GFSB Bancorp, Inc.

Corporate Profile

GFSB Bancorp,  Inc. (Company) is a Delaware corporation  organized in March 1995
at the direction of the Board of Directors of Gallup  Federal  Savings Bank (the
"Bank") to  acquire  all of the  capital  stock  that the Bank  issued  upon its
conversion from the mutual to stock form of ownership.  The Company is a unitary
savings and loan holding  company which,  under existing laws,  generally is not
restricted in the types of business activities in which it may engage,  provided
that the Bank  retains  a  specified  amount of its  assets  in  housing-related
investments.  At the present  time,  because  the  Company  does not conduct any
active business,  the Company does not employ any persons other than officers of
the Bank, but utilizes the support staff of the Bank from time to time.

The Bank is a federally  chartered stock savings bank  headquartered  in Gallup,
New Mexico.  The Bank was founded in 1934. Its deposits are federally insured by
the Savings  Association  Insurance  Fund,  administered  by the Federal Deposit
Insurance  Corporation,  and the Bank is a member of the Federal  Home Loan Bank
System.  The  Bank  is  a  community  oriented,   full  service  retail  savings
institution  offering primarily  traditional  mortgage loan products.  It is the
Bank's intent to remain an independent  community savings bank serving the local
banking needs of its community.

The Bank  attracts  deposits  from the  general  public  and uses such  deposits
primarily to invest in  residential  lending on owner occupied  properties.  The
Bank also makes consumer, commercial real estate, commercial,  construction, and
multi-family loans.

Stock Market Information

Since its issuance on June 29, 1995, the Company's  common stock has been traded
on the NASDAQ Small-Cap Market. The following table reflects the stock prices as
published by the NASDAQ  Small-Cap  Market for the most recent two fiscal years.
The quotations reflect inter-dealer prices, without retail mark-up, markdown, or
commission, and may not represent actual transactions.  The table reflects a 25%
stock dividend paid to all  shareholders  of record as of December 15, 2000. The
stock dividend was declared on October 31, 2000.


                                                                    Dividends
         Quarter Ended              High               Low           Declared
         -------------              ----               ---           --------
         September 30, 2000        11.700            11.300            .08
         December 31, 2000         10.875            10.625            .08
         March 31, 2001            11.750            11.375            .09
         June 30, 2001             12.600            12.250            .09
         September 30, 2001        13.900            12.370            .09
         December 31, 2001         13.500            12.800            .10
         March 31, 2002            14.990            13.700            .10
         June 30, 2002             15.000            13.900            .10

                                       2

<PAGE>

GFSB Bancorp, Inc.
Corporate Profile (continued)

The  number of  stockholders  of record of common  stock as of the  record  date
September 16, 2002 ("Record Date"), was approximately 217. This does not reflect
the number of persons or  entities  who held stock in nominee or  "street"  name
through various  brokerage  firms.  As of the Record Date,  there were 1,150,106
shares outstanding.

The  Company's  ability  to pay  dividends  to  stockholders  is  subject to the
requirements  of Delaware law. No dividend may be paid by the Company unless its
board of directors  determines that the Company will be able to pay its debts in
the ordinary course of business after payment of the dividend. In addition,  the
Company's ability to pay dividends is dependent,  in part, upon the dividends it
receives  from the Bank.  The Bank may not declare or pay a cash dividend on any
of its  stock if the  effect  thereof  would be to cause the  Bank's  regulatory
capital to be reduced below (1) the amount required for the liquidation  account
established in connection with the Bank's  conversion from mutual to stock form,
or (2) the  regulatory  capital  requirements  imposed  by the  Office of Thrift
Supervision.


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                                       3
<PAGE>


GFSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER  DATA
Financial Condition (Dollars in Thousands)

<TABLE>
<CAPTION>
At June 30,                                            2002        2001        2000

<S>                                             <C>         <C>         <C>
Total assets                                      $ 206,145   $ 197,052   $ 176,786
Cash and cash equivalents                             5,651       4,262       4,091
Loans receivable, net                               139,748     130,431     109,777
Available-for-sale mortgage-backed securities        27,290      32,377      28,931
Available-for-sale investment securities             23,973      21,804      25,439
Held-to-maturity investment securities                1,405       1,946       1,681
Stock of Federal Home Loan Bank                       4,218       3,649       4,207
Deposits                                            110,349     106,660      79,948
Advances from the Federal Home Loan Bank             76,386      72,106      82,935
Retained earnings (substantially restricted)         12,420      11,238       9,975


Summary of Operations
(Dollars in Thousands)

Year ended June 30,

Interest income                                   $  13,504   $  14,437   $  11,989
Interest expense                                      7,475       9,033       7,118
                                                  ---------   ---------   ---------
        Net interest income                           6,029       5,404       4,871
Provision for loan losses                               220         345         205
                                                  ---------   ---------   ---------
        Net interest income after provision for
            loan losses                               5,809       5,059       4,666
                                                  ---------   ---------   ---------
Non-interest income:
        Gain (loss) on sale of securities                10          16         (66)
        Gain from sale of loans                          34          36          28
         Other                                          346         366         288
                                                  ---------   ---------   ---------
             Total non-interest income                  390         418         250
                                                  ---------   ---------   ---------
Non-interest expense:
        Compensation and benefits                     2,089       1,727       1,507
        Professional fees                               107          82          86
        Occupancy                                       451         352         336
        Advertising                                      94          77          70
        Data processing                                 317         266         200
        Insurance and SAIF premiums                      60          50          64
        Other and stock subscription services           622         506         436
                                                  ---------   ---------   ---------
             Total non-interest expense               3,740       3,060       2,699
                                                  ---------   ---------   ---------
Earnings before income taxes                          2,459       2,417       2,217
Income tax expense                                      848         757         657
                                                  ---------   ---------   ---------
Net earnings                                      $   1,611   $   1,660   $   1,560
                                                  =========   =========   =========

Basic net earnings per share                           1.46        1.50        1.36
                                                  =========   =========   =========
Dilutive net earnings per share                        1.41        1.46        1.34
                                                  =========   =========   =========
</TABLE>

                                       4

<PAGE>

GFSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER DATA (CONTINUED)

Selected Operating Ratios

<TABLE>
<CAPTION>
Year ended June 30,                                       2002       2001       2000
<S>                                                   <C>        <C>        <C>
Performance ratios:
  Return on average assets (net income
      divided by average total assets)                     .80%       .89%      0.96%
  Return on average equity (net income
     divided by average equity)                          10.19      11.90      12.58
   Average interest earning assets to average
      interest-bearing liabilities                        1.09X      1.11X      1.10X

  Net interest income after provision for
      loan losses, to total other expenses              155.31%    165.32%    172.89%
  Net interest rate spread                                2.75%      2.44%      2.62%
  Net yield on average interest-earnings
      assets                                              3.11%      2.98%      3.10%
Equity ratios:
  Average equity to average assets
      (average equity divided by average total
      assets)
                                                          7.86       7.44       7.62
   Equity to assets at period end
                                                          7.94       7.60       7.18
Assets quality ratios:
    Non-performing loans to total assets                   .51        .31        .41
    Non-performing loans to net loans                      .76        .47        .66
        Allowance for loan losses, REO and other
          repossessed assets to non-performing
          assets                                         93.56     136.78      76.53
        Allowance for loan losses to total loans,
          net                                              .70        .63        .47

Dividend payout ratio                                    27.84      23.80      23.80

</TABLE>

                                       5
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The  Private  Securities  Litigation  Reform Act of 1995  contains  safe  harbor
provisions regarding forward-looking  statements.  When used in this discussion,
the words  "believes",  "anticipates",  "contemplates",  "expects",  and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties  which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates,  risks  associated with the ability to control costs,
expenses,  and general  economic  conditions.  We  undertake  no  obligation  to
publicly  release  the  results  of  any  revisions  to  those   forward-looking
statements which may be made to reflect events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.

Overview

GFSB Bancorp,  Inc. is a unitary savings and loan holding company  headquartered
in Gallup,  New Mexico,  which provides a full range of deposits and traditional
mortgage loan  products  through its  wholly-owned  banking  subsidiary,  Gallup
Federal Savings Bank (Bank).  All references  refer  collectively to the Company
and the Bank, unless the context indicates otherwise.

During fiscal 2002,  in order to meet the growing  needs of customers,  the Bank
opened an office in  Farmington,  New Mexico under the trade name of  Farmington
Savings Bank, a Branch of Gallup Federal  Savings Bank.  Because of operating an
additional branch, non-interest expense increased during fiscal 2002.

On July 30, 2002, the President signed into law the  Sarbanes-Oxley  Act of 2002
(Act),  following an investigative  order proposed by the SEC on chief financial
officers and chief executive  officers of 947 large public companies on June 27,
2002. Additional regulations are expected to promulgated by the SEC. As a result
of the accounting  testaments by large public companies,  the passage of the Act
and  regulations  expected  to be  implemented  by the SEC,  publicly-registered
companies,  such  as the  Company,  will  be  subject  to  additional  and  more
cumbersome reporting  regulations and disclosure.  These new regulations,  which
are  intended to curtail  corporate  fraud,  will  require  certain  officers to
personally certify certain SEC filings and financial statements and will require
additional  measurers  to  be  taken  by  our  outside  auditors,  officers  and
directors.  These new laws and  regulations  could  also  increase  non-interest
expense.

Management of Interest Rate Risk and Market Risk

Because the majority of the Company's  assets and  liabilities  are sensitive to
changes in interest rates,  its most significant form of market risk is interest
rate  risk,  or changes in  interest  rates.  The  Company is  vulnerable  to an
increase in interest rates to the extent that its  interest-bearing  liabilities
mature or reprice more rapidly than its  interest-earning  assets. The Company's
lending activities have emphasized the purchase of long-term adjustable rate and
the  origination  of fixed rate loans secured by one-to four family  residences.
The primary  source of funds has been  deposits  with  maturities  substantially
shorter than the related assets. While having interest-bearing  liabilities that
reprice more frequently than interest-earning  assets is generally beneficial to
net interest income during a period of declining interest rates, this type of an
asset/liability  mismatch  is  generally  detrimental  during  periods of rising
interest rates.

Senior management of the Company reviews loan and deposit pricing and production
volumes,  interest rate risk  analysis,  liquidity and  borrowing  needs,  and a
variety of other asset and liability  management  topics on a weekly basis.  The
Company's  Investment  Committee  meets on a monthly  basis to review these same
items. On behalf of the Investment Committee,  the Chairman reports to the Board
of Directors.

                                       6
<PAGE>


To reduce the  effect of  interest  rate  changes on net  interest  income,  the
Company has adopted  various  strategies to enable it to improve the matching of
interest-earning asset maturities to interest-bearing  liability maturities. The
principal elements of these strategies include seeking to:

o    when market conditions  permit,  purchase  one-to-four  family  residential
     mortgage loans with adjustable rate features;

o    sell new  originated  long-term  fixed rate mortgage  loans that conform to
     Federal National Mortgage Association guidelines when sales can be achieved
     on terms favorable to the Company;

o    lengthen the  maturities  of  liabilities  when it would be cost  effective
     through the pricing and  promotion of higher rate  certificates  of deposit
     and utilization of FHLB advances;

o    attract low cost checking and  transaction  accounts  which tend to be less
     interest rate sensitive when interest rates rise;

o    maintain  interest-bearing  deposits,  federal  funds  and U.S.  government
     securities with short to intermediate terms to maturities; and

o    maintain an investment  portfolio that provides a stable cash flow, thereby
     providing investable funds in varying interest rate cycles.

The Company has made a  significant  effort to maintain  its level of lower cost
deposits as a method of enhancing  profitability.  At June 30, 2002, the Company
had  approximately  $38 million,  or 34%, of its  deposits in low-cost  savings,
checking and money market accounts.  These deposits have traditionally  remained
relatively stable and are expected to be only moderately affected in a period of
rising  interest  rates.  This  stability  has enabled the Company to offset the
impact of rising rates in other deposit accounts.

