GFSB BANCORP, INC.

                                                            ANNUAL REPORT - 2003

<PAGE>



                               GFSB BANCORP, INC.






LETTER TO STOCKHOLDERS.......................................................1

CORPORATE PROFILE AND STOCK MARKET INFORMATION...............................2

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA...............................4

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS........................................6

INDEPENDENT AUDITORS' REPORT.................................................14

CONSOLIDATED FINANCIAL STATEMENTS

  Consolidated Statements of Financial Condition.............................15

  Consolidated Statements of Earnings and
     Comprehensive Earnings..................................................17

  Consolidated Statements of Changes in Stockholders' Equity.................19

  Consolidated Statements of Cash Flows......................................21

  Notes to Consolidated Financial Statements.................................23

OFFICE LOCATION AND OTHER CORPORATE INFORMATION..............................48

<PAGE>

TO OUR STOCKHOLDERS:

We are pleased to present to you our ninth  Annual  Stockholders'  Report.  This
Report covers the eighth full year of operations since the successful completion
on June 29, 1995 of the conversion of Gallup Federal  Savings Bank (Bank) from a
federally  chartered mutual savings  association to a federally  chartered stock
savings bank and the  acquisition of all of the issued and  outstanding  capital
stock of the Bank by GFSB Bancorp, Inc. (Company).

Net earnings for the Company for the year ended June 30, 2003 were $1,690,000 or
$1.46,  dilutive net earnings per share. At June 30, 2003 total assets increased
$19,876,000 to $229,955,000 from last year.  Deposits  increased  $19,410,000 to
$129,759,000 from last year.

We are excited over the excellent  growth at our new branch in  Farmington,  New
Mexico.  Even though the branch operation had a negative impact on earnings this
year, we expect positive results in asset growth and earnings next year.

We do  appreciate  the  confidence  you share in our Company.  Our directors and
employees are striving to build our customer loyalty and base and to continue to
make a substantial  positive  impact on our  community.  Thank you very much for
your support, and we certainly appreciate your banking with us.

Sincerely,


/s/ W.R. Phillips, D.D.S.                    /s/ Richard C. Kauzlaric
---------------------------------            ---------------------------------
W.R.  Phillips,  D.D.S.                      Richard C. Kauzlaric
Chairman of the Board                        President of  Company and
of the Company                               Chairman of the Board of the Bank

/s/ Richard P. Gallegos
--------------------------------
Richard P. Gallegos
President of the Bank



                                       1
<PAGE>

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 periodically utilizes the support staff of the Bank.

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.

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 under the symbol  "GUPB".  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.

                                                                DIVIDENDS
         QUARTER ENDED                  HIGH         LOW         DECLARED
         -------------                  ----         ---         --------
         September 30, 2001            $13.90       $12.37         $ .09
         December 31, 2001              13.50        12.80           .10
         March 31, 2002                 14.99        13.70           .10
         June 30, 2002                  15.00        13.90           .10
         September 30, 2002             15.25        15.07           .10
         December 31, 2002              16.83        14.29           .11
         March 31, 2003                 17.00        16.62           .11
         June 30, 2003                  17.00        16.15           .11


                                       2
<PAGE>

GFSB BANCORP, INC.
CORPORATE PROFILE (CONTINUED)

The number of  stockholders  of record of common stock as of September 15, 2003,
was  approximately  210. This does not reflect the number of persons or entities
who held stock in nominee or "street" name through various  brokerage  firms. As
of September 15, 2003, there were 1,146,270 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 CONSOLIDATED FINANCIAL AND OTHER DATA

FINANCIAL CONDITION (DOLLARS IN THOUSANDS),
EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED JUNE 30,                                   2003               2002                  2001

<S>                                                              <C>                  <C>                 <C>
Total assets                                                     $  229,955           $ 210,078           $  197,052
Cash and cash equivalents                                             7,252               5,651                4,262
Loans receivable, net                                               146,396             143,681              130,431
Available-for-sale mortgage-backed securities                        38,517              27,290               32,377
Available-for-sale investment securities                             29,279              23,973               21,804
Held-to-maturity investment securities                                  676               1,405                1,946
Stock of Federal Home Loan Bank                                       4,333               4,218                3,649
Deposits                                                            129,759             110,349              106,660
Advances from the Federal Home Loan Bank                             76,642              76,386               72,106
Stockholders' equity                                                 17,744              16,383               14,979
</TABLE>


SUMMARY OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Year ended June 30,                                                  2003                 2002                 2001

<S>                                                              <C>                  <C>                  <C>
Interest income                                                  $   12,743           $  13,504            $  14,437
Interest expense                                                      6,162               7,475                9,033
                                                                 ----------           ---------            ---------
        Net interest income                                           6,581               6,029                5,404
Provision for loan losses                                               452                 220                  345
                                                                 ----------           ---------            ---------
        Net interest income after provision for
            loan losses                                               6,129               5,809                5,059
                                                                 ----------           ---------            ---------
Non-interest income
        Gain on sale of securities                                        -                  10                   16
        Gain from sale of loans                                         130                  34                   36
        Other                                                           493                 346                  366
                                                                 ----------           ---------            ---------
             Total non-interest income                                  623                 390                  418
                                                                 ----------           ---------            ---------
Non-interest expense:
        Compensation and benefits                                     2,330               2,089                1,727
        Professional fees                                               135                 107                   82
        Occupancy                                                       546                 451                  352
        Advertising                                                     199                  94                   77
        Data processing                                                 338                 317                  266
        Insurance and SAIF premiums                                      70                  60                   50
        Other and stock subscription services                           753                 622                  506
                                                                 ----------           ---------            ---------
             Total non-interest expense                               4,371               3,740                3,060
                                                                 ----------           ---------            ---------
Earnings before income taxes                                          2,382               2,459                2,417
Income tax expense                                                      692                 848                  757
                                                                 ----------           ---------            ---------
Net earnings                                                     $    1,690            $  1,611            $   1,660
                                                                 ==========            ========            =========

Basic net earnings per share                                           1.52                1.46                 1.50
                                                                 ==========            ========            =========
Dilutive net earnings per share                                        1.46                1.41                 1.46
                                                                 ==========            ========            =========
</TABLE>

                                       4
<PAGE>

GFSB BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED)
<TABLE>
<CAPTION>
SELECTED OPERATING RATIOS

At and for the year ended June 30,                                     2003              2002                  2001

<S>                                                                    <C>                <C>                  <C>
Performance ratios
  Return on average assets (net income
      divided by average total assets)                                   .78%               .78%                 .89%
  Return on average equity (net income
     divided by average equity)                                         9.84              10.19                11.90
   Average interest earning assets to average
      interest-bearing liabilities                                      1.13X              1.09X                1.11X
  Net interest income after provision for
      loan losses, to total other expenses                            140.23%            155.31%              165.32%
  Net interest rate spread                                              2.81%              2.69%                2.44%
  Net yield on average interest-earning assets                          3.19%              3.03%                2.98%
Equity ratios
  Average equity to average assets
      (average equity divided by average total
      assets)                                                           7.97               7.67                 7.44
   Equity to assets at period end                                       7.72               7.94                 7.60
Asset quality ratios
    Non-performing loans to total assets                                1.01                .51                  .31
    Non-performing loans to net loans                                   1.59                .74                  .47
    Allowance for loan losses, REO and other
      repossessed assets to non-performing assets                      69.37              93.56               136.78
    Allowance for loan losses to total loans, net                        .95                .68                  .63
    Dividend payout ratio                                              29.22              27.84                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, to provide opportunity for growth, 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 2003.

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 regulations,  which are
intended to curtail  corporate  fraud,  require  certain  officers to personally
certify  certain SEC filings and  financial  statements  and require  additional
measurers to be taken by our outside auditors, officers and directors. These new
laws and regulations have increased 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 the origination of fixed rate
loans  secured by one-to four  family  residences  and the  purchase of mortgage
backed  securities and  available-for-sale  investment  securities.  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    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.

