EXHIBIT 13

<PAGE>



GFSB Bancorp, Inc.

Corporate Profile

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

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

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

Stock Market Information

     Since its issuance on June 29, 1995,  the  Company's  common stock has been
         traded on the Nasdaq Smallcap Market.  The following table reflects the
         stock prices as published by the Nasdaq  Small-Cap  Market for the most
         recent two fiscal years. The quotations  reflect  inter-dealer  prices,
         without retail mark-up,  markdown, or commission, and may not represent
         actual transactions.


                                                                       Dividends
         Quarter Ended                       High              Low     Declared
         -------------                       ----              ---     --------
         September 30,1998                  16.750            13.000     .075
         December 31, 1998                  15.500            13.625     .075
         March 31, 1999                     15.250            14.250     .075
         June 30, 1999                      14.750            13.125      .08
         September 30, 1999                 13.375            13.000      .08
         December 31, 1999                  14.750            13.500      .10
         March 31, 2000                     13.500            13.250      .10
         June 30, 2000                      14.125            13.625      .10

2
<PAGE>

GFSB Bancorp, Inc.
Corporate Profile (continued)

The  number of  stockholders  of record of common  stock as of the  record  date
September 15, 2000 ("Record Date"), was approximately 212. This does not reflect
the number of persons or  entities  who held stock in nominee or  "street"  name
through  various  brokerage  firms.  As of the Record  Date,  there were 936,000
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
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GFSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER  DATA
Financial Condition (Dollars in Thousands)

At June 30,                                         2000       1999       1998

Total assets                                      $176,786   $150,754   $123,209
Loans receivable, net                              109,777     96,565     75,837
Mortgage-backed securities                          28,931     31,712     33,551
Stock of FHLB                                        4,207      2,815      1,965
Investment securities                               27,120     11,973      5,188
Cash and cash equivalents                            4,091      5,147      4,538
Deposits                                            79,948     81,229     69,379
Advances from the FHLB                              82,935     55,541     38,248
Retained earnings (substantially restricted)         9,975      8,759      8,042


Summary of Operations
(Dollars in Thousands)

Year ended June 30,

Interest income                                   $ 11,989   $  9,651   $  8,259
Interest expense                                     7,117      5,599      5,009
        Net interest income                          4,872      4,052      3,340
Provision for loan losses                              205        138         63
        Net interest income after provision for
        loan losses                                  4,667      3,913      3,187
Non-interest income:
        Income from real estate operations               5          -          -
        Other                                          245        243        104
             Total non-interest income                 250        243        104
Non-interest expense:
        Compensation and benefits                    1,507      1,363        973
        Professional fees                               86         66        104
        Occupancy                                      336        283        166
        Advertising                                     70         71         50
        Data processing                                200        202        137
        Insurance and SAIF premiums                     64         65         55
        Other and stock subscription services          436        451        389
             Total non-interest expense              2,699      2,501      1,874
Earnings before income taxes                         2,218      1,655      1,416
Income tax expense                                     657        639        539
Net earnings                                      $  1,561   $  1,016   $    877

Basic net earnings per share                          1.70        .99        .78
Dilutive net earnings per share                       1.67        .97        .76

4
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GFSB BANCORP, INC.
SELECTED FINANCIAL AND OTHER DATA (CONTINUED)
<TABLE>
<CAPTION>
Selected Operating Ratios

Year ended June 30,                                       2000       1999       1998
<S>                                                   <C>        <C>        <C>
Performance ratios:
  Return on average assets (net income
      divided by average total assets)                    0.96%      0.75%      0.81%
  Return on average equity (net income
     divided by average equity)                          12.58       7.76       6.09
   Average interest earning assets to average
      interest-bearing liabilities                        1.10X      1.13X      1.16X

  Net interest income after provision for
      loan losses, to total other expenses              172.89%    156.46%    170.06%
  Net interest rate spread                                2.62%      2.53%      2.46%
   Net yield on average interest-earnings
      assets                                              3.10%      3.11%      3.25%
  Equity ratios:
  Average equity to average assets ratio
      (average equity divided by average total
      assets)                                             7.62       9.70      13.95
   Equity to assets at period end                         7.18       8.25      11.54
  Assets quality ratios:
    Non-performing loans to total assets                   .41        .15        .57
    Non-performing loans to net loans                      .66        .23        .93
        Allowance for loan losses, REO and other
        Repossessed assets to non-performing
        assets                                           76.53     271.43     129.47
        Allowance for loan losses to total loans,
        net                                                .47        .46        .51
Dividend payout ratio                                     23.6       31.9       37.4

</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
and expenses, year 2000 issues 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. ("GFSB Bancorp") is a bank 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 (collectively, the "Company").

Management of Interest Rate Risk and Market Risk

Because the majority of the Company's  assets and  liabilities  are sensitive to
changes in interest rates,  its most significant form of market risk is interest
rate  risk,  or changes in  interest  rates.  The  Company is  vulnerable  to an
increase in interest rates to the extent that its  interest-bearing  liabilities
mature or reprice more rapidly than its  interest-earning  assets. The Company's
lending activities have emphasized the purchase of long-term adjustable rate and
the  origination  of fixed rate loans secured by one-to four family  residences.
The  primary  source  of funds  has been  deposits  with  substantially  shorter
maturities.   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."

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

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

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


6
<PAGE>

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

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

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

The Company has made a  significant  effort to maintain  its level of lower cost
deposits as a method of enhancing  profitability.  At June 30, 2000, the Company
had  approximately  $ 27 million,  or 34%, of its deposits in low-cost  savings,
checking and money market accounts.  These deposits have traditionally  remained
relatively stable and are expected to be only moderately affected in a period of
rising  interest  rates.  This  stability  has enabled the Company to offset the
impact of rising rates in other deposit accounts.

Net Portfolio Value

 Exposure  to  interest  rate risk is  actively  monitored  by  management.  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 Company uses the OTS Net  Portfolio  Value  ("NPV")  Model to
monitor its  exposure to interest  rate risk,  which  calculates  changes in net
portfolio  value.  "OTS NPV  reports  along with  management's  suggestions  are
reviewed by the  Investment  Committee  and  reported to the Board of  Directors
quarterly."

The Interest Rate  Sensitivity of Net Portfolio Value Report shows the degree to
which balance sheet line items and net portfolio value are potentially  affected
by a 100 to 300 basis point (1/100th of a percentage  point) upward and downward
parallel shift (shock) in the Treasury yield curve.

The following table  represents our NPV at June 30, 2000. The NPV was calculated
by the OTS, based upon information that the Company provided.

* INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)

               Change                 NPV
               In rates               Ratio (1)        Change (2)
               --------               ---------        ----------
               +300  bp                 3.56%           -479  bp
               +200  bp                 5.32%           -304  bp
               +100  bp                 6.94%           -141  bp
                  0  bp                 8.35%
               -100  bp                 9.42%            107  bp
               -200  bp                10.02%            166  bp
               -300  bp                10.51%            215  bp

(1)      Calculated as the estimated NPV divided by present value of assets.
(2)      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.


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

                                                                               7
<PAGE>

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.