Net Portfolio Value

Management  activity  monitors  exposure to interest  rate risk.  The  Company's
objective is to maintain a consistent level of profitability  within  acceptable
risk tolerances  across a broad range of potential  interest rate  environments.
The Bank uses the OTS Net Portfolio  Value ("NPV") Model to monitor its exposure
to interest rate risk, which calculates  changes in net portfolio value. The NPV
model, in addition to management's  suggestions,  are reviewed by the Investment
Committee and reported to the Board of Directors quarterly.

                                       7

<PAGE>

The Bank  computes  amounts  by which  the net  present  value of cash flow from
assets, liabilities and off balance sheet items ("net portfolio value" or "NPV")
would  change  in the event of a range of  assumed  changes  in market  interest
rates.  Based upon OTS  assumptions,  the  following  table  presents the Bank's
percentage change in NPV, assuming an immediate change in interest rates of plus
or minus 300 basis points from the level at June 30, 2002.

                Change in
                Interest Rates
                In Basis Points        NPV
                 ("BP")                Ratio (2)          Change (3)
                --------------         ---------          ----------
                +300  bp                 8.44%             181  bp
                +200  bp (1)             9.18%             107  bp
                +100  bp                 9.83%              42  bp
                   0  bp                10.25%
                -100  bp                10.26%               1  bp
                -200  bp (4)             N/A%                  N/A
                -300  bp (4)             N/A%                  N/A

(1)  Denotes the rate shock used to compute the NPV capital ratios.
(2)  Calculated as the estimated NPV divided by present value of assets.
(3)  Calculated  as the  excess  (deficiency)  of the  NPV  ratio  assuming  the
     indicated change in interest rates over the estimated NPV ratio assuming no
     change in interest rates.
(4)  Due to the abnormally low interest rate environment in fiscal 2002, the OTS
     does not provide a calculation.

These  calculations  indicate that the Bank's NPV could be adversely affected by
increases  in  interest  rates  but  could be  somewhat  favorably  affected  by
decreases in interest rates. In addition,  the Bank could be deemed to have more
than a normal level of interest rate risk under  applicable  regulatory  capital
requirements if interest market rates increase.

Computations of prospective  effects of  hypothetical  interest rate changes are
based on numerous  assumptions,  including  relative  levels of market  interest
rates,  prepayments  and  deposit  run-offs  and  should  not be relied  upon as
indicative  of  actual  results.  Certain  shortcomings  are  inherent  in  such
computations.  Although certain assets and liabilities may have similar maturity
or periods of  repricing,  they may react at  different  times and in  different
degrees to changes in the market interest  rates.  The interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while rates on other types of assets and  liabilities  may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features which restrict changes in interest rates on a
short-term  basis  and over the life of the  asset.  In the event of a change in
interest  rates,   prepayments  and  early   withdrawal   levels  could  deviate
significantly  from  those  assumed  in making  calculations  set  forth  above.
Additionally,  an  increased  credit  risk may  result  as the  ability  of many
borrowers to service  their debt may  decrease in the event of an interest  rate
increase.



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                                       8

<PAGE>

Average Balance Sheet

The  following  table sets forth certain  information  relating to the Company's
average  balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid.  Such yields and costs are  derived by  dividing  income or expense by the
average  balance  of  assets  or  liabilities,  respectively,  for  the  periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily average balances
has caused any material differences in the information presented.

<TABLE>
<CAPTION>
                          Year Ended June 30, 2002             Year Ended June 30, 2001         Year Ended June 30, 2000
                      ---------------------------------     ------------------------------   ------------------------------
                          Average              Average        Average             Average    Average               Average
                          Balance  Interest   Yield/Cost      Balance Interest   Yield/Cost   Balance   Interest  Yield/Cost
                            (Dollars in Thousands)                (Dollars in Thousands)           (Dollars in Thousands)
<S>                      <C>       <C>         <C>         <C>       <C>        <C>        <C>         <C>         <C>
Interest-earning assets:
  Loans receivable (1)    $132,771  $10,358      7.80%       $121,237  $10,544    8.70%      $103,252    $ 8,660     8.39%
                          --------  -------                  --------  -------               --------    -------
  Investment securities
    and mortgage-
    backed securities       56,365    2,997      5.32%         55,007    3,584    6.52%        49,270      3,001     6.09%
  Other interest-earning
    assets (2)               4,837      149      3.08%          5,356      309    5.77%         4,739        328     6.92%
                          --------  -------                  --------  -------               --------    -------

  Total interest-
    earning assets         193,973   13,504      6.96%        181,600   14,437    7.95%       157,261     11,989     7.62%
  Non-interest-
    earning assets           7,255                              5,839                           5,337
                          --------                           --------                        --------

        Total assets      $201,228                           $187,439                        $162,598

Interest-bearing
liabilities:
  Transaction accounts    $  8,081       76       .94%       $  6,506       94    1.45%      $  5,975    $    90     1.51%
  Passbook savings           8,271       61       .74%          4,868       91    1.87%         5,018        102     2.03%
  Money market accounts     10,465      164      1.57%          9,583      322    3.36%        10,304        310     3.01%
  Certificates of deposit   75,510    3,759      4.98%         61,546    3,587    5.83%        52,660      2,703     5.13%
  Other liabilities (3)     75,223    3,415      4.54%         81,488    4,939    6.06%        68,442      3,912     5.72%
                          --------  -------                  --------  -------               --------    -------

  Total interest -bearing
    liabilities            177,550    7,475      4.21%        163,991    9,033    5.51%       142,399      7,117     5.0%
  Non-interest bearing
    liabilities              7,861                              9,502                           7,801
                          --------                           --------                        --------

        Total liabilities  185,411                            173,493                         150,200

Stockholders' equity        15,817                             13,946                          12,398
                          --------                           --------                        --------
        Total liabilities
          and
          stockholders'
          equity          $201,228                           $187,439                        $162,598

Net interest income                  $6,029                            $ 5,404                           $ 4,872
Interest rate spread (4)                         2.75%                            2.44%                              2.62%
Net yield on interest-
  earning assets (5)                             3.11%                            2.98%                              3.10%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                   1.09X                            1.11X                              1.10X

</TABLE>

(1)  Average balances include non-accrual loans.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Other liabilities include FHLB advances and repurchase agreements.
(4)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(5)  Net yield on interest - earning assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       9
<PAGE>

Rate/Volume Analysis

The table below sets forth  certain  information  regarding  changes in interest
income and interest expense of the Company for the periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes  in  average  volume  multiplied  by old rate);  (ii)  changes in rates
(changes  in rate  multiplied  by old  average  volume);  (iii)  changes in rate
(volume changes in rate multiplied by the change in average volume). The changes
attributable  to the  combined  impact  of volume  and rate have been  allocated
proportionately to the changes due to volume and the changes due to rate.

<TABLE>
<CAPTION>
                                                  Year ended June 30,                      Year ended June 30,
                                                    2002 vs. 2001                            2001 vs. 2000
                                                  Increase (Decrease)                      Increase (Decrease)
                                                      Due to                                   Due to
                                      ---------------------------------------     -------------------------------------
                                                              Rate/                                     Rate/
                                      Volume       Rate       Volume      Net     Volume      Rate     Volume       Net
                                      ------       ----       ------      ---     ------      ----     ------       ---
                                                (Dollars in Thousands)                            (Dollars in  Thousands)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
  Loans receivable                   $ 1,003    $(1,091)   $   (98)   $  (186)   $ 1,509    $   320    $    55    $ 1,884
  Mortgage-backed securities and
     Investment securities                89       (660)       (16)      (587)       349        212         22        583
  Other interest-earning  assets         (30)      (143)        13       (160)        43        (54)        (8)       (19)
                                     -------    -------    -------    -------    -------    -------    -------    -------

     Total interest-earning assets     1,062     (1,894)      (101)      (933)     1,901        478         69      2,448
                                     -------    -------    -------    -------    -------    -------    -------    -------

Interest expense:
  Transaction accounts                    23        (33)        (8)       (18)         8         (4)        --          4
  Savings accounts                        64        (55)       (39)       (30)        (3)        (8)        --        (11)
  Money markets                           30       (172)       (16)      (158)       (21)        36         (3)        12
  Certificates of deposit                814       (523)      (119)       172        456        369         59        884
  Other liabilities                     (380)    (1,239)        95     (1,524)       746        231         50      1,027
                                     -------    -------    -------    -------    -------    -------    -------    -------
   Total  interest-bearing
      liabilities                        551     (2,022)       (87)    (1,558)     1,186        624        106      1,916
                                     -------    -------    -------    -------    -------    -------    -------    -------

Net change in interest income        $   511    $   128    $   (14)   $   625    $   715    $  (146)   $   (37)   $   532
                                     =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

Financial Condition

General.  The  Company's  total  assets  increased   $9,092,000,   or  4.6%,  to
$206,145,000 at June 30, 2002 from  $197,053,000 at June 30, 2001. This increase
was  primarily  the result of a $9,317,000  increase in the  Company's  net loan
portfolio.

Loans  receivable,  net,  increased  $9,317,000 to $139,748,000 at June 30, 2002
from $130,431,000 at June 30, 2001. The increase in loans  receivable,  net, was
primarily the result of increases of $4,656,000 in loans on  one-to-four  family
residences,  $7,032,000 in loans secured by other  properties  and $3,752,000 in
commercial  business  loans,  offset by decreases of $1,481,000 in  construction
loans,  $1,602,000  in  participations  sold,  $479,000  in  consumer  loans and
$1,777,000 in loan  participations  sold, net deferred loan origination fees and
allowance for loan losses.  The increase in loans receivable,  net, is primarily
attributable to management  efforts to increase lending activity and the opening
of the new Bank branch in Farmington.

At June 30, 2002, total  liabilities  increased  $7,689,000 to $189,762,000 from
$182,073,000  at June 30, 2001.  The increase in total  liabilities  at June 30,
2002 was primarily  attributable to an increase in deposits of $3,789,000 and an
increase in advances from the Federal Home Loan Bank ("FHLB") of $4,280,000.

                                       10
<PAGE>

The increase in deposits  was  primarily  the result of growth in the  Company's
Transaction and NOW accounts and Savings deposits,  offset by a decrease in Time
deposits.  From June 30,  2001 to June 30,  2002  Transaction  and NOW  accounts
increased  $4,954,000  from  $15,463,000  to  $20,417,000  and Savings  deposits
increased  $2,784,000  from  $14,522,000  to  $17,306,000,  while Time  deposits
decreased  $4,049,000  from  $76,676,000  to  $72,627,000.  The decrease in time
deposits is primarily due to a decrease in the Bank's public fund Time deposits.

The Bank  funds  loans  primarily  from  deposits  and  Federal  Home  Loan Bank
borrowings. Borrowings increased $4,280,000 from $72,106,000 at June 30, 2001 to
$76,386,000 at June 30, 2002. Borrowings were primarily used to fund loans.

The Company offers its corporate  customers an investment  product  fashioned in
the form of a repurchase agreement.  Under the terms of the agreement,  deposits
in  designated  demand  accounts  of the  customers  are  swept  daily  into  an
investment vehicle,  through which the funds are used to purchase an interest in
designated marketable securities. The Company in turn agrees to repurchase these
investments  on a daily basis,  paying the customer  the daily  interest  earned
based on current market rates. At June 30, 2002,  repurchase  agreements totaled
$1,235,000, a decrease of $89,000 from June 30, 2001.

Total stockholders'  equity at June 30, 2002 increased $1,404,000 to $16,383,000
from $14,979,000 at June 30, 2001. The increase in stockholders' equity reflects
net income of  $1,611,000,  and  dividends  paid to  stockholders  of  $429,000,
partially  offset by minor  changes in additional  paid-in  capital and unearned
ESOP stock for the year ended June 30, 2002.

Comparison of Operating Results for Years Ended June 30, 2002 and 2001

General. Net earnings decreased $49,000 or 2.9% to $1,611,000 for the year ended
June 30, 2002 from  $1,660,000 for the year ended June 30, 2001. The decrease in
earnings is  primarily  the result of an increase  in net  interest  earnings of
$625,000 and a $125,000  decrease in the provision for loan losses,  offset by a
decrease  of  $28,000  in  non-interest   earnings,   a  $680,000   increase  in
non-interest expense and a $91,000 increase in income tax expense.

