to make estimates and assumptions.





The
      Company believes that the determination of its estimate of the allowance for
      loan losses involves a higher degree of judgment and complexity than its
      application of other significant accounting policies. Factors considered in
      this
      determination and the processes used by management are discussed in Note A
      to
      the consolidated financial statements and in the discussion below under the
      headings “Loans” and “Allowance for Loan Losses.” Although management believes
      it has identified appropriate factors for review and designed and implemented
      adequate procedures to support the estimation process that are consistently
      followed, the allowance remains an estimate about the effect of matters that
      are
      inherently uncertain. Over time, changes in economic conditions or the actual
      or
      perceived financial condition of Guaranty’s credit customers or other factors
      can materially impact the allowance estimate, potentially subjecting the Company
      to significant earnings volatility.





One
      other
      estimate requiring a high degree of judgment is the valuation allowance on
      the
      deferred tax asset. As operating losses can be carried forward 15 years and
      the
      Company expects positive taxable income for each year going forward, no
      valuation allowance is deemed necessary on the portion of the deferred tax
      asset
      created by net operating losses. However, a portion of the deferred tax asset
      relates to capital losses. Tax rules only allow these losses to be offset
      against future capital gains for five years. As it is uncertain whether the
      Bank
      will be able to realize capital gains of the magnitude to fully offset these
      losses in the next five years, we elected to establish an appropriate valuation
      allowance for the portion of the capital loss carryforward which we estimate
      may
      not be utilized. See Note J of the consolidated financial statements for further
      discussion of the Company’s income tax accounting.





**FINANCIAL
      CONDITION**


At
      December 31, 2006, GS Financial reported total assets of $168.4 million compared
      to $177.6 million at the end of 2005. Average total assets were $174.1 million
      in 2006, a decrease of $13.1 million compared to 2005, primarily reflecting
      a
      reduction in investment securities, and we sold certain securities during the
      year and used the proceeds, among other things, to repay FHLB advances. New
      loan
      originations during 2006 were funded primarily by utilizing existing liquid
      assets rather than additional liabilities such as deposits or
      borrowings.





**LOANS
      AND ALLOWANCE FOR LOAN LOSSES**


As
      with
      most savings associations, a significant portion of Guaranty’s assets are
      comprised of loans made to its customers. Guaranty engages primarily in real
      estate lending, both residential and commercial.





In
      general, credit is extended based on the current market conditions, prevailing
      economic trends, value of the underlying collateral and the character of the
      borrower. The lending activities of the Company are subject to written
      underwriting standards and loan origination procedures established by the
      Company's Board of Directors (the “Board”) and senior officers and are
      incorporated into the Company's Lending Policy which is reviewed as needed
      by
      the Board and senior officers. The underwriting standards establish the manner
      in which loan applications are accepted and processed. Such standards are
      written to comply with all applicable laws and regulations including but not
      limited to Truth-In-Lending (Regulation Z) and the Real Estate Settlement
      Procedures Act (“RESPA”). These standards pertain to such issues as maximum loan
      amounts, acceptable rates and terms, appraisal guidelines, disclosure
      requirements, credit criteria, debt-to-income ratios, complete applications,
      and
      title requirements. The Lending Policy establishes the overall direction of
      the
      Company's lending activities within the community and forms the basis for
      setting underwriting standards which limit the Company's exposure to credit
      risk.





7


The
      outstanding balance in total loans at December 31, 2006 was $97.7 million,
      an
      increase of $22.3 million, or 29.7%, from the year-end 2005 balance of $75.4
      million. The 2005 balance was down 19.0%, or $17.7 million, from the end of
      2004. Average loans for 2006 were $87.4 million, unchanged from the prior year’s
      average level. Table 1, which is based on regulatory reporting codes, shows
      loan
      balances at year end of the previous five years.





**TABLE
                1. COMPOSITION OF LOAN PORTFOLIO***At
                December 31,**($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Real
                estate loans - residential
            
            **$**
            **48,610**
            
            $
            36,800
            
            $
            45,007
            
            $
            44,021
            
            $
            57,502Real
                estate loans - commercial and other
            
            
            **36,896**
            
            
            24,794
            
            
            36,143
            
            
            26,460
            
            
            18,124Real
                estate loans - construction
            
            
            **9,089**
            
            
            11,282
            
            
            8,233
            
            
            4,709
            
            
            1,263Consumer
                loans
            
            
            **677**
            
            
            669
            
            
            629
            
            
            513
            
            
            403Commercial
                business loans
            
            
            **2,445**
            
            
            1,819
            
            
            3,058
            
            
            2,257
            
            
            1,515Total
                Loans at Year-End
            
            **$**
            **97,717**
            
            $
            75,364
            
            $
            93,070
            
            $
            77,960
            
            $
            78,807Allowance
                for loan losses
            
            
            **(3,732**
            **)**
            
            (5,713
            )
            
            (920
            )
            
            (601
            )
            
            (483
            )Deferred
                Loan Origination Costs
            
            
            **2**
            
            
            6
            
            
            8
            
            
            8
            
            
            8Net
                loans at year end
            
            
            **93,987**
            
            
            69,657
            
            
            92,158
            
            
            77,367
            
            
            78,332Average
                total loans during year
            
            **$**
            **87,360**
            
            $
            87,437
            
            $
            87,185
            
            $
            76,623
            
            $
            81,463





Guaranty’s
      investment in residential mortgage loans, which includes those loans secured by
      1-4 family properties, increased 32.1%, or $11.8 million, between December
      31,
      2005 and 2006, after a decrease of 18.2%, or $8.2 million, between 2004 and
      2005. The increase in 2006 was due to concerted marketing efforts as well as
      rebuilding loans made subsequent to Hurricane Katrina converting to permanent
      mortgages. The decrease experienced in 2005 was primarily due to payoffs of
      loans on properties damaged by Hurricane Katrina. Subsequent to Hurricane
      Katrina, borrowers received insurance proceeds checks that were then often
      used
      to repay the loans.





In
      2000,
      the Company began shifting its lending emphasis towards the commercial real
      estate market to diversify and enhance the products and services offered to
      its
      customers and add higher yielding loans to its overall portfolio. Commercial
      real estate loans typically carry higher yields and associated risk than loans
      on 1-4 family dwellings. The Company offers mortgage loans on multifamily
      residential dwellings, commercial real estate and vacant land. The Company
      also
      offers commercial asset-based loans secured by non-real estate collateral such
      as inventory and accounts receivable though it does not actively solicit
      non-mortgage commercial loans. The Company has a commercial loan committee
      consisting of board members to evaluate such applications.





During
      2006 Guaranty was able to develop significant new business in commercial real
      estate loans. Commercial real estate loans, including multi-family and retail
      property, increased 48.8%, or $12.1 million, between December 31, 2005 and
      2006.
      At December 31, 2006, commercial real estate and construction loans made up
      47.1% of the entire loan portfolio compared to 47.9% and 47.7% at December
      31,
      2005 and 2004, respectively.





For
      the
      year ended December 31, 2006, the Bank’s total loan origination’s amounted to
      $42.0 million compared to $14.7 million and $41.0 million for the years ended
      December 31, 2005 and 2004, respectively. The increase in both residential
      and
      commercial lending in 2006 was due to the Bank hiring experienced lending
      professionals in each area of expertise. The decrease in new loan originations
      in 2005, reflects the slowdown in business activity in the fourth quarter of
      2005 as well as reduced new originations in general during 2005 as the Bank
      completed its search for a new President. In 2006 the Bank sold seven
      single-family residential real estate loans for a total of $1.4 million and
      recognized gains on the sale of the loans of $30,000.





8


Table
      2
      reflects the Company’s total loan origination and repayment experience during
      the periods indicated.





**TABLE
                2. LOAN ORIGINATIONS BY TYPE***Year
                Ended December 31,**($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Real
                estate loans - residential
            
            **$**
            **20,487**
            
            $
            8,339
            
            $
            13,452
            
            $
            12,469
            
            $
            8,021Real
                estate loans - commercial and other
            
            
            **16,938**
            
            
            1,143
            
            
            18,733
            
            
            15,103
            
            
            8,839Real
                estate loans - construction
            
            
            **2,432**
            
            
            4,896
            
            
            6,550
            
            
            3,152
            
            
            2,143Consumer
                loans
            
            
            **345**
            
            
            366
            
            
            269
            
            
            338
            
            
            364Commercial
                loans
            
            
            **2,332**
            
            
            -
            
            
            2,003
            
            
            3,153
            
            
            2,049Total
                originations
            
            
            **41,994**
            
            
            14,744
            
            
            41,007
            
            
            34,215
            
            
            21,416Loan
                principal repayments
            
            
            **(18,108**
            **)**
            
            (32,204
            )
            
            (25,897
            )
            
            (35,062
            )
            
            (24,646
            )Loans
                sold
            
            
            **(1,353**
            **)**
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                portfolio activity
            
            **$**
            **22,353**
            
            $
            (17,460
            )
            $
            15,110
            
            $
            (847
            )
            $
            (3,230
            )





Table
      3
      reflects contractual loan maturities, unadjusted for scheduled principal
      reductions, prepayments or repricing opportunities. Demand loans and loans
      having no stated maturity are reported as due in one year or less. Most of
      the
      Bank’s outstanding loans carry a fixed rate of interest, though certain
      commercial loans and home equity lines of credit have floating interest rates
      which are tied to the Wall Street Prime rate.





**TABLE
                3. LOAN MATURITIES BY TYPE***At
                December 31, 2006, Loans Maturing In**($
                in thousands)*
            
            
            One
                year or less
            
            
            One
                through five years
            
            
            More
                than five years
            
            
            TotalReal
                estate loans - residential
            
            $
            2,414
            
            $
            2,493
            
            $
            46,744
            
            $
            51,651Other
                real estate loans
            
            
            11,571
            
            
            17,320
            
            
            14,058
            
            
            42,949Consumer
                loans
            
            
            445
            
            
            227
            
            
            -
            
            
            672Commercial
                loans
            
            
            1,444
            
            
            162
            
            
            839
            
            
            2,445Total
            
            $
            15,874
            
            $
            20,202
            
            $
            61,641
            
            $
            97,717Percentage
            
            
            16.2
            %
            
            20.7
            %
            
            63.5
            %
            
            100.0
            %





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. Additions to
      the allowance for loan losses as a result of this ongoing evaluation are
      reflected in the provision for loan losses charged to operating
      expense.





The
      Company has adopted an asset classification policy which is designed to draw
      attention to assets before collection becomes a problem, thus maintaining the
      quality of the Company’s investment as an interest-earning asset. The policy
      also ensures the accurate reporting of the Company’s assets from a valuation
      standpoint. As part of this policy, all of the Company’s loans are reviewed on a
      regular basis. Payment histories as well as the value of the underlying
      collateral are reviewed and assessed in light of several risk factors. The
      state
      of the local economy factors into the evaluation process as do current interest
      rates and expectations of the movement thereof. Other risk factors include
      the
      level of credit concentration the customer has with the Company, environmental
      factors which could impair the value of the underlying collateral of an asset,
      or other factors which might reduce the ability of the Company to collect all
      of
      the principal and interest owed to the Company.





9


The
      Company maintains a “Watch List” of loans, which is part of management’s
      internal asset classification system. The Watch List identifies assets
      classified as “substandard,” “doubtful” or “loss,” pursuant to OTS regulations.
      Assets displaying tendencies which might hinder full collection of principal
      are
      classified as substandard. Such tendencies include but are not limited to late
      payments on loans or deterioration of the underlying collateral.





Loan
      collection efforts in the form of past due notices commence when loan payments
      are more than 15 days past due. Once a loan reaches 15 days past due status,
      the
      Company’s collection manager initiates personal contact with the borrower. When
      a loan becomes 90 days past due, the Company initiates foreclosure proceedings.
      At this point, loans are placed on non-accrual status. All interest and late
      charges due on such loans are reversed in the form of reserves for uncollectible
      interest and late charges.





In
      making
      its risk evaluation and establishing an allowance for loan loss level that
      it
      believes is adequate to absorb probable losses in the portfolio, management
      considers various sources of information. Some of the more significant sources
      include analyses prepared on specific loans reviewed for impairment, statistics
      on balances of loans assigned to internal risk rating categories, reports on
      the
      composition and repayment portion of loan portfolios not subject to individual
      risk ratings, and factors derived from historical loss experience. In addition
      to this more objective and quantitative information, management’s evaluation
      must take into consideration its assessment of general economic conditions
      and
      how current conditions affect segments of borrowers. Management must also make
      judgments regarding the level of accuracy inherent in the loss allowance
      estimation process. An allowance analysis is prepared at least quarterly that
      summarizes the results of the evaluation process and helps ensure a consistent
      process over time.





At
      December 31, 2006, the allowance for loan losses was $3.7 million, or 3.82%
      of
      total loans, compared to $5.7 million, or 7.56% of total loans at the end of
      2005. The relatively large amount of our allowance for loan losses at December
      31, 2005 was due to a provision for loan losses of $4.8 million taken in the
      fourth quarter of 2005 for potential losses caused by the impact of Hurricane
      Katrina. No loans were charged off during the year ended December 31, 2006.
      As a
      result of credit quality in 2006 being better than expectations at the time
      the
      Katrina-related provision was recorded, a reversal of the provision for loan
      losses of $2.0 million was recorded in 2006. Table 4 presents an analysis of
      the
      activity in the allowance for loan losses for the past five years.





**TABLE
                4. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR
                LOSSES***Year
                Ended December 31,**($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Balance
                at the beginning of year
            
            **$**
            **5,713**
            
            $
            920
            
            $
            601
            
            $
            483
            
            $
            435Provision
                (reversal) for loan losses charged to operations
            
            
            **(1,981**
            **)**
            
            4,793
            
            
            343
            
            
            118
            
            
            48Loans
                charged to the allowance
            
            
            **-**
            
            
            **-**
            
            
            (24
            )
            
            -
            
            
            -Recoveries
                of loans previously charged off
            
            
            **-**
            
            
            **-**
            
            
            -
            
            
            -
            
            
            -Balance
                at the end of year
            
            **$**
            **3,732**
            
            $
            5,713
            
            $
            920
            
            $
            601
            
            $
            483RatiosCharge-offs
                to average loans
            
            
            0.00
            %
            
            0.00
            %
            
            0.03
            %
            
            0.00
            %
            
            0.00
            %Provision
                for loan losses to charge-offs
            
            
            n/a
            
            
            n/a
            
            
            1,429.17
            %
            
            n/a
            
            
            n/aAllowance
                for loan losses to loans at end of year
            
            
            3.82
            %
            
            7.56
            %
            
            0.99
            %
            
            0.77
            %
            
            0.61
            %





The
      allowance for loan losses is comprised of specific reserves for each loan that
      is reviewed for impairment or for which a probable loss has been identified
      and
      general reserves for groups of homogenous loans. Reserves for impaired loans
      are
      based on discounted cash flows using the loan’s initial effective interest rate,
      the observable market value of the loan or the fair value of the underlying
      collateral. General reserves are established based on historic charge-offs,
      and
      based upon consideration of various other factors including risk rating,
      industry concentration and loan type.





10


The
      $4.8
      million provision for loan losses made in 2005 and subsequent $2.0 million
      reversal in 2006 reflect management’s assessment, based on the information
      available at the time, of the inherent level of losses in the Bank’s portfolio.
      In its assessment for year-end 2005, management attempted to contact all
      borrowers with loans over $200,000 and evaluated the collateral value for all
      loans where the Bank did not receive either a loan payment or insurance proceeds
      for December, 2005. Of the $4.8 million provision, $3.3 million was recorded
      specifically on an aggregate of $8.2 million of loans deemed impaired and on
      which no loan payments had been received and the Company knew the collateral
      had
      suffered property damage as a result of the hurricane. The remaining $1.5
      million of the provision was applied to the general allowance for loan losses.
      Because significant uncertainties remain regarding the performance of the
      Company’s loan portfolio after Hurricane Katrina, such as the ultimate
      disposition of property insurance claims and the ultimate economic recovery
      of
      greater New Orleans, the Company maintained this general allowance for loan
      losses at $1.5 million at December 31, 2006. We will continue to assess the
      allowance for loan losses and adjust it as appropriate for changes subsequent
      to
      December 31, 2006.





**TABLE
                5. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES***At
                December 31,***2006**
            2005
            2004
            2003
            2002*($
                in thousands)*
            
            
            **Allowance
                for Loan Losses**
            
            
            **%
                of Total Reserve**
            
            
            Allowance
                for Loan Losses
            
            
            %
                of Total Reserve
            
            
            Allowance
                for Loan Losses
            
            
            %
                of Total Reserve
            
            
            Allowance
                for Loan Losses
            
            
            %
                of Total Reserve
            
            
            Allowance
                for Loan Losses
            
            
            %
                of Total ReserveReal
                estate loans - residential
            
            **$**
            **1,177**
            
            
            **31.5**
            **%**
            $
            3,332
            
            
            58.3
            %
            $
            239
            
            
            26.0
            %
            $
            147
            
            
            24.5
            %
            $
            217
            
            
            45.0
            %Real
                estate loans - commercial and other
            
            
            **1,963**
            
            
            **52.6**
            **%**
            
            1,805
            
            
            31.6
            %
            
            591
            
            
            64.2
            
            
            410
            
            
            68.2
            
            
            241
            
            
            49.9Real
                estate loans - construction
            
            
            **360**
            
            
            **9.7**
            **%**
            
            292
            
            
            5.1
            %
            
            4
            
            
            0.4
            
            
            10
            
            
            1.7
            
            
            5
            
            
            1.0Commercial
                loans
            
            
            **232**
            
            
            **6.2**
            **%**
            
            284
            
            
            5.0
            %
            
            87
            
            
            9.4
            
            
            34
            
            
            5.6
            
            
            20
            
            
            4.1Total
            
            **$**
            **3,732**
            
            
            **100.0**
            **%**
            $
            5,713
            
            
            100.0
            %
            $
            920
            
            
            100.0
            %
            $
            601
            
            
            100.0
            %
            $
            483
            
            
            100.0
            %





Tables
      6
      and 7 set forth the Company’s delinquent loans and nonperforming assets for each
      of the prior three years. The balances presented in Table 6 are total principal
      balances outstanding on the loans rather than the actual principal past due.
      Nonperforming assets consist of loans on nonaccrual status and foreclosed
      assets. There were no loans 90 days delinquent and still accruing interest
      at
      any of the five previous year ends.





**TABLE
                6. DELINQUENT LOANS***At
                December 31,**($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            200430-89
                Days
            
            **$**
            **1,379**
            
            $
            9,296
            
            $
            8,10690+
                Days
            
            
            **179**
            
            
            931
            
            
            894Total
            
            **$**
            **1,558**
            
            $
            10,227
            
            $
            9,000RatiosLoans
                delinquent 90 days to total loans
            
            
            **0.18**
            **%**
            
            1.24
            %
            
            0.96
            %Total
                delinquent loans to total loans
            
            
            **1.59**
            **%**
            
            13.57
            %
            
            9.67
            %Allowance
                for loan losses to 90 day delinquent loans
            
            
            **2,084.92**
            **%**
            
            613.75
            %
            
            102.91
            %Allowance
                for loan losses to total delinquent loans
            
            
            **239.54**
            **%**
            
            55.87
            %
            
            10.22
            %














11


**TABLE
                7. NONPERFORMING ASSETS***At
                December 31,**($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Loans
                accounted for on a nonaccrual basis
            
            **$**
            **179**
            
            $
            3,582
            
            $
            894
            
            $
            929
            
            $
            651Foreclosed
                assets
            
            
            **-**
            
            
            -
            
            
            -
            
            
            52
            
            
            **-**Total
                nonperforming assets
            
            **$**
            **179**
            
            $
            3,582
            
            $
            894
            
            $
            981
            
            $
            651RatiosNonperforming
                assets to loans plus foreclosed assets
            
            
            **0.18**
            **%**
            
            4.75
            %
            
            0.96
            %
            
            1.26
            %
            
            0.83
            %Nonperforming
                assets to total assets
            
            
            **0.11**
            **%**
            
            2.01
            %
            
            0.45
            %
            
            0.46
            %
            
            0.31
            %Allowance
                for loan losses to nonperforming loans
            
            
            **2,084.92**
            **%**
            
            159.52
            %
            
            102.91
            %
            
            64.69
            %
            
            74.19
            %





During
      the fourth quarter of 2005, the Bank unilaterally agreed to defer all loan
      payments. As a result, no loans other than those that were delinquent prior
      to
      the deferral period were deemed to be delinquent, non-performing or non-accrual
      during the three-month deferral period.