Although the  maintenance of a large  percentage of our assets are in short-term
intermediate  assets such as cash  equivalents,  mortgage-backed  securities and
investment  securities  reduces our interest  rate risk,  during  periods of low
market interest  rates,  such as those that existed during the past three years.
This  adversely  effects our interest  income and net earnings.  The Company has
made a  significant  effort to  maintain  its level of lower cost  deposits as a
method  of  enhancing   profitability.   At  June  30,  2003,  the  Company  had
approximately $42 million, or 33%, 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, 2003.

      Change in
      Interest Rates
      In Basis Points        NPV
       ("BP")                Ratio (2)                  Change (3)
      --------------         ---------                  ----------
      +300  bp                5.73%                     -239     bp
      +200  bp (1)            6.76%                     -136     bp
      +100  bp                7.58%                      -54     bp
           0  bp              8.12%
      -100  bp                8.10%                       -2     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 2003, 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 yield on assets and cost of  liabilities
for the periods  indicated and the 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, 2003          Year Ended June 30, 2002      Year Ended June 30, 2001
                              -----------------------------     -----------------------------  -----------------------------
                              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)        $144,841   $10,324    7.13%      $137,754   $10,358    7.53%   $121,237    $10,544    8.70%
  Investment securities
    and mortgage-
    backed securities           56,387     2,285    4.05%        56,365     2,997    5.32%     55,007      3,584    6.52%
  Other interest earning
    assets (2)                   5,141       134    2.61%         4,837       149    3.08%      5,356        309    5.77%
                              --------   -------               --------   -------            --------    -------
  Total interest-
    earning assets             206,369    12,743    6.17%       198,956    13,504    6.79%    181,600     14,437    7.95%
                                         -------                          -------                        -------
  Non-interest-
    earning assets               9,307                           7,255                         5,839
                              --------                        --------                      --------

        Total assets          $215,676                        $206,211                      $187,439
                              ========                        ========                      ========

Interest-bearing liabilities
  Transaction accounts        $  8,830   $    66     .75%     $  8,081    $    76     .94%   $  6,506    $    94    1.45%
  Passbook savings               5,910        64    1.08%        8,271         61     .74%      4,868         91    1.87%
  Money market accounts         11,421       129    1.93%       10,465        164    1.57%      9,583        322    3.36%
  Certificates of deposit       77,180     2,741    3.55%       75,510      3,759    4.98%     61,546      3,587    5.83%
  Other liabilities (3)         79,864     3,162    3.96%       80,206      3,415    4.26%     81,488      4,939    6.06%
                              --------   -------              --------    -------            --------    -------
  Total interest-bearing
    liabilities                183,205     6,162    3.36%      182,533      7,475    4.10%    163,991      9,033    5.51%
                                         -------                          -------                        -------
  Non-interest bearing
    liabilities                 15,275                           7,861                         9,502
                             ---------                        --------                      --------

        Total liabilities      198,480                         190,394                       173,493

Stockholders' equity            17,196                          15,817                        13,946
                             ---------                        --------                      --------

        Total liabilities
          and stockholders'
          equity             $ 215,676                        $206,211                      $187,439
                              ========                        ========                      ========

Net interest income                      $ 6,581                           $6,029                        $ 5,404
                                         =======                           ======                        =======
Interest rate spread (4)                            2.81%                            2.69%                          2.44%
Net yield on interest-
  earning assets (5)                                3.19%                            3.03%                          2.98%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                      1.13X                            1.09X                          1.11X

(1)  Average balances include non-accrual loans.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Other liabilities  include FHLB advances,  repurchase  agreements and other
     secured borrowings.
(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.
</TABLE>


                                       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);  and (iii) changes in rate
(volume changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
                                                 Year ended June 30,                      Year ended June 30,
                                                  2003   vs.   2002                          2002 vs. 2001
                                                 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                   $   696    $  (677)   $   (53)   $   (34)   $ 1,003    $(1,091)   $   (98)   $  (186)
  Mortgage-backed securities and
     investment securities                 1       (716)         3       (712)        89       (660)       (16)      (587)
  Other interest-earning  assets           9        (23)        (1)       (15)       (30)      (143)        13       (160)
                                     -------    -------    -------    -------    -------    -------    -------    -------

     Total interest-earning assets       706     (1,416)       (51)      (761)     1,062     (1,894)      (101)      (933)
                                     -------    -------    -------    -------    -------    -------    -------    -------


Interest expense
  Transaction accounts                     7        (15)        (2)       (10)        23        (33)        (8)       (18)
  Savings accounts                       (17)        28         (8)         3         64        (55)       (39)       (30)
  Money markets                           15        (46)        (4)       (35)        30       (172)       (16)      (158)
  Certificates of deposit                 88     (1,079)       (22)    (1,018)       814       (523)      (119)       172
  Other liabilities                       68       (315)        (6)      (253)      (380)    (1,239)        95     (1,524)
                                     -------    -------    -------    -------    -------    -------    -------    -------
   Total interest-bearing
     liabilities                         151     (1,427)       (42)    (1,313)       551     (2,022)       (87)    (1,558)
                                     -------    -------    -------    -------    -------    -------    -------    -------

Net change in interest income        $   550    $    11    $    (9)   $   552    $   511    $   128    $   (14)   $   625
                                     =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>
FINANCIAL CONDITION

GENERAL.  The  Company's  total  assets  increased  $19,877,000,   or  9.5%,  to
$229,955,000 at June 30, 2003 from  $210,078,000 at June 30, 2002. This increase
was primarily the result of a $15,803,000  increase in the Company's  securities
portfolio.

The $15,803,000 increase in the Company's securities portfolio was primarily the
result of a  $11,227,000  increase  in the  available-for-sale  mortgage  backed
securities.  Mortgage  backed  securities  serve as a source of  collateral  for
borrowings and, through repayments as a source of liquidity.  Available-for-sale
investment  securities  increased  $5,306,000  primarily  due to an  increase in
mutual  fund and U.S.  agency  securities,  partially  offset  by a  decline  in
collateralized mortgage obligations.

Loans  receivable,  net,  increased  $2,879,000 to $146,264,000 at June 30, 2003
from $143,385,000 at June 30, 2002. The increase in loans  receivable,  net, was
primarily the result of increases of $2,397,000  in commercial  business  loans,
$3,080,000 in loans secured by other properties, $438,000 in construction loans,
$299,000 in participations sold, $241,000 in consumer loans, partially offset by
decreases of $2,158,000 in loans on one-to-four family  residences,  $973,000 in
participations purchased, and $412,000 in the allowance for loan losses.

At June 30, 2003, total liabilities  increased  $18,515,000 to $212,210,000 from
$193,695,000  at June 30, 2002.  The increase in total  liabilities  at June 30,
2003 was primarily attributable to an increase in deposits of $19,410,000.

                                       10
<PAGE>

The increase in deposits  was  primarily  the result of growth in the  Company's
Transaction  and NOW accounts and Time deposits.  From June 30, 2002 to June 30,
2003  Transaction  and NOW accounts  increased  $4,521,000  from  $20,417,000 to
$24,938,000  and  Time  deposits  increased   $14,930,000  from  $72,627,000  to
$87,557,000.  The increase in transaction  and NOW accounts and time deposits is
primarily due to an increase in the Farmington Branch's deposit volume.

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, 2003,  repurchase  agreements totaled
$585,000, a decrease of $650,000 from June 30, 2002.

Total stockholders'  equity at June 30, 2003 increased $1,361,000 to $17,744,000
from $16,383,000 at June 30, 2002. The increase in stockholders' equity reflects
net income of $1,690,000,  plus minor changes in additional  paid-in capital and
unearned  ESOP stock for the year ended June 30, 2003,  less  dividends  paid to
stockholders of $477,000.

COMPARISON OF OPERATING RESULTS FOR YEARS ENDED JUNE 30, 2003 AND 2002

GENERAL.  Net  earnings  increased  $79,000  or 4.9% to  $1,690,000  ($1.46  per
dilutive  share)  for the year ended June 30,  2003 from  $1,611,000  ($1.41 per
dilutive  share) for the year ended June 30,  2002.  The increase in earnings is
primarily the result of an increase in net interest earnings after provision for
loan losses of  $552,000,  a $233,000  increase in  non-interest  income,  and a
$156,000  decrease  in the  provision  for income  taxes  partially  offset by a
$232,000  increase in the provision  for loan losses and a $630,000  increase in
non-interest expense.

