The purpose of this discussion and analysis is to provide information necessary to gain an understanding of the financial condition, changes in financial condition and results of operations of GS Financial Corp. ("GS Financial" or the "Company"), and its subsidiary for the quarter and nine months ended September 30, 2008. Virtually all of the Company's operations are dependent on the operations of its subsidiary, Guaranty Savings Bank ("Guaranty" or the "Bank"). Prior to June 15, 2006 the subsidiary was known as Guaranty Savings and Homestead Association. The subsidiary had its name legally changed but remains a state-charted savings association. This discussion is presented to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes in Item 1. This discussion and analysis should be read in conjunction with accompanying tables and the Company's 2007 Annual Report on Form 10-K.

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

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

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

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

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

· expectations regarding the nature and level of competition, changes in customer behavior and preferences, and Guaranty's ability to execute its plans to respond effectively, and

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

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

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

FINANCIAL CONDITION

LOANS AND ALLOWANCE FOR LOAN LOSSES
Total loans, net of allowance for loan losses, increased $30.9 million, or 26.0%, from year-end 2007 to the end of the third quarter of 2008. Average loans for the third quarter of 2008 were $147.9 million, up $36.6 million (32.9%) compared to the third quarter of 2007. Year-to-date average loans at September 30, 2008 totaled $137.4 million, up $32.9 million (31.5%) from the same time period in 2007. Table 1, which is based on regulatory reporting codes, shows loan balances at September 30, 2008 and at the end of the four prior quarters and average loans outstanding during each quarter.

TABLE 1. COMPOSITION OF LOAN
PORTFOLIO
                                          2008                            2007
($ in thousands)         September 30      June 30     March 31  December 31 September 30
Real estate loans -       $    77,240  $    69,439  $    66,124  $    62,481  $    58,885
residential
Real estate loans -            60,851       58,683       53,445       45,757       43,528
commercial and other
Real estate loans -             7,534        7,069        7,695        9,074        7,392
construction
Consumer loans                  1,992        1,625        1,041          913          668
Commercial business             4,534        5,260        4,929        3,625        2,779
loans
Total Loans               $   152,151  $   142,076  $   133,234  $   121,850  $   113,252
Average Total Loans
During                    $   147,934  $   136,395  $   127,719  $   117,442  $   111,274
Three-Month Period

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

All loans carry a degree of credit risk. Management's evaluation of this risk ultimately is reflected in the estimate of probable loan losses that is reported in the Company's financial statements as the allowance for loan losses. Changes in this ongoing evaluation over time are reflected in the provision for loan losses charged to operating expense. At September 30, 2008 the allowance for loan losses was $2.8 million, or 1.9% of total loans. Table 2 presents an analysis of the activity in the allowance for loan losses for the past five quarters. The allowance was reduced in the third quarter of 2008 as a specific reserve was assigned to a loan which was transferred to Other Real Estate owned upon foreclosure.

TABLE 2. SUMMARY OF ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
                                                  2008                         2007

                                       Third Second Quarter      First      Fourth     Third
($ in thousands)                     Quarter                   Quarter     Quarter   Quarter
Beginning Balance                   $  3,238       $  3,419   $  3,432    $  3,432  $  3,432
Provision for Losses                       -              -          -           -         -
Loans Charged Off                        420            181         13           -         -
Recoveries of loans previously             -              -          -           -         -
charged off
Ending Balance                      $  2,818       $  3,238   $  3,419    $  3,432  $  3,432
Ratios
Charge-offs to average loans           0.28%          0.13%      0.01%       0.00%     0.00%
Provision for loan losses to             n/a            n/a        n/a         n/a       n/a
charge-offs
Allowance for loan losses to         167.74%        447.23%        n/a         n/a       n/a
charge-offs (annualized)
Allowance for loan losses to           1.85%          2.28%      2.57%       2.82%     3.03%
ending loans