**INVESTMENT
      IN SECURITIES**


Interest
      rates dictate many of the investment decisions and policies of the Company.
      It
      is the policy of the Company not to engage in speculative purchasing, selling
      or
      trading of investments; however, certain profits may be taken from time to
      time
      on the sale of investments. When interest rate spreads reach acceptable levels,
      the Company may utilize leveraged purchasing of investment securities, as has
      been done in the past. Also, when anticipated earnings permit, certain portfolio
      adjustments may be made to enhance overall portfolio yield even though losses
      may be recognized in doing so.





During
      2004, short term interest rates increased, causing liquidity to begin a return
      to a more moderate level. Liquidity was reduced in 2005 as the result of a
      decline in deposits, caused in part by Hurricane Katrina, and by contractual
      paydowns on FHLB borrowings. Continued reductions in FHLB borrowings and
      significant loan growth in 2006 further reduced liquidity. However, the Company
      still has substantial liquidity and is in compliance within all regulatory
      requirements regarding liquidity. Information on changes in deposits and
      liquidity sources are presented in later sections of this Management’s
      Discussion and Analysis. Management routinely places much of the Company’s
      liquid assets into its investment portfolio to balance its need for liquidity
      with the need to earn a competitive yield. To allow for the investment portfolio
      to fund liquidity needs as necessary, all investments have been classified
      as
      available-for-sale during the past three years.





At
      December 31, 2006, total securities were $55.1 million, down 28.7%, or $22.2
      million, from December 31, 2005. Mutual fund investments were 19.6% of the
      total
      portfolio at December 31, 2006 compared with 63.7% at the prior year-end.
      Regular principal repayments and a lack of acceptable replacement investments
      caused the Company’s investment in collateralized mortgage obligations (“CMOs”)
      to decrease 23.7%, or $5.3 million, at December 31, 2006 compared to December
      31, 2005. At December 31, 2006, CMOs made up 31.2% of the investment portfolio,
      compared to 29.1% at December 31, 2005.





During
      the years ended December 31, 2005 and 2004, the Company recognized charges
      of
      $1.3 million and $497,000, respectively, for other-than-temporary impairments
      of
      available-for-sale securities. The 2004 impairment charge related to the
      Company’s investment in FHLMC preferred stock, all of which was sold in 2005.
      The $1.3 million charge recognized in 2005 relates to the Company’s then $49
      million investment in an ARM mutual fund which, based on then current rates
      and
      market conditions, was deemed to be other-than-temporarily impaired.
      Approximately $39.0 million of the holdings in this fund were sold in 2006.
      Table 8 shows the makeup of the Company’s investment portfolio at December 31,
      2006, 2005 and 2004.











12








**TABLE
                8. COMPOSITION OF INVESTMENT PORTFOLIO***At
                December 31,***2006**
            2005
            2004*($
                in thousands)*
            
            
            **Balance**
            
            
            **Percent**
            
            
            Balance
            
            
            Percent
            
            
            Balance
            
            
            PercentU.S.
                Treasury and Agency securities
            
            **$**
            **23,326**
            
            
            **42.3**
            **%**
            $
            5,449
            
            
            7.1
            %
            $
            832
            
            
            0.9
            %Mortgage-backed
                securities
            
            
            **3,791**
            
            
            **6.9**
            
            
            100
            
            
            0.1
            
            
            238
            
            
            0.2Collateralized
                mortgage obligations
            
            
            **17,173**
            
            
            **31.2**
            
            
            22,496
            
            
            29.1
            
            
            24,481
            
            
            25.9Mutual
                funds
            
            
            **10,800**
            
            
            **19.6**
            
            
            49,299
            
            
            63.7
            
            
            49,657
            
            
            52.5FHLMC
                stock
            
            
            **-**
            
            
            **-**
            
            
            -
            
            
            -
            
            
            19,349
            
            
            20.5Total
                Investments at Year End
            
            
            **55,090**
            
            
            **100.0**
            **%**
            
            77,344
            
            
            100.0
            %
            $
            94,557
            
            
            100.0
            %Average
                Investments During Year
            
            **$**
            **68,469**
            
            
            
            
            $
            78,516
            
            
            
            
            $
            110,004





Information
      about the contractual maturity of Company’s investment securities at December
      31, 2006 is shown in Table 9 below. At December 31, 2006, 19.6% of the
      investment portfolio consists of mutual fund or equity investments carrying
      no
      stated maturity. These investments are redeemable immediately at their current
      market value. Scheduled principal reductions and principal repayments on
      mortgage-backed securities and collateralized mortgage obligations are not
      reflected in Table 9. If these expected principal reductions were taken into
      consideration, the weighted-average maturity of the Company’s overall securities
      portfolio would be approximately 32 months at December 31, 2006.





**TABLE
                9. DISTRIBUTION OF INVESTMENT MATURITIES***At
                December 31, 2006**($
                in thousands)*
            
            One
                year or less
            Over
                one through five years
            Over
                five through ten years
            Over
                ten years
            TotalAmount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            Yield
            
            
            Amount
            
            
            YieldU.S.
                Agency securities
            
            $
            4,999
            
            
            5.08
            %
            $
            2,987
            
            
            5.25
            %
            $
            7,920
            
            
            5.46
            %
            $
            7,420
            
            
            6.47
            %
            $
            23,326
            
            
            5.67
            %Mortgage-backed
                securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,791
            
            
            5.90
            %
            
            3,791
            
            
            5.90
            %CMOs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17,173
            
            
            5.33
            %
            
            17,173
            
            
            5.33
            %Mutual
                funds
            
            
            10,800
            
            
            5.08
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,800
            
            
            5.08
            %Total
            
            $
            15,799
            
            
            5.08
            %
            $
            2,987
            
            
            5.25
            %
            $
            7,920
            
            
            5.46
            %
            $
            28,383
            
            
            5.70
            %
            $
            55,090
            
            
            5.46
            %Percentage
                of Total
            
            
            28.68
            %
            
            
            
            
            5.42
            %
            
            
            
            
            14.38
            %
            
            
            
            
            51.52
            %
            
            
            
            
            100.0
            %





All
      of
      the Company’s investments in marketable securities are classified as available
      for sale. The net unrealized losses on these investments totaled $477,000,
      or
      0.90%, of amortized cost at December 31, 2006. At year-end 2005, there was
      a net
      unrealized loss of $300,000, or 0.39% of amortized cost. This net unrealized
      gain or loss will vary based on the overall changes in market rates, shifts
      in
      the slope of the yield curve, and movement in spreads to the yield curve for
      different types of securities.





At
      December 31, 2006, the Company had certain investment concentrations exceeding
      10% of stockholders’ equity. While these are significant in amount, they were
      limited to “AAA” rated securities and management feels that they present a
      limited risk of default. Investments of the Company that exceed 10% of
      stockholders’ equity at December 31, 2006 are shown in Table 10
      below.





13


**TABLE
                10. INVESTMENTS GREATER THAN 10% OF STOCKHOLDERS'
                EQUITY***At
                December 31, 2006**($
                in thousands)*
            
            
            Type
            
            
            Total
                Investment
            
            
            %
                of Total Assets
            
            
            %
                of Stockholders' EquityFederal
                National Mortgage Association
            
            
            Agency
                Bond
            
            $
            10,907
            
            
            6.48
            %
            
            40.10
            %Shay
                Mutual Funds
            
            
            Mutual
                Fund
            
            
            10,800
            
            
            6.42
            %
            
            39.71
            %Federal
                Home Loan Bank
            
            
            Agency
                Bond
            
            
            10,461
            
            
            6.21
            %
            
            38.46
            %Total
            
            
            
            
            $
            32,168
            
            
            19.11
            %
            
            118.27
            %





The
      Company has made no investments in financial instruments or participated in
      agreements with values that are linked to or derived from changes in some
      underlying asset or index. These financial instruments or agreements are
      commonly referred to as derivatives and include such instruments as futures,
      forward contracts, option contracts, interest rate swap agreements and other
      financial arrangements with similar characteristics.





**DEPOSITS**


Deposits
      are the Company’s primary source of funding for earning assets. The Company
      offers a variety of products designed to attract and retain customers. The
      principal methods used by the Company to attract deposits include its emphasis
      on personal service, competitive interest rates and convenient office locations.
      The Company does not actively solicit or pay higher rates for “jumbo” (amounts
      over $100,000) certificates of deposit and does not advertise for deposits
      outside of its primary market area. The Company had no deposits that were
      obtained through outside deposit brokers at December 31, 2006 or
      2005.





At
      December 31, 2006, deposits were up 3.3%, or $3.9 million, from the level at
      December 31, 2005. Average deposits for fiscal 2006 increased 1.5%, or $1.9
      million over 2005 and decreased 12.5%, or $17.5 million, in 2005 from 2004.
      The
      decline in 2005 can be largely attributed to the impact of Hurricane Katrina
      and
      many customers leaving the Bank’s market area. The increase in deposits in 2006
      was due to the addition of a money market account in 2006 which attracted
      substantial balances (included in Table 11 in NOW account deposits) and the
      stabilization in the area’s population base as it recovers from the impact of
      Hurricane Katrina.





**TABLE
                11. DEPOSIT COMPOSITION***At
                December 31,***2006**
            2005
            2004*($
                in thousands)*
            
            
            **Average
                Balances**
            
            
            **%
                of Deposits**
            
            
            Average
                Balances
            
            
            %
                of Deposits
            
            
            Average
              Balances
            
            
            %
                of
              DepositsNoninterest
                bearing demand deposits
            
            **$**
            **2,367**
            
            
            **1.9**
            **%**
            $
            895
            
            
            0.7
            %
            $
            816
            
            
            0.6
            %NOW
                account deposits
            
            
            **17,186**
            
            
            **13.9**
            
            
            7,778
            
            
            6.4
            
            
            9,065
            
            
            6.5Savings
                deposits
            
            
            **27,103**
            
            
            **22.0**
            
            
            30,551
            
            
            25.1
            
            
            34,348
            
            
            24.7Certificates
                of deposit
            
            
            **76,841**
            
            
            **62.2**
            
            
            82,409
            
            
            67.8
            
            
            94,855
            
            
            68.2Total
            
            **$**
            **123,498**
            
            
            **100.0**
            **%**
            $
            121,633
            
            
            100.0
            %
            $
            139,084
            
            
            100.0
            %





Average
      certificates of deposit (or “time deposits”) totaled $76.8 million, or 62.2% of
      total average deposits during 2006, down $5.6 million, or 6.8%, compared to
      2005. Average savings deposits made up 22.0% of total average deposits during
      2005, down from 25.1% in the previous year. During 2006, transaction accounts
      increased from 7.1% to 15.8% of total deposits, with money market accounts
      contributing to the $9.4 million increase in NOW accounts and noninterest
      bearing demand deposits increasing by $1.5 million as the Bank has increased
      its
      volume of activity with commercial customers. Table 12 shows the maturity
      structure of time deposits over and under $100,000 at December 31,
      2006.





14


**TABLE
                12. MATURITIES OF TIME DEPOSITS***At
                December 31, 2006*($
                in thousands)
            Less
                than $100,000
            $100,000
                or moreAmount
            PercentageThree
                months or less
            $
                12,063
            $
                2,432
            $
                14,495
            18.43%Over
                three months through twelve months
            28,052
            7,633
            35,685
            45.39%Over
                twelve months
            23,078
            5,373
            28,451
            36.18%Total
            $
                63,193
            $
                15,438
            $
                78,631
            100.00%





**BORROWINGS**


The
      Bank
      is a member of the Federal Home Loan Bank System. This membership provides
      access to a variety of Federal Home Loan Bank advance products as an alternative
      source of funds. At December 31, 2006, the Company had outstanding advances
      totaling $17.0 million, compared to $32.1 million at year-end 2005. Average
      advances outstanding during 2006 were $23.4 million, compared with $35.6 million
      for 2005. The average rate paid on FHLB advances during 2006 was 5.30%, compared
      to 5.25% in 2005. FHLB advances decreased $15.1 million, or 47.0%, at December
      31, 2006 when compared to December 31, 2005. This reduction was due to the
      contractually scheduled repayment of the advances and no new borrowings. The
      Company’s reliance on borrowings continues to be within the parameters
      determined by management to be prudent in terms of liquidity and interest rate
      sensitivity, though the Company has significant additional borrowing capacity
      should borrowing needs arise. Table 13 shows the scheduled maturities of FHLB
      advances at December 31, 2006.





**TABLE
                13. MATURITIES OF ADVANCES***At
                December 31, 2006**($
                in thousands)*
            
            
            Amount
            
            
            %
                of Total Advances
            
            
            Weighted
                Average Rate2007
            
            
            5,514
            
            
            32.36
            %
            
            5.61
            %2008
            
            
            11,528
            
            
            67.64
            %
            
            5.44
            %Total
                Advances
            
            $
            17,042
            
            
            100.00
            %
            
            5.50
            %





**STOCKHOLDERS’
      EQUITY AND CAPITAL ADEQUACY**


At
      December 31, 2006, stockholders’ equity totaled $27.2 million, compared to $25.4
      million at the end of 2005. The major factors in the $1.8 million increase
      in
      2006 were the net income of $2.1 million and the release of stock from the
      ESOP
      and RRP totaling $550,000, offset by dividends paid of $486,000, treasury stock
      purchases of $300,000 and a $121,000 increase in the accumulated comprehensive
      loss. The dividend payout was 23.0% of net income in 2006. As the Company
      incurred a net loss in 2005 the dividend payout ratio was not a meaningful
      measure.





Since
      1998, the Company has been consistently repurchasing shares of its common stock
      when shares have been available at prices and amounts deemed prudent by
      management. Table 14 summarizes the repurchase of the shares of its common
      stock
      by year. All of the purchases were open market transactions and most were at
      a
      discount to book value.





15


**TABLE
                14. SUMMARY OF STOCK REPURCHASES***Year
                Ended December 31,*
            
            
            Shares
            
            
            Cost*($000*
            *)*
            
            Average
                Price Per Share1998
            
            
            491,054
            
            $
            8,324
            
            $
            16.951999
            
            
            299,000
            
            
            3,653
            
            
            12.222000
            
            
            679,600
            
            
            8,590
            
            
            12.642001
            
            
            305,684
            
            
            4,612
            
            
            15.092002
            
            
            142,201
            
            
            2,516
            
            
            17.692003
            
            
            216,181
            
            
            4,109
            
            
            19.012004
            
            
            16,842
            
            
            315
            
            
            18.702005
            
            
            3,907
            
            
            74
            
            
            19.062006
            
            
            17,763
            
            
            300
            
            
            16.87Total
                Stock Repurchases
            
            
            2,172,232
            
            $
            32,493
            
            $
            14.96








The
      ratios in Table 15 indicate that the Bank was well capitalized at December
      31,
      2006. During 2006, total regulatory capital ratios improved as the bank’s
      overall capital levels increased as a result of factors noted above. Risk-based
      capital ratios declined in 2006 as there was a $15.2 million increase in
      risk-weighted assets, attributable primarily to growth in the loan portfolio.
      The regulatory capital ratios of Guaranty Savings Bank far 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
                15. CAPITAL AND RISK BASED CAPITAL RATIOS**December
                31,*($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            2004Tier
                1 regulatory capital
            
            **$**
            **26,580**
            
            $
            23,772
            
            $
            26,631Tier
                2 regulatory capital
            
            
            **1,096**
            
            
            905
            
            
            920Total
                regulatory capital
            
            **$**
            **27,676**
            
            $
            24,677
            
            $
            27,551Adjusted
                total assets
            
            **$**
            **167,126**
            
            $
            176,444
            
            $
            198,443Risk-weighted
                assets
            
            **$**
            **87,645**
            
            $
            72,399
            
            $
            98,415RatiosTier
                1 capital to total assets
            
            
            **15.90**
            **%**
            
            13.47
            %
            
            13.42
            %Tier
                1 capital to risk-weighted assets
            
            
            **30.33**
            **%**
            
            32.83
            %
            
            27.06
            %Total
                capital to risk-weighted assets
            
            
            **31.58**
            **%**
            
            34.08
            %
            
            27.99
            %Stockholders'
                equity to total assets
            
            
            **16.14**
            **%**
            
            14.47
            %
            
            13.65
            %





**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, making use of the
      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 in 2006.





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 on the secondary market. Tables 3 and 9 above
      present the contractual maturities of the loan portfolio and the Company’s
      investment in securities.





16


Table
      16
      illustrates some the factors that the Company uses to measure liquidity. Cash
      and cash equivalents decreased substantially during 2006 compared to 2005.
      Cash
      balances were unusually high at the end of 2005 primarily resulting from
      significant loan paydowns occurring subsequent to Hurricane Katrina. This excess
      cash was used to fund loans and pay down FHLB advances in 2006. Deposits
      increased slightly in 2006 as the area’s population stabilized as people
      returned to the city following Hurricane Katrina and the Bank introduced money
      market accounts, which attracted over $11 million in new deposits in 2006.
      In
      2005, deposits decreased primarily as a result of customers leaving the Bank’s
      market area following Hurricane Katrina.





The
      Company has made investment allocation decisions and developed loan and deposit
      pricing strategies consistent with its assessment of current and future economic
      conditions. Management feels that these higher liquidity levels of the past
      three years will continue to move toward more normal levels with liquidity
      being
      used to pay down maturing FHLB debt and to take advantage of anticipated
      significant new lending opportunities resulting from both post-Hurricane-Katrina
      rebuilding and the hiring of experienced commercial and residential
      lenders.





**TABLE
                16. KEY LIQUIDITY INDICATORS***December
                31,**($
                in thousands)*
            
            
            **2006**
            
            
            2005
            
            
            2004Cash
                and cash equivalents
            
            **$**
            **11,116**
            
            $
            22,555
            
            $
            7,024Total
                loans
            
            
            **97,717**
            
            
            75,364
            
            
            93,070Total
                deposits
            
            
            **122,754**
            
            
            118,866
            
            
            130,723Deposits
                $100,000 and over
            
            
            **27,285**
            
            
            16,301
            
            
            22,067RatiosTotal
                loans to total deposits
            
            
            **79.60**
            **%**
            
            63.40
            %
            
            71.20
            %Deposits
                $100,000 and over to total deposits
            
            
            **22.23**
            **%**
            
            13.71
            %
            
            16.88
            %





**ASSET/LIABILITY
      MANAGEMENT**


The
      objective the Company’s asset/liability management is to implement strategies
      for the funding and deployment of its financial resources that are expected
      to
      maximize profitability over time at acceptable levels of risk.





Interest
      rate sensitivity is the potential impact of changing rate environments on both
      net interest income and cash flows. The Bank monitors its interest rate
      sensitivity on a quarterly basis by reviewing net interest income simulations,
      monitoring the economic value of equity and preparing interest rate gap
      analyses.





The
      simplest method of measuring interest rate sensitivity is gap analysis, which
      identifies the difference between the dollar volume of assets and liabilities
      that reprice within specific time periods. A gap is considered positive when
      the
      amount of interest-rate sensitive assets exceeds the amount of interest-rate
      sensitive liabilities, and is considered negative when the amount of
      interest-rate sensitive liabilities exceeds the amount of interest-rate
      sensitive assets. In general, during a period of rising interest rates, a
      negative gap within shorter maturities would adversely affect net interest
      income, while a positive gap within shorter maturities would result in an
      increase in net interest income. A cycle of falling interest rates would have
      the opposite effect.





Since
      thrift organizations are traditionally invested primarily in home mortgage
      loans
      varying in contractual terms to maturity usually from 15 to 30 years while
      their
      longest term interest-bearing liabilities are typically five-year certificates
      of deposit, they tend to create negative gaps over the short term. Guaranty
      is
      no different; therefore, it is vital that the Bank utilize its other investments
      to offset in the short-term (12-months or less) horizon, the substantial
      negative re-pricing gap which arises from one to five years, while at the same
      time maximizing net interest income. The Company has placed much of its ready
      cash in short-term investments such as mortgage-based mutual funds that provide
      the benefit of overnight availability. The Bank also places a high emphasis
      on
      cash flows in its portfolio of CMOs and mortgage-backed securities. The duration
      of the Bank’s CMOs varies from two to 15 years. Table 17 shows the Company’s
      static gap position as of December 31, 2006.




Gap
      analysis has several limitations, including the fact that it is a point-in-time
      measurement that ignores the dynamic nature of the Company’s assets and
      liabilities, and it does not take into consideration actions that management
      can
      and will take to maximize net interest income over time.





17


Another
      tool used by management is a net portfolio value (“NPV”) model. The NPV is the
      difference between the market value of the Bank’s assets and the market value of
      the Bank’s liabilities and off balance sheet commitments. At least quarterly,
      the Board reviews the internal model and a standard thrift industry model
      prepared by the OTS from the Association’s quarterly Consolidated Maturity and
      Rate Report.