8
<PAGE>
Average Balance Sheet

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

<TABLE>
<CAPTION>
                                          Year ended June 30, 2000                     Year ended June 30, 1999
                                 ------------------------------------------  ---------------------------------------------
                                   Average                       Average         Average                        Average
                                   Balance       Interest       Yield/Cost       Balance       Interest       Yield/Cost
                                  (Dollars in Thousands)                        (Dollars in Thousands)
<S>                              <C>             <C>             <C>          <C>              <C>             <C>
Interest-earning assets:
Loans receivable (1)               $103,252        $8,660           8.39%       $ 88,355         $7,465           8.45%
Investment securities and
 mortgage-backed securities          49,270         3,001           6.09%         38,333          1,977           5.16%
Other interest-earning
  assets (2)                          4,739           328           6.92%          3,542            209           5.84%
Total interest-earning assets       157,261        11,989           7.62%        130,230          9,651           7.41%
Non-interest-earning assets           5,337                                        4,759
                                 -----------                                  -----------
Total assets                       $162,598                                     $134,989

Interest-bearing liabilities:
  Transaction accounts              $ 5,975          $ 90           1.51%        $ 4,853          $ 99            2.04%
  Passbook savings                    5,018           102           2.03%          4,450           107            2.40%
  Money market accounts              10,304           310           3.01%          9,964           333            3.34%
  Certificates of deposit            52,660         2,703           5.13%         49,678         2,689            5.41%
  Other liabilities                  68,442         3,912           5.72%         45,802         2,371            5.18%
                                 -----------    ----------                   -----------    ----------
Total interest-bearing
   liabilities                      142,399         7,117           5.0 %        114,747         5,599            4.88%
Non-interest bearing
   liabilities                        7,801                                        7,151
                                 -----------                                 -----------
Total liabilities                   150,200                                      121,898

Stockholders' equity                 12,398                                       13,091
                                 -----------                                 -----------
Total liabilities and
  stockholders' equity             $162,598                                     $134,989

Net interest income                                $4,872                                      $4,052
Interest rate spread (3)                                           2.62%                                         2.53%
Net yield on interest-
  earning  assets (4)                                              3.10%                                         3.11%
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                                     1.10X                                         1.13X
</TABLE>

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

                                                                               9
<PAGE>
Rate/Volume Analysis

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

                                                   Year ended June 30,
                                                      2000 vs. 1999
                                                    Increase (Decrease)
                                                          Due to
                                        ----------------------------------------
                                                              Rate/
                                         Volume     Rate      Volume       Net
                                        -------    -------    -------    -------
                                                    (Dollars in Thousands)
Interest income:
  Loans receivable                      $ 1,259    $   (53)   $    (9) $ 1,197
  Mortgage-backed securities and
     Investment securities                  563        360        103    1,026
  Other interest-earning  assets             70         38         13      121
                                        -------    -------    -------  -------
     Total interest-earning assets        1,892        345        107    2,344

Interest expense:
  Savings accounts                           14        (16)        (2)      (4)
  Money markets                              11        (33)        (1)     (23)
  Certificates of deposit                   161       (139)        (8)      14
  Other liabilities                       1,169        247        122    1,538
                                        -------    -------    -------  -------
   Total interest-bearing liabilities     1,355         59        111    1,525
                                        -------    -------    -------  -------
Net change in interest income           $   537    $   286    $    (4) $   819
                                        =======    =======    =======  =======

Financial Condition

General.  The Company's total assets  increased $26 million or 17.2% from $150.8
million at June 30, 1999 to $176.8  million at June 30, 2000.  This increase was
primarily  the  result  of a  $14.1  million  increase  in cash  and  investment
securities,  offset by a decrease in mortgage-backed securities of $2.8 million,
and a $13.2 million  increase in the Company's net loan portfolio.  The majority
of the  increases  are directly  attributable  to the efforts of  management  to
increase  investment  and lending  activity.  During the same  period,  deposits
decreased  $1.3 million from $81.2  million at June 30, 1999 to $79.9 million at
June 30, 2000.  This  decrease is primarily  due to a decrease in the  Company's
volume of MMDA, NOW and business  checking accounts offset by an increase in the
Company's  volume of jumbo  certificates  of deposit and public (state and city)
certificates  of  deposit.  Advances  from the  Federal  Home Loan  Bank  (FHLB)
increased  $27.4 million from $55.6 million at June 30, 1999 to $82.9 million at
June 30, 2000. These additional borrowings funded purchases of loans, securities
and  mortgage  loan  participations.  The Company had  $130,000  and $515,000 in
unrealized   gains  (net  of  deferred   taxes)  at  June  30,  2000  and  1999,
respectively,   from  net  market  gains  on  the  Company's  available-for-sale
investment and mortgage-backed securities portfolio. Unrealized gains and losses
do not impact the Company's earnings until they are realized.

10
<PAGE>

Comparison of Operating Results for Years Ended June 30, 2000 and 1999

General.  Net earnings  increased $544,000 or 53.6 % for the year ended June 30,
2000 from the year ended June 30, 1999.  This  increase was primarily the result
of an  increase  in net  interest  earnings of  approximately  $819,000,  and an
increase  in   non-interest   earnings  of  $7,000  offset  by  an  increase  in
non-interest  expense of $198,000,  an increase in provision  for loan losses of
$67,000 an increase in provision for income tax expense of $18,000.

Interest Earnings.  Total interest earnings increased $2.3 million or 24.2% from
$9.7  million for the year ended June 30, 1999 to $12 million for the year ended
June 30, 2000.  The increase is  primarily  due to an increase in the  Company's
lending and investment  activities and to a general  increase in market interest
rates. Details are contained in the Average Balance Sheet on page 9.

Interest  Expense.  Total interest expense  increased $1.5 million or 27.1% from
$5.6 million for the year ended June 30, 1999 to $7.1 million for the year ended
June 30, 2000. This increase was primarily due to an increase of $1.5 million of
interest  incurred on increased Federal Home Loan Bank advances and to a general
increase in market interest rates.  Details are contained in the Average Balance
Sheet on page 9.

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  borrowers'  ability  to repay  loans,  estimated  value  of the  underlying
collateral,  and current and expected market conditions.  The allowance for loan
losses was $513,000 and  $443,000 at June 30, 2000 and 1999,  respectively.  The
provision for loan losses was $205,000 and $138,000 for the years ended June 30,
2000 and 1999,  respectively.  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.  Recent  substantial  increases in
the loan  portfolio of the Company may result in an increase of  provisions  for
losses on loans.

Non-Interest  Earnings.  Non-interest  earnings  increased  $7,000  or  3%  from
$243,000  for the year ended June 30, 1999 to  $250,000  for the year ended June
30, 2000.  This was  primarily  due to an increase in service  charge  income of
$85,000,  an  increase in real  estate  operations  of $5,000 and an increase in
other  operating  income or $7,000  offset by net losses from sales of loans and
available for sale securities of $90,000. Funds received by the Company from the
sale of available  for sale  securities  were used to purchase  higher  yielding
available for sale securities to enhance future earnings.

Non-Interest Expense. Total non-interest expense increased $198,000 or 7.9% from
$2.5 million for the year ended June 30, 1999 to $2.7 million for the year ended
June 30, 2000.  This increase was  primarily due to an increase in  compensation
and benefits of $144,000 from the hiring of additional  staff to handle  growth,
salary expenses for a full time data processing  systems  administrator for Year
2000  administration,  general salary  increases,  increases due to accruals for
stock-based  compensation  programs,  increases in employee health insurance and
retirement  benefits,  a gross  receipts tax paid to the State of New Mexico for
directors   fees,   offset  by  a  $131,000  change  related  to  a  stock-based
compensation program. Other factors were increases in occupancy costs of $53,000
and  professional  fees of $20,000,  offset by a decrease  in stock  services of
$12,000.  The  increase  in  occupancy  costs  is  primarily  due  to  leasehold
improvement  expense and  janitorial  expense for the Loan Center and furniture,
fixtures, and equipment expense. The decrease in stock services is primarily due
to a fee paid to the OTS for  filing a change  of  control  application  for the
quarter ended September 30, 1998.

                                                                              11
<PAGE>

Income Tax Expense. Income tax expense increased $18,000 or 3% from $639,000 for
the year ended June 30, 1999 to $657,000 for the year ended June 30, 2000.  This
increase  was  primarily  attributable  to the  increase in pre-tax  earnings of
$662,000,  much of which was  nontaxable  interest and  dividends.  Deferred tax
liabilities  decreased  by  $198,160  due to the  impact of other  comprehensive
earnings.

Liquidity and Capital Resources

The  Company is  required  under  applicable  federal  regulations  to  maintain
"liquid" investments in qualifying types of U.S. Government, federal agency, and
other  investments  of not less  than 4% of its  average  daily  balance  of net
withdrawable deposit account and borrowings payable in one year or less. At June
30, 2000 the Bank's liquidity, as measured for regulatory purposes, was 5.3%.

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, 2000,  cash and cash  equivalents  totaled
$4.1 million.  The Bank has another 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,
2000,  the Bank had  outstanding  borrowings  from the FHLB of  Dallas  of $82.9
million.  Some of these outstanding  borrowings were used to purchase additional
investment  securities and mortgage loan  participations as a means of enhancing
earnings.