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

TABLE 3. DELINQUENT LOANS
                                             2008                            2007
($ in thousands)                September 30   June 30   March 31   December 31  September 30
30-89 Days                     $         749  $    265  $   5,574  $      3,305  $      4,054
90+ Days                               2,075     2,821      3,162         1,438           990
Total                         $        2,824  $  3,086  $   8,736  $      4,743  $      5,044
Ratios
Loans delinquent 90 days to            1.36%     1.99%      2.37%         1.18%         0.87%
total loans
Total delinquent loans to              1.86%     2.17%      6.56%         3.89%         4.45%
total loans
Allowance for loan losses to         135.83%   114.78%    108.13%       238.66%       346.67%
90+ day delinquent loans
Allowance for loan losses to          99.79%   104.92%     39.14%        72.36%        68.04%
total delinquent loans

TABLE 4. NONPERFORMING
ASSETS
                                             2008                             2007
($ in thousands)                September 30    June 30   March 31   December 31  September 30
Loans accounted for on a      $        2,075  $   2,821  $   3,162  $      1,438  $      1,310
nonaccrual basis
Foreclosed assets                        844        469         85             -             -
Total nonperforming assets    $        2,919  $   3,290  $   3,247  $      1,438  $      1,310
Ratios
Nonperforming assets to                1.91%      2.31%      2.44%         1.18%         1.16%
loans plus foreclosed assets
Nonperforming assets to                1.35%      1.60%      1.62%         0.77%         0.74%
total assets
Allowance for loan losses to          96.55%     98.42%    105.30%       238.66%       261.98%
nonperforming assets

INVESTMENT IN SECURITIES
At September 30, 2008, the Company's total securities available-for-sale were $48.6 million, compared to $47.7 million at December 31, 2007 and $50.0 million at September 30, 2007.

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

At September 30, 2008, the net unrealized losses on the Company's entire securities portfolio was $1.1 million or 2.2% of amortized cost, compared to net unrealized losses of $167,000, or 0.4% of amortized cost at December 31, 2007. These losses consist primarily of reductions in market value on collateralized mortgage obligations as there has been some discounting in values relating to private CMOs as a result of concerns with the overall mortgage market and also rises in long-term interest rates in the third quarter of 2008 that have adversely affected longer-term investments with fixed coupon payments. Management believes that these losses are temporary in nature and will reverse themselves when interest rates become more favorable for those types of investments.

TABLE 5. COMPOSITION OF INVESTMENT SECURITIES PORTFOLIO
                      September 30, 2008           December 31, 2007            September 30, 2007
($ in thousands)  Amortized Cost Market Value Amortized Cost  Market Value Amortized Cost  Market Value
U.S. Agency          $    10,010  $     9,778    $    18,492    $   18,421    $    23,487    $   23,341
Securities
Mortgage Backed           21,773       21,805          8,849         8,912          5,935         5,947
Securities
Collateralized            13,540       12,909         14,736        14,633         15,240        15,060
Mortgage
Obligations
Mutual funds               4,393        4,126          5,837         5,781          5,836         5,780
Total Investment     $    49,716  $    48,618    $    47,914    $   47,747    $    50,498    $   50,128
Securities

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

TABLE 6. DEPOSIT COMPOSITION
                       Third Quarter 2008   Second Quarter     Third Quarter
                                                 2008              2007
($ in thousands)          Average     % of  Average     % of  Average     % of
                         Balances Deposits Balances Deposits Balances Deposits
Noninterest bearing     $   9,101    6.69%   $8,335    6.20%   $4,340    3.40%
demand deposits
NOW account deposits       25,841    19.00   24,470     18.3   23,821     18.5
Savings deposits           16,519    12.15   17,458     13.1   19,783     15.4
Time deposits              84,530    62.16   83,375     62.4   80,496     62.7
Total                   $ 135,991  100.00% $133,638  100.00% $128,440  100.00%

BORROWINGS
At September 30, 2008, the Company's borrowings from the Federal Home Loan Bank increased $22.9 million, or 85.0%, from December 31, 2007 and $32.5 million, or 186.7%, from September 30, 2007. Average advances for the third quarter of 2008 were $49.2 million, an increase of $11.3 million, or 29.7%, from the second quarter of 2008 and an increase of $32.2 million, or 188.7%, from the prior year's third quarter. The increases were primarily to fund loan growth. The Company is constantly evaluating its funding options to determine the most cost-effective means of funding its growth, and in the past year FHLB advances have been a cost-effective funding source.

STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
At September 30, 2008, stockholders' equity totaled $27.3 million, a decrease of $815,000 from December 31, 2007. This decrease was primarily due to an increase in unrealized losses, net of tax, on investment securities of $608,000 and cash dividends paid of $386,000, partially offset by net income of $164,000 for the nine-months ended September 30, 2008.

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

The Board of Directors at their meeting on October 21, 2008, approved the commencement of another stock repurchase program which provides for the repurchase of up to 64,250 shares, or approximately 5.0%, of GS Financial Corp.'s outstanding common stock, from time to time, in open market or privately negotiated transactions. The repurchases will be made over a one year period, or such longer amount of time as may be necessary to complete the repurchase plan.

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

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

TABLE 8. REGULATORY CAPITAL AND CAPITAL RATIOS
                                            2008                 2007
($ in thousands)                        September 30   December 31  September 30
Tier 1 regulatory capital                $     27,329  $     27,197  $     26,579
Tier 2 regulatory capital                       1,689         1,260         1,243
Total regulatory capital                 $     29,018  $     28,457  $     27,822
Adjusted total assets                    $    217,380  $    184,285  $    176,191
Risk-weighted assets                     $    135,118  $    103,236  $     99,462
Ratios
Tier 1 capital to adjusted total assets        12.57%        14.76%        15.09%
Tier 1 capital to risk-weighted assets         20.23%        26.34%        26.72%
Total capital to risk-weighted assets          21.48%        27.57%        27.97%

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.

With respect to liabilities, our liquidity management strategy focuses on growing the Bank's base of more stable core deposits at competitive rates, while at the same time ensuring access to economical wholesale funding sources. The sections above on Deposits and Borrowings discuss changes in these liability-funding sources in the first three and nine-months of 2008.

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

Cash generated from operations is an important source of funds to meet liquidity needs. The consolidated statements of cash flows present operating cash flows and summarize all significant sources and uses of funds for the first nine-months of 2008 and 2007. The Company reported net income of $164,000 for the nine-months ended September 30, 2008, and experienced a net cash decrease of $2.9 million from operations. Certain adjustments are made to net income to reach the level of cash provided by operating activities, including non-cash expenses (depreciation, employee compensation made in the form of stock, and deferred tax provisions) and revenues (accretion of discounts and dividends received in the form of stock).

TABLE 9. KEY LIQUIDITY INDICATORS
                                       2008                  2007
($ in thousands)                   September 30   December 31    September 30
Cash and cash equivalents          $       6,540  $       9,462  $       7,334
Total loans                              152,151        121,850        113,252
Total deposits                           138,155        129,510        131,407
Deposits $100,000 and over                51,011         35,586         33,936
Ratios
Total loans to total deposits            110.13%         94.09%         86.18%
Deposits $100,000 and over to             36.92%         27.48%         25.83%
total deposits

RESULTS OF OPERATIONS

NET INTEREST INCOME
Net interest income for the third quarter of 2008 increased $163,000, or 10.0%, from the second quarter of 2008, with a 6.4%, increase in average interest-earning assets and a 19 basis point reduction in the average cost of funds which was partially offset by a 3 basis point decrease in the average yield on interest-earning assets. Third quarter net interest income for 2008 was up $388,000, or 27.5%, on average interest-earning assets that increased $37.9 million, or 22.8%, from the third quarter of 2007. The year-to-year increase in net interest income is primarily attributable to the increase in interest-earning assets and the increase in net interest margin from 3.38% for the third quarter of 2007 to 3.52% for the third quarter of 2008. Tables 10 and 11 show the components of the Company's net interest margin and the changes in those components from the second quarter of 2008 and the third quarter of 2007.