**TABLE
                17. INTEREST RATE SENSITIVITY***By
                Maturity or Repricing at December 31, 2006**($
                in thousands)*
            
            0-90
                Days
            
            91-365
                Days
            
            After
                1 through 3 Years
            
            After
                3 Years
            
            Non-interest
                earning/ bearing
            
            TotalASSETSLoans
            
            $
            5,916
            
            $
            9,762
            
            $
            9,186
            
            $
            69,123
            
            $
            -
            
            $
            93,987Securities
                available for sale
            
            
            15,799
            
            
            6,140
            
            
            -
            
            
            33,151
            
            
            -
            
            
            55,090Cash
                and cash equivalents
            
            
            11,116
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            11,116Other
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,187
            
            
            8,187Total
                assets
            
            
            32,831
            
            
            15,902
            
            
            9,186
            
            
            102,274
            
            
            8,187
            
            
            168,380SOURCES
                OF FUNDSNoninterest
                bearing deposits
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,195
            
            
            2,195NOW
                account deposits
            
            
            17,186
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17,186Savings
                deposits
            
            
            27,103
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            27,103Time
                deposits
            
            
            14,494
            
            
            35,685
            
            
            22,799
            
            
            3,292
            
            
            -
            
            
            76,270Advances
            
            
            1,350
            
            
            4,163
            
            
            11,529
            
            
            -
            
            
            -
            
            
            17,042Other
                liabilities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,420
            
            
            1,420Stockholders'
                equity
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            27,164
            
            
            27,164Total
                sources of funds
            
            
            60,133
            
            
            39,848
            
            
            34,328
            
            
            3,292
            
            
            30,779
            
            
            168,380Interest
                rate sensitivity gapPeriod
            
            $
            (27,302
            )
            $
            (23,946
            )
            $
            (25,142
            )
            $
            98,982
            
            $
            (22,592
            )Cumulative
            
            $
            (27,302
            )
            $
            (51,248
            )
            $
            (76,390
            )
            $
            22,592
            
            $
            -Gap/total
                earning assetsPeriod
            
            
            (17.0
            )%
            
            (15.0
            )%
            
            (15.7
            )%
            
            61.8
            %
            
            (14.1
            )%Cumulative
            
            
            (17.0
            )%
            
            (32.0
            )%
            
            (47.7
            )%
            
            14.1
            %
            
            -





Table
      18 **** presented
      below is an analysis of the Bank’s interest rate risk as measured by changes in
      NPV for instantaneous and sustained parallel shifts in the yield curve, in
      100
      basis point increments, up and down 300 basis points in accordance with OTS
      regulations. Currently, due to the low level of interest rates, the only
      downward shocks capable of being applied realistically are 100 and 200 basis
      points. As illustrated in the tables below, NPV is currently more sensitive
      to
      and may be more negatively impacted by rising rates than falling rates.





18





**TABLE
                18. NET PORTFOLIO VALUE***At
                December 31,**($
                in thousands)*
            
            **2006**
            2005Change
                (Basis Point) in Interest Rates
            
            **$**
            **Value**
            
            **$**
            **Change**
            
            
            **%
                Change**
            
            $
            Value
            
            $
            Change
            
            
            %
                Change+300
            
            **$**
            **24,026**
            
            **$**
            **(10,822**
            **)**
            
            **(31**
            **)%**
            $
            23,988
            
            $
            (8,467
            )
            
            (26
            )%+200
            
            
            **27,705**
            
            
            **(7,142**
            **)**
            
            **(20**
            **)%**
            
            27,266
            
            
            (5,189
            )
            
            (16
            )%+100
            
            
            **31,189**
            
            
            **(3,658**
            **)**
            
            **(10**
            **)%**
            
            30,203
            
            
            (2,253
            )
            
            (7
            )%0
            
            
            **34,847**
            
            
            **-**
            
            
            **-**
            
            
            32,455
            
            
            -
            
            
            --100
            
            
            **36,662**
            
            
            **1,815**
            
            
            **5**
            **%**
            
            33,258
            
            
            804
            
            
            2
            %-200
            
            
            **38,159**
            
            
            **3,312**
            
            
            **10**
            **%**
            
            33,276
            
            
            821
            
            
            3
            %-300
            
            
            **n/a**
            
            
            **n/a**
            
            
            **n/a**
            
            
            n/a
            
            
            n/a
            
            
            n/a





**IMPACT
      OF INFLATION AND CHANGING PRICES**


The
      great
      majority of assets and liabilities of a financial institution are monetary
      in
      nature. Management believes the most significant potential impact of
      inflationary or deflationary economic cycles on the Company’s financial results
      is its ability to react to changes in interest rates. Interest rates do not
      necessarily move in the same direction, or at the same magnitude, as the prices
      of goods and services. As discussed above, the Company employs asset/liability
      management strategies in its attempt to minimize the effects of economic cycles
      on its net interest income.





Inflation
      and changing prices also have an impact on the growth of total assets in the
      banking industry and the resulting need to increase capital at higher than
      normal rates in order to maintain an appropriate equity to assets ratio.
      Changing prices will also affect trends in noninterest operating expenses and
      noninterest income.





**RESULTS
      OF OPERATIONS**





The
      Company reported net income of $2.1 million, or $1.74 per share, compared with
      a
      loss of $3.7 million, or $3.11 per share, during 2005, and net income of
      $199,000, or $0.17 per share in 2004. Earnings in 2006 included a reversal
      of
      $2.0 million ($1.3 million after tax) of the loan loss reserves established
      in
      2005 due to the uncertainties in the loan portfolio subsequent to Hurricane
      Katrina. The losses in 2005 resulted primarily from a substantial loan loss
      provision of $4.8 million to cover potential loan losses resulting from the
      impact of Hurricane Katrina and a $1.3 million recognition of losses on
      available-for-sale investment securities as other-than-temporary. Net income
      for
      2004 was significantly impacted by $753,000 in investment losses.





**NET
      INTEREST INCOME**


The
      Company’s net interest income increased 8.7%, or $486,000, in 2006, despite a
      5.3% decline in average interest-earning assets. This followed a 1.0%, or
      $57,000 increase in net interest income for 2005 over 2004 when interest-earning
      assets decreased 11.7%. Net interest margin is net interest income expressed
      as
      a percent of average interest-earning assets. In 2006, the Company was able
      to
      add 46 basis points to increase its net interest margin to 3.58% with a 64
      basis
      point increase in the average yield on earning assets which more than offset
      a
      28 basis point increase in the cost of interest-bearing liabilities. This
      followed an 39 basis point increase in net interest margin in 2005 over
      2004.





During
      2006 average loans were 51% of average interest-earning assets, up from 49%
      in
      2005 and 43% in 2004. Collateralized mortgage obligation investments made up
      11%
      of average interest-earning assets during 2006, down from 13% in 2005 and 15%
      in
      2004. Mutual fund investments, consisting primarily of investments in funds
      secured by short-term mortgage instruments, were 17% of average interest-earning
      assets in 2006, down from 28% in both 2005 and 2004. The mutual fund investments
      were liquidated to diversify the investment portfolio and to fund loan growth.





19


The
      Company’s funding mix showed improvement in 2006 but continues to have a
      negative impact on interest margins. The percentage of average interest-earning
      assets funded by higher-cost sources of funds, including time deposits and
      FHLB
      borrowings was 59%, compared to 66% in both 2005 and 2004. This is expected
      to
      further improve in 2007 due to significant contractual paydowns on FHLB advances
      and an increased emphasis on attracting lower-cost transaction accounts.
      Lower-cost core deposits totaled 26% of average interest earning assets, up
      from
      21% of average interest-earning assets in 2005 and 2004. The improved funding
      mix was offset by increase in cost of funds, as the cost of interest-bearing
      deposits increased by 56 basis points in 2006 compared to 2005 and 14 basis
      points in 2005 compared to 2004, and the total cost of interest-bearing
      liabilities increased by 28 basis points in 2006 compared to 2005, following
      a 6
      basis point increase in 2005 compared to 2004. These increases were
      industry-driven, as short-term interest rates have been increasing and the
      competition for deposits has been extremely intense in the Bank’s
      market.





20


Table
      19
      below sets forth, for the periods indicated, information regarding (i) the
      total
      dollar amount of interest income from interest-earning assets and the resulting
      average yields; (ii) the total dollar amount of interest expense on
      interest-bearing liabilities and the resulting average rate; (iii) net interest
      income; (iv) interest rate spread; and (v) net interest margin. Information
      is
      based on average daily balances during the indicated periods.





**TABLE
                19. SUMMARY OF AVERAGE BALANCES, NET INTEREST INCOME AND INTEREST
                RATES***Year
                Ended December 31,*
            
            **2006**
            2005
            2004*($
                in thousands)*
            
            
            **Average
                Balance**
            
            
            **Interest**
            
            
            **Average
                Yield/ Cost**
            
            
            Average
                Balance
            
            
            Interest
            
            
            Average
                Yield/ Cost
            
            
            Average
                Balance
            
            
            Interest
            
            
            Average
                Yield/ Cost**ASSETS**INTEREST-EARNING
                ASSETSLoans
            
            **$**
            **87,360**
            
            **$**
            **6,803**
            
            
            **7.79**
            **%**
            $
            87,437
            
            $
            6,658
            
            
            7.61
            %
            $
            87,185
            
            $
            6,638
            
            
            7.61
            %U.S.
                Treasury and Agency securities
            
            
            **16,916**
            
            
            **892**
            
            
            **5.27**
            
            
            4,376
            
            
            231
            
            
            5.28
            
            
            864
            
            
            58
            
            
            6.71Mortgage-backed
                securities
            
            
            **2,502**
            
            
            **152**
            
            
            **6.08**
            
            
            136
            
            
            9
            
            
            6.62
            
            
            266
            
            
            19
            
            
            7.14Collateralized
                mortgage obligations
            
            
            **19,383**
            
            
            **1,098**
            
            
            **5.66**
            
            
            22,788
            
            
            1,471
            
            
            6.46
            
            
            31,315
            
            
            1,693
            
            
            5.41Mutual
                funds
            
            
            **29,668**
            
            
            **1,344**
            
            
            **4.53**
            
            
            49,495
            
            
            1,720
            
            
            3.48
            
            
            57,578
            
            
            1,349
            
            
            2.34FHLMC
                stock
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            1,721
            
            
            -
            
            
            -
            
            
            19,982
            
            
            1,116
            
            
            5.59Total
                investment in securities
            
            
            **68,469**
            
            
            **3,485**
            
            
            **5.09**
            **%**
            
            78,516
            
            
            3,431
            
            
            4.37
            %
            
            110,005
            
            
            4,235
            
            
            3.85
            %FHLB
                stock
            
            
            **1,437**
            
            
            **74**
            
            
            **5.17**
            **%**
            
            2,294
            
            
            82
            
            
            3.57
            %
            
            2,526
            
            
            46
            
            
            1.82
            %Federal
                funds sold and demand deposits
            
            
            **13,069**
            
            
            **637**
            
            
            **4.88**
            **%**
            
            11,584
            
            
            295
            
            
            2.55
            %
            
            3,881
            
            
            70
            
            
            1.80
            %Total
                interest-earning assets
            
            
            **170,335**
            
            
            **11,000**
            
            
            **6.46**
            **%**
            
            179,831
            
            
            10,466
            
            
            5.82
            %
            
            203,597
            
            
            10,989
            
            
            5.40
            %NONINTEREST-EARNING
                ASSETSOther
                assets
            
            
            **8,942**
            
            
            
            
            
            
            
            
            8,315
            
            
            
            
            
            
            
            
            8,290Allowance
                for loan losses
            
            
            **(5,207**
            **)**
            
            
            
            
            
            
            
            (933
            )
            
            
            
            
            
            
            
            (604
            )Total
                assets
            
            **$**
            **174,070**
            
            
            
            
            
            
            
            $
            187,213
            
            
            
            
            
            
            
            $
            211,283**LIABILITIES
                AND STOCKHOLDERS' EQUITY**INTEREST-BEARING
                LIABILITIESNOW
                account deposits
            
            **$**
            **17,186**
            
            **$**
            **388**
            
            
            **2.26**
            **%**
            $
            7,778
            
            $
            97
            
            
            1.25
            %
            $
            9,065
            
            $
            120
            
            
            1.32
            %Savings
                deposits
            
            
            **27,103**
            
            
            **339**
            
            
            **1.25**
            **%**
            
            30,551
            
            
            382
            
            
            1.25
            %
            
            34,348
            
            
            454
            
            
            1.32Time
                deposits
            
            
            **76,842**
            
            
            **2,938**
            
            
            **3.82**
            **%**
            
            82,409
            
            
            2,508
            
            
            3.04
            %
            
            94,855
            
            
            2,653
            
            
            2.80Total
                interest-bearing deposits
            
            
            **121,131**
            
            
            **3,665**
            
            
            **3.03**
            **%**
            
            120,738
            
            
            2,987
            
            
            2.47
            %
            
            138,268
            
            
            3,227
            
            
            2.33
            %Borrowings
            
            
            **23,368**
            
            
            **1,239**
            
            
            **5.30**
            **%**
            
            35,589
            
            
            1,869
            
            
            5.25
            %
            
            39,743
            
            
            2,209
            
            
            5.56
            %Total
                interest-bearing liabilities
            
            
            **144,499**
            
            
            **4,904**
            
            
            **3.39**
            **%**
            
            156,327
            
            
            4,856
            
            
            3.11
            %
            
            178,011
            
            
            5,436
            
            
            3.05
            %NONINTEREST-BEARING
                LIABILITIES AND STOCKHOLDERS' EQUITYDemand
                deposits
            
            
            **2,367**
            
            
            
            
            
            
            
            
            895
            
            
            
            
            
            
            
            
            816Other
                liabilities
            
            
            **1,195**
            
            
            
            
            
            
            
            
            3,264
            
            
            
            
            
            
            
            
            3,895Shareholders'
                equity
            
            
            **26,009**
            
            
            
            
            
            
            
            
            26,727
            
            
            
            
            
            
            
            
            28,561Total
                liabilities and stockholders' equity
            
            **$**
            **174,070**
            
            
            
            
            
            
            
            $
            187,213
            
            
            
            
            
            
            
            $
            211,283Net
                interest income and margin
            
            
            
            
            **$**
            **6,096**
            
            
            **3.58**
            **%**
            
            
            
            $
            5,610
            
            
            3.12
            %
            
            
            
            $
            5,553
            
            
            2.73
            %Net
                interest-earning assets and spread
            
            **$**
            **25,836**
            
            
            
            
            
            **3.07**
            **%**
            $
            23,504
            
            
            
            
            
            2.69
            %
            $
            25,586
            
            
            
            
            
            2.35
            %Cost
                of funding interest-earning assets
            
            
            
            
            
            
            
            
            **2.88**
            **%**
            
            
            
            
            
            
            
            2.70
            %
            
            
            
            
            
            
            
            2.67
            %







21





Table
      20
      below sets forth the effects of changing rates and volumes on net interest
      income of the Company. Information is provided with respect to (i) effects
      on
      interest income attributable to changes in volume (changes in volume multiplied
      by prior rate) and (ii) effects on interest income attributable to changes
      in
      rate (changes in rate multiplied by prior volume). The change in interest due
      to
      both volume and rate has been allocated proportionately between volume and
      rate
      based on the absolute dollar amount of the change in each.





**TABLE
                20. SUMMARY OF CHANGES IN NET INTEREST INCOME****2006
                Compared to 2005**
            
            2005
                Compared to 2004Due
              to Change In
            
            **Total
                Increase (Decrease**
            **)**
            Due
                to Change in
            
            Total
                Increase (Decrease
            )*($
                in thousands)*
            
            
            **Volume**
            
            
            **Rate**
            
            
            
            
            
            Volume**INTEREST
                INCOME**Loans
            
            **$**
            **(6**
            **)**
            **$**
            **151**
            
            **$**
            **145**
            
            $
            19
            
            $
            1
            
            $
            20U.S.
                Treasury and Agency securities
            
            
            **661**
            
            
            **(1**
            **)**
            
            **660**
            
            
            236
            
            
            (63
            )
            
            173Mortgage-backed
                securities
            
            
            **157**
            
            
            **(14**
            **)**
            
            **143**
            
            
            (9
            )
            
            (1
            )
            
            (10
            )Collateralized
                mortgage obligations
            
            
            **(220**
            **)**
            
            **(153**
            **)**
            
            **(373**
            **)**
            
            (461
            )
            
            241
            
            
            (220
            )Mutual
                funds
            
            
            **(689**
            **)**
            
            **313**
            
            
            **(376**
            **)**
            
            (189
            )
            
            560
            
            
            371FHLMC
                stock
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            (1,020
            )
            
            (96
            )
            
            (1,116
            )Total
                investment in securities
            
            
            **(91**
            **)**
            
            **145**
            
            
            **54**
            
            
            (1,443
            )
            
            641
            
            
            (802
            )FHLB
                stock
            
            
            **(31**
            **)**
            
            **23**
            
            
            **(8**
            **)**
            
            (4
            )
            
            40
            
            
            36Federal
                funds sold and demand deposits
            
            
            **38**
            
            
            **304**
            
            
            **342**
            
            
            139
            
            
            84
            
            
            223Total
                interest income
            
            
            **(90**
            **)**
            
            **623**
            
            
            **533**
            
            
            (1,289
            )
            
            766
            
            
            (523
            )**INTEREST
                EXPENSE**NOW
                account deposits
            
            
            **117**
            
            
            **174**
            
            
            **291**
            
            
            (17
            )
            
            (6
            )
            
            (23
            )Savings
                deposits
            
            
            **(43**
            **)**
            
            **-**
            
            
            **(43**
            **)**
            
            (50
            )
            
            (22
            )
            
            (72
            )Time
                deposits
            
            
            **(169**
            **)**
            
            **599**
            
            
            **430**
            
            
            (348
            )
            
            203
            
            
            (145
            )Total
                interest-bearing deposits
            
            
            **(95**
            **)**
            
            **773**
            
            
            **678**
            
            
            (415
            )
            
            175
            
            
            (240
            )Borrowings
            
            
            **(642**
            **)**
            
            **12**
            
            
            **(630**
            **)**
            
            (231
            )
            
            (109
            )
            
            (340
            )Total
                interest expense
            
            
            **(737**
            **)**
            
            **785**
            
            
            **48**
            
            
            (646
            )
            
            66
            
            
            (580
            )Change
                in net interest income
            
            **$**
            **647**
            
            **$**
            **(162**
            **)**
            **$**
            **485**
            
            $
            (643
            )
            $
            700
            
            $
            57





**PROVISION
      FOR LOAN LOSSES**


The
      Company took a provision for loan losses of $4.8 million in 2005, all subsequent
      to Hurricane Katrina, as the hurricane severely impacted the entire area in
      which the Company does business. The impact was on both the collateral securing
      certain loans and on the income or cash flow of many borrowers. At the 2005
      year-end, the Company evaluated the entire loan portfolio to make its assessment
      of potential losses, including contacting borrowers, inspecting properties
      and
      determining the status of insurance claims against damaged properties.
      Management believes the provision and resultant reserve to be adequate but
      not
      excessive. As previously discussed under “Loans and Allowance for Loan Losses,”
the provision for loan losses for the year ended December 31, 2005 was based
      on
      the information available to management at the time. Considerable uncertainties
      were outstanding regarding, among other things, the extent of any economic
      recovery in the greater New Orleans area and the ultimate disposition of
      property insurance claims.





In
      2006
      the Company reversed $2.0 million of the provision that was taken in 2005.
      The
      area remains in a state of uncertainty regarding the level of recovery from
      Hurricane Katrina, but borrower performance and insurance claims have been
      better in 2006 than management’s expectations, hence reducing the level of
      impairment in the loan portfolio. The Bank’s asset quality committee will
      continue to meet quarterly and address all potentially impaired loans and adjust
      the allowance for loan losses accordingly based on the information available
      at
      the time. The Company’s provision for loan loss was $343,000 in
      2004.




22


For
      a
      more detailed discussion of the changes in the allowance for loan losses,
      non-performing assets and general credit quality, see the earlier section 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.




**NON-INTEREST
      INCOME**


Total
      non-interest income increased $1.3 million from a loss of $1,294,000 in 2005
      to
      income of $51,000 in 2006. The losses in 2005 were primarily due to writedowns
      due to other-than-temporary impairment of securities available for sale. Table
      21 shows the components of non-interest income for each year in the three-year
      period ended December 31, 2006, along with the percent changes between years
      for
      each component. Excluding gains and losses from the sale of foreclosed real
      estate and the disposal of fixed assets, non-interest income was $141,000,
      up
      from $101,000 in 2005 and $93,000 in 2004, an increase primarily attributable
      to
      gains on the sales of mortgage loans and an increase in penalties for the early
      closing of certificates of deposit.