INTEREST  EARNINGS.  Total interest  earnings  totaled  $12,743,000 for the year
ended June 30, 2003, a decrease of $761,000  from the  $13,504,000  for the year
ended June 30, 2002.  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  $1,313,000 from $7,475,000
for the year ended June 30, 2002 to $6,162,000 for the year ended June 30, 2003,
primarily due to a decline in rates on time deposits,  money market 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  $452,000  and  $220,000  for the years  ended June 30,  2003 and 2002,
respectively.  The increase in the  provision  for loan losses was primarily the
result of loan growth in commercial  business loans and  commercial  real estate
loans,  which tend to have  greater  credit  risk than  residential  real estate
loans.  While the Company maintains its allowance for losses at a level which it
considers to be adequate,  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  increased by $233,000 or
59.7% from  $390,000  for the year ended June 30, 2002 to $623,000  for the year
ended June 30, 2003.  This  increase was primarily due to an increase in service
charge  income of  $139,000,  an  increase  in net gains  from sales of loans of
$96,000, and an increase in miscellaneous income of $8,000 partially offset by a
$10,000 decrease in net gains from sales of available-for-sale  securities.  The
increase in service  charge  income is primarily  due to increased  insufficient
funds fees collected on NOW and checking accounts due to increased activity. The
increase in  miscellaneous  income is primarily due to a $5,000 gain on the sale
of other real estate owned.

                                       11
<PAGE>

NON-INTEREST  EXPENSE.  Total  non-interest  expense increased $631,000 or 16.8%
from  $3,740,000  for the year ended June 30,  2002 to  $4,371,000  for the year
ended  June 30,  2003.  The  increase  in  non-interest  expense  was  primarily
attributable to increases in compensation and benefits,  advertising,  occupancy
costs,  stationery,  printing  and  office  supplies,  professional  fees,  data
processing,  insurance and other operating  expenses.  The $241,000  increase in
compensation  and benefits is  associated  with the hiring of nine  employees to
staff the Bank's  Farmington  branch and  general  merit  increases  in employee
salaries, a $23,000 increase in expense related to director fee compensation and
benefits  and a $41,000  increase  in expense  associated  with  employee  stock
compensations  plans, offset in part by a $50,000 decrease in expense related to
the Company's repurchase of stock in connection with employee stock compensation
plans.  Advertising  expense  increased  $105,000  primarily  due to the  Bank's
efforts to achieve growth in the Farmington,  New Mexico market. Occupancy costs
increased  $95,000 due  primarily to increases in  depreciation  for  furniture,
fixtures, and equipment,  maintenance contract expense and other occupancy costs
associated with operating the Farmington branch. Stationery, printing and office
supplies  increased  $38,000 primarily due to the purchase of forms and supplies
for the Farmington branch.  Professional fees increased $28,000 primarily due to
higher audit expense and accounting  fees.  Data  processing  increased  $20,000
primarily  due to an increase in expenses  resulting  from the  processing  cost
associated  with  the  growth  in the  volume  of  deposit  accounts,  statement
processing and transaction  items being serviced.  Insurance  expense  increased
$10,000 due to an increase  in  insurance  premiums.  Other  operating  expenses
increased $89,000 due primarily to higher loan expense,  other real estate owned
expense,   correspondent  bank  expense,  armored  transit  expense,  charitable
contributions and telephone expense.

INCOME TAX EXPENSE. Income tax expense decreased $156,000 or 22.6% from $848,000
for the year ended June 30, 2002 to $692,000  for the year ended June 30,  2003,
to recognize the change in miscellaneous permanent tax 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, 2003,  cash and cash  equivalents  totaled
$7,252,000.  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,  2003,  the Bank had  outstanding  borrowings  from  the FHLB of  Dallas  of
$76,642,000.  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,  2003,  the Bank
originated $72,499,000 in total loans (including loan participations purchased),
of which  $51,503,000 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,   readily
marketable  equity  securities,  municipal  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  depreciation of premises and equipment,  amortization
of investment and mortgage-backed  securities premiums, stock based compensation
costs and net changes in various  operating assets and liabilities less deferred
loan origination  fees, gain on sale of loans and securities,  stock dividend on
FHLB stock and (benefit)  provision for deferred  income taxes,  were $2,038,000
and  $1,575,000  for the years ended June 30, 2003 and 2002,  respectively.  Net
cash used for investing activities  consisting primarily of loan origination and
principal  repayments on loans,  change in secured  borrowings  and purchases of
securities  offset by  proceeds  from the sale of loans,  principal  payments on
securities and maturities and proceeds from sale of securities were  $18,843,000
and  $7,559,000  for the years ended June 30, 2003 and 2002,  respectively.  Net
cash provided from financing activities  consisting primarily of net activity in
deposit and escrow accounts and repurchase  agreements,  proceeds and repayments
of FHLB advances and payment of dividends,  were  $18,406,000 and $7,373,000 for
the years ended June 30, 2003 and 2002, respectively.

The Bank  anticipates  that it will have sufficient  funds available to meet its
current commitments. As of June 30, 2003, the Bank had commitments to fund loans
of  $21,040,000.  The Bank has  sufficient  collateral  available to provide for
approximately  $27,000,000 in additional FHLB advances.  Certificates of deposit
scheduled to mature in one year or less totaled $58,998,000. 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, 2003,  the Bank exceeded each of the three OTS capital  requirements
on a fully phased in basis. See Note 9 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,
2003  and  2002,  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, 2003 and 2002, 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 18, 2003


                                       14
<PAGE>


GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003

<TABLE>
<CAPTION>
ASSETS
                                                             2003           2002

<S>                                                    <C>               <C>
Cash and due from banks                                $  6,785,410      4,825,439
Interest-bearing deposits with banks                        466,948        826,052
Available-for-sale investment securities                 29,279,417     23,973,426
Available-for-sale mortgage-backed securities            38,517,103     27,290,274
Held-to-maturity investment securities                      675,997      1,405,403
Stock of Federal Home Loan Bank, at cost, restricted      4,332,800      4,218,500
Loans receivable, net, substantially pledged            146,264,291    143,384,711
Loans held-for-sale                                         132,000        296,610
Accrued interest and dividends receivable                   844,722      1,073,201
Premises and equipment                                    2,313,815      2,511,173
Prepaid and other assets                                    342,150        273,413
                                                       ---------------------------



                TOTAL ASSETS                           $229,954,653    210,078,202
                                                       ===========================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       15
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                         2003             2002
<S>                                                                <C>                 <C>
     Transaction and NOW accounts                                  $  24,937,782       20,417,085
     Savings deposits                                                 17,264,978       17,305,540
     Time deposits                                                    87,556,558       72,626,849
     Advances from the Federal Home Loan Bank                         76,641,834       76,386,455
     Other secured borrowings                                          3,657,911        3,933,133
     Repurchase agreements                                               584,902        1,234,857
     Accrued interest payable                                            515,872          448,955
     Advances from borrowers for taxes and insurance                     365,193          416,575
     Accounts payable and accrued liabilities                            250,015          245,409
     Deferred income taxes                                               312,796          568,728
     Dividends declared and payable                                      122,467          110,506
     Income taxes payable                                                   --              1,168
                                                                   ------------------------------
               TOTAL LIABILITIES                                     212,210,308      193,695,260
                                                                   ------------------------------
Commitments and Contingencies


Stockholders' Equity
     Preferred stock, $.10 par value, 500,000 shares authorized;
        no shares issued or outstanding                                     --               --
     Common stock, $.10 par value, 1,500,000 shares authorized;
        1,146,270 and 1,150,106 shares in 2003 and 2002,
        respectively, issued and outstanding                             114,627          115,011
     Additional paid-in capital                                        2,853,446        2,761,251
     Unearned ESOP stock                                                (139,882)        (207,926)
     Retained earnings, substantially restricted                      13,633,421       12,420,358
     Accumulated other comprehensive earnings                          1,282,733        1,294,248
                                                                   ------------------------------
               TOTAL STOCKHOLDERS' EQUITY                             17,744,345       16,382,942
                                                                   ------------------------------