The  primary  investment  activity  of the  Bank is the  origination  of  loans;
primarily  mortgage  loans.  During  the  year  ended  June 30,  2000,  the Bank
originated  $45.7  million  in  total  loans   (including  loan   participations
purchased),  of which $28.9  million were  mortgage  loans.  Another  investment
activity  of the  Bank is the  investment  of funds  in U.S.  Government  agency
securities,  mortgage-backed  securities,  collateralized  mortgage obligations,
federal  funds,  readily  marketable  equity  securities,  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.

The Bank's cash flows are comprised of three primary classifications: cash flows
from operating activities,  investing activities and financing activities.  Cash
flows  from  operating  activities,  consisting  principally  of  net  earnings,
provision  for loan losses,  amortization  of  investment  and  mortgage  backed
securities  premiums and discounts,  stock based  compensation  costs and income
taxes less  disbursements of interest and dividends,  and loan origination fees,
were $1 million for the years  ended June 30,  2000 and 1999.  Net cash used for
investing  activities  consisting primarily of disbursement of loan originations
and  investment  and  mortgage-backed  security  purchases,  offset by principal
collections on loans and proceeds from the  maturities of investment  securities
and mortgage-backed  securities,  were $27 million and $27 million for the years
ended June 30, 2000 and 1999,  respectively.  Net cash provided  from  financing
activities  consisting  primarily of net activity in deposit and escrow accounts
and the proceeds  received from FHLB advances,  were $25 million and $27 million
for the years ended June 30, 2000 and 1999, respectively.

The Bank  anticipates  that it will have sufficient  funds available to meet its
current commitments. As of June 30, 2000, the Bank had commitments to fund loans
of $10 million.  Certificates of deposit scheduled to mature in one year or less
totaled $40 million.  Based on historical  withdrawals and outflows, on internal
monthly deposit reports monitored by management, and the fact that the Bank does
not  accept any  brokered

12
<PAGE>

deposits,  management  believes that a majority of deposits will remain with the
Bank. As a result, no adverse liquidity effects are expected.

At June 30, 2000,  the Bank exceeded each of the three OTS capital  requirements
on a fully phased in basis. See Note 8 to the Consolidated Financial Statements.

Impact of Inflation and Changing Prices

The  consolidated  financial  statements  of  the  Company  and  notes  thereto,
presented  elsewhere  herein,  have been prepared in accordance  with  Generally
Accepted  Accounting  Principles  ("GAAP"),  which  require the  measurement  of
financial  position  and  operating  results  primarily  in terms of  historical
dollars without considering the change in the relative purchasing power of money
over time and due to  inflation.  The impact of  inflation  is  reflected in the
increased cost of the Company's  operations.  Unlike most industrial  companies,
nearly all the assets and liabilities of the Company are financial. As a result,
interest  rates have a greater impact on the Company's  performance  than do the
effects of general levels of inflation.  Interest rates do not necessarily  move
in the same direction or to the same extent as the prices of goods and services.



                                                                              13
<PAGE>

[Logo]
NEFF & RICCI
-----------------------
                    LLP


                          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,
2000  and  1999,  and  the  related  consolidated  statements  of  earnings  and
comprehensive earnings,  changes in stockholders' equity, and cash flows for the
years  ended  June  30,  2000  and  1999.  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  generally   accepted  auditing
standards.  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, 2000 and 1999, and the results of their operations
and their cash flows for the years then  ended,  in  conformity  with  generally
accepted accounting principles.



/s/Neff & Ricci LLP

Albuquerque, New Mexico
August 3, 2000


                                                                              14

                   CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
                 7001 PROSPECT PLACE NE - ALBUQUERQUE, NM 87110
           (505) 883-6612 - FAX (505) 830-6282 - e-Mail: neff@nm.net
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2000

<TABLE>
<CAPTION>

                                                                        2000               1999
<S>                                                          <C>                         <C>
ASSETS
     Cash and due from banks                                  $        2,875,537          2,839,479
     Interest-bearing deposits with banks                              1,215,428          2,307,736
     Available-for-sale investment securities                         25,438,540         10,295,919
     Available-for-sale mortgage-backed securities                    28,930,510         31,711,838
     Hold-to-maturity investment securities                            1,681,310          1,677,144
     Stock of Federal Home Loan Bank, at cost, restricted              4,206,900          2,815,100
     Loans receivable, net, substantially pledged                    109,777,269         96,564,840
     Accrued interest and dividends receivable                         1,033,974            863,975
     Premises and equipment                                            1,296,048          1,404,616
     Prepaid and other assets                                            235,883            204,825
     Deferred tax asset                                                   94,517             68,377
                                                              --------------------------------------





                Total assets                                  $      176,785,916        150,753,849
                                                              ======================================
</TABLE>


See Notes to Financial Statements.

15
<PAGE>

<TABLE>
<CAPTION>

                                                                                    2000               1999
<S>                                                                        <C>                         <C>

LIABILITIES AND STOCKHOLDERS' EQUITY
     Transaction and NOW accounts                                           $       12,409,069          12,874,979
     Savings deposits                                                               14,801,893          16,962,513
     Time deposits                                                                  52,736,983          51,391,829
     Accrued interest payable                                                          288,350             276,328
     Advances from borrowers for taxes and insurance                                   305,909             329,298
     Accounts payable and accrued liabilities                                          236,070             426,634
     Repurchase agreements                                                             230,839                   -
     Deferred income taxes                                                              67,157             265,317
     Dividends declared and payable                                                     88,875              74,748
     Income taxes payable                                                                    -             180,069
     Advances from the Federal Home Loan Bank                                       82,935,066          55,540,826
                                                                           ----------------------------------------
               Total liabilities                                                   164,100,211         138,322,541
                                                                           ----------------------------------------
COMMITMENTS AND CONTINGENCIES                                                                -                   -

STOCKHOLDERS' EQUITY
     Common stock, $.10 par value,  1,500,000 shares authorized;
        940,958 shares in 2000 and 993,578 shares in 1999
        issued and outstanding                                                          94,096              99,358
     Preferred stock, $.10 par value, 500,000 shares authorized;
        no shares issued or outstanding                                                      -                   -
     Additional paid-in capital                                                      2,810,626           3,428,683
     Unearned ESOP stock                                                              (323,911)           (371,183)
     Retained earnings, substantially restricted                                     9,974,531           8,759,425
     Accumulated other comprehensive earnings                                          130,363             515,025
                                                                           ----------------------------------------
               Total stockholders' equity                                           12,685,705          12,431,308
                                                                           ----------------------------------------


               Total liabilities and stockholders' equity                   $      176,785,916         150,753,849
                                                                           ========================================
</TABLE>



                                                                              16
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED  STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
Years Ended June 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                         2000                 1999
<S>                                                                            <C>                           <C>
Interest Earnings
     Loans receivable
         Mortgage loans                                                         $         7,414,091           6,312,252
         Commercial loans                                                                   480,810             444,158
         Share and consumer loans                                                           465,581             393,918
         Service fee income                                                                 299,942             314,833
     Investment and mortgage-backed securities                                            3,000,669           1,978,827
     Other interest-earning assets                                                          327,597             206,549
                                                                               -----------------------------------------
                Total interest earnings                                                  11,988,690           9,650,537
                                                                               -----------------------------------------
Interest Expense
     Deposits                                                                             3,205,280           3,227,770
     Advances from Federal Home Loan Bank                                                 3,905,867           2,370,969
     Repurchase Agreements                                                                    6,345                   -
                                                                               -----------------------------------------
                Total interest expense                                                    7,117,492           5,598,739
                                                                               -----------------------------------------
                Net interest earnings                                                     4,871,198           4,051,798

Provision for Loan Losses                                                                   205,000             138,417
                                                                               -----------------------------------------
                Net interest earnings after provision
                    for loan losses                                                       4,666,198           3,913,381
                                                                               -----------------------------------------
Non-Interest Earnings
     Service charge income                                                                  251,243             166,668
     Miscellaneous income                                                                    36,540              23,692
     Gain from sales of loans                                                                28,070              52,193
     Gain on sale of available-for-sale securities                                            4,539                   -
     Loss on sale of available-for-sale securities                                          (70,552)                  -
                                                                               -----------------------------------------
                Total non-interest earnings                                                 249,840             242,553
                                                                               -----------------------------------------
Non-Interest Expense
     Compensation and benefits                                                            1,506,693           1,362,562
     Insurance                                                                               64,278              65,130
     Stationery, printing, and office supplies                                               78,483              69,532
     ATM expense                                                                             48,200              41,789
     Supervisory exam fees                                                                   39,751              36,474
     Postage                                                                                 37,618              32,836
</TABLE>

See Notes to Financial Statements.