Service
      charges on deposit accounts were unchanged at $19,000 in 2006, 2005 and 2004.
      The Company continues to develop new deposit products and pricing strategies
      to
      increase transaction accounts and related fee income. In 2006, the Bank
      recognized $30,000 in gains on the sale of mortgage loans, an activity which
      the
      Bank engaged in for the first time in the fourth quarter of 2006. Non-interest
      income before securities transactions was adversely impacted in 2005 by a
      $159,000 loss taken on fixed assets destroyed by Hurricane Katrina. Guaranty
      recognized a gain of $40,000 on the sale of foreclosed real estate in 2005.





Income
      from real estate held for investment, the largest component of recurring
      non-interest income, decreased 2%, or $1,000, in 2006, compared to 2005. This
      income is for rent received by the Company on property not used in its banking
      operations. The Company took a loss of $159,000 in 2005 on property at one
      branch location that was substantially damaged by Hurricane Katrina. The
      non-recoverable assets have been written off and the Company is in the process
      of restoring the branch and anticipates re-opening the location in the second
      or
      third quarter of 2007.





**TABLE
                21. NON-INTEREST INCOME***($
                in thousands)*
            
            
            **2006**
            
            
            **%
                change**
            
            
            2005
            
            
            %
                change
            
            
            2004Service
                charges on deposit accounts
            
            **$**
            **19**
            
            
            **-**
            
            $
            19
            
            
            -
            
            $
            19ATM
                fees
            
            
            **4**
            
            
            **(33.33**
            **)%**
            
            6
            
            
            45.45
            %
            
            11Early
                closing penalties
            
            
            **21**
            
            
            **133.33**
            **%**
            
            9
            
            
            50.00
            %
            
            6Income
                from real estate held for investment
            
            
            **52**
            
            
            **(1.89**
            **)%**
            
            53
            
            
            8.16
            %
            
            49Gain
                on sales of mortgage loans
            
            
            **30**
            
            
            **-**
            
            
            -
            
            
            -
            
            
            -Gain
                on sales and income from foreclosed assets
            
            
            **-**
            
            
            **-**
            
            
            40
            
            
            n/a
            
            
            (31
            )Loss
                on impairment of fixed assets
            
            
            **-**
            
            
            **(100.00**
            **)%**
            
            (159
            )
            
            n/a
            
            
            -Miscellaneous
            
            
            **15**
            
            
            **(54.55**
            **)%**
            
            33
            
            
            312.50
            %
            
            8Total
                noninterest income before securities transactions
            
            
            **141**
            
            
            **14,100.00**
            **%**
            
            1
            
            
            (98.39
            )%
            
            62Net
                (loss)/gain on securities transactions
            
            
            **(90**
            **)**
            
            **(93.05**
            **)%**
            
            (1,295
            )
            
            (71.98
            )%
            
            (753
            )Total
                noninterest income (loss)
            
            
            **51**
            
            
            **n/a**
            
            
            (1,294
            )
            
            (87.42
            )%
            $
            (691
            )





23


**NON-INTEREST
      EXPENSE**


Table
      22 **** shows
      the
      components of non-interest expense for each year of the three-year period ended
      December 31, 2006 along with percent changes between years for each component.
      Non-interest expense increased 4.7%, or $219,000, in 2006 after a 5.0%, or
      $224,000, increase in 2005.





**TABLE
                22. NON-INTEREST EXPENSE***($
                in thousands)*
            
            **2006**
            
            **%
                change**
            
            2005
            
            %
                change
            
            2004Employee
                compensation
            
            **$**
            **2,282**
            
            
            **9.55**
            **%**
            $
            2,083
            
            
            7.31
            %
            $
            1,941Employee
                benefits
            
            
            **958**
            
            
            **7.28**
            **%**
            
            893
            
            
            20.04
            %
            
            744Total
                personnel expense
            
            
            **3,240**
            
            
            **8.87**
            **%**
            
            2,976
            
            
            10.84
            %
            
            2,685Net
                occupancy expense
            
            
            **542**
            
            
            **18.34**
            **%**
            
            458
            
            
            6.76
            %
            
            429Ad
                Valorem taxes
            
            
            **194**
            
            
            **(55.40**
            **%)**
            
            435
            
            
            7.94
            %
            
            403Data
                processing costs
            
            
            **241**
            
            
            **35.39**
            **%**
            
            178
            
            
            (26.14
            %)
            
            241Advertising
            
            
            **40**
            
            
            **(40.30**
            **%)**
            
            67
            
            
            (57.86
            %)
            
            159ATM
                expenses
            
            
            **24**
            
            
            **4.35**
            **%**
            
            23
            
            
            (54.90
            %)
            
            51Professional
                fees
            
            
            **173**
            
            
            **(13.50**
            **%)**
            
            200
            
            
            90.47
            %
            
            105Deposit
                insurance and supervisory fees
            
            
            **103**
            
            
            **(16.94**
            **%)**
            
            124
            
            
            5.98
            %
            
            117Printing
                and office supplies
            
            
            **119**
            
            
            **105.17**
            **%**
            
            58
            
            
            34.83
            %
            
            89Telephone
            
            
            **51**
            
            
            **(22.73**
            **%)**
            
            66
            
            
            14.29
            %
            
            77Other
                operating expenses
            
            
            **199**
            
            
            **63.11**
            **%**
            
            122
            
            
            (3.94
            %)
            
            127Total
                non-interest expense
            
            **$**
            **4,926**
            
            
            **4.65**
            **%**
            $
            4,707
            
            
            5.00
            %
            $
            4,483Efficiency
                Ratio
            
            
            **80.14**
            **%**
            
            
            
            
            109.06
            %
            
            
            
            
            92.20
            %*(a)
                Not meaningful*





Total
      personnel costs increased 8.9%, or $264,000, in 2006 compared to 2005, primarily
      due to increasing headcount as the Bank added employees to accommodate its
      increasing product offerings and transaction volume. This followed a 10.8%,
      or
      $291,000, increase in 2005 over 2004 which was due primarily to the Early
      Retirement and Consulting Agreement with the Company’s former President and
      Chief Executive Officer. The Company provides full health insurance benefits
      to
      its employees and partial benefits to dependents of employees. Employee health
      insurance costs were $266,000 in 2006, an increase of $19,000, or 7.8%, from
      2005, and in 2005 the Company incurred an increase of $1,000, or less than
      1%,
      compared to 2004.





The
      Company provides retirement benefits under an Employee Stock Ownership Plan
      (“ESOP”). The cost of providing this benefit fluctuates with the price of the
      Company’s stock. The cost associated with this plan was $407,000 in 2006, down
      from $412,000 in 2005 and $475,000 in 2004. While the share price increased
      in
      2006, this was offset by a lower number of shares remaining to be allocated
      in
      2006. The ESOP allocation has been fully distributed, and participant ESOP
      balances have been rolled into a new 401(k) plan established by the Company
      effective January 1, 2007. The company will recognize no expense on its ESOP
      in
      2007 and anticipates that 401(k) plan expense will be approximately $210,000
      in
      2007.





On
      January 7, 2005, the Company entered into an Early Retirement and Consulting
      Agreement with its former President and Chief Executive Officer. During 2005,
      the Company recognized $449,000 in expense with respect to this agreement,
      which
      represents the discounted present value of the 36 monthly payments due to the
      former President and Chief Executive Officer and interest accrued during 2005.
      The only remaining expense relating to this agreement is the interest expense
      on
      the discounted amount, which amounted to $14,000 in 2006.





Advertising
      costs in 2006 declined by $27,000, or 40% compared with 2005, and in 2005
      advertising costs declined by $92,000, or 58%, compared with 2004.





24


Occupancy
      expenses increased 18%, or $84,000 in 2006, primarily due to increases in
      property taxes and in depreciation expense. There was an increase of 7%, or
      $29,000 in 2005. Ad Valorem taxes decreased 55%, or $241,000, in 2006 over
      2005,
      following an increase of 8%, or $32,000, in 2005 compared to 2004. Included
      in
      this category
      is a tax that banks in Louisiana pay in lieu of a state income tax. This tax,
      known as the bank shares tax, is based on the value of their capital stock.
      This
      expense fluctuates based in part on the growth in Guaranty’s equity and earnings
      and in part on market valuation trends for the banking industry. A decrease
      in
      equity and an overpayment of 2005 taxes being applied as a credit in 2006 was
      the primary reason for the decrease in ad valorem taxes in 2006 compared to
      2005.





Printing
      and office supplies increased by $61,000, or 105%, in 2006, following a $31,000
      decrease in 2005. This was the result of expenses associated with the Bank’s
      name change from Guaranty Savings and Homestead Association to Guaranty Savings
      Bank.





**INCOME
      TAXES**


Income
      tax expense was $1.1 million in 2006, compared with a $1.5 million benefit
      in
      2005 and a tax benefit of $163,000 in 2004. The Company’s effective tax rate in
      2005 was lower than the 34% federal statutory rate because of a valuation
      allowance created due to the uncertainty of whether the Company can realize
      all
      of the capital losses generated from the writedown of impairment losses on
      securities. The Company’s effective tax rate in 2004 were lower than the 34%
      federal statutory rate primarily because of credits received for dividend income
      generated from equity investments. The decrease in tax expense throughout 2004
      and 2005 was primarily due to lower earnings. See Note J to the financial
      statements for additional information on the Company’s effective tax rates and
      the composition of changes in income tax expense for all periods.





**CONTRACTUAL
      OBLIGATIONS**


The
      following table summarized payments due from the Company under specified
      long-term and certain other contractual obligations as of December 31, 2006.
      Guaranty’s only non-Company-owned banking facility is rented month-to-month with
      a lease of $1,500 per month through October, 2007. Obligations under deposit
      contracts are not included. The maturities of time deposits are scheduled in
      Table 12 above in the section on “Deposits”.





**TABLE
                23. CONTRACTUAL OBLIGATIONS***($
                in thousands)*
            
            *Payments
                Due By Period From December 31, 2006*Total
            
            
            
            
            
            Less
              Than
                1 Year
            
            
            1-3
                Years
            
            
            3-5
                Years
            
            
            More
              Than
                5 YearsFederal
                Home Loan Bank advances
            
            **$**
            **17,042**
            
            $
            5,514
            
            $
            11,528
            
            $
            -
            
            $
            -Operating
                lease on banking facility
            
            
            **15**
            
            
            15
            
            
            -
            
            
            -
            
            
            -Total
                obligations
            
            **$**
            **17,057**
            
            $
            5,529
            
            $
            11,528
            
            $
            -
            
            $
            -





25


**OFF-BALANCE
      SHEET OBLIGATIONS**


The
      Company is a party to financial instruments with off-balance sheet risk in
      the
      normal course of business to meet the financing needs of its customers. These
      financial instruments include mortgage and construction loan commitments and
      commercial lines of credit. Those instruments involve, to varying degrees,
      elements of credit risk in excess of the amount recognized in the balance sheet.
      The Company’s exposure to credit loss in the event of non-performance by the
      other party to the financial instrument is represented by the contractual
      notional amount of those instruments. The Company uses the same credit policies
      in making commitments and conditional obligations as it does for on-balance
      sheet instruments.





26


The
      Company’s contingent liabilities and commitments as of December 31, 2006 are as
      follows:





**TABLE
                24. OFF-BALANCE SHEET OBLIGATIONS***($
                in thousands)*
            
            *Commitments
                Due By Period From December 31, 2006*Total
            
            Less
              Than
                1 Year
            
            1-3
                Years
            
            3-5
                Years
            
            More
                Than 5 YearsMortgage
                loan commitments
            
            **$**
            **1,309**
            
            $
            1,309
            
            $
            -
            
            $
            -
            
            $
            -Construction
                loan commitments
            
            
            **4,964**
            
            
            4,964
            
            
            -
            
            
            -
            
            
            -Unused
                portions of lines of credit
            
            
            **420**
            
            
            420Total
                Obligations
            
            **$**
            **6,693**
            
            $
            6,693
            
            $
            -
            
            $
            -
            
            $
            -








**QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**





The
      information required for this item is included in the section entitled
“Asset/Liability Management” above. The assumptions used by management to
      evaluate the vulnerability of the Bank’s operations to changes in interest rates
      in Tables 17 and 18 are based on assumptions for timing of prepayment. Although
      management finds these assumptions reasonable, the interest rate sensitivity
      of
      the Bank’s assets and liabilities and the estimated effects of changes in
      interest rates on the Bank’s net interest income and net portfolio value
      indicated could vary substantially if different assumptions were used or actual
      experience differs from such assumptions.




27


To
        the
        Board of Directors
 **GS
        Financial Corp. and Subsidiary**
 Metairie,
        Louisiana
 
 Report
        of Independent Registered Public Accounting Firm
 
 We
        have
        audited the accompanying consolidated balance sheets of **GS
        FINANCIAL CORP.** and
        its
        wholly-owned subsidiary, Guaranty Savings Bank, as of December 31, 2006 and
        2005, and the related consolidated statements of income (loss), comprehensive
        income (loss), changes in stockholders’ equity, and cash flows for each of the
        three years in the period ended December 31, 2006. These financial
        statements are the responsibility of the Company's management. Our
        responsibility is to express an opinion on these financial statements based
        on
        our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether
        the financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of **GS
        FINANCIAL CORP.** and
        its
        wholly-owned subsidiary, **** Guaranty
        Savings Bank, as of December 31, 2006 and 2005, and the consolidated results
        of
        their operations and their cash flows for each of the three years in the
        period
        ended December 31, 2006, in conformity with accounting principles generally
        accepted in the United States of America.
 
   /s/Laporte,
        Sehrt, Romig, & Hand
 A
        Professional Accounting Corporation
 
 Metairie,
        Louisiana
 March
        26,
        2007
  28
 **GS
                    FINANCIAL CORP. AND SUBSIDIARY****CONSOLIDATED
                    BALANCE SHEETS****ASSETS**December
                    31,2006
                
                
                2005*(In
                    Thousands)*Cash
                    and Cash EquivalentsCash
                    and Amounts Due from Depository Institutions
                
                $
                1,893
                
                $
                3,040Interest-Bearing
                    Deposits in Other Banks
                
                
                6,544
                
                
                4,515Federal
                    Funds Sold
                
                
                2,680
                
                
                15,000Total
                    Cash and Cash Equivalents
                
                
                11,117
                
                
                22,555Securities
                    Available-for-Sale
                
                
                55,090
                
                
                77,344Loans,
                    Net of Allowance for Loan Losses of $3,732 and $5,713
                
                
                93,987
                
                
                69,657Accrued
                    Interest Receivable
                
                
                2,004
                
                
                1,627Premises
                    and Equipment, Net
                
                
                3,578
                
                
                2,257Stock
                    in Federal Home Loan Bank, at Cost
                
                
                982
                
                
                1,833Real
                    Estate Held-for-Investment, Net
                
                
                464
                
                
                478Other
                    Assets
                
                
                1,158
                
                
                1,863Total
                    Assets
                
                $
                168,380
                
                $
                177,614
 
 
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 29
 **GS
                    FINANCIAL CORP. AND SUBSIDIARY****CONSOLIDATED
                    BALANCE SHEETS****LIABILITIES
                    AND STOCKHOLDERS' EQUITY**December
                    31,2006
                
                
                2005*(In
                    Thousands)***LIABILITIES**DepositsNoninterest-bearing
                
                $
                3,390
                
                $
                2,195Interest-bearing
                
                
                119,364
                
                
                116,671Total
                    Deposits
                
                
                122,754
                
                
                118,866Advance
                    Payments by Borrowers for Taxes and Insurance
                
                
                235
                
                
                127FHLB
                    Advances
                
                
                17,042
                
                
                32,106Other
                    Liabilities
                
                
                1,185
                
                
                1,108Total
                    Liabilities
                
                
                141,216
                
                
                152,207**STOCKHOLDERS'
                    EQUITY**Preferred
                    Stock - $.01 Par Value; 5,000,000 Shares Authorized,None
                    Issued
                
                
                -
                
                
                -Common
                    Stock - $.01 Par Value; 20,000,000 Shares Authorized3,438,500
                    Shares Issued
                
                
                34
                
                
                34Additional
                    Paid-In Capital
                
                
                34,701
                
                
                34,565Unearned
                    ESOP Stock
                
                
                -
                
                
                (239
                )Unearned
                    RRP Trust Stock
                
                
                (523
                )
                
                (698
                )Treasury
                    Stock (2,172,232 Shares in 2006, and2,154,469
                    Shares in 2005) at Cost
                
                
                (32,493
                )
                
                (32,193
                )Retained
                    Earnings
                
                
                25,764
                
                
                24,136Accumulated
                    Other Comprehensive Loss
                
                
                (319
                )
                
                (198
                )Total
                    Stockholders' Equity
                
                
                27,164
                
                
                25,407Total
                    Liabilities and Stockholders' Equity
                
                $
                168,380
                
                $
                177,614
 
 
 
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 30
 **GS
                    FINANCIAL CORP. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF INCOME (LOSS)**For
                    the Years EndedDecember
                    31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands, Except Per Share Data)***INTEREST
                    AND DIVIDEND INCOME**Loans,
                    Including Fees
                
                $
                6,803
                
                $
                6,658
                
                $
                6,638Investment
                    Securities
                
                
                3,485
                
                
                3,431
                
                
                4,281Other
                    Interest Income
                
                
                712
                
                
                377
                
                
                70Total
                    Interest Income
                
                
                11,000
                
                
                10,466
                
                
                10,989**INTEREST
                    EXPENSE**Deposits
                
                
                3,665
                
                
                2,987
                
                
                3,227Advances
                    from Federal Home Loan Bank
                
                
                1,239
                
                
                1,869
                
                
                2,209Total
                    Interest Expense
                
                
                4,904
                
                
                4,856
                
                
                5,436**NET
                    INTEREST INCOME**
                
                
                6,096
                
                
                5,610
                
                
                5,553**(REVERSAL)
                    PROVISION FOR LOAN LOSSES**
                
                
                (1,981
                )
                
                4,793
                
                
                343**NET
                    INTEREST INCOME AFTER PROVISION****FOR
                    LOAN LOSSES**
                
                
                8,077
                
                
                817
                
                
                5,210**NON-INTEREST
                    INCOME (LOSS)**Net
                    Loss on Available-for-Sale Securities
                
                
                (90
                )
                
                (1,295
                )
                
                (753
                )Other
                    Income
                
                
                141
                
                
                1
                
                
                62Total
                    Non-Interest Income (Loss)
                
                
                51
                
                
                (1,294
                )
                
                (691
                )**NON-INTEREST
                    EXPENSES**Salaries
                    and Employee Benefits
                
                
                3,240
                
                
                2,976
                
                
                2,685Occupancy
                    Expense
                
                
                542
                
                
                458
                
                
                429Ad
                    Valorem Taxes
                
                
                194
                
                
                435
                
                
                403Other
                    Expenses
                
                
                950
                
                
                838
                
                
                966Total
                    Non-Interest Expenses
                
                
                4,926
                
                
                4,707
                
                
                4,483**INCOME
                    (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)**
                
                
                3,202
                
                
                (5,184
                )
                
                36**INCOME
                    TAX EXPENSE (BENEFIT)**
                
                
                1,088
                
                
                (1,508
                )
                
                (163
                )**NET
                    INCOME (LOSS)**
                
                $
                2,114
                
                $
                (3,676
                )
                $
                199**EARNINGS
                    (LOSS) PER SHARE - BASIC**
                
                $
                1.74
                
                $
                (3.11
                )
                $
                0.17**EARNINGS
                    (LOSS) PER SHARE - DILUTED**
                
                $
                1.73
                
                $
                (3.11
                )
                $
                0.17
   The
        accompanying notes are an integral part of these financial
        statements.
 