               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $ 229,954,653      210,078,202
                                                                   ==============================
</TABLE>

                                       16
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
YEARS ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>

                                                            2003           2002
<S>                                                     <C>             <C>
Interest Earnings
     Loans receivable
         Mortgage loans                                 $ 7,972,501     8,217,548
         Commercial loans                                 1,332,818     1,244,999
         Share and consumer loans                           404,669       454,954
         Service fee income                                 613,825       440,369
     Investment and mortgage-backed securities            2,284,798     2,996,693
     Other interest-earning assets                          134,508       149,599
                                                        -------------------------
                TOTAL INTEREST EARNINGS                  12,743,119    13,504,162
                                                        -------------------------
Interest Expense
     Deposits                                             2,999,831     4,060,294
     Advances from Federal Home Loan Bank                 3,158,101     3,400,295
     Repurchase agreements                                    3,871        14,475
                                                        -------------------------
                TOTAL INTEREST EXPENSE                    6,161,803     7,475,064
                                                        -------------------------
                NET INTEREST EARNINGS                     6,581,316     6,029,098

Provision for Loan Losses                                   452,137       220,000
                                                        -------------------------
                NET INTEREST EARNINGS AFTER PROVISION
                   FOR LOAN LOSSES                        6,129,179     5,809,098
                                                        -------------------------
Non-Interest Earnings
     Service charge income                                  434,514       295,579
     Miscellaneous income                                    58,971        50,369
     Gain from sale of loans                                129,858        34,289
     Gain on sale of available-for-sale securities               --        10,000
                                                        -------------------------
                TOTAL NON-INTEREST EARNINGS                 623,343       390,237
                                                        -------------------------
Non-Interest Expense
     Compensation and benefits                            2,330,217     2,089,018
     Insurance and SAIF Premiums                             70,254        60,215
     Stationery, printing, and office supplies              155,937       117,465
     ATM expense                                             53,569        50,311
     Supervisory exam fees                                   55,954        55,378
     Postage                                                 63,056        61,697
</TABLE>

See Notes to Consolidated Financial Statements.

                                       17
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
YEARS ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>
                                                                        2003           2002
<S>                                                                <C>                <C>
Non-Interest Expense - Continued
     Other                                                         $   399,610        311,042
     Occupancy                                                         545,599        451,080
     Data processing                                                   337,845        317,350
     Professional fees                                                 134,980        106,602
     Advertising                                                       199,485         94,060
     Stock services                                                     24,389         26,194
                                                                   --------------------------
                TOTAL NON-INTEREST EXPENSE                           4,370,895      3,740,412
                                                                   --------------------------
Earnings before Income Taxes                                         2,381,627      2,458,923
                                                                   --------------------------
Income Tax Expense
     Currently payable                                                 941,568        834,088
     Deferred (benefit) expense                                       (250,000)        13,537
                                                                   --------------------------
                TOTAL INCOME TAX EXPENSE                               691,568        847,625
                                                                   --------------------------
                NET EARNINGS                                         1,690,059      1,611,298

Other Comprehensive Earnings
     Unrealized investment (losses) gains, net of tax benefit of
         $5,933 in 2003 and expense of $13,537 in 2002                 (11,515)        26,278
                                                                   --------------------------
                NET COMPREHENSIVE EARNINGS                         $ 1,678,544      1,637,576
                                                                   ==========================

Basic Net Earnings per Share                                              1.52           1.46

Dilutive Net Earnings per Share                                           1.46           1.41

Weighted average number of common shares
     outstanding-basic                                               1,115,076      1,105,068
Weighted average number of common shares
     outstanding-dilutive                                            1,159,917      1,143,528

</TABLE>

See Notes to Consolidated Financial Statements.

                                       18
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>
                                                                                           Common Stock
                                                                                       --------------------------
                                                                                        Shares         Amount

<S>                                                                                    <C>              <C>
Balances, June 30, 2001                                                                1,150,106        $ 115,011

Comprehensive earnings
     Net earnings                                                                              -                -
     Unrealized gain on available-for-sale securities,
         net of taxes                                                                          -                -

                Total comprehensive earnings

Distribution of stock vested under the
     management stock bonus plan                                                               -                -
Stock issued upon exercise of stock options                                               15,937            1,594
Expense incurred by the Company for stock purchased
     within six months of exercise of related options                                          -                -
Acquisition of common stock by the Company under
     the stock repurchase plan                                                           (15,937)          (1,594)
Released and committed to be released 17,199.6449
     shares of common stock owned by the ESOP                                                  -                -
Dividends declared and paid to stockholders                                                    -                -
                                                                                      ---------------------------
Balances, June 30, 2002                                                                1,150,106          115,011

Comprehensive earnings
     Net earnings                                                                              -                -
     Unrealized gain on available for sale securities,
         net of taxes                                                                          -                -

                Total comprehensive earnings

Distribution of stock vested under the
     management stock bonus plan                                                               -                -
Stock issued upon exercise of stock options                                                4,800              480
Expense incurred by the Company for stock purchased
     within six months of exercise of related options                                          -                -
Acquisition of common stock by the Company under
     the stock repurchase plan                                                            (8,636)            (864)
Released and committed to be released 18,810.4264
     shares of common stock owned by the ESOP                                                  -                -
Dividends declared and paid to stockholders                                                    -                -
                                                                                      ---------------------------
Balances, June 30, 2003                                                                1,146,270        $ 114,627
                                                                                      ===========================

</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>

                                                           Additional     Unearned                    Other
                                                            Paid-in         ESOP        Retained   Comprehensive
                                                            Capital         Stock       Earnings      Earnings        Total

<S>                                                       <C>             <C>          <C>           <C>            <C>
Balances, June 30, 2001                                   $ 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                   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                               (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                                     2,761,251     (207,926)    12,420,358    1,294,248      16,382,942
                                                                                                                   -----------
Comprehensive earnings
     Net earnings                                                   -            -      1,690,059            -       1,690,059
     Unrealized gain on available for sale securities,
         net of taxes                                               -            -              -      (11,515)        (11,515)
                                                                                                                   -----------

                Total comprehensive earnings                                                                         1,678,544
                                                                                                                   -----------

Distribution of stock vested under the
     management stock bonus plan                               17,893            -              -            -          17,893
Stock issued upon exercise of stock options                    43,965            -              -            -          44,445
Expense incurred by the Company for stock purchased
     within six months of exercise of related options          34,264            -              -            -          34,264
Acquisition of common stock by the Company under
     the stock repurchase plan                               (142,423)           -              -            -        (143,287)
Released and committed to be released 18,810.4264
     shares of common stock owned by the ESOP                 138,496       68,044              -            -         206,540
Dividends declared and paid to stockholders                         -            -       (476,996)           -        (476,996)
                                                          --------------------------------------------------------------------
Balances, June 30, 2003                                   $ 2,853,446     (139,882)    13,633,421    1,282,733      17,744,345
                                                          ====================================================================
</TABLE>