17
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
                                                                                          2000                  1999
<S>                                                                            <C>                         <C>

Non-Interest Expense - Continued
     Other                                                                      $           219,185             246,348
     Occupancy                                                                              335,564             282,943
     Data processing                                                                        200,165             201,694
     Professional fees                                                                       86,158              66,332
     Advertising                                                                             70,287              71,461
     Stock services                                                                          12,623              24,141
                                                                               -----------------------------------------
                Total non-interest expense                                                2,699,005           2,501,242
                                                                               -----------------------------------------
Earnings before Income Taxes                                                              2,217,033           1,654,692
                                                                               -----------------------------------------
Income Tax Expense
     Currently payable                                                                      659,475             663,037
     Deferred benefit                                                                        (2,248)            (23,892)
                                                                               -----------------------------------------
                Total income tax expense                                                    657,227             639,145
                                                                               -----------------------------------------
                Net earnings                                                              1,559,806           1,015,547

Other Comprehensive Earnings
     Unrealized investment losses, net of tax of
         $(198,160) in 2000 and $(99,360) in 1999                                          (384,662)           (176,586)
                                                                               -----------------------------------------
                Net comprehensive earnings                                      $         1,175,144             838,961
                                                                               =========================================
Basic Net Earnings per Share                                                                   1.70                0.99

Dilutive Net Earnings per Share                                                                1.67                0.97

Weighted average number of common shares outstanding-basic                                  915,139           1,020,932

Weighted average number of common shares outstanding-dilutive                               934,599           1,046,558

</TABLE>


See Notes to Financial Statements.

                                                                              18
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended June 30, 2000 and 1999

<TABLE>
<CAPTION>
                                       Common Stock
                                --------------------------
                                                                                                            Accumulated
                                                             Additional        Unearned                       Other
                                                               Paid-in          ESOP         Retained      Comprehensive
                                  Shares         Amount        Capital          Stock        Earnings         Earnings     Total
                               -----------    -----------    -----------       --------      ---------    -------------- -----------
<S>                             <C>          <C>            <C>               <C>           <C>              <C>        <C>
Balances, June 30, 1998          1,165,537    $   113,515    $ 5,777,881       (415,695)     8,041,610        691,611    14,208,922

Comprehensive earnings
     Net earnings                        -              -              -              -      1,015,547              -     1,015,547
     Unrealized loss on
       available for sale
       securities,
       net of taxes                      -              -              -              -              -       (176,586)     (176,586)
                                                                                                                         ----------
         Total
           comprehensive
           earnings                                                                                                         838,961
                                                                                                                         ----------

Distribution of stock
     vested under the
     management stock
     bonus plan                          -            555         49,510              -              -              -        50,065
Adjustment of management
     stock bonus plan                    -          4,004         (4,004)             -              -              -             -
Adjustment of prior
     stock dividend on
     management stock
     bonus plan                          -         (1,521)         1,521              -              -              -             -
Acquisition of common
     stock by the
     Company under the
     stock repurchase plan        (176,234)       (17,623)    (2,492,289)             -              -              -    (2,509,912)
Released and committed to
     be released 10,574.5950
     shares of common stock
     owned by the ESOP                   -              -         56,949         44,512              -              -       101,461
Stock issued upon exercise
     of stock options                4,275            428         39,115              -              -              -        39,543
Dividends declared and paid
     to stockholders                     -              -              -              -       (297,732)             -      (297,732)
                               -----------    -----------    -----------       --------      ---------        -------    ----------
Balances, June 30, 1999            993,578         99,358      3,428,683       (371,183)     8,759,425        515,025    12,431,308

Comprehensive earnings
     Net earnings                        -              -              -              -      1,559,806              -     1,559,806
     Unrealized loss on
         available for sale
         securities,
         net of taxes                    -              -              -              -              -       (384,662)     (384,662)
                                                                                                                         ----------
         Total
           comprehensive
           earnings                                                                                                       1,175,144
                                                                                                                         ----------
Distribution of stock
     vested under the
     management stock
     bonus plan                          -              -         55,463              -              -              -        55,463
Acquisition of common
     stock by the Company
     under the stock
     repurchase plan               (56,140)        (5,614)      (754,917)             -              -              -      (760,531)
Released and committed
     to be released
     10,643.6894 shares
     of common stock
     owned by the ESOP                   -              -         49,143         47,272              -              -        96,415
Stock issued upon exercise
     of stock options                3,520            352         32,254                                                     32,606
Dividends declared and
     paid to stockholders                -              -              -              -       (344,700)             -      (344,700)
                               -----------    -----------    -----------       --------      ---------        -------    ----------
Balances, June 30, 2000            940,958    $    94,096    $ 2,810,626       (323,911)     9,974,531        130,363    12,685,705
                               ===========    ===========    ===========       ========      =========        =======    ==========



See Notes to Financial Statements.
                                                       19                                                                        20
</TABLE>
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                         2000                    1999
<S>                                                                             <C>                          <C>
Cash Flows from Operating Activities
     Net earnings                                                                 $         1,559,806            1,015,547
     Adjustments to reconcile net earnings to net cash
         provided by operations:
            Deferred loan origination fees                                                   (299,942)            (314,834)
            Loss (gain) on sale of loans and securities                                        37,943              (52,193)
            Provision for loan losses                                                         205,000              138,417
            Depreciation of premises and equipment                                            179,938              134,408
            Amortization of investment and mortgage-backed
                securities premiums                                                           159,259              367,012
            Stock dividend on FHLB stock                                                     (265,467)            (128,098)
            Release of ESOP stock                                                              96,414              101,462
            Stock compensation                                                                 66,803               61,185
            Provision (benefit) for deferred income taxes                                      (2,248)             (23,892)
     Net changes in operating  assets and  liabilities:
         (Increase)  decrease in assets:
            Accrued interest and dividends receivable                                        (169,999)            (188,490)
            Prepaid and other assets                                                           90,862                  599
            Income taxes receivable                                                          (121,921)                   -
         Increase (decrease) in liabilities:
            Accrued interest payable                                                           12,022               52,626
            Accounts payable and other accrued liabilities                                   (455,528)             (50,928)
            Repurchase agreements                                                             230,839                    -
            Dividends declared and payable                                                     14,127               25,312
            Income taxes payable                                                             (203,961)              11,004
                                                                                 ------------------------------------------
                Net cash provided by operating activities                                   1,133,947            1,149,137
                                                                                 ------------------------------------------
Cash Flows from Investing Activities
     Purchase of premises and equipment                                                       (71,370)            (503,356)
     Loan origination and principal repayment on loans, net                               (13,089,417)         (20,499,588)
     Principal payments on mortgage-backed securities                                       5,598,842           10,304,171
     Principal payments on available-for-sale securities                                       13,182               70,000
     Purchases of mortgage-backed securities                                               (6,754,229)          (8,999,907)
     Purchases of available-for-sale securities                                           (16,011,777)          (7,826,305)
     Purchases of hold-to-maturity securities                                                       -           (1,532,151)
     Maturities and proceeds from sale of available-for-sale securities                       801,194            2,010,000
     Maturities and proceeds from sale of available-for-sale mortgage-
         backed securities                                                                  3,377,395                    -
     Purchase of FHLB stock                                                                (1,126,333)             (91,802)
                                                                                 ------------------------------------------
                Net cash used by investing activities                                     (27,262,513)         (27,068,938)
                                                                                 ------------------------------------------
</TABLE>
See Notes to Financial Statements.