 
 31
  **GS
                    FINANCIAL CORP. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**For
                    the Years EndedDecember
                    31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands)***NET
                    INCOME (LOSS)**
                
                $
                2,114
                
                $
                (3,676
                )
                $
                199**OTHER
                    COMPREHENSIVE (LOSS) INCOME,****NET
                    OF TAX:**Unrealized
                    Holding Losses Arising During thePeriod
                
                
                (150
                )
                
                (704
                )
                
                (910
                )Reclassification
                    Adjustment for LossesIncluded
                    in Net Income
                
                
                29
                
                
                802
                
                
                459Total
                    Other Comprehensive (Loss) Income
                
                
                (121
                )
                
                98
                
                
                (451
                )**COMPREHENSIVE
                    INCOME (LOSS)**
                
                $
                1,993
                
                $
                (3,578
                )
                $
                (252
                )
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 32
 **GS
                    FINANCIAL CORP. AND SUBSIDIARY****CONSOLIDATED
                    STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY****For
                    the Years Ended December 31, 2006, 2005, and 2004**Unearned
                
                
                Unearned
                
                
                
                
                
                Other
                
                
                TotalCommon
                
                
                Paid-In
                
                
                Treasury
                
                
                ESOP
                
                
                RRP
                    Trust
                
                
                Retained
                
                
                Comprehensive
                
                
                Stockholders'Stock
                
                
                Capital
                
                
                Stock
                
                
                Stock
                
                
                Stock
                
                
                Earnings
                
                
                Income
                    (Loss
                )
                
                Equity*(In
                    Thousands)***BALANCES
                    AT JANUARY 1, 2004**
                
                $
                34
                
                $
                34,231
                
                $
                (31,804
                )
                $
                (802
                )
                $
                (1,059
                )
                $
                28,553
                
                $
                155
                
                $
                29,308Distribution
                    of RRP Trust Stock
                
                
                -
                
                
                (51
                )
                
                -
                
                
                -
                
                
                194
                
                
                -
                
                
                -
                
                
                143ESOP
                    Compensation Earned
                
                
                -
                
                
                245
                
                
                -
                
                
                281
                
                
                -
                
                
                -
                
                
                -
                
                
                526Purchase
                    of Treasury Stock
                
                
                -
                
                
                -
                
                
                (315
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (315
                )Dividends
                    Declared
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (466
                )
                
                -
                
                
                (466
                )Net
                    Income - Year Ended December 31, 2004
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                199
                
                
                -
                
                
                199Other
                    Comprehensive Loss, Net of ApplicableDeferred
                    Income Taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (451
                )
                
                (451
                )**BALANCES
                    AT DECEMBER 31, 2004**
                
                
                34
                
                
                34,425
                
                
                (32,119
                )
                
                (521
                )
                
                (865
                )
                
                28,286
                
                
                (296
                )
                
                28,944Distribution
                    of RRP Trust Stock
                
                
                -
                
                
                (43
                )
                
                -
                
                
                -
                
                
                167
                
                
                -
                
                
                -
                
                
                124ESOP
                    Compensation Earned
                
                
                -
                
                
                183
                
                
                -
                
                
                282
                
                
                -
                
                
                -
                
                
                -
                
                
                465Purchase
                    of Treasury Stock
                
                
                -
                
                
                -
                
                
                (74
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (74
                )Dividends
                    Declared
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (474
                )
                
                -
                
                
                (474
                )Net
                    Loss - Year Ended December 31, 2005
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,676
                )
                
                -
                
                
                (3,676
                )Other
                    Comprehensive Income, Net of ApplicableDeferred
                    Income Taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                98
                
                
                98**BALANCES
                    AT DECEMBER 31, 2005**
                
                
                34
                
                
                34,565
                
                
                (32,193
                )
                
                (239
                )
                
                (698
                )
                
                24,136
                
                
                (198
                )
                
                25,407Distribution
                    of RRP Trust Stock
                
                
                -
                
                
                (50
                )
                
                -
                
                
                -
                
                
                175
                
                
                -
                
                
                -
                
                
                125ESOP
                    Compensation Earned
                
                
                -
                
                
                186
                
                
                -
                
                
                239
                
                
                -
                
                
                -
                
                
                -
                
                
                425Purchase
                    of Treasury Stock
                
                
                -
                
                
                -
                
                
                (300
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (300
                )Dividends
                    Declared
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (486
                )
                
                -
                
                
                (486
                )Net
                    Income - Year Ended December 31, 2006
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,114
                
                
                -
                
                
                2,114Other
                    Comprehensive Loss, Net of ApplicableDeferred
                    Income Taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (121
                )
                
                (121
                )**BALANCES
                    AT DECEMBER 31, 2006**
                
                $
                34
                
                $
                34,701
                
                $
                (32,493
                )
                $
                -
                
                $
                (523
                )
                $
                25,764
                
                $
                (319
                )
                $
                27,164
  
 The
        accompanying notes are an integral part of these financial
        statements.
 
 33
  **GS
                  FINANCIAL CORP. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**For
                  the Years EndedDecember
                  31,2006
              
              
              2005
              
              
              2004*(In
                  Thousands)***CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income (Loss)
              
              $
              2,114
              
              $
              (3,676
              )
              $
              199Adjustments
                  to Reconcile Net Income (Loss) to Net CashProvided
                  by Operating Activities:Depreciation
              
              
              172
              
              
              154
              
              
              142Impairment
                  of Fixed Assets
              
              
              -
              
              
              159
              
              
              -Discount
                  Accretion Net of Premium Amortization
              
              
              (45
              )
              
              (80
              )
              
              (46
              )(Reversal)
                  Provision for Loan Losses
              
              
              (1,981
              )
              
              4,793
              
              
              343Non-Cash
                  Dividend - FHLB Stock
              
              
              (74
              )
              
              (81
              )
              
              (46
              )Net
                  Loan Fees
              
              
              2
              
              
              2
              
              
              -Mutual
                  Fund Dividends Reinvested
              
              
              (517
              )
              
              -
              
              
              (1,347
              )ESOP
                  Expense
              
              
              408
              
              
              465
              
              
              526RRP
                  Expense
              
              
              143
              
              
              119
              
              
              128Gain
                  on Sale of Loans
              
              
              (30
              )
              
              -
              
              
              -(Gain)
                  Loss on Sale of Foreclosed Real Estate
              
              
              -
              
              
              (40
              )
              
              31Loss
                  on Sale of Investments
              
              
              90
              
              
              18
              
              
              256Loss
                  on Write-Down of Investments
              
              
              -
              
              
              1,277
              
              
              497Deferred
                  Income Tax Expense (Benefit)
              
              
              325
              
              
              (1,722
              )
              
              (387
              )Changes
                  in Operating Assets and Liabilities:Increase
                  in Accrued Interest Receivable
              
              
              (377
              )
              
              (1,025
              )
              
              (49
              )(Increase)
                  Decrease in Prepaid Income Taxes
              
              
              -
              
              
              (16
              )
              
              41Decrease
                  (Increase) in Other Assets
              
              
              451
              
              
              54
              
              
              (17
              )Increase
                  (Decrease) in Accrued Interest - FHLB Advances
              
              
              27
              
              
              27
              
              
              (157
              )(Decrease)
                  Increase in Accrued Income Tax
              
              
              (65
              )
              
              83
              
              
              65Increase
                  in Other Liabilities
              
              
              308
              
              
              735
              
              
              258Net
                  Cash Provided by Operating Activities
              
              
              951
              
              
              1,246
              
              
              437**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Proceeds
                  from Maturities of Investment Securities
              
              
              6,117
              
              
              8,872
              
              
              8,594Proceeds
                  from Sales of Investment Securities
              
              
              14,963
              
              
              19,631
              
              
              11,395Purchases
                  of Investment Securities
              
              
              (37,543
              )
              
              (12,077
              )
              
              (11,941
              )Redemption
                  of (Investment in) Mutual Funds, Net
              
              
              38,961
              
              
              (133
              )
              
              16,623Loan
                  Originations and Principal Collections, Net
              
              
              (23,638
              )
              
              17,312
              
              
              (15,492
              )Proceeds
                  from Sales of Loans
              
              
              1,353
              
              
              -
              
              
              -Purchases
                  of Premises and Equipment
              
              
              (1,480
              )
              
              (49
              )
              
              (41
              )Proceeds
                  from Sales of Foreclosed Real Estate
              
              
              -
              
              
              199
              
              
              403Investment
                  in Foreclosed Real Estate
              
              
              -
              
              
              (5
              )
              
              (24
              )Redemption
                  of Federal Home Loan Bank Stock
              
              
              925
              
              
              692
              
              
              327Net
                  Cash (Used in) Provided by Investing Activities
              
              
              (342
              )
              
              34,442
              
              
              9,844
  **CASH
                  FLOWS FROM FINANCING ACTIVITIES**Purchase
                  of Treasury Stock
              
              
              (300
              )
              
              (74
              )
              
              (315
              )Decrease
                  in Advances from Federal Home Loan Bank
              
              
              (15,064
              )
              
              (7,583
              )
              
              (2,446
              )Payment
                  of Cash Stock Dividends
              
              
              (486
              )
              
              (474
              )
              
              (466
              )Increase
                  (Decrease) in Deposits
              
              
              3,888
              
              
              (11,857
              )
              
              (11,385
              )Decrease
                  in Deposits for Escrows
              
              
              (85
              )
              
              (169
              )
              
              (16
              )Net
                  Cash Used in Financing Activities
              
              
              (12,047
              )
              
              (20,157
              )
              
              (14,628
              )**NET
                  (DECREASE) INCREASE IN CASH AND CASH****EQUIVALENTS**
              
              
              (11,438
              )
              
              15,531
              
              
              (4,347
              )**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR**
              
              
              22,555
              
              
              7,024
              
              
              11,371**CASH
                  AND CASH EQUIVALENTS, END OF YEAR**
              
              $
              11,117
              
              $
              22,555
              
              $
              7,024**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW****INFORMATION**Cash
                  Paid During the Year for:Interest
              
              $
              5,014
              
              $
              4,883
              
              $
              5,593Income
                  Taxes
              
              
              -
              
              
              109
              
              
              118Loans
                  Transferred to Foreclosed Real EstateDuring
                  the Year
              
              
              -
              
              
              154
              
              
              358Market
                  Value Adjustment for (Loss) Gainon
                  Securites Available-for-Sale
              
              
              (183
              )
              
              148
              
              
              (682
              )
   The
        accompanying notes are an integral part of these financial
        statements





34
 **NOTE
        A**
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **NATURE
        OF OPERATIONS**
 **GS
        FINANCIAL CORP.** (Company) was organized as a Louisiana corporation on December 24, 1996,
        for the
        purpose of becoming the holding company of Guaranty Savings and Homestead
        Association (Association) in anticipation of converting the Association from
        a
        Louisiana chartered mutual savings and loan association to a Louisiana chartered
        stock savings and loan association. In June 2006, the Association changed
        its
        name to Guaranty Savings Bank (Bank). The Bank operates in the banking/savings
        and loan industry and, as such, provides financial services to individuals,
        corporate entities and other organizations through the origination of loans
        and
        the acceptance of deposits in the form of passbook savings, certificates
        of
        deposit, money market accounts and demand deposit accounts.
 
 The
        Bank
        is subject to competition from other financial institutions, and is also
        subject
        to the regulations of certain Federal and State agencies and undergoes periodic
        examinations by those regulatory authorities.
 
 **BASIS
        OF PRESENTATION AND CONSOLIDATION**
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly-owned subsidiary, Guaranty Savings Bank. All significant inter-company
        balances and transactions have been eliminated in consolidation.
 
 **USE
        OF ESTIMATES**
 In
        preparing consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America, management
        is
        required to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities as of the date of the balance sheets and reported
        amounts
        of revenues and expenses during the reporting period. Actual results could
        differ from those estimates. Material estimates that are particularly
        susceptible to significant change relate to the determination of the allowance
        for losses on loans and valuation of foreclosed real estate.
 
 **SIGNIFICANT
        GROUP CONCENTRATIONS OF CREDIT RISK**
 Most
        of
        the Company’s activities are with customers located within the Greater New
        Orleans area in Louisiana. Note B discusses the types of securities in which
        the
        Company invests. Note C discusses the types of lending in which the Company
        engages. The Company does not have any significant concentrations in any
        one
        industry or to any one customer.
 
 **CASH
        AND CASH EQUIVALENTS**
 For
        the
        purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents
        include cash and balances due from banks, federal funds sold and securities
        purchased under agreements to resell, all of which mature within ninety
        days.
 
 **SECURITIES
        AVAILABLE-FOR-SALE**
 Marketable
        securities are classified as “available-for-sale” and recorded at fair value,
        with unrealized gains and losses excluded from earnings and reported in other
        comprehensive income.
  35
  **NOTE
        A**
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 **SECURITIES
        AVAILABLE-FOR-SALE (Continued)**
 Purchase
        premiums and discounts are recognized in interest income over the terms of
        the
        securities. Gains and losses on sales of securities are recorded on the trade
        date and are determined using the specific identification method.
 
 **LOANS**
 The
        Company, through the Bank, grants mortgage, commercial and construction loans,
        and lines of credit to customers. A substantial portion of the loan portfolio
        is
        represented by mortgage loans throughout the greater New Orleans area. The
        ability of the Company’s debtors to honor their contracts is dependent upon the
        real estate and general economic conditions in this area.
 
 Loans
        are
        reported at their outstanding unpaid principal balance adjusted for charge-offs,
        the allowance for loan losses, and any deferred fees or costs on originated
        loans. Interest income is accrued on the unpaid principal balance. Loan
        origination and commitment fees, as well as certain direct origination costs,
        are deferred and amortized as a yield adjustment over the lives of the related
        loans using the interest method. Amortization of net deferred loan fees or
        costs
        is discontinued when a loan is placed on non-accrual status.
 
 The
        accrual of interest on loans is discontinued at the time the loan is 90 days
        past due. At that time, uncollected interest previously recorded is reversed.
        If
        the delinquent interest is subsequently collected, it is credited to income
        in
        the period collected. Interest on impaired loans is discontinued when, in
        management’s opinion, the borrower may be unable to meet payments as they become
        due.
 
 Subsequent
        to Hurricane Katrina, the Bank deferred loan payments for certain loans for
        the
        months of September, October and November 2005. Interest continued to accrue
        at
        the contract rate, and unpaid interest for these months will be due at payoff
        or
        maturity. For loans which were performing prior to Katrina, the deferral
        period
        was not considered in measuring delinquency and performing status.
  **ALLOWANCE
        FOR LOAN LOSSES**
 The
        allowance for loan losses is established as losses are estimated to have
        occurred through a provision for loan losses charged to earnings. Loan losses
        are charged against the allowance when management believes the uncollectibility
        of a loan balance is confirmed. Subsequent recoveries, if any, are credited
        to
        the allowance.
 
 The
        allowance for loan losses is evaluated on a regular basis by management and
        is
        based upon management’s periodic review of the Bank’s past loan loss experience,
        known and inherent risks in the portfolio, adverse situations that may affect
        the borrower’s ability to pay, the estimated value of underlying collateral, and
        prevailing economic conditions. This evaluation is inherently subjective,
        as it
        requires estimates that are susceptible to significant revision as more
        information becomes available.
  36
  **NOTE
        A**
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 **ALLOWANCE
        FOR LOAN LOSSES (Continued)**
 A
        loan is
        considered impaired when, based on current information and events, it is
        probable the Bank will be unable to collect the scheduled payments of principal
        or interest when due according to the contractual terms of the loan agreement.
        Factors considered by management in determining impairment include payment
        status, collateral value, and the probability of collecting scheduled principal
        and interest payments when due. Impairment is measured on a loan by loan
        basis
        by either the present value of expected future cash flows discounted at the
        loan’s effective interest rate, the loan’s obtainable market price, or the fair
        value of the collateral if the loan is collateral dependent.
 
 **FORECLOSED
        ASSETS**
 Assets
        acquired through, or in lieu of, loan foreclosure are held for sale and are
        initially recorded at the lower of the related loan balance or fair value
        less
        estimated cost to sell at the date of foreclosure. Management periodically
        performs valuations, and an allowance for losses will be established to reduce
        the net carrying value to net realizable value if necessary. Costs related
        to
        improvement of the property are capitalized, whereas costs related to holding
        the property are charged to operations.
 
 **PREMISES
        AND EQUIPMENT**
 Land
        is
        carried at cost. Buildings and equipment are carried at cost, less accumulated
        depreciation computed on the straight-line method over the estimated useful
        lives of the assets. Estimated useful lives of premises and equipment range
        as
        follows:
 
 Building
        and Improvements 10
        - 39
        Years
 Furniture
        and Equipment 3
        - 7
        Years
 
 **REAL
        ESTATE HELD-FOR-INVESTMENT**
 Real
        estate held-for-investment consists of a multi-suite office building. The
        Company leases two of the four suites to the Bank, which serves as a branch
        office location. The remaining two suites are leased by unrelated third
        parties.
 
 **INCOME
        TAXES**
 The
        Company and its wholly-owned subsidiary file a consolidated Federal income
        tax
        return on a calendar year basis. Each entity pays its pro rata share of income
        taxes in accordance with a written tax-sharing agreement.
 
 Deferred
        income tax assets and liabilities are determined using the liability (or
        balance
        sheet) method. Under this method, the net deferred tax asset or liability
        is
        determined based on the tax effects of the temporary differences between
        the
        book and tax bases of the various balance sheet assets and liabilities and
        gives
        current recognition to change in tax rates and laws.
 
 While
        the
        Bank is exempt from Louisiana income tax, it is subject to the Louisiana
        Ad
        Valorem tax that is based on stockholders’ equity and net income.
  37
  **NOTE
        A**
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 **STOCK
        COMPENSATION PLANS**
 During
        2005, the FASB revised SFAS No. 123. SFAS No. 123(R) replaces the prior SFAS
        No.
        123 and superceded APB Opinion No. 25. This Statement requires a public entity
        to measure the cost of employee services received in exchange for an award
        of
        equity instruments based on the grant-date fair value of the award. That
        cost is
        to be recognized over the period during which an employee is required to
        provide
        service in exchange for the award. The adoption had no impact on the Company’s
        interim or annual financial statements for 2006, since all outstanding options
        issued became fully vested in 2002.
 
 **ADVERTISING
        COSTS**
 The
        Company expenses advertising costs as incurred. Advertising costs were $40,000,
        $67,000, and $159,000 for the years ended December 31, 2006, 2005 and 2004,
        respectively.
 
 **COMPREHENSIVE
        INCOME**
 Accounting
        principles generally require that recognized revenue, expenses, gains and
        losses
        be included in net income. Although certain changes in assets and liabilities,
        such as unrealized gains and losses on available-for-sale securities, are
        reported as a separate component of the equity section of the balance sheets;
        such items, along with net income, are components of comprehensive
        income.
 
 **RECENT
        ACCOUNTING PRONOUNCEMENTS**
 In
        February 2006, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standards (SFAS) No. 155, *Accounting
        for Certain Hybrid Financial Instruments* .
        This
        Statement amends FASB Statement No. 133, *Accounting
        for*  *Derivative
        Instruments and Hedging Activities* ,
        and
        Statement No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        This
        Statement permits fair value remeasurement for any hybrid financial instrument
        that contains an embedded derivative that otherwise would require bifurcation,
        clarifies which interest-only strips and principal-only strips are not subject
        to the requirements of SFAS No. 133, establishes a requirement to evaluate
        interests in securities financial assets to identify interests that are
        freestanding derivatives or that are hybrid financial instruments that contain
        an embedded derivative requiring bifurcation, and clarifies that concentrations
        of credit risk in the form of subordination are not embedded derivatives.
        This
        Statement is effective for all financial instruments acquired or issued after
        the beginning of an entity’s first fiscal year that begins after September 15,
        2006. This pronouncement is not expected to have an effect on the financial
        position and results of operations of the Company.
 
 In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets* .
        This
        Statement requires an entity to recognize a servicing asset or servicing
        liability each time it undertakes an obligation to service a financial asset
        by
        entering into a servicing contract in certain prescribed situations. In
        addition, this Statement requires that all separately recognized servicing
        assets and servicing liabilities be measured at fair value, if practicable.
        The
        FASB recommends that entities should adopt this Statement as of the beginning
        of
        its first fiscal year that begins after September 15, 2006. This pronouncement
        is not expected to have a material effect on the financial position and results
        of operations of the Company.
 
 38
 **NOTE
        A**
 **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 **RECENT
        ACCOUNTING PRONOUNCEMENTS (Continued)**
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* .
        This
        Statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles, and expands disclosures about
        fair
        value measurements. This Statement is effective for financial statements
        issued
        for fiscal years beginning after November 15, 2007. This pronouncement is
        not
        expected to have a material effect on the financial position and results
        of
        operations of the Company.
 
 In
        September 2006, the FASB issued SFAS No. 158, *Postretirement
        Plans* .
        This
        Statement requires an employer to recognize the overfunded or underfunded
        status
        of a defined benefit postretirement plan (other than a multi-employer plan)
        as
        an asset or liability in its statement of financial position and to recognize
        changes in that funded status in the year in which the changes occur through
        comprehensive income. An employer with publicly traded equity securities is
        required to initially recognize the funded status of a defined benefit
        postretirement plan and to provide the required disclosures as of the end
        of the
        fiscal year ending after December 15, 2006. An employer without publicly
        traded
        equity securities is required to recognize the funded status of a defined
        benefit postretirement plan and to provide the required disclosures as of
        the
        end of the fiscal year ending after June 15, 2007. This pronouncement is
        not
        expected to have a material effect on the financial position and results
        of
        operations of the Company.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* .
        This
        Statement permits entities to choose to measure many financial instruments
        and
        certain other items at fair value. The objective is to improve financial
        reporting by providing entities with the opportunity to mitigate volatility
        in
        reported earnings caused by measuring related assets and liabilities differently
        without having to apply complex hedge accounting provisions. This Statement
        is
        expected to expand the use of fair value measurement. This Statement is
        effective as of the beginning of an entity’s first fiscal year that begins after
        November 15, 2007.
 