                                       20
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>
                                                                              2003           2002
<S>                                                                     <C>                <C>
Cash Flows from Operating Activities
     Net earnings                                                       $  1,690,059       1,611,298
     Adjustments to reconcile net earnings to net cash
        provided by operations
            Deferred loan origination fees                                  (613,825)       (440,369)
            Gain on sale of loans and securities                            (129,858)        (44,289)
            Provision for loan losses                                        452,137         220,000
            Depreciation of premises and equipment                           296,831         233,919
            Amortization of investment and mortgage-backed
               securities premiums                                           224,230         121,568
            Stock dividend on FHLB stock                                    (114,300)       (121,828)
            Release of ESOP stock                                            206,540         165,700
            Stock compensation under management bonus stock plan              17,893          29,245
            Stock compensation resulting from stock purchased by
               the Company within six months of exercise
               of related options                                             34,264          83,867
            (Benefit) provision for deferred income taxes                   (250,000)         13,537
     Net changes in operating assets and liabilities
            Accrued interest and dividends receivable                        228,479         112,199
            Prepaid and other assets                                         (68,737)       (198,789)
            Income taxes receivable                                           (1,168)       (194,686)
            Accrued interest payable                                          66,918         (24,492)
            Accounts payable and other accrued liabilities                   (13,287)         (3,691)
            Dividends declared and payable                                    11,961          12,053
                                                                        ----------------------------
               NET CASH PROVIDED BY OPERATING ACTIVITIES                   2,038,137       1,575,242
                                                                        ----------------------------
Cash Flows from Investing Activities
     Purchase of premises and equipment                                      (99,473)     (1,421,322)
     Loan origination and principal repayment on loans, net              (10,523,156)    (15,398,358)
     Change in secured borrowings                                           (275,222)      3,933,133
     Proceeds from the sale of loans                                       8,099,732       2,402,632
     Principal payments on mortgage-backed securities                     11,246,417      10,183,665
     Principal payments on available-for-sale securities                   6,214,437       3,049,992
     Principal payments on held-to-maturity securities                         4,000          25,000
     Purchases of mortgage-backed securities                             (22,490,693)     (5,144,006)
     Purchases of available-for-sale securities                          (13,412,658)     (6,572,405)
     Purchases of held-to-maturity securities                               (274,594)             --
     Maturities and proceeds from sale of available-for-sale
        securities                                                         1,668,000       1,310,000
     Maturities and proceeds from sale of available-for-sale
        mortgage-backed securities                                                --         520,000
     Maturities and proceeds from sale of held-to-maturity securities      1,000,000              --
     Purchase of FHLB stock                                                       --        (447,672)
                                                                        ----------------------------
               NET CASH USED BY INVESTING ACTIVITIES                     (18,843,210)     (7,559,341)
                                                                        ----------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       21
<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>
                                                                      2003            2002
<S>                                                            <C>                  <C>
Cash Flows from Financing Activities
     Net increase in transaction accounts, passbook savings,
        money market accounts, and certificates of deposit     $  19,409,843        3,689,308
     Repurchase agreements                                          (649,955)         (89,478)
     Net decrease in mortgage escrow finds                           (51,382)         (23,473)
     Proceeds from FHLB advance                                  808,623,387      688,853,462
     Repayments on FHLB advances                                (808,368,008)    (684,573,004)
     Purchase of GFSB Bancorp stock under the stock
        repurchase plan in cash                                     (143,287)        (213,701)
     Dividends paid or to be paid in cash                           (476,996)        (428,857)
     Proceeds from exercise of stock options                          44,445          129,834
     Price paid for vested management bonus stock plan stock          17,893           29,245
                                                               ------------------------------
               Net cash provided by financing activities          18,405,940        7,373,336
                                                               ------------------------------
Increase in cash and cash equivalents                              1,600,867        1,389,237

Cash and cash equivalents at beginning of year                     5,651,491        4,262,254
                                                               ------------------------------
Cash and cash equivalents at end of year                       $   7,252,358        5,651,491
                                                               ------------------------------

Supplemental disclosures
     Cash paid during the year for
        Interest on deposits and advances                      $   6,091,015        7,485,081
        Income taxes                                                 943,200        1,034,208

     Change in market value, net of deferred taxes on
        available-for-sale securities (other comprehensive
        earnings)                                                    (11,515)          26,278
</TABLE>

See Notes to Consolidated Financial Statements.

                                       22
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003

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  (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 (Bank).

GFSB  Bancorp,  Inc.  (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:
<TABLE>
<CAPTION>
                                                       2003             2002

<S>                                               <C>                  <C>
Cash on hand                                      $ 2,522,184          1,620,315
Cash items                                             (6,340)            13,765
Amounts due from banks                              3,614,410          2,808,981
Interest bearing deposits                             268,948            628,052
Time deposits                                         198,000            198,000
Federal Reserve Bank deposits                         655,156            382,378
                                                  -----------        -----------

TOTAL CASH AND CASH EQUIVALENTS                   $ 7,252,358          5,651,491
                                                  ===========        ===========
</TABLE>

The amounts due from banks includes $78,250 and $67,058 for the years ended June
30, 2003 and 2002, 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, 2003

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
held-to-maturity securities are recorded at amortized cost.

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.

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.

                                       24
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

Transfers of Financial  Assets.  The Company accounts for transfers of financial
assets by recognizing  the financial  assets it controls and the  liabilities it
has incurred,  derecognizes  financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The statement also distinguishes
transfers of financial  assets that are sales from transfers of financial assets
that are secured borrowings.

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, 2003 and 2002, $8,099,732 and
$2,402,632,  respectively,  of loans have been sold.  No  servicing  rights were
retained  on these  loans.  Gains on the sale of these loans were  $129,858  and
$34,289 for the years ended June 30, 2003 and 2002, respectively.

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

    Buildings                                       40 years
    Furniture, fixtures and equipment           5 - 10 years
    Parking lot improvements                         5 years
    Leasehold improvements                      5 - 10 years


                                       25
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


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 held-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, 2003


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  2002
financial   statements  to  conform  to  the  2003  presentation.   The  largest
reclassification  involved  certain sold  participation  loans  reclassified  in
accordance  with Statement of Financial  Accounting  Standards  (SFAS) 140. As a
result  of  the  reclassification,  2002  loans  receivable  and  other  secured
borrowings balances were increased by approximately $3,900,000 each.


                                       27
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

Recent  Accounting  Developments.  In October of 2002, the Financial  Accounting
Standards  Board (FASB) issued SFAS No. 147  Acquisitions  of Certain  Financial
Institutions  - an  amendment  of  FASB  Statements  No.  72 and  144  and  FASB
Interpretation No. 9. FASB Statement No. 72, Accounting for Certain Acquisitions
of Banking or Thrift  Institutions,  and FASB Interpretation No. 9, Applying APB
Opinions  No.  16 and 17  When a  Savings  and  Loan  Association  or a  Similar
Institution is Acquired in a Business Combination  Accounted for by the Purchase
Method, provided interpretive guidance on the application of the purchase method
to acquisitions of financial  institutions.  Except for transactions between two
or more mutual  enterprises,  this Statement  removes  acquisitions of financial
institutions  from  the  scope of both  Statement  72 and  Interpretation  9 and
requires  that those  transactions  be  accounted  for in  accordance  with FASB
Statements  No. 141,  Business  Combinations,  and No. 142,  Goodwill  and Other
Intangible  Assets.  Thus,  the  requirement  in  paragraph 5 of Statement 72 to
recognize  (and  subsequently   amortize)  any  excess  of  the  fair  value  of
liabilities assumed over the fair value of tangible and identifiable  intangible
assets  acquired  as an  unidentifiable  intangible  asset no longer  applies to
acquisitions  within the scope of the  Statement.  In addition,  this  Statement
amends FASB  Statement  No. 144,  Accounting  for the  Impairment or Disposal of
Long-Lived  Assets,  to  include  in its scope  long-term  customer-relationship
intangible  assets of financial  institutions such as depositor - and borrower -
relationship   intangible  assets  and  credit  cardholder   intangible  assets.
Consequently,  those intangible assets are subject to the same undiscounted cash
flow  recoverability  test  and  impairment  loss  recognition  and  measurement
provisions that Statement 144 requires for other long-lived assets that are held
and used. The adoption of this statement did not impact the Company's  financial
position or results of operations.

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123. This Statement  amends FASB Statement No. 123,  Accounting for  Stock-Based
Compensation,  to provide  alternative  methods of  transition  for a  voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition, this Statement amends the disclosure requirements of
Statement  123 to require  prominent  disclosures  in both  annual  and  interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results. The adoption
of this statement did not impact the Company's  financial position or results of
operations.

In April  2003,  the FASB issued SFAS No, 149,  Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities.  This  Statement  amends  and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
The adoption of this statement did not impact the Company's  financial  position
or results of operations.