21
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED  STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended June 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                             2000                1999

<S>                                                                               <C>                       <C>
Cash Flows from Financing Activities
     Net increase (decrease) in transaction accounts, passbook savings
         money market accounts, and certificates of deposit                       $        (1,281,376)          11,850,180
     Net increase (decrease) in mortgage escrow finds                                         (23,386)             103,698
     Proceeds from FHLB advance                                                           894,458,922          299,595,527
     Repayments on FHLB advances                                                         (867,064,682)        (282,302,332)
     Purchase of GFSB Bancorp stock under the stock
         repurchase plan in cash                                                             (760,531)          (2,509,912)
     Dividends paid or to be paid in cash                                                    (344,700)            (297,733)
     Proceeds from exercise of stock options                                                   32,606               39,543
     Price paid for vested management bonus stock plan stock                                   55,463               50,065
                                                                                 ------------------------------------------
                Net cash provided by financing activities                                  25,072,316           26,529,036
                                                                                 ------------------------------------------
Increase (decrease) in cash and cash equivalents                                           (1,056,250)             609,235

Cash and cash equivalents at beginning of year                                              5,147,215            4,537,980
                                                                                 ------------------------------------------
Cash and cash equivalents at end of year                                          $         4,090,965            5,147,215
                                                                                 ==========================================
Supplemental Disclosures Cash paid during the year for:
         Interest on deposits and advances                                        $         7,099,126            5,546,291
         Income taxes                                                                         962,233              564,957

     Change in unrealized gain, net of deferred taxes on
         available-for-sale securities (other comprehensive
         earnings)                                                                           (384,662)            (176,586)

</TABLE>
See Notes to Financial Statements.

                                                                              22
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATMENTS
June 30, 2000


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Cash and Cash Equivalents.  Cash and cash equivalents include cash on hand, cash
items,  amounts due from banks,  amounts  held with the  Federal  Reserve  Bank,
interest  bearing  deposits  with the Federal Home Loan Bank,  time deposits and
federal  funds sold.  Generally,  federal  funds sold are purchased and sold for
one-day  periods.  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:

                                      2000         1999

Cash on hand                      $  562,397      552,103
Cash items                             3,077        1,900
Amounts due from banks             1,738,926    2,094,031
Interest bearing deposits            621,428    1,713,736
Time deposits                        594,000      594,000
Federal Reserve Bank deposits        571,137      191,445
                                  ----------    ---------
Total cash and cash equivalents   $4,090,965    5,147,215
                                  ==========    =========

The amounts due from banks includes $51,305 and $44,694 for the years ended June
30, 2000 and 1999, 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 FINANCIAL STATMENTS
June 30, 2000



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

Available-for-Sale  Investment  Securities.  All  available-for-sale  investment
securities  are stated at fair  value.  Investment  securities  consist of stock
owned in the Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home Loan
Bank  debentures,  U.S.  Government  Securities,  mutual  funds,  Collateralized
Mortgage  Obligations  (CMO) and Student  Loan  Marketing  Association  ("SLMA")
asset-backed  notes. The Company has recorded a net unrealized gain (loss),  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 (loss), 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.

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

At June  30,  2000,  the  Company  had no  outstanding  commitments  to sell any
securities.

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

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

The Company  establishes  a specific  loan  allowance on an impaired loan if the
present  value of the future cash flows  discounted  using the loan's  effective
interest rate is less than the carrying value of the loan.

                                                                              24
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATMENTS
June 30, 2000



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

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

Mortgage loans sold to others are not included in the accompanying statements of
financial condition.  For the years ended June 30, 2000 and 1999, $2,000,000 and
$3,000,000,  respectively,  of loans have been sold.  No  servicing  rights were
retained on these  loans.  Gains on the sale of these loans were $28,070 in 2000
and $52,193 in 1999.

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

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

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

Income Taxes. Deferred income taxes are provided on temporary differences in the
recognition  of income and expense  for tax and  financial  reporting  purposes.
These  items  consist  principally  of  loan  origination  fees,   depreciation,
compensation cost, and the allowance for loan losses.


25
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATMENTS
June 30, 2000


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

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. The principal  differences between assets and liabilities for financial
statement  and  tax  purposes  are  accumulated  depreciation  of  premises  and
equipment, the reserve for delinquent interest, allowance for loan losses, stock
compensation  plans,  the recognition of loan  origination  fees, and unrealized
holding  gains and losses on  available-for-sale  securities.  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.

The Small  Business Job Protection Act of 1996 equalized the taxation of thrifts
and banks.  The Act no longer allows  thrifts a choice between the percentage of
taxable income method and the experience method in determining  additions to bad
debt  reserves.  Small thrifts (such as the Company) are only allowed to use the
experience  method.  Any reserve  amounts  added after 1987 are now taxed over a
six-year period. At June 30, 2000, the Company had $33,273 of post 1987 bad debt
reserves. Of this amount, $11,091 was recaptured into taxable income for 2000.

Reclassifications.   Certain  reclassifications  have  been  made  to  the  1999
financial statements to conform to the 2000 presentation.

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

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

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

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



                                                                              26
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

               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.

               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 generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that effect certain  reported amounts and disclosures.  Accordingly,
actual results could differ from those estimates.


27
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               (CONTINUED)

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 percent of its outstanding  home loans or 5 percent 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


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 2000            Balance          (Discounts)         Cost               Gains            Losses            Value
<S>                 <C>                       <C>            <C>                  <C>             <C>             <C>
   FNMA ARM
     Certificates     $     19,004,640          471,682        19,476,322           19,751          (310,194)       19,185,879
   FHLMC ARM
     Certificates            1,781,661           38,596         1,820,257            7,908           (12,018)        1,816,147
   GNMA ARM
     Certificates            2,607,042           62,902         2,669,944              368           (61,392)        2,608,920
   SBA                       1,108,286                -         1,108,286                -                 -         1,108,286
   Mortgage Pass-
     through
     Certificates            4,450,679          (93,301)        4,357,378                -          (146,100)        4,211,278
                      --------------------------------------------------------------------------------------------------------
                      $     28,952,308          479,879        29,432,187           28,027          (529,704)       28,930,510
                      ========================================================================================================
</TABLE>



                                                                              28
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000



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

<TABLE>
<CAPTION>
                                                                                    Gross             Gross
                                             Unamortized                         Unrealized        Unrealized
                            Principal         Premiums         Amortized           Holding           Holding           Fair
   June, 30 1999            Balance         (Discounts)          Cost              Gains             Losses            Value
<S>                 <C>                       <C>            <C>                  <C>             <C>             <C>
   FNMA ARM
     Certificates     $     22,091,800          711,709        22,803,509           20,470          (366,387)       22,457,592
   FHLMC ARM
     Certificates            1,542,849           42,700         1,585,549                -           (19,301)        1,566,248
   GNMA ARM
     Certificates            2,821,782           81,574         2,903,356                -           (40,590)        2,862,766
   Mortgage Pass-
     through
     Certificates            4,949,119         (108,179)        4,840,940                -           (15,708)        4,825,232
                      --------------------------------------------------------------------------------------------------------

                      $     31,405,550          727,804        32,133,354           20,470          (441,986)       31,711,838
                      ========================================================================================================
</TABLE>

During the year  ended  June 30,  2000 and 1999,  the  Company  did not have any
proceeds from the sales of mortgage-backed  securities.  The Company had pledged
$10,241,541  and  $10,199,586   (current  face)  at  June  30,  2000  and  1999,
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  $480,841  and  $568,249  at June 30,  2000 and 1999,
respectively,  in mortgage-backed securities to the Federal Reserve Bank for its
Treasury Tax and Loan Account.



29
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 3.        INVESTMENTS

The  amortized  cost and fair  values of  available-for-sale  investment  equity
securities and investments in debt securities are summarized as follows:

Available-for-sale investment securities:

<TABLE>
<CAPTION>
                                                               Gross             Gross
                                                              Unrealized       Unrealized
                                               Amortized       Holding          Holding           Fair
                                                 Cost          Gains             Losses           Value
<S>                                         <C>             <C>             <C>             <C>
    June 30, 2000
    Mutual funds                             $ 2,551,629             -          (28,811)        2,522,818
    US Agency securities                       4,581,956         1,334          (86,196)        4,497,094
    FHLMC stock                                    7,786       882,566                -           890,352
    Tax-exempt securities                      4,695,055           702          (19,526)        4,676,231
    Taxable securities                           330,000            36             (668)          329,368
    FNMA preferred                             1,513,308         1,692                -         1,515,000
    CMO                                        9,067,848        41,870          (97,041)        9,012,677
    SLMA asset-backed note                     1,991,760         3,240                -         1,995,000
                                             ------------------------------------------------------------
                                             $24,739,342       931,440         (232,242)       25,438,540
                                             ============================================================