Interest  Earnings.  Total interest  earnings  totaled  $13,504,000 for the year
ended June 30, 2002, a decrease of $933,000  from the  $14,437,000  for the year
ended June 30, 2001.  The decrease is primarily due to a decline in rates on the
Bank's lending and investment  activities.  See average  balance sheet on page 9
and rate/volume analysis on page 10.

Interest Expense.  Total interest expense  decreased  $1,558,000 from $9,033,000
for the year  ended June 30,  2001,  to  $7,475,000  for the year ended June 30,
2002,  primarily  due to a decrease in the volume of time deposits and a decline
in the rates on  interest  bearing  deposits  and FHLB  borrowings.  See average
balance sheet on page 9 and rate/volume analysis on page 10.

Provision  for Losses on Loans.  The Company  maintains  an  allowance  for loan
losses based upon management's  periodic  evaluation of known and inherent risks
in the loan portfolio, past loss experience,  adverse situations that may affect
the  borrower's  ability  to repay  loans,  estimated  value  of the  underlying
collateral and current and expected  market  conditions.  The provision for loan
loss was  $220,000  and  $345,000  for the years  ended June 30,  2002 and 2001,
respectively.  The  decrease  in the  provision  for loan  losses is a result of
substantially  less growth in the Company's loans receivable,  net, for the year
compared to the prior year.  Loans  receivable,  net increased  only  $9,317,000
during  the  year  ended  June 30,  2002,  which is  $11,337,000  less  than the
$20,654,000  increase in loans  receivable,  net, during the year ended June 30,
2001. While the Company maintains its allowance for losses at a level,  which it
considers  to be adequate at the balance  sheet date,  there can be no assurance
that further  additions  will not be made to the loss  allowances  and that such
losses will not exceed the estimated amounts.

Non-Interest Earnings.  Total non-interest earnings decreased by $28,000 or 6.7%
from  $418,000  for the year ended June 30, 2001 to $390,000  for the year ended
June 30, 2002. This decrease was primarily due to decreased miscellaneous income
of $23,000, a decrease in net gains from the sale of available-for-sale loans

                                       11
<PAGE>

and securities of $7,000 and decreased  service charge income of $2,000,  offset
by an increase in income from real estate operations of $4,000.  The decrease in
miscellaneous income is a result of recognition of a $21,000 gain on the sale of
other real estate  owned and proceeds  received of $6,000 from a winning  raffle
ticket  in the year  ended  June  30,  2001,  offset  by a  $4,000  increase  in
commission  fees  collected  from credit card merchant  sales for the year ended
June 30, 2002.

Non-Interest  Expense.  Total  non-interest  expense increased $680,000 or 22.2%
from  $3,060,000  for the year ended June 30,  2001 to  $3,740,000  for the year
ended June 30, 2002. The most significant changes in non-interest  expenses were
increases in  compensation  and  benefits,  data  processing,  occupancy  costs,
professional  fees,  stationary,  printing,  and office  supplies.  The $362,000
increase in compensation and benefits  expense  reflects a $228,000  increase in
general  salaries  and  benefits  expense  primarily  due to the  hiring of nine
employees  to staff the  Bank's new  branch,  two other  additions  to staff and
general merit increases in  administrative  and other employee  salaries.  Other
increases in compensation  and benefits  included  $50,000 in expense related to
employee  stock  compensation  plans and $84,000 due to the  repurchase of stock
from an  employee  exercise/sale  of  stock  options.  Data  processing  expense
increased by $51,000 due to increased  service  bureau  expense  resulting  from
growth in the number of deposit and loan accounts serviced and a change to a new
service bureau  provider.  Occupancy  costs  increased  $99,000 due primarily to
increases in depreciation for furniture, fixtures, and equipment, resulting from
the purchase of equipment  needed to operate the new service  bureau  format and
equipment  purchased for the new branch.  The increase in  professional  fees of
$24,000 was due to increases in audit,  accounting,  and legal fees. Stationary,
printing and office supplies  increased  $42,000  primarily as the result of the
purchase of new forms  required  for the new service  bureau and the purchase of
forms and supplies for the new branch.

Income Tax Expense.  Income tax expense  increased  $91,000 or 12% from $757,000
for the year ended June 30, 2001 to $848,000  for the year ended June 30,  2002.
This increase was primarily  attributable to a decrease in deductible  temporary
differences  of FHLB Stock  Dividends  of $51,000 and an  increase in  temporary
non-deductible differences resulting from employee stock ownership plan expenses
of $42,000 offset by certain other temporary and permanent differences.


Liquidity and Capital Resources

The Company's  primary sources of funds are deposits,  borrowings,  amortization
and prepayment of loans and mortgage-backed securities, maturities of investment
securities, and funds provided from operations.  While scheduled loan repayments
are a  relatively  predictable  source  of  funds,  deposit  flows  and loan and
mortgage-backed  security  prepayments are  significantly  influenced by general
interest rates, economic conditions,  and competition.  In addition, the Company
invests  excess funds in overnight  deposits,  which  provide  liquidity to meet
lending requirements and deposit fluctuations.

The Bank's  most  liquid  assets are cash and cash  equivalents,  which  include
investments in highly liquid short-term  investments.  The level of these assets
is dependent on the Company's  operating,  financing,  and investing  activities
during any given period.  At June 30, 2002,  cash and cash  equivalents  totaled
$5,651,000.  The  Bank  has an  additional  source  of  liquidity  if a need for
additional funds should arise, that being FHLB of Dallas advances. The Bank also
has the ability to borrow against mortgage-backed and other securities.  At June
30,  2002,  the Bank had  outstanding  borrowings  from  the FHLB of  Dallas  of
$76,386,000.  Some of these  outstanding  borrowings were used to fund loans and
purchase additional investment securities.

The  primary  investment  activity  of the  Bank is the  origination  of  loans;
primarily  mortgage  loans.  During  the  year  ended  June 30,  2002,  the Bank
originated $57,306,000 in total loans (including loan participations purchased),
of which  $42,518,000 were mortgage loans.  Another  investment  activity of the
Bank  is  the  investment  of  funds  in  U.S.   Government  agency  securities,
mortgage-backed securities,  collateralized mortgage obligations, federal funds,
readily  marketable  equity  securities,  municipal general  obligation  revenue
bonds, and FHLB of Dallas  overnight funds.  During periods when the Bank's loan
demand is limited,  the Bank may purchase  short-term  investment  securities to
obtain a higher yield than otherwise available.

                                       12

<PAGE>

The Company's  cash flows are comprised of three primary  classifications:  cash
flows from operating activities,  investing activities and financing activities.
Cash flows from operating  activities,  consisting  principally of net earnings,
provision  for loan  losses,  amortization  of  investment  and  mortgage-backed
securities  premiums and discounts,  stock based  compensation  costs and income
taxes less  disbursements of interest and dividends,  and loan origination fees,
were  $1,575,000  and  $2,117,000  for the years  ended June 30,  2002 and 2001,
respectively.  Net cash used for investing  activities  consisting  primarily of
disbursement of loan  originations and investment and  mortgage-backed  security
purchases,  offset  by  principal  collections  on loans and  proceeds  from the
maturities  of  investment  securities  and  mortgage-backed   securities,  were
$7,559,000  and  $18,442,000  for the  years  ended  June  30,  2002  and  2001,
respectively.  Net cash provided from financing activities  consisting primarily
of net activity in deposit and escrow  accounts and the proceeds  received  from
FHLB advances, were $7,373,000 and $16,497,000 for the years ended June 30, 2002
and 2001, respectively.

The Bank  anticipates  that it will have sufficient  funds available to meet its
current commitments. As of June 30, 2002, the Bank had commitments to fund loans
of $9,833,000.  Certificates of deposit  scheduled to mature in one year or less
totaled  $48,012,000.  Based on  historical  withdrawals  and  outflows,  and on
internal monthly deposit reports  monitored by management,  management  believes
that a majority of deposits will remain with the Bank.  As a result,  no adverse
liquidity effects are expected.

At June 30, 2002,  the Bank exceeded each of the three OTS capital  requirements
on a fully phased in basis. See Note 8 to the Consolidated Financial Statements.

                                       13

<PAGE>

NEFF + RICCI LLP
-----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
6100 UPTOWN BLVD NE SUITE 400
ALBUQUERQUE NM  87110



                          Independent Auditors' Report


Board of Directors
GFSB Bancorp, Inc.
Gallup, New Mexico


We have audited the accompanying  consolidated statements of financial condition
of GFSB Bancorp,  Inc. (a Delaware  corporation)  and  Subsidiary as of June 30,
2002  and  2001,  and  the  related  consolidated  statements  of  earnings  and
comprehensive earnings,  changes in stockholders' equity, and cash flows for the
years then ended.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit 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 financial position of GFSB Bancorp,  Inc.
and Subsidiary as of June 30, 2002 and 2001, and the results of their operations
and their cash flows for the years then ended,  in  conformity  with  accounting
principles generally accepted in the United States of America.

/s/Neff + Ricci LLP

Albuquerque, New Mexico
July 26, 2002

                                       14

<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2002 and 2001


<TABLE>
<CAPTION>

ASSETS
                                                                   2002                 2001

<S>                                                         <C>                  <C>
     Cash and due from banks                                  $   4,825,439            3,216,000
     Interest-bearing deposits with banks                           826,052            1,046,254
     Available-for-sale investment securities                    23,973,426           21,804,107
     Available-for-sale mortgage-backed securities               27,290,274           32,376,812
     Held-to-maturity investment securities                       1,405,403            1,945,720
     Stock of Federal Home Loan Bank, at cost, restricted         4,218,500            3,649,000
     Loans receivable, net, substantially pledged               139,748,188          130,430,937
     Accrued interest and dividends receivable                    1,073,201            1,185,400
     Premises and equipment                                       2,511,173            1,323,770
     Prepaid and other assets                                       273,413               74,624
                                                              -----------------------------------

                Total assets                                  $ 206,145,069          197,052,624
                                                              ===================================

</TABLE>


See Notes to Financial Statements.


                                       15
<PAGE>

<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                   2002                 2001

<S>                                                                         <C>                  <C>
     Transaction and NOW accounts                                             $  20,417,085           15,462,712
     Savings deposits                                                            17,305,540           14,521,879
     Time deposits                                                               72,626,849           76,675,576
     Advances from the Federal Home Loan Bank                                    76,386,455           72,105,997
     Repurchase agreements                                                        1,234,857            1,324,335
     Accrued interest payable                                                       448,955              473,446
     Advances from borrowers for taxes and insurance                                416,575              440,048
     Accounts payable and accrued liabilities                                       245,409              219,855
     Deferred income taxes                                                          568,728              555,191
     Dividends declared and payable                                                 110,506               98,453
     Income taxes payable                                                             1,168              195,854
                                                                             ------------------------------------

               Total liabilities                                                189,762,127          182,073,346
                                                                             ------------------------------------

Commitments and Contingencies                                                             -                    -

Stockholders' Equity
     Common stock, $.10 par value, 1,500,000 shares authorized;
        1,150,106 shares in 2002 and 2001 issued and outstanding                    115,011              115,011
     Preferred stock, $.10 par value, 500,000 shares authorized;
        no shares issued or outstanding                                                   -                    -
     Additional paid-in capital                                                   2,761,251            2,630,860
     Unearned ESOP stock                                                           (207,926)            (272,480)
     Retained earnings, substantially restricted                                 12,420,358           11,237,917
     Accumulated other comprehensive earnings                                     1,294,248            1,267,970
                                                                             ------------------------------------

               Total stockholders' equity                                        16,382,942           14,979,278
                                                                             ------------------------------------

               Total liabilities and stockholders' equity                    $  206,145,069          197,052,624
                                                                             ===================================
</TABLE>

                                       16

<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
Years Ended June 30, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                      2002               2001
<S>                                                                           <C>                  <C>
Interest Earnings
     Loans receivable
         Mortgage loans                                                         $   8,217,548          8,360,060
         Commercial loans                                                           1,244,999          1,229,761
         Share and consumer loans                                                     454,954            612,717
         Service fee income                                                           440,369            341,680
     Investment and mortgage-backed securities                                      2,996,693          3,583,835
     Other interest-earning assets                                                    149,599            308,906
                                                                                ---------------------------------

                Total interest earnings                                            13,504,162         14,436,959
                                                                                ---------------------------------

Interest Expense
     Deposits                                                                       4,060,294          4,093,573
     Advances from Federal Home Loan Bank                                           3,400,295          4,873,600
     Repurchase agreements                                                             14,475             65,610
                                                                                ---------------------------------

                Total interest expense                                              7,475,064          9,032,783
                                                                                ---------------------------------

                Net interest earnings                                               6,029,098          5,404,176

Provision for Loan Losses                                                             220,000            345,000
                                                                                ---------------------------------

                Net interest earnings after provision
                   for loan losses                                                  5,809,098          5,059,176
                                                                                ---------------------------------

Non-Interest Earnings
     Service charge income                                                            295,579            297,565
     Miscellaneous income                                                              50,369             68,999
     Gain from sales of loans                                                          34,289             35,664
     Gain on sale of available-for-sale securities                                     10,000             16,297
     Loss on sale of available-for-sale securities                                          -               (335)
                                                                                ---------------------------------

                Total non-interest earnings                                           390,237            418,190
                                                                                ---------------------------------

Non-Interest Expense
     Compensation and benefits                                                      2,089,018          1,726,948
     Insurance and SAIF Premiums                                                       60,215             50,044
     Stationery, printing, and office supplies                                        117,465             75,683
     ATM expense                                                                       50,311             47,859
     Supervisory exam fees                                                             55,378             46,211
     Postage                                                                           61,697             42,234

</TABLE>

See Notes to Financial Statements.