In May 2003,  the FASB  issued SFAS No. 150,  Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity. This Statement
establishes  standards  for  how an  issuer  classifies  and  measurers  certain
financial instruments with characteristics of both liabilities and equity. It

                                       28
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were previously  classified as equity.  Some of the provisions of this Statement
are  consistent  with the current  definition  of  liabilities  in FASB Concepts
Statement No. 6, Elements of Financial  Statements.  The remaining provisions of
this  Statement  are  consistent  with  the  Board's  proposal  to  revise  that
definition to encompass certain  obligations that a reporting entity can or must
settle  by  issuing  its own  equity  shares,  depending  on the  nature  of the
relationship  established  between  the holder and the  issuer.  While the Board
still plans to revise that definition through an amendment to Concepts Statement
6, the Board decided to defer issuing that amendment  until it has concluded its
deliberations on the next phase of this project.  That next phase will deal with
certain compound financial  instruments  including puttable shares,  convertible
bonds,  and dual-indexed  financial  instruments.  This Statement  concludes the
first phase of the Board's redeliberations of the Exposure Draft, Accounting for
Financial Instruments with Characteristics of Liabilities,  Equity, or Both. 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, 2003            Balance         (Discounts)         Cost              Gains            Losses            Value
<S>                   <C>                       <C>            <C>                 <C>               <C>            <C>
   FNMA ARM
     Certificates     $     26,015,268          690,736        26,706,004          225,397           (50,279)       26,881,122
   FHLMC ARM
     Certificates            5,017,296          125,255         5,142,551           42,716           (26,536)        5,158,731
   GNMA ARM
     Certificates            5,152,408          157,441         5,309,849            2,407           (24,628)        5,287,628
   SBA                         334,870                -           334,870           26,789                 -           361,659
   Mortgage Pass-
     through
     Certificates              811,339          (14,533)          796,806           31,157                 -           827,963
                      --------------------------------------------------------------------------------------------------------
                      $     37,331,181          958,899        38,290,080          328,466          (101,443)       38,517,103
                      ========================================================================================================
</TABLE>

                                       29
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


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


During the years  ended June 30,  2003 and 2002,  the  Company  did not have any
proceeds from the sales of mortgage-backed  securities.  The Company had pledged
$14,710,776  (current face) and $15,520,259  (current face) at June 30, 2003 and
2002,  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  $309,378  and $387,569 at June 30, 2003 and 2002,
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, 2003


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>
    JUNE 30, 2003
    Mutual funds                               $ 9,937,752         5,645               -         9,943,397
    US agency securities                         5,555,404        69,998               -         5,625,402
    FHLMC stock                                      7,786     1,108,341               -         1,116,127
    Tax-exempt securities                        4,856,181       586,466               -         5,442,647
    FNMA/SLMA preferred                          1,500,000             -         (75,000)        1,425,000
    CMO                                          3,854,101        31,147         (16,493)        3,868,755
    SLMA asset-backed note                       1,851,683         6,406               -         1,858,089
                                               -----------------------------------------------------------

                                               $27,562,907     1,808,003         (91,493)       29,279,417
                                               ===========================================================

    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
                                               ===========================================================

HELD-TO-MATURITY

   JUNE 30, 2003
    Tax-exempt securities                      $   675,997        21,096               -           697,093
                                               ===========================================================
</TABLE>

                                       31
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 3.        INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
                                                                 Gross            Gross
                                                              Unrealized        Unrealized
                                               Amortized        Holding           Holding          Fair
                                                  Cost          Gains             Losses           Value
<S>                                            <C>                 <C>                           <C>
   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>


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.
<TABLE>
<CAPTION>
                                                       Amortized          Fair
                                                         Cost             Value
<S>                                                  <C>                 <C>
    Available-for-sale
    Due within one year                              $   500,009         500,314
    Due after one year through five years              5,709,235       5,823,568
    Due after five years through ten years                    --              --
    Due after ten years                                4,202,341       4,744,167
    Mutual funds                                       9,937,752       9,943,397
    FHLMC stock                                            7,786       1,116,127
    FNMA                                               1,500,000       1,425,000
    SLMA asset-backed note                             1,851,683       1,858,089
    CMO                                                3,854,101       3,868,755
    Mortgage-backed securities                        38,290,080      38,517,103
                                                     ---------------------------

                                                     $65,852,987      67,796,520
                                                     ===========================

Held-to-maturity
    Due within one year                              $   270,000         270,000
    Due after one year through five years                144,997         154,682
    Due after five years through ten years                    --              --
    Due after ten years                                  261,000         272,411
                                                     ---------------------------

                                                     $   675,997         697,093
                                                     ===========================
</TABLE>

No  investments  were sold during the year ended June 30,  2003,  $1,830,000  in
investments were sold during the year ended June 30, 2002. At June 20, 2003, the
Company had $412,000 in commitments to purchase tax exempt securities.

                                       32
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003

NOTE 4.        LOANS RECEIVABLE

Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                                                 2003             2002
<S>                                                                     <C>                     <C>
    First mortgage loans (principally conventional)
        Principal balances
           Secured by one-to-four family residences                     $     77,464,489        79,625,021
           Secured by other properties                                        26,027,088        22,947,175
           Construction loans                                                  5,183,423         4,745,701
        Loan participations purchased                                         10,306,393        11,279,376
        Commercial loans                                                      24,192,171        21,794,673
        Consumer loans
           Unsecured                                                             320,330           262,949
           Loans secured by deposits                                           1,212,031         1,452,693
           Secured by vehicles                                                 1,527,815         1,415,666
           Home equity lines                                                   1,766,753         1,999,951
           Other consumer                                                        930,450           385,224
                                                                         ---------------------------------
                                                                             148,930,943       145,908,429
        Loan participations sold                                                (474,486)         (773,000)
        Net deferred loan origination fees                                      (795,738)         (766,647)
        Allowance for loan losses                                             (1,396,428)         (984,071)
                                                                        ----------------------------------

           TOTAL LOANS RECEIVABLE                                       $    146,264,291       143,384,711
                                                                        ==================================

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

        Balance at beginning of year                                     $       984,071           824,783
        Provision charged to income                                              452,137           220,000
        Charge-offs, recoveries and other, net                                   (39,780)          (60,712)
                                                                         ---------------------------------

           BALANCE AT END OF YEAR                                        $     1,396,428           984,071
                                                                         =================================


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

        Fixed rate$                                                            1,120,000         2,002,000
        Variable rate                                                          8,964,000         5,495,000
        Commitments for new originations                                      10,956,000         2,336,000
                                                                         ---------------------------------

           TOTAL                                                         $    21,040,000         9,833,000
                                                                         =================================
</TABLE>
                                       33
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 4. LOANS RECEIVABLE (CONTINUED)

Fixed rate  commitments at June 30, 2003 and 2002 had interest rates that ranged
from  5.88% to 10.00%.  Total  loans with  fixed  rates  were  $107,678,913  and
$112,546,960 at June 30, 2003 and 2002, respectively.  Total loans with variable
rates were $40,113,806 and $32,118,432 at June 30, 2003 and 2002, respectively.

Non-accrual  loans for which  interest has been reduced  totaled  $2,320,562 and
$246,424  at June 30,  2003 and 2002,  respectively.  Interest  income  that was
foregone amounted to $95,962 and $6,956 at June 30, 2003 and 2002, respectively.
There were no restructured loans at June 30, 2003 or 2002.

The weighted average rate for the loan portfolio was 6.54% and 7.12% at June 30,
2003 and 2002, respectively.

There were no impaired loans at June 30, 2003 or 2002.