During the third quarter of 2008, interest income from interest-earning assets was up $195,000, or 6.5%, from the second quarter of 2008. This increase was primarily due to the Company's average investment in loans which was up $11.5 million in the third quarter of 2008 compared to the second quarter of 2008 and was partially offset by a 17 basis point decrease in the average yield over the same period. The $65,000, or 10.0%, increase in investment securities interest income from the second quarter of 2008 to the third quarter of 2008 also contributed to the overall increase in interest income over the same period and was due to the purchase of additional mortgage-backed securities. Interest income from interest-earning assets was up $353,000, or 12.3%, from the third quarter of 2007. This was primarily due to $37.9 million, or 22.8%, in growth in average interest-earning assets and was partially offset by a 52 basis point decline in the yield on earning assets, which was caused by significant rate declines, particularly in short-term rates.

During the third quarter of 2008, interest expense increased $32,000, or 2.3%, from the second quarter of 2008 and decreased $35,000, or 2.4%, from the third quarter of 2007. The increase from the second quarter was driven by increases in average deposit rates and certificates of deposit maturing and repricing into higher-yielding certificates. The decrease from the third quarter of 2007 is due to an 84 basis point reduction in the overall cost of funds which was primarily driven by the refinancing of some existing higher-costing FHLB borrowings into borrowings with a lower rate, a reduction in our deposit rates as maturing certificates of deposit were renewed at lower rates particularly during the first of half of 2008, and growth in the non-interest bearing deposit base of $4.8 million (109.7%).

Net interest income for the first nine-months of 2008 increased $759,000, or 18.2%, from the first nine-months of 2007 on average interest-earning assets that were $34.0 million (20.1%) higher. Net interest margin was 3.38% for the nine-months ended September 30, 2008 and 3.42% for the same period in prior year. The average yield on interest-earning assets decreased 44 basis points and the total cost of funding interest-earning assets decreased 40 basis points compared to the first nine-months of 2007. Table 12 shows the components of the Company's net interest margin for the first nine-months of 2008 and 2007.

TABLE 10. SUMMARY OF AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
                             Third Quarter 2008              Second Quarter 2008               Third Quarter 2007
($ in thousands)          Average              Average Average Balance          Average Average Balance          Average
                          Balance    Interest  Yield/                  Interest Yield/                  Interest Yield/
                                                  Cost                           Cost                             Cost
ASSETS
INTEREST-EARNING
ASSETS
Loans                   $    147,934  $  2,501   6.76%       $ 136,395  $ 2,349   6.93%       $ 111,274  $ 2,092   7.46%
U.S. Agency securities        12,220       179    5.86          16,467      239    5.84          23,031      343    5.91
Mortgage-backed               21,151       303    5.73          11,123      143    5.17           6,258       94    5.93
securities
Collateralized                12,895       155    4.81          13,601      179    5.29          15,304      193    5.06
mortgage obligations
Mutual funds                   4,571        50    4.38           5,463       61    4.49           5,787       77    5.28
Total investment in           50,837       687    5.41          46,654      622    5.36          50,380      707    5.57
securities
FHLB stock                     2,158         9    1.67           1,726       12    2.80           1,009       13    5.13
Federal funds sold and         3,533        17    1.92           7,332       36    1.97           3,873       49    5.32
demand deposits
Total interest-earning       204,462     3,214   6.29%         192,107    3,019   6.32%         166,536    2,861   6.81%
assets
NONINTEREST-EARNING
ASSETS
Other assets                  12,715                            12,386                           10,787
Allowance for loan           (2,953)                           (3,298)                          (3,432)
losses
Total assets            $    214,224                         $ 201,195                        $ 173,891