                                       17
<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
Years Ended June 30, 2002 and 2001


<TABLE>
<CAPTION>

                                                                                      2002               2001
<S>                                                                           <C>                  <C>

Non-Interest Expense - Continued
     Other                                                                      $     311,042            277,534
     Occupancy                                                                        451,080            351,786
     Data processing                                                                  317,350            266,409
     Professional fees                                                                106,602             82,353
     Advertising                                                                       94,060             76,543
     Stock services                                                                    26,194             16,680
                                                                                ---------------------------------

                Total non-interest expense                                          3,740,412          3,060,284
                                                                                ---------------------------------

Earnings before Income Taxes                                                        2,458,923          2,417,082
                                                                                ---------------------------------

Income Tax Expense
     Currently payable                                                                834,088            760,355
     Deferred benefit                                                                  13,537             (3,488)
                                                                                ---------------------------------

                Total income tax expense                                              847,625            756,867
                                                                                ---------------------------------

                Net earnings                                                        1,611,298          1,660,215

Other Comprehensive Earnings
     Unrealized investment gains, net of tax of
         $13,537 in 2002 and $586,040 in 2001                                          26,278          1,137,607
                                                                                ---------------------------------

                Net comprehensive earnings                                      $   1,637,576          2,797,822
                                                                                =================================

Basic Net Earnings per Share                                                             1.46               1.50

Dilutive Net Earnings per Share                                                          1.41               1.46

Weighted average number of common shares
     outstanding-basic                                                              1,105,068          1,107,243
Weighted average number of common shares
     outstanding-dilutive                                                           1,143,528          1,139,951

</TABLE>

See Notes to Financial Statements.

                                       18

<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended June 30, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                            Common Stock          Additional    Unearned                  Other
                                       -----------------------      Paid-in       ESOP       Retained  Comprehensive
                                           Shares      Amount       Capital       Stock      Earnings    Earnings       Total
                                           ------      ------       -------       -----      --------    --------       -----

<S>                                  <C>          <C>         <C>             <C>         <C>             <C>       <C>
Balances, June 30, 2000                   940,958   $  94,096   $  2,810,626    (323,911)   9,974,531       130,363   12,685,705
                                                                                                                    -------------

Comprehensive earnings
     Net earnings                               -           -              -           -    1,660,215             -    1,660,215
     Unrealized gain on available
         for sale securities,
         net of taxes                           -           -              -           -            -     1,137,607    1,137,607
                                                                                                                    -------------

             Total comprehensive
               earnings                                                                                                2,797,822
                                                                                                                    -------------

Distribution of stock vested
     under the management stock
     bonus plan                                 -           -         50,513           -            -             -       50,513
Acquisition of common stock by
     the Company under the stock
     repurchase plan                      (21,766)     (2,176)      (289,753)          -            -             -     (291,929)
Released and committed to be
     released 13,990.8389 shares
     of common stock owned
     by the ESOP                                -           -         59,474      51,431            -             -      110,905
Issuance of stock dividend                230,914      23,091              -           -      (23,091)            -            -
Cash paid on fractional shares
     in lieu of stock dividend                  -           -              -           -       (1,281)            -       (1,281)
Dividends declared and paid to
     stockholders                               -           -              -           -     (372,457)            -     (372,457)
                                       ------------------------------------------------------------------------------------------

Balances, June 30, 2001                 1,150,106     115,011      2,630,860    (272,480)  11,237,917     1,267,970   14,979,278
                                       ------------------------------------------------------------------------------------------

Comprehensive earnings
     Net earnings                               -           -              -           -    1,611,298             -    1,611,298
     Unrealized gain on
         available for sale
         securities,
         net of taxes                           -           -              -           -            -        26,278       26,278
                                                                                                                    -------------

            Total comprehensive
              earnings                                                                                                 1,637,576
                                                                                                                    -------------
Distribution of stock vested
     under the management
     stock bonus plan                           -           -         29,245           -            -             -       29,245
Stock issued upon exercise
     of stock options                      15,937       1,594        128,240                                             129,834
Expense incurred by the Company
     for stock purchased within
     six months of exercise
     of related options                         -           -         83,867           -            -             -       83,867
Acquisition of common stock
     by the Company under
     the stock repurchase plan            (15,937)     (1,594)      (212,107)          -            -             -     (213,701)
Released and committed to be
     released 17,199.6449
     shares of common stock
     owned by the ESOP                          -           -        101,146      64,554            -             -      165,700
Dividends declared and paid to
     stockholders                               -           -              -           -     (428,857)            -     (428,857)
                                       ------------------------------------------------------------------------------------------

Balances, June 30, 2002                 1,150,106   $ 115,011   $  2,761,251    (207,926)  12,420,358     1,294,248   16,382,942
                                       ==========================================================================================
</TABLE>

See Notes to Financial Statements.

                                       19 - 20
<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                          2002              2001
<S>                                                                              <C>                 <C>
Cash Flows from Operating Activities
     Net earnings                                                                  $    1,611,298         1,660,215
     Adjustments to reconcile net earnings to net cash
        provided by operations:
            Deferred loan origination fees                                               (440,369)         (341,680)
            Gain on sale of loans and securities                                          (44,289)          (51,626)
            Provision for loan losses                                                     220,000           345,000
            Depreciation of premises and equipment                                        233,919           191,450
            Amortization of investment and mortgage-backed
               securities premiums                                                        121,568            72,049
            Stock dividend on FHLB stock                                                 (121,828)         (249,135)
            Release of ESOP stock                                                         165,700           110,905
            Stock compensation under management bonus stock plan                           31,506            41,503
            Stock compensation resulting from stock purchased by
               the Company within six months of exercise
               of related options                                                          83,867              --
            Provision (benefit) for deferred income taxes                                  13,537            (3,489)
     Netchanges in  operating  assets and  liabilities:  (Increase)  decrease in
        assets:
            Accrued interest and dividends receivable                                     112,199          (151,426)
            Prepaid and other assets                                                     (198,789)          161,259
            Income taxes receivable                                                      (194,686)          195,854
        Increase (decrease) in liabilities:
            Accrued interest payable                                                      (24,492)          185,096
            Accounts payable and other accrued liabilities                                 (5,952)          (58,999)
            Dividends declared and payable                                                 12,053             9,578
                                                                                   --------------------------------

               Net cash provided by operating activities                                1,575,242         2,116,554
                                                                                   --------------------------------

Cash Flows from Investing Activities
     Purchase of premises and equipment                                                (1,421,322)         (219,172)
     Loan origination and principal repayment on loans, net                           (11,465,225)      (22,460,289)
     Proceeds from the sale of loans                                                    2,402,632         1,838,965
     Principal payments on mortgage-backed securities                                  10,183,665         5,346,685
     Principal payments on available-for-sale securities                                3,049,992           928,643
     Principal payments on held-to-maturity securities                                     25,000            10,000
     Purchases of mortgage-backed securities                                           (5,144,006)      (10,054,928)
     Purchases of available-for-sale securities                                        (6,572,405)       (5,170,323)
     Purchases of held-to-maturity securities                                                --            (270,000)
     Maturities and proceeds from sale of available-for-sale
        securities                                                                      1,310,000         9,072,813
     Maturities and proceeds from sale of available-for-sale
        mortgage-backed securities                                                        520,000         1,728,391
     (Purchase of) proceeds from FHLB stock                                              (447,672)          807,035
                                                                                   --------------------------------

               Net cash used by investing activities                                   (7,559,341)      (18,442,180)
                                                                                   --------------------------------
</TABLE>

See Notes to Financial Statements

                                       21
<PAGE>

GFSB BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended June 30, 2002 and 2001

<TABLE>
<CAPTION>

                                                                                          2002              2001
<S>                                                                              <C>              <C>
Cash Flows from Financing Activities
     Net increase in transaction accounts, passbook savings
        money market accounts, and certificates of deposit                         $    3,689,308        26,712,222
     Repurchase agreements                                                                (89,478)        1,093,496
     Net increase (decrease) in mortgage escrow finds                                     (23,473)          134,139
     Proceeds from FHLB advance                                                       688,853,462     1,718,812,746
     Repayments on FHLB advances                                                     (684,573,004)   (1,729,641,815)
     Purchase of GFSB Bancorp stock under the stock
        repurchase plan in cash                                                          (213,701)         (291,929)
     Dividends paid or to be paid in cash                                                (428,857)         (372,457)
     Proceeds from exercise of stock options                                              129,834              --
     Price paid for vested management bonus stock plan stock                               29,245            50,513
                                                                                   --------------------------------

               Net cash provided by financing activities                                7,373,336        16,496,915
                                                                                   --------------------------------

Increase in cash and cash equivalents                                                   1,389,237           171,289

Cash and cash equivalents at beginning of year                                          4,262,254         4,090,965
                                                                                   --------------------------------

Cash and cash equivalents at end of year                                           $    5,651,491         4,262,254
                                                                                   ================================

Supplemental Disclosures Cash paid during the year for:
        Interest on deposits and advances                                          $    7,485,081         8,847,695
        Income taxes                                                                    1,034,208           628,240

     Change in unrealized gain, net of deferred taxes on
        available-for-sale securities (other comprehensive
        earnings)                                                                          26,278         1,137,607

     Supplemental schedule of noncash and financing activities
        Issuance of stock dividend                                                             --            23,091

</TABLE>

See Notes to Financial Statements.

                                       22

<PAGE>

GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A  summary  of  significant  accounting  policies  consistently  applied  in the
preparation of the accompanying statements follows:

Organization and Operations. Effective June 29, 1995, Gallup Federal Savings and
Loan Association (the "Association") converted from a federal mutual savings and
loan association to a federal stock savings bank with the formation of a holding
company (GFSB Bancorp,  Inc.). The conversion was accomplished through amendment
of the  Association's  federal  charter  and the sale of the  holding  company's
common stock.  The  Association  also changed its name to Gallup Federal Savings
Bank (the "Bank").

GFSB Bancorp, Inc. (the "Company") is a unitary savings and loan holding company
incorporated  under the laws of the State of Delaware.  The Company acquired all
of the common  stock of the Bank on June 29, 1995 and the Company  also made its
initial public offering of common stock.

Basis  of  Presentation.  The  accompanying  consolidated  financial  statements
include the accounts of the Company and the Bank. All  significant  balances and
transactions between entities have been eliminated.