NOTE 5.        ACCRUED INTEREST AND DIVIDENDS RECEIVABLE

Accrued interest and dividends receivable is summarized as follows:
<TABLE>
<CAPTION>
                                                            2003         2002

<S>                                                      <C>             <C>
Loans receivable                                         $ 521,885       741,924
Available-for-sale investment securities                   145,561       142,445
Available-for-sale mortgage-backed securities              170,532       169,692
Dividends                                                    5,863        18,259
Time deposits                                                  881           881
                                                         -----------------------

TOTAL ACCRUED INTEREST AND DIVIDENDS                     $ 844,722     1,073,201
                                                         =======================
</TABLE>

                                       34
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
                                                      2003               2002

<S>                                               <C>                 <C>
Buildings                                         $ 1,506,206         1,506,206
Furniture, fixtures, and equipment                  1,181,694         1,082,221
Parking lot improvements                                5,265             5,265
Leasehold improvements                                563,328           563,328
Land                                                  443,550           443,550
                                                  -----------------------------
                                                    3,700,043         3,600,570
Allowance for depreciation                         (1,386,228)       (1,089,397)
                                                  -----------------------------

TOTAL PREMISES AND EQUIPMENT                      $ 2,313,815         2,511,173
                                                  =============================
</TABLE>


NOTE 7.        DEPOSITS

Deposits are summarized as follows:
<TABLE>
<CAPTION>
                                                  WEIGHTED
                                                   AVERAGE
                                                   RATE AT                      JUNE 30, 2003
                                                   JUNE 30,              -----------------------------
                                                    2003                     AMOUNT           PERCENT
<S>                                                   <C>                <C>                     <C>
     Passbook savings accounts                        1.08%              $     6,319,124         4.87%
     Money market accounts                            1.13                    10,945,854         8.43
     Transaction and NOW accounts                      .75                    24,937,782        19.22
                                                                         ----------------------------
                                                                              42,202,760        32.52

    Certificates of deposit:
       1.00%-3.00%                                    2.41                    55,761,113        42.97
       3.01%-6.00%                                    4.75                    27,416,892        21.13
       6.01%-7.00%                                    6.43                     4,378,553         3.38
                                                                         ----------------------------
     TOTAL CERTIFICATES OF DEPOSIT                                            87,556,558        67.48
                                                                         ----------------------------

     TOTAL DEPOSITS                                                      $   129,759,318         100%
                                                                         ============================
</TABLE>

                                       35
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 7.        DEPOSITS (CONTINUED)
<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>

The  aggregate  amount  of jumbo  certificates  with a minimum  denomination  of
$100,000  was   $45,260,872   and   $36,945,033  at  June  30,  2003  and  2002,
respectively.

Certificates of deposit by remaining maturity are as follows:
<TABLE>
<CAPTION>
                                                    2003                 2002

<S>       <C>                                   <C>                   <C>
Less than 1 year                                $58,998,082           48,007,532
1 year to 2 years                                14,147,760           14,596,795
2 years to 3 years                                4,992,188            5,204,511
3 years to 4 years                                1,692,720            1,040,327
4 years to 5 years                                3,990,563            1,505,549
Thereafter                                        3,735,245            2,272,135
                                                --------------------------------
                                                $87,556,558           72,626,849
                                                ================================
</TABLE>

                                       36
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 7.        DEPOSITS (CONTINUED)

Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
                                                       2003               2002

<S>                                                 <C>                <C>
Certificates of deposit                             $2,740,664         3,759,196
Money market accounts                                  128,743           164,245
Passbook savings                                        64,125            60,669
Transaction and NOW deposits                            66,299            76,184
                                                    ----------------------------

                                                    $2,999,831         4,060,294
                                                    ============================
</TABLE>

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 $584,902 and $1,234,857 at June 30, 2003 and 2002, 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, 2003 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, 2003


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,  2003,  meets  the  regulatory  tangible  capital  and core
(leverage) 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
accounting  principles generally accepted in the United States of America (GAAP)
to the three  components  of  regulatory  capital  calculated  under  regulatory
requirements at June 30, 2003:
<TABLE>
<CAPTION>
                                      Tangible Capital                  Core Capital                  Risk-Based Capital
                              ----------------------------     ---------------------------      ----------------------------
                                Amount            Percent       Amount             Percent       Amount             Percent

<S>                           <C>                              <C>                              <C>
   GAAP Capital               $ 15,799,902                     $ 15,799,902                     $ 15,799,902

   Disallowed servicing
   assets, disallowed
   deferred tax assets,
   and other disallowed
   assets                         (348,005)                        (348,005)                        (348,005)

   Accumulated losses
   (gains) on certain
   available-for-sale
   securities                   (1,282,733)                      (1,282,733)                      (1,282,733)

   Unrealized (gains)
   losses on available-
   for-sale equity securities            -                                -                          467,544

   Other disallowed
   deferred tax
   liabilities                           -                                -                                -

   Qualifying general
   loan loss allowance                   -                                -                        1,396,428
                           ----------------------------------------------------------------------------------------------

   Regulatory capital
   computed                     14,169,164        6.24%          14,169,164        6.24%          16,033,136       11.58%

   Minimum capital
   requirement                   3,405,086        1.50%           9,080,229        4.00%          11,072,560        8.00%
                           ----------------------------------------------------------------------------------------------

   Regulatory capital
   excess                     $ 10,764,078        4.74%        $  5,088,935        2.24%        $  4,960,576        3.58%
                           ==============================================================================================
</TABLE>
                                       38
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 10.       RELATED PARTY TRANSACTIONS

The Company has several loans  receivable  outstanding to 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:

                                              2003         2002

     Balance, beginning of year           $2,250,533     1,707,844
     New loans                             1,000,925     1,037,006
     Repayments                             (529,223)     (494,317)
                                          ------------------------

     BALANCE, END OF YEAR                 $2,722,235     2,250,533
                                          ========================

The Company also has several deposits from related parties. Outstanding deposits
from related parties  amounted to $3,316,172 and $2,716,865 at June 30, 2003 and
2002,  respectively.  The Company  also  expensed  $154,187 and $134,579 for the
years ended June 30, 2003 and 2002, respectively, for directors' fees.


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 $932,301 and $1,230,209 at June 30, 2003 and 2002, respectively.


                                       39
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 12.       INCOME TAXES

Income tax expense consists of:
<TABLE>
<CAPTION>
                                               2003          2002
<S>                                        <C>             <C>
    Current
    Federal                                $ 809,096       720,911
    State                                    132,472       113,177
                                           -----------------------
                                             941,568       834,088
                                           -----------------------
Deferred (benefit) provision
    Federal                                 (237,500)       10,830
    State                                    (12,500)        2,707
                                           -----------------------
                                            (250,000)       13,537
                                           -----------------------

       TOTAL INCOME TAX EXPENSE            $ 691,568       847,625
                                           =======================
</TABLE>


Temporary  differences  create  deferred tax assets and  (liabilities)  that are
detailed below as of June 30, 2003 and 2002:
<TABLE>
<CAPTION>
                                                                                 2003             2002

<S>                                                                      <C>                       <C>
    Loan loss allowance                                                  $       390,276           270,028
    Depreciation on premises and equipment                                        (5,586)          (24,108)
    Employee Stock Ownership Plan compensation                                    97,767            66,932
    Management Bonus Stock Plan compensation                                      13,549            15,073
    Net unrealized gain on available-for-sale securities                        (660,801)         (666,734)
    Federal Home Loan Bank Stock dividends                                      (179,780)         (229,919)
    Non accrual interest income                                                   31,779                 -
                                                                         ---------------------------------

                                                                         $      (312,796)         (568,728)
                                                                         =================================
</TABLE>

The deferred tax liability for  unrealized  holding gains on  available-for-sale
securities  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, 2003



NOTE 12.       INCOME TAXES (CONTINUED)

The  reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense is:
<TABLE>
<CAPTION>
                                                        2003             2002

<S>                                                  <C>                <C>
Tax at statutory rate of 34%                         $ 809,753          836,034
State income taxes, net of federal
    tax benefit                                         72,349           74,697
Non-taxable interest and dividends                    (177,107)        (204,204)
Other, net                                             (13,427)         141,098
                                                     --------------------------

                                                     $ 691,568          847,625
                                                     ==========================

    Effective tax rate                                      29%              34%
</TABLE>


NOTE 13.       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, 2003, 63,292.2115 ESOP shares were released, and for
the year ended June 30, 2003,  $206,537 in contributions was made to the ESOP by
the Company.  As of June 30,  2002,  51,850.1051  ESOP shares were  released and
contributions  of $165,701  were made to the Plan by the Company.  The remaining
unallocated ESOP shares at June 30, 2003 were 32,933.7882. The fair value of the
remaining  unallocated  shares  at June  30,  2003  is  $547,689.  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.