 In
        June
        2006, the FASB issued Interpretation Number (FIN) 48, *Accounting
        for Uncertainty in Income Taxes (as amended)* .
        This
        Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with SFAS No.
        109, *Accounting
        for Income Taxes* .
        This
        Interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. This Interpretation also provides guidance
        on derecognition, classification, interest and penalties, accounting in interim
        periods, disclosure, and transition. This Interpretation is effective for
        fiscal
        years beginning after December 15, 2006.
 
  39
  **NOTE
        B**
 **SECURITIES
        AVAILABLE-FOR-SALE**
 The
        amortized costs and fair value of securities available-for-sale, with gross
        unrealized gains and losses, follows:
  December
                    31, 2006Gross
                
                
                
                
                
                GrossAmortized
                
                
                Unrealized
                
                
                UnrealizedCost
                
                
                Gains
                
                
                Losses
                
                
                Fair
                    Value*(In
                    Thousands)*Debt
                    SecuritiesU.S.
                    Government and FederalAgencies
                
                $
                23,485
                
                $
                -
                
                $
                159
                
                $
                23,326Mortgage-Backed
                    Securities
                
                
                3,764
                
                
                27
                
                
                -
                
                
                3,791Collateralized
                    Mortgage Obligations
                
                
                17,486
                
                
                3
                
                
                316
                
                
                17,173Total
                    Debt Securities
                
                
                44,735
                
                
                30
                
                
                475
                
                
                44,290Marketable
                    Equity SecuritiesMutual
                    Funds
                
                
                10,832
                
                
                -
                
                
                32
                
                
                10,800Total
                    Marketable Equity Securities
                
                
                10,832
                
                
                -
                
                
                32
                
                
                10,800Total
                    Securities Available-for-Sale
                
                $
                55,567
                
                $
                30
                
                $
                507
                
                $
                55,090
 December
                    31, 2005Gross
                
                
                
                
                
                GrossAmortized
                
                
                Unrealized
                
                
                UnrealizedCost
                
                
                Gains
                
                
                Losses
                
                
                Fair
                    Value*(In
                    Thousands)*Debt
                    SecuritiesU.S.
                    Government and FederalAgencies
                
                $
                5,488
                
                $
                6
                
                $
                45
                
                $
                5,449Mortgage-Backed
                    Securities
                
                
                94
                
                
                6
                
                
                -
                
                
                100Collateralized
                    Mortgage Obligations
                
                
                22,741
                
                
                23
                
                
                268
                
                
                22,496Total
                    Debt Securities
                
                
                28,323
                
                
                35
                
                
                313
                
                
                28,045Marketable
                    Equity SecuritiesMutual
                    Funds
                
                
                49,320
                
                
                -
                
                
                21
                
                
                49,299Total
                    Marketable Equity Securities
                
                
                49,320
                
                
                -
                
                
                21
                
                
                49,299Total
                    Securities Available-for-Sale
                
                $
                77,643
                
                $
                35
                
                $
                334
                
                $
                77,344
  40
  **NOTE
        B**
 **SECURITIES
        - AVAILABLE-FOR-SALE (Continued)**
 The
        amortized cost and fair value of debt securities by contractual maturity
        at
        December 31, 2006, follows. Debt securities with scheduled repayments, such
        as mortgage-backed-securities and collateralized mortgage obligations are
        presented in separate totals.
 
 Amortized
                    Cost
                  
                  
                  Fair
                      Value*(In
                      Thousands)*Amounts
                      Maturing in:Within
                      One Year
                  
                  $
                  5,000
                  
                  $
                  4,999One
                      to Five Years
                  
                  
                  2,995
                  
                  
                  2,987Five
                      to Ten Years
                  
                  
                  7,990
                  
                  
                  7,920Greater
                      than Ten Years
                  
                  
                  7,500
                  
                  
                  7,42023,485
                  
                  
                  23,326Mortgage-Backed
                      Securities
                  
                  
                  3,764
                  
                  
                  3,791Collateralized
                      Mortgage Obligations
                  
                  
                  17,486
                  
                  
                  17,173$
                  44,735
                  
                  $
                  44,290
 
 For
        the
        years ended December 31, 2006, 2005 and 2004, proceeds from the sale of
        securities available-for-sale amounted to $14,963,000, $19,631,000, and
        $11,395,000, respectively. Gross realized gains amounted to $3,000, $92,000,
        and
        $9,000, respectively. Gross realized losses in 2006, 2005 and 2004, were
        $-0-,
        $110,000, and $-0-, respectively.
 
 In
        addition to the sales of securities available-for-sale during the years ended
        December 31, 2006 and 2004, the Company also redeemed shares of its
        investment in mutual funds. Proceeds from the redemption of these shares
        amounted to $38,463,000 and $20,828,000, respectively, and the Company realized
        losses of $93,000 and $265,000 on these redemptions in the years ended December
        31, 2006 and 2004, respectively. There were no redemptions in 2005.
 
 In
        accordance with the Company’s policy to review the investment portfolio for
        declines that may be other than temporary, non-cash losses of approximately
        $1,277,000 and $497,000 were recorded on certain available-for-sale securities
        in 2005 and 2004, respectively. No other-than-temporary losses were recorded
        in
        2006.
 
 No
        securities were pledged at December 31, 2006 and 2005.
  41
  **NOTE
        B**
 **SECURITIES
        AVAILABLE-FOR-SALE (Continued)**
 Information
        pertaining to securities with gross unrealized losses at December 31, 2006
        and
        2005, aggregated by investment category and length of time that individual
        securities have been in a continuous loss position follows:
 Less
                  Than Twelve Months
                
                
                
                
                
                Over
                    Twelve MonthsDecember
                    31, 2006
                
                
                Gross
                
                
                
                
                
                GrossUnrealized
                
                
                Fair
                
                
                Unrealized
                
                
                FairLosses
                
                
                Value
                
                
                Losses
                
                
                Value*(In
                    Thousands)*U.S.
                    Government and FederalAgencies
                
                $
                159
                
                $
                23,326
                
                $
                -
                
                $
                -Mortgage-Backed
                    Securities
                
                
                -
                
                
                -
                
                
                -
                
                
                -Collateralized
                    Mortgage Obligations
                
                
                -
                
                
                -
                
                
                316
                
                
                16,112Marketable
                    Equity Securities
                
                
                -
                
                
                -
                
                
                32
                
                
                10,800Total
                    Securities
                
                $
                159
                
                $
                23,326
                
                $
                348
                
                $
                26,912
  The
            unrealized losses on the Collateralized Mortgage Obligations are consistent
            with
            recent increases in interest rates. The Company’s investment in equity
            securities consists primarily of shares of an adjustable rate mortgage
            loan
            mutual fund. The unrealized losses associated with this fund were caused
            by
            interest rate increases, and the timing between when these rate increases
            took
            place compared to the resulting adjustment in rates in the underlying
            mortgage
            loans. 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
            the
            investments to be other-than-temporarily impaired at December 31, 2006.
  Less
                    Than Twelve Months
                  
                  
                  
                  
                  
                  Over
                      Twelve MonthsDecember
                      31, 2005
                  
                  
                  Gross
                  
                  
                  
                  
                  
                  GrossUnrealized
                  
                  
                  Fair
                  
                  
                  Unrealized
                  
                  
                  FairLosses
                  
                  
                  Value
                  
                  
                  Losses
                  
                  
                  Value*(In
                      Thousands)*U.S.
                      Government and FederalAgencies
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  45
                  
                  $
                  4,944Mortgage-Backed
                      Securities
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Collateralized
                      Mortgage Obligations
                  
                  
                  139
                  
                  
                  5,951
                  
                  
                  129
                  
                  
                  10,354Marketable
                      Equity Securities
                  
                  
                  -
                  
                  
                  -
                  
                  
                  21
                  
                  
                  427Total
                      Securities
                  
                  $
                  139
                  
                  $
                  5,951
                  
                  $
                  195
                  
                  $
                  15,725
     42
  **NOTE
        C**
 **LOANS**
 A
        summary
        of the balances of loans follows:
 
 December
                    31,2006
                
                
                2005*(In
                    Thousands)*Loans
                    Secured by First Mortgages on Real Estate:1-4
                    Family Residential
                
                $
                48,610
                
                $
                36,800Construction
                
                
                9,089
                
                
                11,282Commercial
                    Real Estate
                
                
                30,791
                
                
                13,989Other
                
                
                6,105
                
                
                10,805Total
                    Real Estate Loans
                
                
                94,595
                
                
                72,876Consumer
                    Loans
                
                
                677
                
                
                669Commercial
                    Loans
                
                
                2,445
                
                
                1,819Total
                    Loans
                
                
                97,717
                
                
                75,364Allowance
                    for Loan Losses
                
                
                (3,732
                )
                
                (5,713
                )Net
                    Deferred Loan Origination Costs
                
                
                2
                
                
                6Loans,
                    Net
                
                $
                93,987
                
                $
                69,657
 
 An
        analysis of the allowance for loan losses is as follows:
 
 Allowance
                    for Loan LossesYears
                    Ended December 31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands)*Balance,
                    Beginning of Year
                
                $
                5,713
                
                $
                920
                
                $
                601(Reversal)
                    Provision for Loan Losses
                
                
                (1,981
                )
                
                4,793
                
                
                343Charge-offs
                
                
                -
                
                
                -
                
                
                (24
                )Balance,
                    End of Year
                
                $
                3,732
                
                $
                5,713
                
                $
                920
 
  43
  **NOTE
        C**
 **LOANS
        (Continued)**
 Loans
        receivable as of December 31, 2006, are scheduled to mature and adjustable
        rate
        loans are scheduled to reprice as follows:
  Under
                  One
                
                
                One
                    to Five
                
                
                Six
                    to Ten
                
                
                Over
                    TenYear
                
                
                Years
                
                
                Years
                
                
                Years
                
                
                Total*(In
                    Thousands)*1-4
                    Family - Fixed Rate
                
                $
                2,414
                
                $
                2,493
                
                $
                5,121
                
                $
                41,623
                
                $
                51,651Other
                    Real Estate -Fixed
                    Rate
                
                
                11,571
                
                
                17,320
                
                
                14,058
                
                
                -
                
                
                42,949Commercial
                    - Fixed Rate
                
                
                58
                
                
                162
                
                
                839
                
                
                -
                
                
                1,059All
                    Other Loans
                
                
                1,831
                
                
                227
                
                
                -
                
                
                -
                
                
                2,058$
                15,874
                
                $
                20,202
                
                $
                20,018
                
                $
                41,623
                
                $
                97,717
 
 Loans
        for
        which impairment had been recognized totaled approximately $8,894,000 and
        $11,841,000 at December 31, 2006 and 2005, respectively. The higher amount
        in
        2005 can be attributed to uncertainties following Hurricane Katrina. The
        valuation allowance related to impaired loans amounted to $1,248,000 and
        $3,764,000 at December 31, 2006 and 2005, respectively. The amount of interest
        income that would have been recorded on impaired loans at December 31, 2006
        and
        2005, was $46,000 and $230,000, respectively.
 
 In
        the
        ordinary course of business, the Company has granted loans to principal officers
        and directors and their affiliates. In the opinion of management, such
        transactions were on substantially the same terms, including interest rates
        and
        collateral, as those prevailing at the time of comparable transactions with
        other persons and did not involve more than a normal risk of collectibility
        or
        present any other unfavorable features to the Association. An analysis of
        the
        changes in loans to such borrowers follows:
 
 December
                    31,2006
                
                
                2005*(In
                    Thousands)*Balance,
                    Beginning of Year
                
                $
                222
                
                $
                763Additions
                
                
                410
                
                
                -Payments
                    and Renewals
                
                
                (12
                )
                
                (541
                )Balance,
                    End of Year
                
                $
                620
                
                $
                222
  44
  **NOTE
        C**
 **LOANS
        (Continued)**
 The
        Company’s lending activity is concentrated within the metropolitan New Orleans
        area and surrounding parishes, with its major emphasis in the origination
        of
        permanent single-family dwelling loans and real-estate secured commercial
        loans.
        Such loans comprise the majority of the Company’s loan portfolio.
 
 
 **NOTE
        D**
 **ACCRUED
        INTEREST RECEIVABLE**
 Accrued
        interest receivable increased substantially in 2005, as the result of deferring
        three months of payments on most loans immediately following Hurricane Katrina.
        The deferred interest will be collected at the time of maturity or payoff.
        Accrued interest receivable at December 31, 2006 and 2005, consists of the
        following:
  December
                  31,
                
                
                December
                  31,2006
                
                
                2005*(In
                    Thousands)*Loans
                
                $
                1,507
                
                $
                1,424Securities
                
                
                497
                
                
                203Total
                    Accrued Interest
                
                $
                2,004
                
                $
                1,627
 
 **NOTE
        E**
 **FORECLOSED
        ASSETS**
 A
        summary
        of the activity of the foreclosed assets account follows:
 
 December
                  31,
                
                
                December
                  31,2006
                
                
                2005*(In
                    Thousands)*Balance,
                    Beginning of Year
                
                $
                -
                
                $
                -Acquired
                    in Settlement of Loans
                
                
                -
                
                
                154Costs
                    Capitalized
                
                
                -
                
                
                5Sales
                    of Foreclosed Assets
                
                
                -
                
                
                (159
                )$
                    -
                
                
                
                
                $
                -
 
 Expenses
        applicable to foreclosed assets consist of operating expenses, net of rental
        income. The Company incurred net expenses associated with foreclosed real
        estate
        of approximately $-0-, $2,000, and $1,000 for the years ended December 31,
        2006,
        2005, and 2004, respectively.
 
  45
  **NOTE
        F**
 **PREMISES
        AND EQUIPMENT**
 A
        summary
        of the cost and accumulated depreciation of premises and equipment
        follows:
 
 December
                    31,2006
                
                
                2005*(In
                    Thousands)*Land
                
                $
                2,099
                
                $
                952Buildings
                    and Improvements
                
                
                1,849
                
                
                1,702Furniture,
                    Fixtures and Equipment
                
                
                999
                
                
                8294,947
                
                
                3,483Accumulated
                    Depreciation and Amortization
                
                
                (1,369
                )
                
                (1,226
                )$
                3,578
                
                $
                2,257
 
 Depreciation
        expense for the years ended December 31, 2006, 2005 and 2004, was approximately
        $158,000, $139,000, and $124,000, respectively. During 2005, the Bank recognized
        an impairment charge of $159,000 relating to fixed assets damaged as a result
        of
        Hurricane Katrina.
 
 **NOTE
        G**
 **REAL
        ESTATE HELD-FOR-INVESTMENT**
 Real
        estate held-for-investment, which consists of a multi-suite office building
        that
        includes a branch location of the Bank, is summarized below:
 
 December
                    31,2006
                
                
                2005*(In
                    Thousands)*Land
                
                $
                226
                
                $
                226Buildings
                    and Improvements
                
                
                320
                
                
                320546
                
                
                546Accumulated
                    Depreciation and Amortization
                
                
                (82
                )
                
                (68
                )$
                464
                
                $
                478
 
 Depreciation
        expense for each of the years ended December 31, 2006, 2005 and 2004, was
        $14,000, $15,000 and $18,000, respectively.
 
 Rental
        income for the years ended December 31, 2006, 2005 and 2004, was $52,000,
        $53,000 and $48,000 respectively.
  46
  **NOTE
        H**
 **DEPOSITS**
 Interest-bearing
        deposit account balances at December 31, 2006 and 2005, are summarized as
        follows:
 
 Weighted
                    Average Rate at December 31,
                
                
                
                
                
                
                
                
                Account
                    Balances at December 31,2006
                
                
                
                
                
                20052006
                
                
                2005
                
                
                Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent*(In
                    Thousands)*Balance
                    by Interest RateDemand
                    Deposit Accounts
                
                
                2.47
                %
                
                1.03
                %
                $
                17,926
                
                
                15.02
                %
                $
                8,200
                
                
                8.75
                %Savings
                    Accounts
                
                
                1.25
                %
                
                1.25
                %
                
                22,807
                
                
                19.11
                %
                
                31,997
                
                
                26.92
                %Certificates
                    of Deposit
                
                
                4.40
                %
                
                3.35
                %
                
                78,631
                
                
                65.87
                %
                
                76,474
                
                
                64.33
                %$
                119,364
                
                
                100.00
                %
                $
                116,671
                
                
                100.00
                %Certificate
                    Accounts MaturingOne
                    Year or Less
                
                
                
                
                
                
                
                $
                50,180
                
                
                63.81
                %
                $
                46,093
                
                
                60.27
                %One
                    to Two Years
                
                
                
                
                
                
                
                
                23,140
                
                
                29.43
                %
                
                14,278
                
                
                18.67
                %Two
                    to Three Years
                
                
                
                
                
                
                
                
                2,019
                
                
                2.57
                %
                
                11,175
                
                
                14.61
                %Three
                    to Five Years
                
                
                
                
                
                
                
                
                3,292
                
                
                4.19
                %
                
                4,928
                
                
                6.45
                %$
                78,631
                
                
                100.00
                %
                $
                76,474
                
                
                100.00
                %
 The
        aggregate amount of time deposits in denominations of $100,000 or more at
        December 31, 2006 and 2005, was approximately $15,438,000 and $8,107,000,
        respectively.
 
 Interest
        expense for each of the following periods is as follows:
 
 Years
                    Ended December 31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands)*Certificates
                    of Deposit
                
                $
                2,938
                
                $
                2,508
                
                $
                2,653NOW
                    Accounts
                
                
                388
                
                
                97
                
                
                120Passbook
                    Savings
                
                
                339
                
                
                382
                
                
                454$
                3,665
                
                $
                2,987
                
                $
                3,227
 
 The
        Bank
        held deposits of approximately $1,261,000 and $1,552,000 for related parties
        at
        December 31, 2006 and 2005, respectively.
 
  47
  **NOTE
        I**
 **BORROWINGS**
 Pursuant
        to collateral agreements with the Federal Home Loan Bank (FHLB), advances
        issued
        by the Federal Home Loan Bank are secured by a blanket floating lien on first
        mortgage loans and certain pledged CMO’s. Total interest expense recognized on
        FHLB Advances in 2006, 2005 and 2004, was $1,239,000, $1,869,000, and
        $2,209,000, respectively.
 