Cash and Cash Equivalents.  Cash and cash equivalents include cash on hand, cash
items,  amounts due from banks,  amounts  held with the  Federal  Reserve  Bank,
interest  bearing  deposits with the Federal Home Loan Bank,  and time deposits.
For purposes of the statements of cash flows,  the Company  considers all highly
liquid debt instruments  with original  maturities of three months or less to be
cash equivalents. The amounts in each of these above categories are as follows:

                                                2002         2001

           Cash on hand                      $1,620,315    1,054,347
           Cash items                            13,765     (105,372)
           Amounts due from banks             2,808,981    2,227,183
           Interest bearing deposits            628,052      650,255
           Time deposits                        198,000      396,000
           Federal Reserve Bank deposits        382,378       39,841
                                             ----------   ----------

           Total cash and cash equivalents   $5,651,491    4,262,254
                                             ==========    =========

The amounts due from banks includes $67,058 and $55,376 for the years ended June
30, 2002 and 2001, respectively,  held in trust by the Company for the employees
awarded  stock under the  Management  Stock Bonus  Plan.  The amount  represents
dividends earned on non-vested shares.

                                       23

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

Available-for-Sale  Investment  Securities.  All  available-for-sale  investment
securities  are stated at fair value.  The Company has recorded a net unrealized
gain,  net of  deferred  income  taxes,  as  accumulated  comprehensive  income.
Realized  gains and losses on the sale of investment  securities  are determined
using the specific identification method when such sales occur. The amortization
of premiums and accretion of discounts are  recognized in interest  income using
methods approximating the interest method over the period of maturity.

Available-for-Sale  Mortgage-Backed Securities. All mortgaged-backed and related
securities  are stated at fair value.  The Company has recorded a net unrealized
gain,  net of  deferred  income  taxes,  as  accumulated  comprehensive  income.
Realized  gains  and  losses  on the  sale  of  mortgage-backed  securities  are
determined using the specific  identification  method when such sales occur. All
sales are made without  recourse.  The amortization of premiums and accretion of
discounts are  recognized in interest  income using  methods  approximating  the
interest method over the remaining period of maturity.

Held-to-Maturity  Securities.  Government,  Federal  agency,  and corporate debt
securities  that  management  has the  positive  intent  and  ability to hold to
maturity  are  reported at cost,  adjusted  for  amortization  of  premiums  and
accretion of discounts  that are  recognized  in interest  income using  methods
approximating   the   interest   method  over  the  period  to   maturity.   All
hold-to-maturity securities are recorded at amortized cost.

At June  30,  2002  the  Company  had no  outstanding  commitments  to sell  any
securities.

Loans Receivable. Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are stated at unpaid
principal  balances,  less the allowance for loan losses,  and net deferred loan
origination fees and discounts.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on past  loan loss  experience,  known and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's ability to repay, estimated value of any underlying  collateral,  and
current economic conditions.

                                       24
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

An impaired  loan can be valued based upon its fair value or the market value of
the underlying  collateral if the loan is primarily  collateral  dependent.  The
Company  assesses  for  impairment  all  loans  delinquent  more  than 90  days.
Uncollectible  interest on loans that are contractually past due is charged off,
or  an  allowance  account  is  established   based  on  management's   periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued,  and income is subsequently  recognized only to
the extent cash payments are received,  until,  in  management's  judgment,  the
borrower's  ability to make periodic  principal and interest payments is back to
normal, in which case the loan is returned to accrual status.

Loans  Held-For-Sale.  Loans  held-for-sale  are those loans the Company has the
intent to sell in the foreseeable future. Loans held-for-sale are carried at the
lower of aggregate cost or market value.  Gains and losses on sales of loans are
recognized at settlement  dates and are  determined  by the  difference  between
sales proceeds and carrying value of the loans.

Mortgage loans sold to others are not included in the accompanying statements of
financial condition.  For the years ended June 30, 2002 and 2001, $2,402,632 and
$1,838,965,  respectively,  of loans have been sold.  No  servicing  rights were
retained on these  loans.  Gains on the sale of these loans were $34,289 in 2002
and $35,664 in 2001.

Loan  Origination  Fees and Related  Costs.  Loan fees and  certain  direct loan
origination  costs are deferred,  and the net fee is recognized as an adjustment
to interest income using the interest  method over the  contractual  life of the
loans.  Historical prepayment experience for the Company is minimal for purposes
of adjusting the contractual life of the loans.

Foreclosed Real Estate.  Real estate properties acquired through, or in lieu of,
loan  foreclosure  are  initially   recorded  at  fair  value  at  the  date  of
foreclosure. The Company generally holds foreclosed assets as held for sale, and
accordingly,  after  foreclosure,  such  assets are carried at the lower of fair
value  minus  estimated  costs to sell,  or cost.  Valuations  are  periodically
performed by management,  and an allowance for losses is established by a charge
to operations if the fair value of a property does not exceed its cost.

Premises and Equipment. Land is carried at cost. Building, furniture,  fixtures,
and  equipment are carried at cost,  less  accumulated  depreciation.  Building,
furniture,  fixtures, and equipment are depreciated using a straight-line method
over the  estimated  useful  lives of the  assets.  Maintenance  and repairs are
charged to earnings in the period incurred.

                                       25

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

Income Taxes. Deferred income taxes are provided on temporary differences in the
recognition of income and expense for tax and financial reporting purposes.

Deferred  tax assets and  liabilities  are  determined  based on the  difference
between  the  financial  statement  and tax bases of assets and  liabilities  as
measured by the enacted tax rates that will be in effect when these  differences
reverse.  As changes in tax laws or rates are  enacted,  deferred tax assets and
liabilities are adjusted through the provision for income taxes in the period of
enactment.

Earnings Per Share.  Earnings  per share have been  computed on the basis of the
weighted  average number of shares of common stock and common stock  equivalents
outstanding  for the year. The Company  accounts for the shares  acquired by its
ESOP in accordance  with  Statement of Position 93-6;  shares  controlled by the
ESOP are not  considered in the weighted  average  number of shares  outstanding
until the  shares are  committed  for  allocation  to an  employee's  individual
account.

Fair Value of Financial Instruments.  The following methods and assumptions were
used by the  Company in  estimating  fair  values of  financial  instruments  as
disclosed herein:

               Cash and cash equivalents. - The carrying amount of cash and cash
               equivalents approximate their fair value.

               Available-for-sale and hold-to-maturity securities. - Fair values
               for securities are based on quoted market prices.

               Loans  receivable.   -  For  variable-rate   loans  that  reprice
               frequently  and have no significant  change in credit risk,  fair
               values are based on  carrying  values.  Fair  values for  certain
               mortgage loans are based on quoted market prices of similar loans
               sold in conjunction with securitization transactions. Fair values
               for  commercial  real estate and  commercial  loans are estimated
               using  discounted  cash  flow  analyses,   using  interest  rates
               currently being offered for loans with similar terms to borrowers
               of similar  credit  quality.  Fair values for impaired  loans are
               estimated  using  discounted  cash flow  analyses  or  underlying
               collateral values, where applicable.

               Deposit  liabilities.  - The fair  values  disclosed  for  demand
               deposits  are,  by  definition,  materially  equal to the  amount
               payable on demand at the reporting  date (that is, their carrying
               amounts).   The  carrying  amounts  of  fixed-term  money  market
               accounts  approximate  their fair values at the  reporting  date.
               Fair values for fixed-rate certificates of deposits are estimated
               using a discounted cash flow  calculation  that applies  interest
               rates  currently  being offered on  certificates to a schedule of
               aggregated expected monthly maturities on time deposits.

                                       26
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

               Short-term  borrowings.  - The  carrying  amounts  of  short-term
               borrowings   approximate   their  fair  values   given  that  the
               borrowings are at the Bank's current incremental borrowing rate.

               Off-balance    sheet    instruments.    -   Fair    values    for
               off-balance-sheet lending commitments are based on fees currently
               charged to enter into similar agreements, taking into account the
               remaining terms of the agreements and the counter parties' credit
               standings.

Financial  Instruments.  In the  ordinary  course of  business  the  Company has
entered into off-balance sheet financial  instruments  consisting of commitments
to extend credit and commercial  letters of credit.  Such financial  instruments
are recorded in the  financial  statements  when they are funded or related fees
are incurred or received.

Estimates. The preparation of financial statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management  to make  estimates  and  assumptions  that effect  certain  reported
amounts and  disclosures.  Accordingly,  actual  results could differ from those
estimates.

A substantial  estimate for the Company is the  allowance for loan losses.  This
estimate could change substantially within a year if borrowers' ability to repay
or the estimated value of underlying collateral should decline dramatically.

Investment in Federal Home Loan Bank Stock. The Bank, as a member of the Federal
Home Loan Bank  System,  is required to  maintain an  investment  in its capital
stock of the Federal  Home Loan Bank (FHLB) in an amount equal to the greater of
1% of its  outstanding  home  loans or 5% of  advances  from the FHLB.  No ready
market exists for the Federal Home Loan Bank Stock,  and it has no quoted market
value.

Segment Reporting. The Company is required to report information about operating
segments in and related  disclosures  about  products and  services,  geographic
areas and major customers. The Company only has one operating segment.

Reclassifications.   Certain  reclassifications  have  been  made  to  the  2001
financial statements to conform to 2002 presentation.

Recent  Accounting  Developments.  In July of  2001,  the  Financial  Accounting
Standards Board (FSAB) issued SFAS No. 141, Business Combinations,  and No. 142,
Goodwill and Other Intangible  Assets.  SFAS No. 141 establishes  accounting and
reporting standards for business combinations. This Statement eliminates the use
of the  pooling-of-interest  method of  accounting  for  business  combinations,
requiring future business


                                       27
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

combinations  to be  accounted  for using  the  purchase  method of  accounting.
Additionally,  SFAS  No.  141  enhances  the  disclosures  related  to  business
combinations  and requires  that all  intangible  assets  acquired in a business
combination be reported  separately from goodwill.  These intangible assets must
then be assigned to a  specifically  identified  reporting  unit and  assigned a
useful life. The provisions of this Statement apply to all business combinations
initiated  after June 30,  2001.  This  Statement  also  applies to all business
combinations  accounted  for using  the  purchase  method  for which the date of
acquisition  is July 1, 2001, or later.  The adoption of this  Statement did not
impact the Company's financial position or results of operations.

SFAS No. 142  establishes  accounting  and reporting  standards for goodwill and
other  intangible  assets.  With the adoption of this Statement,  goodwill is no
longer subject to amortization over its estimated useful life.  Goodwill will be
subject to, at least, an annual assessment for impairment by applying a two step
fair-value  based test.  Additionally,  SFAS No. 142  enhances  the  disclosures
related to goodwill and  intangible  assets.  The adoption of this statement did
not impact the Company's financial position or results of operations.

In August of 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations.  This  Statement  amends  SFAS  No.  19  Financial  Accounting  and
Reporting  by Oil and Gas  Producing  Companies.  SFAS No.  143  applies  to all
entities  and  addresses  financial  accounting  and  reporting  of  obligations
associated with the retirement of tangible  long-lived assets and the associated
asset  retirement  costs.  Because all asset  retirement  obligations  that fall
within the scope of this Statement and their related asset  retirement cost will
be accounted for consistently,  financial  statements of different entities will
be more comparable.  This Statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002; however, earlier applications is
encouraged. The Company will adopt SFAS No. 143 on July 1, 2002. The adoption of
this statement has no impact on the Company's  financial  position or results of
operations.

SFAS No. 144,  Accounting for the  Impairment or Disposal of Long-Lived  Assets,
was issued in August 2001. SFAS No. 144 supercedes both SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,
which previously  governed  impairment of long-lived assets, and APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and  Transactions,  which  addressed the disposal of a business  segment.
This Statement improves financial reporting by requiring one accounting model be
used for  long-lived  assets to be  disposed  of by sale and by  broadening  the
presentation of discontinued  operations to include more disposal  transactions.
The adoption of this statement did not impact the Company's  financial  position
or results of operations.