                                       41
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 14.       STOCK PLANS

At June 30, 2003, 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 stock  option plans been  determined  based on the fair value 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:
<TABLE>
<CAPTION>
                                                                                 2003             2002

<S>                                                                      <C>                     <C>
    Net income (as reported)                                             $     1,690,059         1,611,298
      Net income (pro-forma)                                                   1,682,112         1,602,133

    Basic earnings per share (as reported)                                          1.52              1.46
      Basic earnings per share (pro-forma)                                          1.51              1.45

    Diluted earnings per share (as reported)                                        1.46              1.41
      Diluted earnings per share (pro-forma)                                        1.45              1.40

</TABLE>

The fair value of each option grant was estimated using the Black-Scholes option
pricing model with the following assumptions:
<TABLE>
<CAPTION>
                                                                                 2003             2002

<S>                                                                               <C>               <C>
    Expected dividend yield                                                       2.3644%           2.4859%
    Expected stock price volatility                                                   14%               21%
    Risk free rate of return                                                         4.4%              4.2%
    Expected life of options                                                    10 years          10 years
</TABLE>


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 at June 30, 2003 and 2002 is 5.60 and 6.45 years,
respectively.  During the year, no incentive  stock  options were  forfeited and
4,800 incentive stock options were exercised.  Remaining options available to be
granted in the future amount to 59,680 shares.

                                       42
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 14.       STOCK PLANS (CONTINUED)

A summary of common  stock  options  under the Stock  Option  Plan for the years
ended June 30, 2003 and 2002 follows:
<TABLE>
<CAPTION>
                                                                                       Weighted
                                                                           Price        Average       Options
                                                       Options             Range         Price      Exercisable
<S>                                                    <C>            <C>               <C>          <C>
    Balance, June 30, 2001                             113,899        $ 7.40 - 12.80    $ 8.31       $  78,693
                                                                                                     =========
        Granted                                              -               -               -
        Forfeited                                       (5,438)        11.45 - 12.80     11.87
        Exercised                                      (15,937)         7.40 - 11.37      7.86
                                                       -------
    Balance, June 30, 2002                              92,524          7.40 - 11.45      8.48       $  77,149
                                                                                                     =========
        Granted                                              -               -               -
        Forfeited                                            -               -               -
        Exercised                                       (4,800)        7.400 - 11.37      9.26
                                                       -------
    BALANCE, JUNE 30, 2003                              87,724        $ 7.40 - 11.45    $ 8.44       $  77,724
                                                       =======                          ======       =========
</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,  2003,  the Company made awards under the Plan (less
forfeited  shares)  in the  amount of 52,124  shares.  The value of the stock is
determined  (less  forfeited  shares and shares  withheld for taxes) annually as
vested (and paid), based on the current market value. At June 30, 2003 and 2002,
19,032 and 18,325 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.
Total  compensation  expense  recorded under the management stock bonus plan was
$17,893 and $31,506 for the years ended June 30, 2003 and 2002, respectively.

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.

                                       43
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 14.       STOCK PLANS (CONTINUED)

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, 2003.

During the 1997 fiscal  year,  the  Company  began a stock  repurchase  program.
During the years ended June 30, 2003 and 2002, the Company repurchased 8,636 and
15,937  shares of its  outstanding  common  stock  for  $143,287  and  $214,000,
respectively.  The Company  currently  has in place a plan to  repurchase  up to
115,010  shares (10% of  1,150,106  outstanding  shares of common  stock on plan
date).


NOTE 15.   FEDERAL HOME LOAN BANK ADVANCES

In October  1995,  the Bank entered  into an  "Advances,  Collateral  Pledge and
Security  Agreement"  (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, 2003, the Bank has
$76,641,834 in outstanding advances with the FHLB. The advances bear interest at
a fixed rate, which range from 1.13% to 6.97%, and mature as follows:

Maturities for the fiscal years ending June 30:

                  2004                           $   27,514,297
                  2005                               12,583,681
                  2006                                7,090,000
                  2007                               12,170,531
                  2008                               17,283,325
                                                 --------------

                                                 $   76,641,834
                                                 ==============

Several of the advances due in July were subsequently refinanced after year-end.
The advances are secured by the Bank's  investments  in FHLB stock of $4,332,800
and  mortgage-backed  securities of  $3,152,591.  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.

                                       44
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 16.       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.

The  estimated  fair  values  of the  Company's  financial  instruments  were as
follows:
<TABLE>
<CAPTION>
                                                                                    JUNE 30, 2003
                                                                         ---------------------------------
                                                                             CARRYING            FAIR
                                                                               VALUE             VALUE
    Financial Assets
<S>                                                                      <C>                     <C>
        Cash and due from banks                                          $     6,785,410         6,785,410
        Interest-bearing deposits with banks                                     466,948           466,948
        Available-for-sale-investment securities                              29,279,417        29,279,417
        Available-for-sale mortgage-backed securities                         38,517,103        38,517,103
        Held-to-maturity investment securities                                   675,997           697,093
        Loans receivable, net                                                146,396,291       155,564,645
        Accrued interest receivable                                              844,722           844,722

    Financial Liabilities
        Transaction and NOW deposits                                          24,937,782        24,962,000
        Savings deposits                                                      17,264,978        17,432,000
        Time deposits                                                         87,556,558        90,109,000
        Advances from the FHLB                                                76,641,834        85,940,000
        Repurchase agreements                                                    584,902           584,902
        Accrued interest payable                                                 515,872           515,872

    Off-Balance Sheet Liabilities
        Commitments to extend credit                                          21,040,000        21,040,000
</TABLE>

                                       45
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 16.       FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<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>


NOTE 17.       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, 2003
                                                                  ---------------------------------------------
                                                                     INCOME           SHARES         PER-SHARE
                                                                   (NUMERATOR)     (DENOMINATOR)       AMOUNT
<S>                                                               <C>                <C>             <C>
    Income available to common stockholders -
        basic earnings per share                                  $ 1,690,059        1,115,076       $    1.52
                                                                                                     =========

    Effect of dilutive securities
        Options                                                             -           44,841
                                                                  ----------------------------

    Income available to common stockholders -
        diluted earnings per share                                $ 1,690,059        1,159,917       $    1.46
                                                                  ============================================
</TABLE>

                                       46
<PAGE>
GFSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003


NOTE 17.       EARNINGS PER SHARE (CONTINUED)
<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
                                                                  ============================================
</TABLE>


NOTE 18.       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, 2003 and 2002,  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

              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.

                                       47
<PAGE>

GFSB BANCORP, INC.
OFFICE LOCATION AND OTHER CORPORATE INFORMATION
JUNE 30, 2003
<TABLE>
<CAPTION>

CORPORATE OFFICE                                                          BRANCH OFFICES

<S>                                         <C>                                     <C>
GFSB Bancorp, Inc.                          Gallup Federal Savings Bank             Farmington Savings Bank  *
221 West Aztec Avenue                       221 West Aztec Avenue                   1501 San Juan Blvd.
Gallup, NM 87301                            Gallup, NM 87301                        Farmington, NM 87401

*  A branch of Gallup Federal Savings Bank


                                  BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

                                Richard C. Kauzlaric, President, and Director
               Richard P. Gallegos, Vice President and President of Gallup Federal Savings Bank
                      Jerry R. Spurlin, Chief Financial Officer and Assistant Secretary
                     William W. Head, Jr., Chief Lending Officer and Assistant Secretary
                   Leonard C. Scalzi, Senior Vice President of Gallup Federal Savings Bank
                              Wallace R. Phillips, D.D.S., Chairman of the Board
                                  Michael P. Mataya, Treasurer and Director
                                   George S. Perce, Secretary and Director
                                         James Nechero Jr., Director
                                        Vernon I. Hamilton, Director
                                      Charles L. Parker, Jr., Director


Special Counsel:                                                Independent Auditors:
Malizia Spidi & Fisch, PC                                       Neff + Ricci LLP
1100 New York Avenue, N.W., Suite 340 West                      6100 Uptown Blvd. N.E., Suite 400
Washington, D.C.  20005                                         Albuquerque, NM  87110

Transfer Agent and Registrar:
Registrar & Transfer Co.
10 Commerce Drive
Cranford, NJ  07016
</TABLE>

The  Company's  Annual  Report for the year  ended June 30,  2003 filed with the
Securities  and Exchange  Commission on Form 10-KSB is available  without charge
upon  written  request.  For a copy of the Form  10-KSB  or any  other  investor
information, please write or call the Secretary of the Company, at the Company's
corporate office in Gallup,  New Mexico. The annual meeting of stockholders will
be held on October 27, 2003.

                                       48