    June 30, 1999
    Mutual funds                             $ 2,409,362             -          (11,529)        2,397,833
    US Agency securities                       3,698,973             -          (56,348)        3,642,625
    FHLMC stock                                    7,786     1,267,286                -         1,275,072
    Tax-exempt securities                        986,582         3,064           (1,757)          987,889
    SLMA asset-backed note                     1,991,357         1,143                -         1,992,500
                                             ------------------------------------------------------------
                                             $ 9,094,060     1,271,493          (69,634)       10,295,919
                                             ============================================================

Hold-to-maturity securities:

   June 30, 2000
    Tax-exempt securities                    $   694,995             -          (22,306)          672,689
    Corporate debt securities                    986,315        12,435                -           998,750
                                             ------------------------------------------------------------
                                             $ 1,681,310        12,435          (22,306)        1,671,439
                                             ============================================================
</TABLE>

                                                                              30
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000



NOTE 3.        INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                           Gross             Gross
                                                         Unrealized        Unrealized
                                      Amortized           Holding           Holding            Fair
                                        Cost               Gains            Losses             Value
<S>                             <C>                         <C>            <C>             <C>
   June 30, 1999
    Tax-exempt securities        $       694,993                 -          (15,305)          679,688
    Corporate debt securities            982,151             7,849                -           990,000
                                 --------------------------------------------------------------------
                                 $     1,677,144             7,849          (15,305)        1,669,688
                                 ====================================================================
</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>
    Hold-to-maturity:
        Due after one year through five years       $       986,315           998,750
        Due after five years through ten years              144,995           141,543
        Due after ten years                                 550,000           531,146
                                                    ---------------------------------

                                                    $     1,681,310         1,671,439
                                                    =================================

    Available-for-sale:
        Due within one year                         $       285,488           284,205
        Due after one year through five years             4,097,605         4,055,652
        Due after five years through ten years            1,412,120         1,365,629
        Due after ten years                               3,811,798         3,797,207
        Mutual funds                                      2,551,629         2,522,818
        FHLMC stock                                           7,786           890,352
        FNMA                                              1,513,308         1,515,000
        SLMA asset-backed note                            1,991,760         1,995,000
        CMO                                               9,067,848         9,012,677
        Mortgage-backed securities                       29,432,187        28,930,510
                                                    ---------------------------------
                                                    $    54,171,529        54,369,050
                                                    =================================
</TABLE>

During the year ended June 30, 2000,  $4,112,575  in  investments  were sold. No
investments were sold during 1999.


31
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 4.        LOANS RECEIVABLE

<TABLE>
<CAPTION>

Loans receivable are summarized as follows:
                                                                                 2000             1999
<S>                                                                      <C>                    <C>
    First mortgage loans (principally conventional)
        Principal balances
           Secured by one-to-four family residences                      $    69,078,064        61,172,548
           Secured by other properties                                        15,854,366        15,751,265
           Construction loans                                                  4,195,389         3,560,949
        Loan participations purchased                                         14,641,330        12,564,791
        Share loans                                                            1,083,057         1,067,428
        Commercial loans                                                       6,993,272         4,460,488
        Consumer loans:
           Unsecured                                                             215,434           166,675
           Secured by vehicles                                                 2,280,122         1,611,060
           Home equity lines                                                   1,818,151         1,439,305
           Other consumer                                                        328,068           241,763
                                                                         ---------------------------------
                                                                             116,487,253       102,036,273
    Less
        Undisbursed portion of loans                                          (2,245,582)       (1,443,236)
        Loan participations sold                                              (3,307,063)       (2,938,085)
        Net deferred loan origination fees                                      (644,769)         (646,633)
        Allowance for loan losses                                               (512,570)         (443,479)
                                                                         ---------------------------------
Total loans receivable                                                   $   109,777,269        96,564,840
                                                                         =================================

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

    Balance at beginning of year                                         $       443,479           386,970
    Provision charged to income                                                  205,000           138,417
    Charge-offs, recoveries and other                                           (135,909)          (81,908)
                                                                         ---------------------------------
Balance at end of year                                                   $       512,570           443,479
                                                                         =================================

The Company has commitments to fund new loans as follows:

    Fixed rate                                                           $     1,228,000         2,625,000
    Variable rate                                                              3,999,000         2,544,000
    Commitments for new originations                                           4,778,000         1,443,000
                                                                         ---------------------------------
        Total                                                            $    10,005,000         6,612,000
                                                                         =================================
</TABLE>

                                                                              32
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 4. LOANS RECEIVABLE (CONTINUED)

Fixed rate  commitments at June 30, 2000 and 1999 had interest rates that ranged
from 6.625 percent to 10 percent.  Total loans with fixed rates were $90,478,307
and  $81,526,094  at June 30,  2000 and 1999,  respectively.  Total  loans  with
variable  rates were  $19,811,532  and  $15,038,746  at June 30,  2000 and 1999,
respectively.

Non-accrual and  renegotiated  loans for which interest has been reduced totaled
$719,443 and $218,822 at June 30, 2000 and 1999,  respectively.  Interest income
that was  foregone  amounted  to $49,667  and $19,614 at June 30, 2000 and 1999,
respectively.

The  weighted  average  rate for the loan  portfolio  was 8.23  percent and 8.59
percent at June 30, 2000 and 1999, respectively.

The Company establishes a specific allowance on impaired loans and disclosure of
the Company's  method of accounting for interest income on impaired  loans.  The
Bank assesses all loans  delinquent  more than 90 days for  impairment  and such
loans  amounted  to  $719,443  at June 30,  2000.  Average  balances  for  loans
delinquent more than 90 days totaled  approximately  $469,133 for the year ended
June 30, 2000. These loans are all primarily collateral dependent and management
has  determined  that the  underlying  collateral  is in excess of the  carrying
amount.  As a result,  the Company has  determined  that specific  allowances on
these loans are not required.


NOTE 5.        ACCRUED INTEREST AND DIVIDENDS RECEIVABLE

Accrued interest and dividends receivable is summarized as follows:

                                                         2000          1999

    Loans receivable                               $    595,651       583,865
    Available-for-sale investment securities            195,874        98,821
    Available-for-sale mortgage-backed securities       235,962       178,803
    Dividends                                             4,001         -
    Time deposits                                         2,486         2,486
                                                   --------------------------
    Total accrued interest and dividends           $  1,033,974       863,975
                                                   ==========================



33
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>

                                                              2000             1999

<S>                                                  <C>                <C>
    Buildings                                         $       866,746           866,746
    Furniture, fixtures, and equipment                        819,261           747,891
    Land                                                      158,550           158,550
    Parking lot improvements                                    5,265             5,265
    Leasehold improvements                                    328,163           328,163
                                                      ---------------------------------
                                                            2,177,985         2,106,615
    Less allowance for depreciation                           881,937           701,999
                                                      ---------------------------------
    Total premises and equipment                      $     1,296,048         1,404,616
                                                      =================================
</TABLE>


NOTE 7.        DEPOSITS

Deposits are summarized as follows:

                                    Weighted
                                     Average
                                     Rate at
                                     June 30,              June 30, 2000
                                      2000         -----------------------------
                                                       Amount          Percent

    Passbook savings accounts         2.02%        $ 5,266,817           6.59%
    Money market accounts             3.62           9,535,076          11.93
    Transaction and NOW accounts      1.44          12,409,069          15.52
                                                   -----------------------------
                                                    27,210,962          34.04
                                                   -----------------------------

                                                                              34
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 7.        DEPOSITS (CONTINUED)


                                    Weighted
                                     Average
                                     Rate at
                                     June 30,                June 30, 2000
                                       2000           --------------------------
                                                           Amount      Percent

    Certificates of deposit:
        4.00%-6.00%                    5.25%          $    45,745,027   57.22%
        6.01%-7.00%                    6.37                 6,477,094    8.10
        7.01%-8.00%                    7.25                   514,862     .64
                                                      -----------------------

    Total certificates of deposit                          52,736,983   65.96
                                                      -----------------------
    Total deposits                                    $    79,947,945  100.00%
                                                      =======================

The  aggregate  amount  of jumbo  certificates  with a minimum  denomination  of
$100,000  was   $26,937,632   and   $24,073,858  at  June  30,  2000  and  1999,
respectively.