                                       28
<PAGE>

GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

In April 2002, the FASB issued SFAS No. 145,  Rescission of FASB  Statements No.
4, 44, and 64,  Amendment of FASB  Statement No. 13, and Technical  Corrections.
This Statement  rescinds FASB  Statement No. 4, Reporting  Gains and Losses from
Extinguishment  of Debt, and an amendment of that Statement,  FASB Statement No.
64,  Extinguishments  of Debt Made to Satisfy  Sinking-Fund  Requirements.  This
Statement also rescinds FASB Statement No. 44,  Accounting for Intangible Assets
of Motor Carriers.  This Statement also amends FASB Statement No. 13, Accounting
for Leases,  to eliminate an inconsistency  between the required  accounting for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modification  that have  economic  effects  that are  similar to  sale-leaseback
transactions.  The  adoption  of this  statement  did not impact  the  Company's
financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal  Activities.  This Statement addresses financial accounting and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging  Issues Task Force  (EITF) Issue No. 94-3,  Liability  Recognition  for
Certain  Employee  Termination  Benefits  and Other  Costs to Exit and  Activity
(including  Certain  Costs  Incurred in a  Restructuring).  The adoption of this
statement  did not  impact  the  Company's  financial  position  or  results  of
operations.


NOTE 2.        AVAILABLE-FOR-SALE MORTGAGE-BACKED SECURITIES

The   carrying   values  and   estimated   fair  values  of   available-for-sale
mortgage-backed securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   Gross             Gross
                                             Unamortized                        Unrealized        Unrealized
                            Principal         Premiums         Amortized          Holding           Holding           Fair
    June 30, 2002            Balance         (Discounts)         Cost              Gains            Losses            Value
<S>                 <C>                       <C>            <C>                 <C>             <C>              <C>
   FNMA ARM
     Certificates     $     16,187,116          389,325        16,576,441          125,163         (100,474)        16,601,130
   FHLMC ARM
     Certificates            1,978,687           36,715         2,015,402           25,874           (5,902)         2,035,374
   GNMA ARM
     Certificates            5,109,428          154,295         5,263,723           37,121                -          5,300,844
   SBA                         485,190                -           485,190           16,931                -            502,121
   Mortgage Pass-
     through
     Certificates            2,780,215          (52,812)        2,727,403          123,402                -          2,850,805
                      --------------------------------------------------------------------------------------------------------

                      $     26,540,636          527,523        27,068,159          328,491         (106,376)        27,290,274
                      ========================================================================================================
</TABLE>

                                       29

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 2.        AVAILABLE-FOR-SALE MORTGAGE-BACKED SECURITIES
               (CONTINUED)

<TABLE>
<CAPTION>
                                                                                   Gross             Gross
                                             Unamortized                        Unrealized        Unrealized
                            Principal         Premiums         Amortized          Holding           Holding           Fair
    June 30, 2001            Balance         (Discounts)         Cost              Gains            Losses            Value
<S>                 <C>                       <C>            <C>                 <C>              <C>             <C>
   FNMA ARM
     Certificates     $     16,259,635          388,603        16,648,238          125,926          (219,589)       16,554,575
   FHLMC ARM
     Certificates            2,731,948           49,684         2,781,632           28,219            (4,395)        2,805,456
   GNMA ARM
     Certificates            8,019,796          241,329         8,261,125           10,984           (13,561)        8,258,548
   SBA                         797,922                -           797,922           27,853                 -           825,775
   Mortgage Pass-
     through
     Certificates            3,914,997          (78,344)        3,836,653           95,805                 -         3,932,458
                      --------------------------------------------------------------------------------------------------------

                      $     31,724,298          601,272        32,325,570          288,787          (237,545)       32,376,812
                      ========================================================================================================
</TABLE>


During the years  ended June 30,  2002 and 2001,  the  Company  did not have any
proceeds from the sales of mortgage-backed  securities.  The Company had pledged
$15,520,259  and  $14,357,452   (current  face)  at  June  30,  2002  and  2001,
respectively,  in mortgage-backed  and investment  securities to public entities
who have on  deposit  amounts  in excess of the  federally  insured  limit.  The
Company  also had  pledged  $387,569  and  $451,281  at June 30,  2002 and 2001,
respectively,  in mortgage-backed securities to the Federal Reserve Bank for its
Treasury Tax and Loan Account.

                                       30

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 3.        INVESTMENTS

The amortized  cost and fair values of investment  securities  are summarized as
follows:

Available-for-sale:

<TABLE>
<CAPTION>
                                                    Gross            Gross
                                                  Unrealized       Unrealized
                                   Amortized       Holding          Holding          Fair
                                     Cost           Gains           Losses           Value
<S>                            <C>             <C>               <C>           <C>
    June 30, 2002
    Mutual funds                $  2,822,370          5,743              --       2,828,113
    US agency securities           2,699,931         71,164              --       2,771,095
    FHLMC stock                        7,786      1,337,635              --       1,345,421
    Tax-exempt securities          5,357,306        252,317              --       5,609,623
    FNMA/SLMA preferred            1,500,000             --              --       1,500,000
    CMO                            7,854,533         85,774          (1,133)      7,939,174
    SLMA asset-backed note         1,992,633             --         (12,633)      1,980,000
                                -----------------------------------------------------------

                                $ 22,234,559      1,752,633         (13,766)     23,973,426
                                ===========================================================

    June 30, 2001
    Mutual funds                $  2,716,697            287              --       2,716,984
    US agency securities           1,191,931         45,457              --       1,237,388
    FHLMC stock                        7,786      1,531,094              --       1,538,880
    Tax-exempt securities          4,956,816        173,459         (10,865)      5,119,410
    FNMA/SLMA preferred            2,505,771         12,880          (9,901)      2,508,750
    CMO                            6,562,997        140,088            (390)      6,702,695
    SLMA asset-backed note         1,992,185             --         (12,185)      1,980,000
                                -----------------------------------------------------------

                                $ 19,934,183      1,903,265         (33,341)     21,804,107
                                ===========================================================
Held-to-maturity:

   June 30, 2002
    Tax-exempt securities       $    409,996         10,031              --         420,027
    Corporate debt securities        995,407             --            (407)        995,000
                                -----------------------------------------------------------

                                $  1,405,403         10,031            (407)      1,415,027
                                ===========================================================
</TABLE>

                                       31
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 3.        INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                      Gross              Gross
                                                   Unrealized         Unrealized
                                  Amortized          Holding            Holding          Fair
                                    Cost              Gains             Losses           Value
<S>                            <C>                     <C>            <C>            <C>
   June 30, 2001
    Tax-exempt securities        $   954,995             3,442          (11,551)          946,886
    Corporate debt securities        990,725             4,275                -           995,000
                                 ----------------------------------------------------------------

                                 $ 1,945,720             7,717          (11,551)        1,941,886
                                 ================================================================
</TABLE>

The  amortized  cost  and  fair  value of all  debt  securities  by  contractual
maturity,  are shown below.  Expected  maturities  will differ from  contractual
maturities  because  borrowers may have the right to call or prepay  obligations
with or without call or prepayment penalties.

                                               Amortized       Fair
                                                 Cost          Value
Available-for-sale:
    Due within one year                      $ 1,282,574     1,308,761
    Due after one year through five years      1,853,088     1,918,554
    Due after five years through ten years       304,016       313,263
    Due after ten years                        4,617,559     4,840,140
    Mutual funds                               2,822,370     2,828,113
    FHLMC stock                                    7,786     1,345,421
    FNMA                                       1,500,000     1,500,000
    SLMA asset-backed note                     1,992,633     1,980,000
    CMO                                        7,854,533     7,939,174
    Mortgage-backed securities                27,068,159    27,290,274
                                             -------------------------

                                             $49,302,718    51,263,700
                                             =========================
Held-to-maturity:
    Due within one year                      $   995,407       995,000
    Due after one year through five years        144,996       154,620
    Due after five years through ten years            --            --
    Due after ten years                          265,000       265,407
                                             -------------------------

                                             $ 1,405,403     1,415,027
                                             =========================

During the years ended June 30, 2002 and 2001,  $1,830,000  and  $10,801,203  in
investments were sold, respectively.

                                       32
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 4.        LOANS RECEIVABLE

Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                                         2002             2001
<S>                                                                              <C>                 <C>
    First mortgage loans (principally conventional)
        Principal balances
           Secured by one-to-four family residences                                $  79,625,021       74,969,406
           Secured by other properties                                                22,947,175       15,915,258
           Construction loans                                                          4,745,701        6,226,951
        Loan participations purchased                                                 11,279,376       12,881,325
        Commercial loans                                                              21,794,673       18,042,355
        Consumer loans:
           Unsecured                                                                     262,949          206,167
           Loans secured by deposits                                                   1,452,693        1,187,725
           Secured by vehicles                                                         1,415,666        2,010,607
           Home equity lines                                                           1,999,951        1,871,632
           Other consumer                                                                385,224          819,125
        Loans held-for-sale                                                              296,610          980,000
                                                                                   ------------------------------
                                                                                     146,205,039      135,110,551
    Less
        Loan participations sold                                                      (4,706,133)      (3,155,852)
        Net deferred loan origination fees                                              (766,647)        (698,979)
        Allowance for loan losses                                                       (984,071)        (824,783)
                                                                                   ------------------------------

Total loans receivable                                                             $ 139,748,188      130,430,937
                                                                                   ==============================

Activity in the allowance for loan losses is summarized as follows:


    Balance at beginning of year                                                   $     824,783          512,570
    Provision charged to income                                                          220,000          345,000
    Charge-offs, recoveries and other, net                                               (60,712)         (32,787)
                                                                                   ------------------------------

Balance at end of year                                                             $     984,071          824,783
                                                                                   ==============================


The Company has commitments to fund new loans,  lines,  and letters of credit as
follows:

    Fixed rate                                                                     $   2,002,000        2,287,000
    Variable rate                                                                      5,495,000        3,631,000
    Commitments for new originations                                                   2,336,000        2,113,000
                                                                                   ------------------------------

        Total                                                                      $   9,833,000        8,031,000
                                                                                   ==============================
</TABLE>

                                       33
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 4. LOANS RECEIVABLE (CONTINUED)

Fixed rate  commitments at June 30, 2002 and 2001 had interest rates that ranged
from  7.00% to 10.00%.  Total  loans with  fixed  rates  were  $108,613,828  and
$100,679,119 at June 30, 2002 and 2001, respectively.  Total loans with variable
rates were $32,118,432 and $30,576,601 at June 30, 2002 and 2001, respectively.

Non-accrual and  restructured  loans for which interest has been reduced totaled
$246,424 and $609,808 at June 30, 2002 and 2001,  respectively.  Interest income
that was  foregone  amounted  to $6,956 and  $59,671 at June 30,  2002 and 2001,
respectively.

The weighted average rate for the loan portfolio was 7.12% and 8.29% at June 30,
2002 and 2001, respectively.

There were no impaired loans at June 30, 2002 or 2001.