 Advances
        consisted of the following at December 31, 2006 and 2005,
        respectively.
 FHLB
                    Advance TotalContract
                    Rate
                
                
                2006
                
                
                2005*(In
                    Thousands)*2%
                    - 2.99%
                
                $
                -
                
                $
                5,0005%
                    - 5.99%
                
                
                17,042
                
                
                27,1066%
                    - 6.99%
                
                
                -
                
                
                -$
                17,042
                
                $
                32,106
 
 Maturities
        of FHLB Advances at December 31, 2006, are as follows:
 
 Year
        Ending  Amount
 December
        31,  Maturing
 *(In
        Thousands)*
 
 2007 $ 5,514
 2008 11,528
 $ 17,042
 
 **NOTE
        J**
 **INCOME
        TAX EXPENSE**


Years
                  EndedDecember
                  31,2006
              
              
              2005
              
              
              2004*(In
                  Thousands)*Current
                  Tax Expense
              
              $
              193
              
              $
              -
              
              $
              187Deferred
                  Tax Expense (Benefit)
              
              
              895
              
              
              (1,508
              )
              
              (350
              )$
              1,088
              
              $
              (1,508
              )
              $
              (163
              )
   
 48
 
 **NOTE
        J**
 **INCOME
        TAX EXPENSE (Continued)**
 The
        provision for Federal income taxes differs from that computed by applying
        Federal statutory rates to income (loss) before Federal income tax expense,
        as
        indicated in the following analysis:
  Years
                    EndedDecember
                    31,2006
                
                2005
                
                2004*(In
                    Thousands)*Expected
                    Tax Provision at 34% Rate
                $
                    1,089
                
                $
                    (1,762)
                
                $
                    12Expected
                    State Corporate Tax
                3
                
                (4)
                
                -Effect
                    of Tax Exempt Income
                -
                
                -
                
                (263)Employee
                    Stock Ownership Plan
                63
                
                37
                
                109Valuation
                    Allowance on Capital Loss
                -
                
                241
                
                -Other
                (67)
                
                (20)
                
                (21)$
                    1,088
                
                $
                    (1,508)
                
                $
                    (163)
   The
        net
        deferred tax assets or liabilities in the accompanying consolidated balance
        sheets include the following components:
  2006
                
                
                2005*(In
                    Thousands)*Deferred
                    Tax AssetsRecognition
                    and Retention Plan
                
                $
                9
                
                $
                9Employee
                    Stock Ownership Plan
                
                
                -
                
                
                32Recognition
                    of Other-than-Temporary Decline inMarket
                    Value of Available-for-Sale Securities
                
                
                434
                
                
                434Market
                    Value Adjustment to Available-for-Sale Securities
                
                
                161
                
                
                102Net
                    Operating Loss Carryforward
                
                
                1
                
                
                585Capital
                    Loss Carryforward
                
                
                172
                
                
                172Allowance
                    for Loan Losses
                
                
                255
                
                
                510Other
                
                
                53
                
                
                54Total
                    Deferred Tax Assets
                
                $
                1,085
                
                $
                1,898
 
 49
 
 **NOTE
        J**
 **INCOME
        TAX EXPENSE (Continued)**
 
 2006
                
                
                2005*(In
                    Thousands)*Deferred
                    Tax LiabilitiesFHLB
                    Stock Dividends
                
                $
                (464
                )
                $
                (438
                )Other
                
                
                (89
                )
                
                (63
                )Total
                    Deferred Tax Assets
                
                
                (553
                )
                
                (501
                )Valuation
                    Allowance
                
                
                (241
                )
                
                (241
                )Net
                    Deferred Tax Asset
                
                $
                291
                
                $
                1,156
  SFAS
        No.
        109 requires a valuation allowance to be recorded when it is more likely
        than
        not that some or all of the deferred tax assets will not be realized. At
        December 31, 2006 and 2005, a valuation allowance of $241,000 for approximately
        50% of the recognition in other-than-temporary decline of market value of
        available-for-sale securities was recorded because of uncertainties as to
        the
        amount of capital gains that would be generated in future years.
 
 Included
        in retained earnings at December 31, 2006 and 2005, is approximately $3,800,000
        in bad debt reserves for which no deferred Federal income tax liability has
        been
        recorded. These amounts represent allocations of income to bad debt deductions
        for tax purposes only. Reduction of these reserves for purposes other than
        tax
        bad-debt losses or adjustments arising from carryback of net operating losses
        would create income for tax purposes, which would be subject to the then-current
        corporate income tax rate. The unrecorded deferred liability on these amounts
        was approximately $1,292,000 for December 31, 2006 and 2005,
        respectively.
 
 
 **NOTE
        K**
 **EMPLOYEE
        STOCK OWNERSHIP PLAN**
 During
        1997, GS Financial Corp. instituted an employee stock ownership plan. The
        GS
        Financial Corp. Employee Stock Ownership Plan (ESOP) enables all eligible
        employees of the Bank to share in the growth of the Company through the
        acquisition of stock. Employees are generally eligible to participate in
        the
        ESOP after completion of one year of service and attaining age 21.
 
 The
        ESOP
        purchased eight percent of the shares offered in the initial public offering
        of
        the Company (275,080 shares). This purchase was facilitated by a loan from
        the
        Company to the ESOP in the amount of $2,750,800. The loan is secured by a
        pledge
        of the ESOP shares. The shares pledged as collateral are reported as unearned
        ESOP shares in the balance sheets. The corresponding note was paid back in
        40
        equal quarterly payments of $103,000 on the last business day of each quarter,
        beginning June 30, 1997, at the rate of 8.5%. The loan was fully repaid as
        of
        December 31, 2006, but in prior periods the note payable and the corresponding
        note receivable have been eliminated for consolidation purposes.
 
 
 50
 
 **NOTE
        K**
 **EMPLOYEE
        STOCK OWNERSHIP PLAN (Continued)**
 The
        Company may contribute to the plan, in the form of debt service, at the
        discretion of its Board of Directors. Dividends received on the ESOP shares
        are
        utilized to service the debt. Shares are released for allocation to plan
        participants based on principal and interest payments of the note. Compensation
        expense is recognized based on the number of shares allocated to plan
        participants each year and the average market price of the stock for the
        current
        year. Released ESOP shares become outstanding for earnings per share
        computations.
 
 As
        compensation expense is incurred, the Unearned ESOP Shares account is reduced
        based on the original cost of the stock. The difference between the cost
        and
        average market price of shares released for allocation is applied to Additional
        Paid-In Capital. ESOP compensation expense was approximately $407,000, $412,000,
        and $475,000 for the years ended December 31, 2006, 2005 and 2004,
        respectively.
 
 The
        ESOP
        shares as of December 31, 2006 and 2005, were as follows:
 
 2006
                
                
                2005Allocated
                    Shares
                
                
                155,669
                
                
                156,602Shares
                    Released for Allocation
                
                
                23,922
                
                
                28,132Unreleased
                    Shares
                
                
                -
                
                
                23,922Total
                    ESOP Shares
                
                
                179,591
                
                
                208,656Fair
                    Value of Unreleased Shares (*In
                    Thousands*)
                
                $
                -
                
                $
                359Stock
                    Price at December 31
                
                $
                19.80
                
                $
                15.00
 
 Total
        ESOP shares decreased in 2006 and 2005, due to the release of shares for
        employees who terminated their employment in 2006 and 2005.
 
 The
        ESOP
        was amended and restated in 2006 to add a 401(k) feature and was renamed
        the
“Guaranty Savings Bank 401(k) Plan.” See Note V below.
 
 
 **NOTE
        L**
 **RECOGNITION
        AND RETENTION PLAN**
 On
        October 15, 1997, the Company established a Recognition and Retention Plan
        (the Plan) as an incentive to retain personnel of experience and ability in
        key positions. The Company approved a total of 137,540 shares of stock to
        be
        acquired for the Plan, of which 125,028 shares were allocated for distribution
        to key employees and directors. In 2005, 1,769 shares were forfeited due
        to the
        expiration of a director’s term. The Company granted 1,776 shares to a new
        director in 2006, and 2,355 shares to a new director during in
        2004.
 
 51
 
 **NOTE
        L**
 **RECOGNITION
        AND RETENTION PLAN (Continued)**
 As
        shares
        are acquired for the Plan, the purchase price of these shares is recorded
        as
        unearned compensation, a contra equity account. As the shares are distributed,
        the contra equity account is reduced.
 
 During
        1998, with unanimous approval of the Plan participants, all outstanding grants
        were amended by the Board as a direct effort to reduce the Company’s expenses
        resulting from the Plan. Prior to the amendments, Plan share awards were
        earned
        by recipients at a rate of 20% of the aggregate number of shares covered
        by the
        Plan over five years. Plan share awards were amended to provide that they
        are
        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
        date
        of grant of Plan share award for any reason (except for death or disability
        or a
        change in control), the recipient shall forfeit the right to any shares subject
        to the awards which have not been earned.
 
 Compensation
        expense pertaining to the Recognition and Retention Plan was $126,000, $119,000,
        and $128,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
 
 A
        summary
        of the changes in restricted stock follows:
  Unawarded
                    Shares
                
                
                
                Awarded
                    Shares2006
                
                2005
                
                2006
                
                2005Balance,
                    Beginning of Year
                16,744
                
                14,975
                
                21,411
                
                33,063Purchased
                    by Plan
                -
                
                -
                
                -
                
                -Granted
                (1,776)
                
                -
                
                1,776
                
                -Forfeited
                -
                
                1,769
                
                -
                
                (1,769)Earned
                    and Issued
                -
                
                -
                
                (9,818)
                
                (9,883)Balance,
                    End of Year
                14,968
                
                16,744
                
                13,369
                
                21,411
 
 On
        January 16, 2007, the Company issued 5,000 shares to its President under
        the
        Plan, which will have the same ten-year vesting schedule as noted
        above.
 
 **NOTE
        M**
 **STOCK
        OPTION PLAN**
 In
        1997,
        the Company adopted a stock option plan for the benefit of directors, officers,
        and other key employees. The number of shares of common stock reserved for
        issuance under the stock option plan was 343,850 shares, or ten percent of
        the
        total number of shares of common stock sold in the Company’s initial public
        offering of its common stock.
 
 The
        plan
        also permits the granting of Stock Appreciation Rights (SARs). SARs entitle
        the
        holder to receive, in the form of cash or stock, the increase in the fair
        value
        of the Company stock from the date of grant to the date of exercise. No SARs
        have been issued under the plan.
 
 52
 
 **NOTE
        M**
 **STOCK
        OPTION PLAN (Continued)**
 On
        October 15, 1997, the Company granted a total of 275,076 options to directors.
        Under the plan, the exercise price of each option cannot be less than the
        fair
        value of the underlying common stock as of the date of the option grant,
        and the
        maximum term is 10 years. Options vest over five years. During 2002, the
        options
        had fully vested.
 
 During
        2005, the Company adopted SFAS No. 123(R), which replaced SFAS No. 123 and
        superceded APB No. 25. The adoption of this pronouncement had no impact on
        the
        Company’s interim or annual financial position or results of
        operations.
 
 A
        summary
        of the status of the Company’s stock option plan as of December 31, 2006, 2005,
        and 2004, and changes during the years ending on those dates is presented
        below:
 
 2006
                
                
                
                
                
                2005
                
                
                
                
                
                2004Exercise
                
                
                
                
                
                
                
                
                
                
                
                Exercise
                
                
                
                
                
                ExerciseFixed
                    Options
                
                
                Shares
                
                
                Price
                
                
                Shares
                
                
                Price
                
                
                Shares
                
                
                PriceOutstanding,Beginning
                    of Year
                
                
                216,132
                
                $
                17.18
                
                
                245,604
                
                $
                17.18
                
                
                260,340
                
                $
                17.18Granted
                
                
                -
                
                
                
                
                
                -
                
                
                
                
                
                -Exercised
                
                
                -
                
                
                
                
                
                -
                
                
                
                
                
                -Forfeited
                
                
                -
                
                
                
                
                
                29,472
                
                
                
                
                
                14,736Outstanding,End
                    of Year
                
                
                216,132
                
                $
                17.18
                
                
                216,132
                
                $
                17.18
                
                
                245,604
                
                $
                17.18Options
                    Exercisable atYear-End
                
                
                216,132
                
                $
                17.18
                
                
                216,132
                
                $
                17.18
                
                
                245,604
                
                $
                17.18
 The
        following table summarizes information about fixed stock options outstanding
        at
        December 31, 2006:
 
 Options
                    Outstanding
                
                
                
                
                
                
                
                
                
                
                
                Options
                    ExercisableExercise
                    Price
                
                
                Number
                    Outstanding at 12/31/06
                
                
                Remaining
                    Contractual Life
                
                
                Weighted
                    Average Exercise Price
                
                
                Number
                    Exercisable at 12/31/06
                
                
                Weighted
                    Average Exercise Price$
                    17.18
                
                
                216,132
                
                
                0.8
                    years
                
                $
                17.18
                
                
                216,132
                
                $
                17.18
 The
        aggregate intrinsic value of options outstanding and exercisable at December
        31,
        2006 was $566,266.
 
 53
 
 **NOTE
        N**
 **COMPREHENSIVE
        INCOME**
 Comprehensive
        income was comprised of changes in the Company’s unrealized holding gains or
        losses on securities available-for-sale during 2006, 2005 and 2004. The
        components of comprehensive income and related tax effects are as
        follows:
 
 Years
                    Ended December 31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands)*Gross
                    Unrealized Holding LossesArising
                    During the Period
                
                $
                (227
                )
                $
                (1,066
                )
                $
                (1,378
                )Tax
                    Benefit
                
                
                77
                
                
                362
                
                
                468(150
                )
                
                (704
                )
                
                (910
                )Reclassification
                    Adjustment for LossesIncluded
                    in Net Income
                
                
                44
                
                
                1,215
                
                
                696Tax
                    Benefit
                
                
                (15
                )
                
                (413
                )
                
                (237
                )29
                
                
                802
                
                
                459Net
                    Unrealized Holding (Losses) GainsArising
                    During the Period
                
                $
                (121
                )
                $
                98
                
                $
                (451
                )
 
 
 **NOTE
        O**
 **REGULATORY
        MATTERS**
 The
        Bank
        is subject to various regulatory capital requirements administered by its
        primary federal regulator, the Office of Thrift Supervision (OTS). Failure
        to
        meet the minimum regulatory capital requirements can initiate certain mandatory,
        and possible additional discretionary actions by regulators that, if undertaken,
        could have a direct material effect on the Bank and the financial statements.
        Under the regulatory capital adequacy guidelines and the regulatory framework
        for prompt corrective action, the Bank must meet specific capital guidelines
        involving quantitative measures of the Bank’s assets, liabilities, and certain
        off-balance sheet items as calculated under regulatory accounting practices.
        The
        Bank’s capital amounts and classification under the prompt corrective action
        guidelines are also subject to qualitative judgments by the regulators about
        components, risk weightings, and other factors.
 
 Quantitative
        measures established by regulation to ensure capital adequacy require the
        Bank
        to maintain minimum amounts and ratios of: total risk-based capital and Tier
        I
        capital to risk-weighted assets (as defined in the regulations), Tier I capital
        to adjusted total assets (as defined), tangible capital to adjusted total
        assets
        (as defined), and tangible equity to adjusted total assets (as defined).
        As of
        December 31, 2006, the Bank meets all of the capital requirements to which
        it is
        subject and is deemed to be well capitalized.
 
 54
 
 **NOTE
        O**
 **REGULATORY
        MATTERS (Continued)**
 The
        actual and required capital amounts and ratios applicable to the Bank for
        the
        years ended December 31, 2006 and 2005, are presented in the following tables,
        including a reconciliation of capital under generally accepted accounting
        principles (GAAP) to such amounts reported for regulatory purposes.
 
 Minimum
                    to be WellCapitalized
                    UnderMinimum
                    for Capital
                
                
                
                Prompt
                    CorrectiveActual
                
                
                
                Adequacy
                    Purposes
                
                
                
                Action
                    ProvisionsDecember
                    31, 2006
                Amount
                
                Ratio
                
                Amount
                
                Ratio
                
                Amount
                
                Ratio*(Dollars
                    in Thousands)*Tangible
                    Capital
                $
                    26,580
                
                15.90%
                
                $
                    2,507
                
                1.50%
                
                N/A
                
                N/ATangible
                    Equity Ratio
                26,580
                
                15.90%
                
                3,343
                
                2.00%
                
                N/A
                
                N/ATier
                    1 Capital
                26,580
                
                15.90%
                
                5,014
                
                3.00%
                
                $
                    8,356
                
                5.00%Tier
                    1 Risk-Based Capital
                26,580
                
                30.33%
                
                3,506
                
                4.00%
                
                5,259
                
                6.00%Total
                    Risk-Based Capital
                27,676
                
                31.58%
                
                7,012
                
                8.00%
                
                8,765
                
                10.00%December
                    31, 2005Tangible
                    Capital
                $
                    23,772
                
                13.47%
                
                $
                    2,647
                
                1.50%
                
                N/A
                
                N/ATangible
                    Equity Ratio
                23,772
                
                13.47%
                
                3,529
                
                2.00%
                
                N/A
                
                N/ATier
                    1 Capital
                23,772
                
                13.47%
                
                5,293
                
                3.00%
                
                $
                    9,919
                
                5.00%Tier
                    1 Risk-Based Capital
                23,772
                
                32.83%
                
                2,896
                
                4.00%
                
                5,905
                
                6.00%Total
                    Risk-Based Capital
                24,677
                
                34.08%
                
                5,792
                
                8.00%
                
                9,842
                
                10.00%
 
 
 **NOTE
        P**
 **FINANCIAL
        INSTRUMENTS WITH OFF-BALANCE SHEET RISK**
 The
        Bank
        is a party to credit related commitments with off-balance sheet risk in the
        normal course of business to meet the financing needs of its customers. These
        consist of outstanding mortgage and construction loan commitments and commercial
        lines of credit. Such commitments involve, to varying degrees, elements of
        credit and interest rate risk in excess of the amount recognized in the
        consolidated financial statements.
 
 The
        Bank’s exposure to credit loss is represented by the contractual amount of these
        commitments. The Company follows the same credit policies in making commitments
        as it does for on-balance sheet instruments.
 
 As
        of
        December 31, 2006 and 2005, outstanding mortgage, construction and commercial
        lines of credit commitments were approximately $6,693,000 and $9,968,000,
        respectively.
 
 55
 
 **NOTE
        P**
 **FINANCIAL
        INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Continued)**
 Commitments
        to extend credit are agreements to lend to a customer as long as there is
        no
        violation of any condition established in the contract. Commitments generally
        have fixed expiration dates or other termination clauses and may require
        payment
        of a fee. The commitments for lines of credit may expire without being drawn
        upon. Therefore, the total commitment amounts do not necessarily represent
        future cash requirements. The amount of collateral obtained, if it is deemed
        necessary by the Bank, is based on management’s credit evaluation of the
        customer.
 
 
 **NOTE
        Q**
 **COMMITMENTS
        AND CONTINGENCIES**
 
 **EMPLOYMENT
        CONTRACTS**
 On
        January 7, 2005, the former Chief Executive Officer retired from the Company.
        The Company entered into an early retirement and consulting agreement with
        the
        former Chief Executive Officer. The agreement provides that the former Chief
        Executive Officer will provide up to 60 hours of consulting services per
        month
        for 36 months. In addition, the agreement provided provisions for a non-compete
        period, which expired on January 6, 2006. The agreement stipulates that the
        Company will pay the former Chief Executive Officer $13,000 per month for
        36
        months.
 
 **OPERATING
        LEASES**
 During
        2003, the Bank entered into a lease with the Company for a branch office
        location. The rental expense associated with this lease is eliminated in
        the
        consolidated statement of operations. The lease had a term of 24 months with
        a
        rental rate of $4,025 per month. The Bank has continued to lease this property
        subsequent to the lease expiration on a month-to-month basis. In addition,
        the
        Bank leases a branch location from a third party for $1,500 per month. The
        lease, which is renewable, expires on October 31, 2007. The Bank’s total
        obligation under this lease in 2007, is $15,000.
 
 Total
        rent expense incurred by the Bank under these leases amounted to $61,300
        for the
        year ended December 31, 2006, and $60,300 for the years ended December 31,
        2005,
        and 2004.
 
 
 **NOTE
        R**
 **CONCENTRATION
        OF CREDIT RISK**
 In
        accordance with industry practices, the Company has deposits in other financial
        institutions for more than the insured limit. These deposits in other
        institutions do not represent more than the normal industry credit
        risk.
 
 56
 
 **NOTE
        S**
 **ESTIMATED
        FAIR VALUE OF FINANCIAL INSTRUMENTS**
 The
        following disclosure is made in accordance with the requirements of SFAS
        No.
        107, *Disclosures
        About Fair Value of Financial Instruments* .
        Financial instruments are defined as cash and contractual rights and obligations
        that require settlement, directly or indirectly, in cash. In cases where
        quoted
        market prices are not available, fair values have been estimated using the
        present value of future cash flows or other valuation techniques. The results
        of
        these techniques are highly sensitive to the assumptions used, such as those
        concerning appropriate discount rates and estimates of future cash flows,
        which
        require considerable judgment. Accordingly, estimates presented herein are
        not
        necessarily indicative of the amounts the Company could realize in a current
        settlement of the underlying financial instruments. SFAS No. 107 excludes
        certain financial instruments and all nonfinancial instruments from its
        disclosure requirements. These disclosures should not be interpreted as
        representing an aggregate measure of the underlying value of the
        Company.
 
 The
        estimated fair values of the Company’s financial instruments are as follows:
 
 December
                  31, 2006
                
                
                
                
                
                December
                    31, 2005Carrying
                  Amount
                
                
                Fair
                    Value
                
                
                Carrying
                    Amount
                
                
                Fair
                    Value*(In
                    Thousands)*Financial
                    AssetsCash
                    and Cash Equivalents
                
                $
                11,117
                
                $
                11,117
                
                $
                22,555
                
                $
                22,555Securities
                    Available-for-Sale
                
                
                55,090
                
                
                55,090
                
                
                77,344
                
                
                77,344Loans,
                    Net
                
                
                93,987
                
                
                98,080
                
                
                69,657
                
                
                70,987Federal
                    Home Loan Bank Stock
                
                
                982
                
                
                982
                
                
                1,833
                
                
                1,833Accrued
                    Interest Receivable
                
                
                2,004
                
                
                2,004
                
                
                1,627
                
                
                1,627Financial
                    LiabilitiesDeposits
                
                $
                122,754
                
                $
                122,417
                
                $
                118,866
                
                $
                118,065Borrowings
                
                
                17,042
                
                
                17,082
                
                
                32,106
                
                
                29,651Accrued
                    Interest Payable
                
                
                84
                
                
                84
                
                
                194
                
                
                194
 
 The
        following methods and assumptions were used by the Company in estimating
        fair
        value disclosures for financial instruments.
 