Certificates of deposit by remaining maturity are as follows:

                                                           2000         1999

    Less than one 1 year                               $40,196,681   33,785,319
    1 year to 2 years                                    6,684,750   12,114,701
    2 years to 3 years                                   2,513,204    2,111,722
    3 years to 4 years                                   1,629,692    1,051,522
    4 years to 5 years                                     834,528    1,239,062
    Thereafter                                             878,128    1,089,503
                                                       ------------------------
                                                       $52,736,983   51,391,829
                                                       ========================

Interest expense on deposits is summarized as follows:

    Certificates of deposit                            $ 2,703,535    2,689,004
    Money market accounts                                  310,119      332,892
    Passbook savings                                       101,551      107,072
    Transaction and NOW deposits                            90,075       98,802
                                                       ------------------------
                                                       $ 3,205,280    3,227,770
                                                       ========================


35
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 8.        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, 2000 that the Bank meets all capital
adequacy requirements to which it is subject.

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



                                                                              36
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 8.        REGULATORY MATTERS AND RESTRICTIONS ON RETAINED EARNINGS
               (CONTINUED)

The Bank at June 30,  2000,  meets  the  regulatory  tangible  capital  and core
capital  requirements  and the  risk-based  capital  requirement of 8 percent of
total risk-adjusted assets.

The  following is a  reconciliation  of the Bank's  capital in  accordance  with
generally  accepted  accounting  principles  (GAAP) to the three  components  of
regulatory capital calculated under regulatory requirements at June 30, 2000:

<TABLE>
<CAPTION>
                                                                                      June 30, 2000
                                                            -----------------------------------------------------------------
                                    Tangible Capital                  Core Capital                  Risk-Based Capital
                           -------------------------------  ------------------------------   --------------------------------
                                 Amount           Percent       Amount             Percent       Amount             Percent
<S>                       <C>                     <C>    <C>                       <C>     <C>                     <C>
   GAAP Capital            $    11,789,622            -%  $      11,789,622            -%   $     11,789,622            -%

   Disallowed servicing
   assets, disallowed
   deferred tax assets,
   and other disallowed
   assets                          (94,517)           -             (94,517)           -             (94,517)           -

   Accumulated losses
   (gains) on certain
   available-for-sale
   securities                     (149,378)           -            (149,378)           -            (149,378)           -

   Unrealized (gains)
   losses on available-
   for-sale securities                   -            -                   -            -             384,951            -

   Qualifying general
   loan loss allowance                   -            -                   -            -             512,570            -
                           ----------------------------------------------------------------------------------------------
   Regulatory capital
   computed                     11,545,727         6.53%         11,545,727         6.53%         12,443,248        12.99%

   Minimum capital
   requirement                   2,653,157         1.50%          7,075,084         4.00%          7,661,200         8.00%
                           ----------------------------------------------------------------------------------------------
   Regulatory capital
   excess                  $     8,892,570         5.03%  $       4,470,643         2.53%   $      4,782,048         4.99%
                           ============================================================== ===============================
</TABLE>



37
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 9.        RELATED PARTY TRANSACTIONS

The Company has several loans  receivable  from related  parties.  The Company's
policy  is that all such  loan  transactions  be on the  same  terms,  including
interest  rates  and  collateral,  as  those  prevailing  at the  same  time for
comparable transactions with others.

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

                                                 2000              1999

    Balance, beginning of year               $   929,966           796,524
    New loans                                    573,626           306,358
    Repayments                                  (436,560)         (172,916)
                                             -----------------------------
    Balance, end of year                     $ 1,067,032           929,966
                                             =============================

The Company also has several deposits from related parties. Outstanding deposits
from related  parties at amounted to $2,538,000  and $2,528,284 at June 30, 2000
and 1999, respectively.  The Company also expensed $150,303 and $149,785 for the
years  ended  June 30,  2000 and 1999,  respectively,  for  director's  fees and
compensation under the management stock bonus plan.

As described in Note 20, the Company leases a building located across the street
from its office from a related party.


NOTE 10.       CONCENTRATIONS OF CREDIT RISK

The Company is active in originating primarily first mortgage loans primarily in
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 county in which the Company
operates.  The Company  generally  maintains  loan to value ratios of no greater
than 80 percent.

The Company maintains its cash balances with other financial  institutions.  The
balances  on  deposit  with  other  banks are  insured  by the  Federal  Deposit
Insurance  Corporation  up to $100,000.  The Company's  uninsured  cash balances
totaled $1,587,621 and $1,949,737 at June 30, 2000 and 1999, respectively.

                                                                              38
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 11.       INCOME TAXES

Income tax expense consists of:
                                                       2000              1999
Current
    Federal                                   $       557,533           558,211
    State                                             101,942           104,826
                                              ---------------------------------
                                                      659,475           663,037
                                              ---------------------------------
Deferred provision (benefit)
    Federal                                            (2,113)          (22,798)
    State                                                (135)           (1,094)
                                              ---------------------------------
                                                       (2,248)          (23,892)
                                              ---------------------------------
Total income tax expense                      $       657,227           639,145
                                              =================================

Deferred  taxes  consist  of  temporary   differences   arising  from  book  tax
differences in depreciation,  recognition of loan origination fees, compensation
costs, unrealized holding gains on available-for-sale  securities, and allowance
for loan losses.

The Company has  recorded a valuation  allowance  against the net  deferred  tax
receivable  primarily  relating to the receivable arising from the allowance for
loan loss.  The change in the  valuation  allowance  in 2000 was an  increase of
$56,707.  The  change  in the  valuation  allowance  in 1999 was a  decrease  of
$12,261.

The deferred  tax  liability is the result of the  unrealized  holding  gains on
available-for-sale securities. The deferred tax liability has been recorded as a
reduction to the unrealized holding gain and reported as a separate component of
equity.

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


    Tax at statutory rate of 34 percent            $    753,792       528,829
    State income taxes, net of federal
        tax benefit                                     101,807        99,311
    Non-taxable interest, dividends and
        other-net                                      (198,372)       11,005
                                                   --------------------------
                                                   $    657,227       639,145
                                                   ==========================

    Effective tax rate                                       30%           39%



39
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 12.       FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The  Company  is a party to twelve  irrevocable  letters of credit  which  total
$286,650.  The Bank's exposure to credit loss in the event of  nonperformance by
the other  party to the  letters of credit are  represented  by the  contractual
notional  amount of the  letters of credit.  The  Company  uses the same  credit
policies  in  making  commitments  and  conditional  obligations  as it does for
on-balance-sheet instruments.

NOTE 13.       EMPLOYEE STOCK OWNERSHIP PLAN

In  connection  with the  conversion,  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  84,000 (as adjusted
for a 50  percent  stock  dividend  on March  12,  1998)  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 between the
Company and the Bank has not been  reported  in the  Consolidated  Statement  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, 2000,
28,541.3496  ESOP shares were  released,  and for the year ended June 30,  2000,
$96,414 in  contributions  were made to the ESOP by the Company.  As of June 30,
1999,  21,520.3394 ESOP shares were released and  contributions of $101,461 were
made to the Plan by the Company.  The remaining  unallocated ESOP shares at June
30, 2000 was 52,208.6504.  The fair value of the remaining unallocated shares at
June 30, 2000 is $725,700.  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.


                                                                              40
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 14.       STOCK PLANS

At June 30, 2000, the Company has three stock-based  compensation  plans,  which
are  described   below.   The  Company   applies  APB  Opinion  25  and  related
Interpretations in accounting for its plans.  Accordingly,  no compensation cost
has been recognized for its Stock Option Plan and Director's Stock  Compensation
Plan.  The  compensation  cost  that has been  charged  against  income  for the
Management Stock Bonus Plan is discussed  below.  Had compensation  cost for the
Company's two stock option based compensation plans been determined based on the
fair value at the grant dates for awards under those plans  consistent  with the
method of FASB  Statement  123, the  Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:

                                                        2000             1999

    Net income (as reported)                       $ 1,559,806         1,015,547
      Pro forma                                      1,548,512           934,867

    Basic earnings per share (as reported)         $      1.70               .99
      Pro forma                                           1.69               .92

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 percent of the shares
of common  stock  (142,313  shares as adjusted  for the stock  dividend)  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
58,925  incentive  stock options and 42,693  non-incentive  stock options to its
directors,  officers, and other key employees.  The option price established for
the shares upon exercise range from $9 1/4 per share to $16 per share  depending
on the grant date of the option.  The weighted average  remaining life of common
stock options is 5.6 years.