NOTE 5.        ACCRUED INTEREST AND DIVIDENDS RECEIVABLE

Accrued interest and dividends receivable is summarized as follows:

                                                    2002         2001

Loans receivable                                $  741,924      793,332
Available-for-sale investment securities           142,445      120,194
Available-for-sale mortgage-backed securities      169,692      229,084
Dividends                                           18,259       41,026
Time deposits                                          881        1,764
                                                -----------------------
Total accrued interest and dividends            $1,073,201    1,185,400
                                                =======================

                                       34

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>

                                                      Useful Life             2002               2001

<S>                                               <C>              <C>                       <C>
    Buildings                                           40 years         $    1,506,206            876,246
    Furniture, fixtures, and equipment                5-10 years              1,082,221          1,021,265
    Parking lot improvements                             5 years                  5,265              5,265
    Leasehold improvements                            5-10 years                563,328            328,163
    Land                                                                        443,550            158,550
                                                                         ---------------------------------
                                                                              3,600,570          2,389,489
    Less allowance for depreciation                                           1,089,397          1,065,719
                                                                         ---------------------------------

    Total premises and equipment                                         $    2,511,173          1,323,770
                                                                         =================================
</TABLE>


NOTE 7.        DEPOSITS

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                       Weighted
                                                        Average
                                                        Rate at                   June 30, 2002
                                                       June 30,        --------------------------------
                                                         2002                Amount             Percent

<S>                                                    <C>          <C>                     <C>
    Passbook savings accounts                             .74%         $      5,555,672          5.03%
    Money market accounts                                1.57                11,749,868         10.65
    Transaction and NOW accounts                          .94                20,417,085         18.50
                                                                       --------------------------------

                                                                             37,722,625         34.18
                                                                       --------------------------------

    Certificates of deposit:
        1.00%-3.00%                                      2.43                32,352,433         29.32
        3.01%-6.00%                                      4.85                30,938,631         28.04
        6.01%-7.00%                                      6.36                 8,815,984          7.99
        7.01%-8.00%                                      7.25                   519,801           .47
                                                                       --------------------------------
    Total certificates of deposit                                            72,626,849         65.82
                                                                       --------------------------------

    Total deposits                                                     $    110,349,474        100.00%
                                                                       ================================
</TABLE>

                                       35
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 7.        DEPOSITS (CONTINUED)

                                       Weighted
                                        Average
                                        Rate at
                                        June 30,            June 30, 2001
                                                 -------------------------------
                                          2001         Amount            Percent

    Passbook savings accounts             1.26%  $  4,626,219             4.33%
    Money market accounts                 3.00      9,895,660             9.28
    Transaction and NOW accounts          1.35     15,462,712            14.50
                                                 -------------------------------

                                                   29,984,591            28.11
                                                 -------------------------------

Certificates of deposit:
    4.00%-6.00%                           5.28%    39,814,847            37.33
    6.01%-7.00%                           6.27     36,360,331            34.09
    7.01%-8.00%                           7.24        500,398              .47
                                                 -------------------------------

    Total certificates of deposit                  76,675,576            71.89
                                                 -------------------------------

    Total deposits                               $106,660,167           100.00%
                                                 ===============================


The  aggregate  amount  of jumbo  certificates  with a minimum  denomination  of
$100,000  was   $36,945,033   and   $47,466,580  at  June  30,  2002  and  2001,
respectively.

Certificates of deposit by remaining maturity are as follows:

                                                    2002             2001

    Less than 1 year                          $    48,007,532        52,313,307
    1 year to 2 years                              14,596,795        11,533,293
    2 years to 3 years                              5,204,511         9,270,813
    3 years to 4 years                              1,040,327         1,060,959
    4 years to 5 years                              1,505,549           963,243
    Thereafter                                      2,272,135         1,533,961
                                              ---------------------------------

                                              $    72,626,849        76,675,576
                                              =================================

                                       36
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 7.        DEPOSITS (CONTINUED)

Interest expense on deposits is summarized as follows:

                                                        2002             2001

    Certificates of deposit                    $     3,759,196         3,586,750
    Money market accounts                              164,245           322,020
    Passbook savings                                    60,669            90,616
    Transaction and NOW deposits                        76,184            94,187
                                               ---------------------------------

                                               $     4,060,294         4,093,573
                                               =================================


NOTE 8.        REPURCHASE AGREEMENTS

Under the terms of the  repurchase  agreement,  deposits  in  designated  demand
accounts of the customer are put into an investment  vehicle which is used daily
to purchase an interest in designated  marketable  securities owned by the Bank.
The Bank in turn agrees to repurchase these investments on a daily basis and pay
the  customer  the daily  interest  earned  on them.  The  amount of  repurchase
agreements   was   $1,234,857   and  $1,324,335  at  June  30,  2002  and  2001,
respectively.


NOTE 9.        REGULATORY MATTERS AND RESTRICTIONS ON RETAINED
               EARNINGS

The Bank is subject to certain  restrictions  on the amount of dividends that it
may declare  without  prior  regulatory  approval.  The Bank is also  subject to
various  regulatory  capital  requirements  administered  by the federal banking
agencies.  Failure to meet minimum  capital  requirements  can initiate  certain
mandatory and possibly additional  discretionary  actions by regulators that, if
undertaken,  could  have  a  direct  material  effect  on the  Bank's  financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  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  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 set forth in the table
below.  Management believes, as of June 30, 2002 that the Bank meets all capital
adequacy requirements to which it is subject.


                                       37
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 9.        REGULATORY MATTERS AND RESTRICTIONS ON RETAINED
               EARNINGS (CONTINUED)

Current regulations  require  institutions to have a minimum regulatory tangible
capital equal to 1.5% of total assets,  a minimum 4% leverage  capital ratio and
an 8% risk-based capital ratio.

The Bank at June 30,  2002,  meets  the  regulatory  tangible  capital  and core
capital  requirements  and the  risk-based  capital  requirement  of 8% of total
risk-weighted assets.

The  following is a  reconciliation  of the Bank's  capital in  accordance  with
generally  accepted  accounting  principles  (GAAP) to the three  components  of
regulatory capital calculated under regulatory requirements at June 30, 2002:

<TABLE>
<CAPTION>
                                    Tangible Capital                  Core Capital                  Risk-Based Capital
                           -------------------------------  ------------------------------   --------------------------------
                                Amount        Percent             Amount          Percent          Amount          Percent

<S>                      <C>                 <C>          <C>                <C>           <C>                <C>
   GAAP Capital            $    14,744,088                  $    14,744,088                    $  14,744,088

   Disallowed servicing
   assets, disallowed
   deferred tax assets,
   and other disallowed
   assets                         (352,033)                        (352,033)                        (352,033)

   Accumulated losses
   (gains) on certain
   available-for-sale
   securities                   (1,294,248)                      (1,294,248)                      (1,294,248)

   Unrealized (gains)
   losses on available-
   for-sale equity securities            -                                -                          604,520

   Other disallowed
   deferred tax
   liabilities                     254,027                          254,027                          254,027

   Qualifying general
   loan loss allowance                   -                                -                          984,071
                           ----------------------------------------------------------------------------------------------

   Regulatory capital
   computed                     13,351,834        6.56%          13,351,834        6.56%          14,940,425       11.64%

   Minimum capital
   requirement                   3,052,988        1.50%           8,141,302        4.00%          10,268,240        8.00%
                           ----------------------------------------------------------------------------------------------


   Regulatory capital
   excess                  $    10,298,846        5.06%     $     5,210,532        2.56%       $   4,672,185        3.64%
                           ==============================================================================================

</TABLE>

                                       38
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 10.       RELATED PARTY TRANSACTIONS

The Company has several loans  receivable  from related  parties.  The Company's
policy  is that all such  loan  transactions  be on the  same  terms,  including
underwriting  criteria and collateral,  as those prevailing at the same time for
comparable  transactions  with  others.  The Company  offers a 1%  reduction  in
interest   rates  from  those   prevailing  at  the  same  time  for  comparable
transactions  with others for loans to  employees,  officers and  directors  for
personal purposes.

A summary of the activity for outstanding loans receivable to related parties is
as follows:

                                                   2002             2001

    Balance, beginning of year             $     1,707,844         1,067,032
    New loans                                    1,037,006           757,593
    Repayments                                    (494,317)         (116,781)
                                           ---------------------------------
    Balance, end of year                   $     2,250,533         1,707,844
                                           =================================

The Company also has several deposits from related parties. Outstanding deposits
from related parties  amounted to $2,716,865 and $2,556,000 at June 30, 2002 and
2001,  respectively.  The Company  also  expensed  $134,579 and $143,801 for the
years  ended  June 30,  2002 and 2001,  respectively,  for  directors'  fees and
compensation under the management stock bonus plan.


NOTE 11.       CONCENTRATIONS OF CREDIT RISK

The Company is active in originating primarily first mortgage loans primarily in
San Juan and McKinley County, New Mexico.  Significant loans are approved by the
Board of Directors  through its loan  committee.  Collateral  is required on all
real estate  loans,  substantially  all  commercial  loans,  and the majority of
consumer  loans.  Real estate  exposure is primarily  limited to the counties in
which the Company operates. The Company generally maintains loan to value ratios
of no greater than 80%.

The Company maintains its cash balances with other financial  institutions.  The
balances  on  deposit  with  other  banks are  insured  by the  Federal  Deposit
Insurance  Corporation  up to $100,000.  The Company's  uninsured  cash balances
totaled $1,230,209 and $1,971,807 at June 30, 2002 and 2001, respectively.

                                       39
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 12.       INCOME TAXES

Income tax expense consists of:

                                                          2002         2001
    Current
        Federal                                        $ 720,911      637,862
        State                                            113,177      122,493
                                                       ----------------------
                                                         834,088      760,355
                                                       ----------------------
    Deferred provision (benefit)
        Federal                                           10,830       (3,279)
        State                                              2,707         (209)
                                                       ----------------------
                                                          13,537       (3,488)
                                                       ----------------------

           Total income tax expense                    $ 847,625      756,867
                                                       ======================


Temporary  differences  create  deferred tax assets and  (liabilities)  that are
detailed below as of June 30, 2002 and 2001:

                                                             2002        2001

  Loan loss allowance                                    $ 270,028      330,282
  Depreciation on premises and equipment                   (24,108)       4,345
  Employee Stock Ownership Plan compensation                66,932       32,601
  Management Bonus Stock Plan compensation                  15,073       15,073
  Net unrealized gain on available-for-sale securities    (666,734)    (653,197)
  Federal Home Loan Bank Stock Dividends                  (229,919)    (284,295)
                                                         ----------------------

                                                         $(568,728)    (555,191)
                                                         ======================


The deferred tax liability for  unrealized  holding gains on  available-for-sale
has  reduced  the  unrealized   holding  gains  reported  as  accumulated  other
comprehensive earnings within stockholders' equity.

                                       40
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 12.       INCOME TAXES (CONTINUED)

The reconciliation of income tax attributable to continuing  operations computed
at the U.S. federal statutory rate to income tax expense is:

                                               2002          2001

Tax at statutory rate of 34%                $ 836,034       821,818
State income taxes, net of federal
    tax benefit                                74,697        80,807
Non-taxable interest and dividends           (204,204)     (238,567)
Other, net                                    141,098        92,809
                                            -----------------------
                                            $ 847,625       756,867
                                            =======================

Effective tax rate                                 34%           31%


NOTE 13.       FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The  Company  is a party to eight  irrevocable  letters  of credit  which  total
$179,650.  The Bank's exposure to credit loss in the event of  nonperformance by
the other  party to the  letters  of credit is  represented  by the  contractual
notional  amount of the  letters of credit.  The  Company  uses the same  credit
policies  in  making  commitments  and  conditional  obligations  as it does for
on-balance-sheet instruments.


NOTE 14.       EMPLOYEE STOCK OWNERSHIP PLAN

In connection with the conversion, referred to in Note 1, the Company adopted an
Employee  Stock  Ownership  Plan  (ESOP) for the benefit of all of its full time
employees.  Contributions  to the Plan are  determined at the  discretion of the
Company  and are  limited  to the  maximum  amount  deductible  for  income  tax
purposes.  Eligible employees include all full-time  employees with a minimum of
one year of service as of any  anniversary  date of the Plan. The ESOP purchased
105,000  (as  adjusted  for  previous  stock  dividends)  common  shares  of the
Company's  stock issued in the  conversion,  which was funded by a $560,000 loan
from the Company.  Per Statement of Position  93-6,  Employer's  Accounting  for
Employee Stock Ownership Plans, the unpaid balance of the ESOP loan has not been
reported in the  Consolidated  Statements of Financial  Position.  Stockholders'
equity has been reduced by the aggregate  purchase  price of the shares owned by
the ESOP, net of the shares committed to be released.  Contributions to the ESOP
by the Company are made to fund the principal and interest  payments on the debt
of the ESOP. As of June 30, 2002, 51,850.1051 ESOP shares were released, and for
the year ended June 30, 2002,  $165,701 in contributions was made to the ESOP by
the Company.  As of June 30,  2001,  40,710.3292  ESOP shares were  released and
contributions of $110,905 were


                                       41
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 14.       EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)

made to the Plan by the Company.  The remaining  unallocated ESOP shares at June
30, 2002 were 45,045.8946. The fair value of the remaining unallocated shares at
June 30, 2002 is $673,436.  Dividends on unallocated ESOP shares are recorded as
additional  contributions  to the ESOP by the Company to prepay principal on the
ESOP loan and release  additional  shares.  Dividends  on  allocated  shares are
charged to retained earnings.