 **Cash** **and Cash Equivalents**
 The
        carrying amount of cash and due from financial institutions, federal funds
        sold
        and short-term investments approximate fair values.
 
 **Securities**
 Fair
        values for securities, excluding Federal Home Loan Bank Stock, are based
        on
        quoted market prices. If quoted market prices are not available, fair values
        are
        based on quoted market prices of comparable instruments.
 
 57
 
 **NOTE
        S**
 **ESTIMATED
        FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)**
 
 **Loans
        Receivable, Net**
 The
        fair
        values of loans are estimated through discounted cash flow analysis, using
        current rates at which
        loans with similar terms would be made to borrowers with similar credit quality.
        Appropriate adjustments are made to reflect probable credit losses. The carrying
        amount of accrued interest on loans approximated its fair value.
 
 **Federal
        Home Loan Bank Stock**
 The
        carrying value of Federal Home Loan Bank Stock approximates fair value based
        on
        the redemption provisions of the Federal Home Loan Bank.
 
 **Deposit
        Liabilities**
 SFAS
        No.
        107 specifies that the fair value of deposit liabilities with no defined
        maturity is the amount payable on demand at the reporting date, i.e., their
        carrying or book value. These deposits include interest and non-interest
        bearing
        checking, passbook, and money market accounts. The fair value of fixed rate
        certificates of deposit is estimated using a discounted cash flow calculation
        that applies interest rates currently offered on certificates of similar
        remaining maturities to a schedule of aggregate expected cash flows on time
        deposits.
 
 **Advances
        from the Federal Home Loan Bank**
 The
        fair
        value of fixed rate borrowings is estimated using discounted cash flows,
        based
        on current incremental borrowing rates for similar types of borrowing
        arrangements.
 
 **Accrued
        Interest**
 The
        carrying amount of accrued interest approximates its fair value.
 
 **Off-Balance
        Sheet Instruments**
 Off-balance
        sheet financial instruments include commitments to extend credit and undisbursed
        lines of credit. The fair value of such instruments is estimated using fees
        currently charged for similar arrangements in the marketplace, adjusted for
        changes in terms and credit risk as appropriate. The estimated fair value
        for
        these instruments was not significant at December 31, 2006 and 2005. The
        contract or notional amounts of the Company’s financial instruments with
        off-balance sheet risk are disclosed in Note P.
 
 
 58
 
 **NOTE
        T**
 **SELECTED
        QUARTERLY FINANCIAL DATA (Unaudited)**
 The
        following sets forth condensed quarterly results of operations for 2006 and
        2005, (dollar amounts in thousands, except per share data):
  First
                
                
                Second
                
                
                Third
                
                
                Fourth**2006**
                
                
                Quarter
                
                
                Quarter
                
                
                Quarter
                
                
                QuarterInterest
                    Income
                
                $
                2,712
                
                $
                2,782
                
                $
                2,800
                
                $
                2,706Interest
                    Expense
                
                
                1,173
                
                
                1,170
                
                
                1,262
                
                
                1,299Net
                    Interest Income
                
                
                1,539
                
                
                1,612
                
                
                1,538
                
                
                1,407Provision
                    (Reversal) for Loan Losses
                
                
                -
                
                
                -
                
                
                (1,981
                )
                
                -Other
                    Income (Loss)
                
                
                7
                
                
                (53
                )
                
                31
                
                
                66Other
                    Expense
                
                
                1,132
                
                
                1,187
                
                
                1,261
                
                
                1,346Income
                    Tax Expense
                
                
                138
                
                
                129
                
                
                778
                
                
                43Net
                    Income
                
                $
                276
                
                $
                243
                
                $
                1,511
                
                $
                84Net
                    Income per Common Share1Basic
                
                $
                0.23
                
                $
                0.20
                
                $
                1.25
                
                $
                0.07Diluted
                
                $
                0.23
                
                $
                0.20
                
                $
                1.24
                
                $
                0.07Dividends
                    Per Share
                
                $
                0.10
                
                $
                0.10
                
                $
                0.10
                
                $
                0.10*1
                    Quarterly per share amounts do not add to total for the year
                    ended due to
                    rounding.*
   Second
              
              
              Third
              
              
              Fourth**2005**
              
              
              Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              QuarterInterest
                  Income
              
              $
              2,663
              
              $
              2,647
              
              $
              2,670
              
              $
              2,486Interest
                  Expense
              
              
              1,223
              
              
              1,220
              
              
              1,231
              
              
              1,182Net
                  Interest Income
              
              
              1,440
              
              
              1,427
              
              
              1,439
              
              
              1,304Provision
                  for Loan Losses
              
              
              -
              
              
              -
              
              
              -
              
              
              4,793Other
                  Income (Loss)
              
              
              8
              
              
              24
              
              
              39
              
              
              (1,211
              )Other
                  Expense
              
              
              1,517
              
              
              1,071
              
              
              1,136
              
              
              1,138Income
                  Tax Expense (Benefit)
              
              
              30
              
              
              109
              
              
              111
              
              
              (1,758
              )Net
                  (Loss) Income
              
              $
              (99
              )
              $
              271
              
              $
              231
              
              $
              (4,080
              )Net
                  (Loss) Income per Common Share1Basic
              
              $
              (0.09
              )
              $
              0.23
              
              $
              0.20
              
              $
              (3.45
              )Diluted
              
              $
              (0.08
              )
              $
              0.23
              
              $
              0.20
              
              $
              (3.45
              )Dividends
                  Per Share
              
              $
              0.10
              
              $
              0.10
              
              $
              0.10
              
              $
              0.10*1
                  Quarterly per share amounts do not add to total for the year ended
                  due to
                  rounding.*
 
 59
 
 **NOTE
        U**
 **EARNINGS
        (LOSS) PER COMMON SHARE**
 Earnings
        (loss) per share are computed using the weighted average number of shares
        outstanding as prescribed in SFAS No. 128. Options to purchase 216,132 shares
        at
        $17.18 per share were outstanding during 2006. These options were not included
        in the computation of diluted loss per share for 2005, because the options’
exercise price was greater than the average market value price of the common
        shares. The options were included in the computation of diluted earnings
        per
        share for the years ended December 31, 2006 and 2004. The Company had no
        other
        securities outstanding during the years ended December 31, 2006, 2005 or
        2004,
        that would have a dilutive effect on earnings (loss) per share.
  Years
                  Ended December 31,2006
                
                
                2005
                
                
                2004*(Dollars
                    in Thousands, Except Per Share Data)*Numerator:Net
                    Income (Loss)
                
                $
                2,114
                
                $
                (3,676
                )
                $
                199Effect
                    of Dilutive Securities
                
                
                -
                
                
                -
                
                
                -Numerator
                    for Diluted Earnings (Loss) Per Share
                
                $
                2,114
                
                $
                (3,676
                )
                $
                199Denominator:Weighted-Average
                    Shares Outstanding
                
                
                1,212,174
                
                
                1,181,313
                
                
                1,156,441Effect
                    of Potentially Dilutive Securities
                
                
                10,776
                
                
                -
                
                
                21,572Denominator
                    for Diluted Earnings Per Share
                
                
                1,222,950
                
                
                1,181,313
                
                
                1,178,013Earnings
                    (Loss) Per ShareBasic
                
                $
                1.74
                
                $
                (3.11
                )
                $
                0.17Diluted
                
                $
                1.73
                
                $
                (3.11
                )
                $
                0.17Cash
                    Dividends Per Share
                
                $
                0.40
                
                $
                0.40
                
                $
                0.40
 
 
 
 60
 
 **NOTE
        U**
 **EARNINGS
        (LOSS) PER COMMON SHARE (Continued)**
 The
        following table presents the components of average outstanding shares for
        each
        of the three years:
 
 Years
                  Ended December 31,2006
                
                
                2005
                
                
                2004Average
                    Common Shares Issued
                
                
                3,438,500
                
                
                3,438,500
                
                
                3,438,500Average
                    Treasury Shares
                
                
                (2,162,860
                )
                
                (2,153,780
                )
                
                (2,142,322
                )Average
                    Unearned ESOP Shares
                
                
                (23,856
                )
                
                (51,977
                )
                
                (80,109
                )Average
                    Unearned RRP Trust Shares
                
                
                (39,610
                )
                
                (51,430
                )
                
                (59,628
                )1,212,174
                
                
                1,181,313
                
                
                1,156,441
 **NOTE
        V**
 **SUBSEQUENT
        EVENTS**
 
 **AWARD
        OF RECOGNITION AND RETENTION PLAN SHARES**
 As
        described in Note L, the Company issued 5,000 shares of stock under its
        Recognition and Retention Plan to its President on January 16, 2007. The
        vesting
        period for these shares is 10 years.
 
 **PROFIT
        SHARING AND 401(K) PLAN**
 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). ESOP shares will be maintained in the 401(k) Plan, which will provide
        the
        ability to diversify into other 401(k) Plan investments. Employees may defer
        up
        to 15% of their salary, up to the IRS maximum ($15,500 in 2007) on a
        tax-deferred basis and have a variety of investment options, including a
        money
        market fund, fixed-income, blended and equity mutual funds, and GS Financial
        Corp. stock. The Company will match 100% of contributions up to 3% of an
        employee’s salary and 50% of the next 2% of employee contributions. This match
        enables the 401(k) Plan to comply with IRS safe harbor rules exempting it
        from
        top-heavy testing and maintaining its tax-exempt status. In addition, the
        Company may, at its discretion, make additional profit sharing contributions
        of
        up to 6% of participants’ salaries.
 
 61
 
 **NOTE
        W**
 **CONDENSED
        FINANCIAL INFORMATION - PARENT COMPANY ONLY**
 Financial
        information pertaining only to GS Financial Corp. is as follows:
 
 
 **CONDENSED
                    BALANCE SHEETS****ASSETS**December
                    31,2006
                
                
                2005*(In
                    Thousands)*Cash
                    and Cash Equivalents
                
                $
                661
                
                $
                472Investments
                    - Available-for-Sale, at Fair Value
                
                
                107
                
                
                554Investment
                    in Subsidiary
                
                
                26,262
                
                
                23,574Loan
                    Receivable
                
                
                -
                
                
                334Other
                    Assets
                
                
                815
                
                
                747Total
                    Assets
                
                $
                27,845
                
                $
                25,681**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Other
                    Liabilities
                
                $
                589
                
                $
                97Stockholders'
                    Equity
                
                
                27,256
                
                
                25,584Total
                    Liabilities and Stockholders' Equity
                
                $
                27,845
                
                $
                25,681
 
 
 62
 **NOTE
        V**
 **CONDENSED
        FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)**
 
 **CONDENSED
                    STATEMENTS OF INCOME**Years
                    Ended December 31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands)*Income:Dividends
                    from Guaranty Savings Bank
                
                $
                -
                
                $
                262
                
                $
                687Interest
                    Income
                
                
                53
                
                
                82
                
                
                108Other
                    Income
                
                
                96
                
                
                97
                
                
                94Total
                    Income
                
                
                149
                
                
                441
                
                
                889Operating
                    Expenses
                
                
                321
                
                
                274
                
                
                272(Loss)
                    Income Before Income Taxes and Equity inUndistributed
                    Earnings (Loss) of Guaranty Savings Bank
                
                
                (172
                )
                
                167
                
                
                617Applicable
                    Income Tax Benefit
                
                
                (58
                )
                
                (23
                )
                
                (7
                )Equity
                    in Undistributed Earnings (Loss) ofGuaranty
                    Savings Bank
                
                
                2,228
                
                
                (3,866
                )
                
                (425
                )Net
                    Income (Loss)
                
                $
                2,114
                
                $
                (3,676
                )
                $
                199
 
 
 
 63
 **NOTE
        V**
 **CONDENSED
        FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)**
  **CONDENSED
                    STATEMENTS OF CASH FLOWS**Years
                    Ended December 31,2006
                
                
                2005
                
                
                2004*(In
                    Thousands)***OPERATING
                    ACTIVITIES**Net
                    Income (Loss)
                
                $
                2,114
                
                $
                (3,676
                )
                $
                199Adjustments
                    to Reconcile Net Income (Loss) to Net CashProvided
                    by Operating ActivitiesDepreciation
                    Expense
                
                
                16
                
                
                18
                
                
                20Loss
                    on Sale of Investments
                
                
                4
                
                
                -
                
                
                3Equity
                    in Undistributed (Earnings) Loss of Subsidiary
                
                
                (2,228
                )
                
                3,866
                
                
                425Amortization
                    of Investment Premium
                
                
                2
                
                
                3
                
                
                2Mutual
                    Fund Dividends Reinvested
                
                
                -
                
                
                -
                
                
                (6
                )Decrease
                    in Accrued Interest Receivable
                
                
                -
                
                
                -
                
                
                1(Increase)
                    Decrease in Other Assets
                
                
                (10
                )
                
                25
                
                
                12Change
                    in Deferred Income Tax Assets/Liabilities
                
                
                (42
                )
                
                (5
                )
                
                (9
                )Increase
                    in Other Liabilities
                
                
                321
                
                
                95
                
                
                2Net
                    Cash Provided by Operating Activities
                
                
                177
                
                
                326
                
                
                649**INVESTING
                    ACTIVITIES**Redemption
                    (Investment) in Mutual Funds
                
                
                442
                
                
                (150
                )
                
                (108
                )Principal
                    Paydowns Note Receivable GS Financial ESOP
                
                
                334
                
                
                363
                
                
                334Proceeds
                    from Maturities of Investment Securities
                
                
                22
                
                
                125
                
                
                114Net
                    Cash Provided by Investing Activities
                
                
                798
                
                
                338
                
                
                340**FINANCING
                    ACTIVITIES**Purchase
                    of Treasury Stock
                
                
                (300
                )
                
                (74
                )
                
                (315
                )Payment
                    of Dividends
                
                
                (486
                )
                
                (474
                )
                
                (466
                )Net
                    Cash Used in Financing Activities
                
                
                (786
                )
                
                (548
                )
                
                (781
                )**INCREASE
                    IN CASH AND CASH EQUIVALENTS**
                
                
                189
                
                
                116
                
                
                208**CASH
                    AND CASH EQUIVALENTS, BEGINNING OF YEAR**
                
                
                472
                
                
                356
                
                
                148**CASH
                    AND CASH EQUIVALENTS, END OF YEAR**
                
                $
                661
                
                $
                472
                
                $
                356




64


*GS
                      Financial Corp. Stock
                      Performance*
 
 The
            following graph compares the cumulative total return relating to the
            Company’s
            common stock with (a) the cumulative total return on the stocks included
            in the
            Nasdaq Composite Index, and (b) the cumulative return on the stocks in
            the SNL
            under $250 million Thrift Index. All of these cumulative returns are
            computed
            assuming the reinvestment of dividends at the frequency with which dividends
            were paid during the applicable period.
 
 
 **Index**
                  **Period
                      Ending****12/31/01**
                  **12/31/02**
                  **12/31/03**
                  **12/31/04**
                  **12/31/05**
                  **12/31/06**GS
                      Financial Corp.
                  $100.00
                  $124.14
                  $135.82
                  $128.38
                  $109.46
                  $147.92NASDAQ
                      Composite
                  100.00
                  68.76
                  103.67
                  113.16
                  115.57
                  127.58SNL
                      <$250M Thrift Index
                  100.00
                  124.61
                  173.38
                  175.97
                  170.07
                  170.14
 __________________
 
 *  Source:
            SNL Financial LC
  *Banking
        Locations*


*Main
        Office*
 3798
        Veterans Memorial Blvd.
 Metairie,
        LA 70002
 
 1700
        Veterans Memorial Blvd.
 Metairie,
        LA 70005
 
 3915
        Canal Street
 New
        Orleans, LA 70119
 2111
        N.
        Causeway Blvd
 Mandeville,
        LA 70471
 
 1515
        Hwy
        51 South
 Ponchatoula,
        LA 70454
  
 65


GS Financial Corp. Board of Directors


**Albert
      J. Zahn, Jr.**


Mr.
      Zahn
      (age 56) is a certified public accountant and president of the firm Al Zahn,
      CPA, A Professional Accounting Corporation. He has served as Chairman of the
      Board of GS Financial and Guaranty Savings since April 2005 and has been a
      director since 1992.





**Edward
      J. Bourgeois**


Mr.
      Bourgeois (age 50) is a certified public accountant in the State of Louisiana
      and currently serves as President of Centergy consulting, LLC, New Orleans,
      Louisiana, a consulting firm specializing in the banking and financial industry.
      Mr. Bourgeois was formerly the Executive Vice President/Chief Operating Officer
      of Crescent Bank and Trust, New Orleans, Louisiana from 2001 to 2004. Prior
      thereto, Mr. Bourgeois was President of Bourgeois Consulting, a bank consulting
      agency in New Orleans, Louisiana from 2000 to 2001, and during 2001, was a
      Senior Vice President of Ebank.com, Atlanta, Georgia. He is a member of the
      American Institute of Certified Public Accountants and Louisiana Society of
      Certified Public Accountants and Board member of the National Automotive Finance
      Association. He has been a director since 2004.





**Stephen
      L. Cory**


Mr.
      Cory
      (age 57) is an insurance agent and President of Cory, Tucker & Larrowe
      Agency in Metairie, Louisiana. He has been a director since 1995.





**Bradford
      A. Glazer**


Mr.
      Glazer (age 51) is President of Glazer Enterprises, Inc., a freight agency
      and
      real estate management and development company located in Cincinnati, Ohio.
      While serving as President of Glazer Enterprises, Inc. Mr. Glazer has also
      served as Chairman of Glazer Steel Corp. in New Orleans, Louisiana, Baton Rouge,
      Louisiana, and Knoxville, Tennessee, as well as Senior Vice President of Espy
      & Strauss, Inc. in Cincinnati, Ohio. He has been a director since
      1991.





**Bruce
      A. Scott**


Mr.
      Scott
      (age 54) is an attorney and has served as Executive Vice President of GS
      Financial since February 1997 and Executive Vice President of Guaranty Savings
      since 1985. Mr. Scott also serves as legal counsel and Personnel Manager of
      Guaranty Savings, and performs certain legal services for Guaranty Savings
      and
      its borrowers in connection with real estate loan closings and receives fees
      from the borrowers in connection therewith. He has been a director since
      1982.





**Donald
      C. Scott**


Mr.
      Scott
      (age 55) served as President and Chief Executive Officer of the Company from
      February 1997 to January 2005, and the Association from March 1985 to January
      2005. He has been a director since 1982.





**Hayden
      W. Wren III**


Mr.
      Wren
      (age 58) is the Director of Commercial/Investment Brokerage of Corporate Realty,
      Inc., New Orleans Louisiana. Mr. Wren is a Certified Commercial Investment
      Member (CCIM), a member of the Society of Industrial and Office Realtors (SIOR),
      and a licensed Certified Public Accountant having membership affiliations with
      the American Society of Certified Public Accountants and the Louisiana Society
      of Certified Public Accountants. He was appointed in May 2004 to fill the
      position of a retiring director.








*Executive
                Officers Who Are Not Directors*





**Stephen
      E. Wessel**


Mr.
      Wessel (age 44) has served as President and Chief Executive Officer of GS
      Financial and Guaranty Savings since December, 2005. Previously he served as
      Senior Vice President/South Louisiana Business Banking Manager for AmSouth
      Bank,
      a regional commercial bank, New Orleans, Louisiana since August, 2001. Prior
      thereto, Mr. Wessel served as Vice President/Regional Business Banking Manager
      for Whitney National Bank, New Orleans, Louisiana from December 1991 to August
      2001.





**Lettie
      R. Moll**


Ms.
      Moll
      (age 53) has served as Vice President and Corporate Secretary of the Company
      since 1997 and Vice President and Corporate Secretary of the Association since
      March 1987 and March 1982, respectively.





**J.
      Andrew Bower**


Mr.
      Bower
      (age 42) has served as Chief Financial Officer and Senior Vice President of
      GS
      Financial and Guaranty Savings since January 2006. Prior thereto, Mr. Bower
      was
      a self-employed consultant providing internal audit, accounting and loan review
      services primarily to banks in the greater New Orleans area, including GS
      Financial and Guaranty Savings since January 2002. Previously, Mr. Bower was
      employed as an accounting manager at Stewart Enterprises, Inc., Metairie,
      Louisiana, from September 2000 through January 2002, and as an audit manager
      at
      Arthur Andersen LLP from December 1992 to September 2000.