During the year,  7,000 incentive stock options were granted and 3,525 incentive
stock options were exercised.  Remaining  shares  available to be granted in the
future  amount to  40,695.  The fair  value of each  option  grant for the above
proforma  disclosures is estimated on the date of grant using the  Black-Scholes
option-pricing   model  with  the  following  weighted  -  average  assumptions:
dividends of $0.10 per quarter;  expected  volatility  of 11 percent;  risk-free
interest rate of 6 percent; and expected lives of 6 and 5 years.



41
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 14.       STOCK PLANS (CONTINUED)

A summary of common  stock  options  under the Stock  Option  Plan for the years
ended June 30, 1999 and 2000 follows:

                                                        Weighted
                                                       Average         Options
                                      Options             Price      Exercisable

Balance, June 30, 1998               84,618             $10,138
     Granted                         10,000              13,625
     Exercised                       (4,275)              9,250
                                   -----------------------------
Balance, June 30, 1999               90,343              11,234         50,145
                                                                        ======
     Granted                          7,000              13,500
     Exercised                       (3,525)              9,250
                                   -----------------------------
Balance, June 30, 2000               93,818              11,477         66,244
                                   =============================        ======

The  Company  also  adopted a  Management  Stock  Bonus Plan on January 5, 1996.
Sufficient  funds were  contributed to the Plan  representing up to 4 percent 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,  1999,  the Company made awards under the Plan (less
forfeited shares) in the amount of 35,823 shares. During the year ended June 30,
2000,  3,000  additional  shares were granted  under this plan.  The award price
established  for the shares upon exercise was $9 1/4 per share. At June 30, 2000
and 1999, 19,523 and 21,102 shares, including 1,421 shares earned under the plan
but  withheld  from  vesting  to  satisfy  tax  obligations  of the  recipients,
respectively, remain to be awarded under the Plan in the future.

During the year, 3,000 shares were granted.  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.  For the years  ended June 30,  2000 and 1999,
compensation cost in the amount of $65,810 and $61,185, respectively,  have been
recorded under the provisions of the Plan.

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
percent 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 9,557  shares  available
under the Plan to its  Directors.  The option price  established  for the shares
upon exercise is $13.50 per share.

During the 1997 fiscal year, the Company began a stock repurchase program. As of
June 30, 2000 and 1999, the Company has repurchased 56,140 and 176,234 shares of
its outstanding common stock for $760,531 and $2,509,912, respectively.

                                                                              42
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 15.   FEDERAL HOME LOAN BANK ADVANCES

In October  1995,  the Bank entered  into an  "Advances,  Collateral  Pledge and
Security  Agreement" (the Agreement) with the Federal Home Loan Bank (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,  2000,  the  Bank  has
$82,935,066 in outstanding advances with the FHLB. The advances bear interest at
a fixed rate and mature as follows:


                       Unpaid Principal    Interest
                         Balance             Rate        Maturity
                         -------             ----        --------
                           $  564,739         5.64%      February 3, 2000
                            3,000,000         6.61%      July 3, 2000
                           10,000,000         6.68%      July 3, 2000
                            7,700,000         6.67%      July 5, 2000
                            2,000,000         6.68%      July 5, 2000
                            4,000,000         6.68%      July 6, 2000
                            4,850,000         6.68%      July 6, 2000
                               99,000         4.78%      July 10, 2000
                           12,450,000         6.69%      July 10, 2000
                           10,000,000         6.69%      July 11, 2000
                               99,000         4.78%      September 4, 2000
                              526,741         5.86%      September 11, 2000
                              562,181         5.86%      September 11, 2000
                            2,150,000         6.42%      December 22, 2000
                            1,000,000         5.88%      June 18, 2001
                            4,250,000         4.77%      October 2, 2001
                               99,000         4.55%      October 2, 2001
                               99,000         4.65%      October 2, 2001
                            1,000,000         6.04%      June 18, 2002
                            5,000,000         6.29%      October 2, 2002
                              650,000         5.78%      December 15, 2002
                              500,000         6.20%      June 18, 2003
                            5,000,000         5.73%      July 1, 2003
                               99,000         4.91%      September 3, 2003
                               99,000         4.72%      October 2, 2003
                            1,000,000         6.29%      June 18, 2004
                              875,000         6.60%      October 1, 2004
                              212,585         5.54%      February 1, 2005
                              547,944         5.52%      May 2, 2005
                              500,000         6.42%      June 18, 2006
                            2,000,000         6.97%      December 2, 2009
                              825,000         5.86%      December 7, 2009
                              570,000         6.84%      December 10, 2009
                              606,876         5.79%      February 1, 2018
                  --------------------
                         $ 82,935,066
                  ====================


43

<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 15.       FEDERAL HOME LOAN BANK ADVANCES (CONTINUED)

Several of the advances due in July were subsequently refinanced after year-end.
The advances are secured by the Bank's  investment  in FHLB stock of  $4,321,100
and investment and mortgage-backed  securities in the amount of $19,078,236.  In
addition, the advances are secured under a "blanket credit facility" whereby all
of the Bank's 1-4 family and  commercial  real estate loans are also  collateral
under the advance agreement.

NOTE 16.       FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                                                    June 30, 2000
                                                         ----------------------------------
                                                             Carrying            Fair
                                                               Value             Value
<S>                                                    <C>                  <C>
    Financial Assets:
        Cash and due from banks                          $     2,875,537         2,875,537
        Interest-bearing deposits with banks                   1,215,428         1,215,428
        Available-for-sale-investment securities              25,438,540        25,438,540
        Hold-to-maturity investment securities                 1,681,310         1,671,439
        Available-for-sale mortgage-backed securities         28,930,510        28,930,510
        Loans receivable, net                                109,777,269       110,495,103
        Accrued interest receivable                            1,033,974         1,033,974

    Financial Liabilities:
        Transaction deposits                                  12,409,069        12,409,069
        Savings and now deposits                              14,801,893        14,801,893
        Time deposits                                         52,736,983        52,736,983
        Accrued interest payable                                 288,350           288,350
        Advances from the FHLB                                82,935,066        82,935,066
        Repurchase agreements                                    230,839           230,839

    Off-Balance-Sheet Liabilities:
        Commitments to extend credit                          10,005,000        10,005,000


</TABLE>

                                                                              44
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


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, 2000
                                                              ---------------------------------------------
                                                                     Income           Shares     Per-share
                                                                   (Numerator)     (Denominator)  Amount
<S>                                                           <C>                   <C>        <C>
    Income available to common stockholders -
        basic earnings per share                              $     1,559,806          915,139   $  1.70
                                                                                                 =======
    Effect of dilutive securities:
        Options                                                             -           19,460
                                                              --------------------------------

    Income available to common stockholders -
        diluted earnings per share                            $     1,559,806          934,599   $  1.67
                                                              ==========================================
</TABLE>

<TABLE>
<CAPTION>
                                                                    For the Year Ended June 30, 1999
                                                              --------------------------------------------
                                                                     Income           Shares     Per-share
                                                                   (Numerator)     (Denominator)  Amount
<S>                                                           <C>                   <C>        <C>
    Income available to common stockholders -
        basic earnings per share                               $     1,015,547        1,020,932   $   0.99
                                                                                                  ========
    Effect of dilutive securities:
        Options                                                              -           25,626
                                                               --------------------------------
    Income available to common stockholders -
        diluted earnings per share                             $     1,015,547        1,046,558   $   0.97
                                                               ===========================================
</TABLE>


45
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000


NOTE 18.       LEASES

The Company is obligated  under a lease  agreement  entered into on December 30,
1997,  with a related party (see Note 9) for the building across the street from
its  offices.  For both years ended June 30, 2000 and 1999,  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

              2001                        $        30,000
              2002                                 30,000
              2003                                 30,000
              2004                                 30,000
           Thereafter                              75,000

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.


NOTE 19.       NEW ACCOUNTING STANDARD

During  the year ended June 30,  2000,  the  following  Statement  of  Financial
Accounting  Standard "SFAS" became effective but is not currently  applicable to
the Company:

SFAS No. 137,  Accounting for Derivative  Instruments  and Hedging  Activities -
     Deferral  of the  Effective  Date of FASB No.  133 - an  amendment  of FASB
     Statement 133. This statement delays the effective application date of SFAS
     No.133  from fiscal  years  beginning  after June 15, 1999 to fiscal  years
     beginning after June 15, 2000.

                                                                              46