NOTE 15.       STOCK PLANS

At June 30, 2002, the Company has four stock-based compensation plans, which are
described below. The Company applies APB Opinion 25 and related  interpretations
in accounting for its plans. The compensation cost that has been charged against
income for the Management  Stock Bonus Plan is discussed  below. No compensation
cost has been recognized for its stock option plans. Had  compensation  cost for
the Company's three stock option based  compensation plans been determined based
on the fair value at the grant dates for awards  under  those  plans  consistent
with the method of FASB Statement 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:

                                                    2002           2001

Net income (as reported)                    $     1,611,298      1,660,215
  Net income (pro-forma)                          1,611,298      1,658,207

Basic earnings per share (as reported)     $           1.46           1.50
  Basic earnings per share (pro-forma)                 1.46           1.50

Diluted earnings per share (as reported)   $           1.41           1.46
  Diluted earnings per share (pro-forma)               1.41           1.46

No options were granted during 2002. The weighted  average fair value of options
granted  during 2001 was $.54 per share.  The fair value of each option grant is
estimated on the grant date using the  Black-Scholes  option  pricing model with
the following assumptions:

                                                    2002        2001

Expected dividend                                   $.10        $.10
Expected stock price volatility                       21%         19%
Risk free interest rate                                3%          6%
Expected life of options                          5 years     5 years


                                       42
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 15.       STOCK PLANS (CONTINUED)

On January 5, 1996, the Board of Directors of the Company adopted a Stock Option
Plan.  Pursuant  to the Plan,  an amount of stock  equal to 10% of the shares of
common stock (177,891  shares as adjusted for previous  stock  dividends) of the
Corporation  issued and outstanding is reserved for issuance by the Company upon
exercise of stock options which may be granted to directors, officers, and other
key  employees  from time to time.  The Plan provides for both  incentive  stock
options and non-incentive stock options. The options vest at a rate of one-fifth
of the award per year and have an  exercise  date of ten years  from the date of
grant.  In  connection  with the  adoption of the Plan,  the Company has granted
77,406  incentive  stock options and 53,366  non-incentive  stock options to its
directors,  officers,  and other key employees.  The weighted average  remaining
life of common  stock  options is 3.6 years.  During the year,  5,438  incentive
stock options were forfeited and 15,937  incentive stock options were exercised.
Remaining shares available to be granted in the future amount to 59,680.

A summary of common  stock  options  under the Stock  Option  Plan for the years
ended June 30, 2002 and 2001 follows:

<TABLE>
<CAPTION>
                                                                  Weighted
                                                   Price          Average       Options
                                     Options       Range           Price       Exercisable

<S>                                <C>       <C>                <C>           <C>
    Balance, June 30, 2000           117,273   $ 7.40 - 12.80     $  8.36        64,905
                                                                                ========
        Granted                        3,750    11.15 - 11.45       11.15
        Forfeited                     (7,124)    7.40 - 12.80       11.19
        Exercised                          -
                                     --------

    Balance, June 30, 2001           113,899     7.40 - 12.80        8.31        78,693
                                                                                ========
        Granted                            -                            -
        Forfeited                     (5,438)   11.45 - 12.80           -
        Exercised                    (15,937)    7.40 - 11.37           -
                                     --------

           Balance, June 30, 2002     92,524   $ 7.40 - 12.80     $  8.48        64,892
                                     =======                      ======================
</TABLE>

On January 5, 1996,  the Company  also  adopted a  Management  Stock Bonus Plan.
Sufficient  funds  were  contributed  to the Plan  representing  up to 4% of the
aggregate  number of shares issued in the conversion.  Awards under the Plan are
determined  based on the position and  responsibilities  of the  employees,  the
length and value of their services, and the compensation paid to employees. From
January 5, 1996 to June 30,  2002,  the Company made awards under the Plan (less
forfeited  shares)  in the  amount of 46,279  shares.  The value of the stock is
determined  annually as vested (and paid), based on the current market value. At
June 30, 2002 and 2001,  18,325 and 27,472  shares,  respectively,  remain to be
awarded  under the Plan in the future.  Awards  under the Plan are earned at the
rate of one-fifth of the award per year as of the  one-year  anniversary  of the
effective date of the Plan.

                                       43
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 15.       STOCK PLANS (CONTINUED)

On March 22, 2000,  the Board of  Directors of the Company  adopted a Director's
Stock Compensation Plan.  Pursuant to the Plan an amount of stock equal to 1% of
the shares of common stock of the corporation issued and outstanding is reserved
for  issuance by the Company  upon  exercise  of stock  options  which are to be
issued to Directors of the Company. The options vest upon date of grant and have
an  exercise  date of ten  years  from  date of grant.  In  connection  with the
adoption of the Plan, the Company has granted all 11,946 shares  available under
the Plan to its  Directors.  The option  price  established  for the shares upon
exercise is $11.00 per share.

On October 27, 2000, the Board of Directors  adopted the 2000 stock option plan.
Pursuant  to the Plan,  an  amount  equal to 5% of the  shares  of common  stock
(58,500  shares) of the  Corporation  issued and  outstanding  is  reserved  for
issuance by the Company upon  exercise of stock  options which may be granted to
directors,  officers,  and  other  key  employees  from  time to time.  The Plan
provides for both incentive stock options and non- incentive stock options.  The
options  vest at a rate of  one-fifth  of the award per year and have a exercise
date of ten years from the date of grant. No options were issued during the year
ended June 30, 2002.

During the 1997 fiscal  year,  the  Company  began a stock  repurchase  program.
During the years ended June 30, 2002 and 2001,  the Company  repurchased  15,937
and 21,766  shares of its  outstanding  common stock for $214,000 and  $292,000,
respectively.  The Company  currently  has in place a plan to  repurchase  up to
115,010 shares (10% of its 1,150,106 outstanding shares) of common stock.


NOTE 16.   FEDERAL HOME LOAN BANK ADVANCES

In October  1995,  the Bank entered  into an  "Advances,  Collateral  Pledge and
Security  Agreement"  (the  Agreement) with the Federal Home Loan Bank of Dallas
(FHLB).  The purpose of the Agreement is to allow the Bank to obtain  extensions
of credit from the FHLB to use in its operations. At June 30, 2002, the Bank has
$76,386,455 in outstanding advances with the FHLB. The advances bear interest at
a fixed rate, which range from 1.870% to 6.970%, and mature as follows:

Maturities for the fiscal years ending June 30:

                  2003                                 $   30,820,362
                  2004                                     13,698,000
                  2005                                      6,345,912
                  2006                                      4,000,000
                  2007                                      9,595,016
                  Thereafter                               11,927,165
                                                       --------------

                                                       $   76,386,455
                                                       ==============

                                       44
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 16.       FEDERAL HOME LOAN BANK ADVANCES (CONTINUED)

Several of the advances due in July were subsequently refinanced after year-end.
The advances are secured by the Bank's  investment  in FHLB stock of  $4,218,500
and investment and  mortgage-backed  securities in the amount of $5,340,115.  In
addition, the advances are secured under a "blanket credit facility" whereby all
of the Bank's 1-4 family and  commercial  real estate loans are also  collateral
under the advance agreement.


NOTE 17.       FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company is required to disclose the  estimated  fair value of its  financial
instruments in accordance  with SFAS No. 107,  "Disclosures  about Fair Value of
Financial  Instruments."  These  disclosures  do  not  attempt  to  estimate  or
represent the Company's fair value as a whole.  The disclosure  excludes  assets
and  liabilities  that are not financial  instruments as well as the significant
unrecognized value associated with core deposits relationships.

Fair value amounts disclosed represent  point-in-time  estimates that may change
in  subsequent  reporting  periods due to market  conditions  or other  factors.
Estimated fair value amounts in theory  represent the amounts at which financial
instruments  could be  exchanged  or  settled in a current  transaction  between
willing parties. In practice,  however, this may not be the case due to inherent
limitations in the  methodologies  and assumptions  used to estimate fair value.
For example,  quoted  market  prices may not be realized  because the  financial
instrument  may be traded in a market  that  lacks  liquidity;  or a fair  value
derived  using a discounted  cash flow  approach may not be the amount  realized
because of the subjectivity involved in selecting underlying  assumptions,  such
as  projecting  cash flows or selecting a discount  rate.  The fair value amount
also may not be  realized  because  it  ignores  transaction  costs and does not
include  potential tax effects.  The Company does not plan to dispose of, either
through sale or settlement,  the majority of its financial  instruments at these
estimated fair values.

                                       45

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 17.       FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The  estimated  fair  values  of the  Company's  financial  instruments  were as
follows:

<TABLE>
<CAPTION>
                                                                  June 30, 2002
                                                        --------------------------------
                                                            Carrying            Fair
                                                              Value             Value
<S>                                                   <C>                 <C>
    Financial Assets:
        Cash and due from banks                         $    4,825,439         4,825,439
        Interest-bearing deposits with banks                   826,052           826,052
        Available-for-sale-investment securities            23,973,426        23,973,426
        Available-for-sale mortgage-backed securities       27,290,274        27,290,274
        Held-to-maturity investment securities               1,405,403         1,415,027
        Loans receivable, net                              139,748,188       143,006,602
        Accrued interest receivable                          1,073,201         1,073,201

    Financial Liabilities:
        Transaction deposits                                20,417,085        20,417,085
        Savings and NOW deposits                            17,305,540        17,305,540
        Time deposits                                       72,626,849        72,626,849
        Advances from the FHLB                              76,386,455        76,386,455
        Repurchase agreements                                1,234,857         1,234,857
        Accrued interest payable                               448,955           448,955

    Off-Balance Sheet Liabilities:
        Commitments to extend credit                         9,833,000         9,833,000

</TABLE>

                                       46

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 18.       EARNINGS PER SHARE

Basic earnings per share are computed by dividing  earnings  available to common
stockholders by the weighted average number of common shares  outstanding during
the period. Diluted earnings per share reflect per share amounts that would have
resulted if dilutive  potential common stock had been converted to common stock.
The following reconciles amounts reported in the financial statements:

<TABLE>
<CAPTION>

                                                        For the Year Ended June 30, 2002
                                                    -------------------------------------------
                                                       Income           Shares        Per-share
                                                     (Numerator)     (Denominator)     Amount

<S>                                               <C>                <C>            <C>
    Income available to common stockholders -
        basic earnings per share                    $ 1,611,298        1,105,068      $    1.46
                                                                                      =========

    Effect of dilutive securities:
        Options                                               -           38,460
                                                    ----------------------------

    Income available to common stockholders -
        diluted earnings per share                  $ 1,611,298        1,143,528      $    1.41
                                                    ===========================================


                                                           For the Year Ended June 30, 2001
                                                    -------------------------------------------
                                                       Income           Shares        Per-share
                                                     (Numerator)     (Denominator)     Amount
    Income available to common stockholders -
        basic earnings per share                    $ 1,660,215        1,107,243      $    1.50
                                                                                      =========

    Effect of dilutive securities:
        Options                                               -           32,708
                                                    ----------------------------

    Income available to common stockholders -
        diluted earnings per share                  $ 1,660,215        1,139,951      $    1.46
                                                    ===========================================
</TABLE>

                                       47

<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002


NOTE 19.       LEASES

The Company is obligated  under a lease  agreement  entered into on December 30,
1997 for the building  across the street from its  offices,  which is the Bank's
loan  center.  For both years ended June 30, 2002 and 2001,  rental  expense was
$30,000.

The following is a schedule of  non-cancelable  future  minimum  lease  payments
required under the operating lease:

        Years Ending June 30,                      Amount

              2003                              $    30,000
              2004                                   30,000
              2005                                   30,000
              2006                                   30,000
              2007                                   15,000

The  lease  expires  December  31,  2007.  The  Company  has  an  option,   upon
notification  of the lessor by August 1, 2007,  to  purchase  the  building  for
$275,000 or to extend the lease for an additional 10 years.

Effective January 1, 2003, and each year thereafter during the term of the lease
or any renewals, there is a cost of living adjustment. In no event will the rent
be less than  $30,000 a year.  The above  schedule  does not contain any cost of
living increases.

                                       48