SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One):

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended June 30, 2000, OR

| |  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from         to         .
                                                         --------   --------

Commission File Number:  0-25854

                               GFSB BANCORP, INC.
                 ----------------------------------------------
                 (Name of Small Business Issuer in its Charter)

Delaware                                                      04-2095007
---------------------------------------------             -------------------
(State or Other Jurisdiction of Incorporation              (I.R.S. Employer
or Organization)                                          Identification No.)

221 West Aztec Avenue, Gallup, New Mexico                       87301
---------------------------------------------             -------------------
(Address of Principal Executive Offices)                      (Zip Code)

Issuer's Telephone Number, Including Area Code:              (505) 722-4361
                                                             --------------

Securities Registered Under Section 12(b) of the Exchange Act:     None
                                                                   ----

Securities Registered Under Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. YES X  NO   .
                                                                      ---   ---

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained,  to the best of  registrant's  knowledge,  in definitive  proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

         State issuer's revenues for its most recent fiscal year. $12,238,529.
                                                                   ----------

         The aggregate  market value of the voting and non-voting  common equity
held by  non-affiliates  of the  registrant,  based on the average bid and asked
price  of the  registrant's  Common  Stock  on the  Nasdaq  Smallcap  Market  at
September 15, 2000, was $6.5 million.

         As of September  15, 2000,  there were issued and  outstanding  936,000
shares of the registrant's Common Stock.

         Transitional Small Business Disclosure format (check one):

                  Yes               No    X
                      -------          -------

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Annual  Report to  Stockholders  for Fiscal Year ended June 30,
     2000. (Part II)
2.   Portions of Proxy  Statement for the 2000 Annual  Meeting of  Stockholders.
     (Part III)
<PAGE>

                                     PART I

         GFSB Bancorp,  Inc. (the  "Company" or  "Registrant")  may from time to
time make written or oral  "forward-looking  statements",  including  statements
contained in the Company's  filings with the Securities and Exchange  Commission
(including this annual report on Form 10-KSB and the exhibits  thereto),  in its
reports to stockholders and in other  communications  by the Company,  which are
made in good faith by the Company  pursuant to the "safe  harbor"  provisions of
the Private Securities Litigation Reform Act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and  the  strength  of  the  local  economies  in  which  the  Company  conducts
operations;  the effects of, and changes in, trade, monetary and fiscal policies
and laws,  including  interest  rate  policies of the Board of  Governors of the
Federal  Reserve  System,   inflation,   interest  rate,   market  and  monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the Company and the perceived  overall  value of these  products and
services by users,  including  the  features,  pricing  and quality  compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Company's products and services;  the
success of the  Company in  gaining  regulatory  approval  of its  products  and
services,  when required;  the impact of changes in financial services' laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological changes;  acquisitions;  changes in consumer spending
and saving habits; and the success of the Company at managing these risks.

         The  Company  cautions  that  this  list of  important  factors  is not
exclusive. The Company does not undertake to update forward-looking  statements,
whether  written or oral,  that may be made from time to time by or on behalf of
the Company.

Item 1.  Description of Business
--------------------------------

General

         The Company is a Delaware  corporation  organized  in March 1995 at the
direction  of Gallup  Federal  Savings  Bank (the  "Bank") to acquire all of the
capital  stock that the Bank issued in its  conversion  from the mutual to stock
form of ownership (the  "Conversion").  On June 29, 1995, the Bank completed the
Conversion and became a wholly owned subsidiary of the Company. 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.  The Company  conducts no significant  business or
operations  of its own other than  holding all of the  outstanding  stock of the
Bank.   References  to  the  Company  or  Registrant  generally  refers  to  the
consolidated entity which includes the main operating company,  the Bank, unless
the context indicates otherwise.

         The Bank is a federally  chartered stock savings bank  headquartered in
Gallup, New Mexico. It is subject to examination and comprehensive regulation by
the Office of Thrift Supervision  ("OTS") and its deposits are federally insured
by the Savings Association Insurance Fund ("SAIF").  The Bank is a member of and
owns capital  stock in the Federal Home Loan Bank  ("FHLB") of Dallas,  which is
one of the 12 regional banks in the FHLB System.

                                      -1-
<PAGE>


         The Registrant operates a traditional savings bank business, attracting
deposit accounts from the general public and using those deposits, together with
other  funds,  primarily  to  originate  and invest in loans  secured by one- to
four-family  residential  loans and  commercial  real estate loans.  To a lesser
extent, the Registrant also originates  construction loans,  commercial business
loans, consumer loans, and multi-family loans.

Competition

         The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift  institutions,  credit unions, and
multi-state regional banks in the Registrant's market area of Gallup, New Mexico
and  the  surrounding  communities  of  McKinley  County,  New  Mexico.  Deposit
competition  also  includes a number of insurance  products sold by local agents
and investment  products such as mutual funds and other securities sold by local
and regional brokers.  Loan competition  varies depending upon market conditions
and comes from other insured  financial  institutions  such as commercial banks,
thrift  institutions,  credit unions,  multi-state  regional banks, and mortgage
bankers.



                                      -2-

<PAGE>
Lending Activities

         The following table sets forth the composition of the Registrant's loan
portfolio in dollar amounts and in  percentages of the respective  portfolios at
the dates indicated.

<TABLE>
<CAPTION>
                                                                    At June 30,
                                             ------------------------------------------------------
                                                       2000                        1999
                                             -----------------------   ----------------------------
                                                   $           %            $           %
                                             ---------      ------     ---------     ------
                                                            (Dollars in Thousands)
<S>                                        <C>             <C>       <C>            <C>
Type of Loans:
--------------
  Mortgage loans:
    Residential ..........................   $  79,234       68.02%    $  72,290      70.84%
    Commercial real estate ...............      19,293       16.56        17,199      16.86
    Construction:
    Residential ..........................       1,081         .93           828        .81
    Commercial ...........................       4,161        3.57         2,733       2.68
                                             ---------      ------     ---------     ------
                                               103,769       89.08        93,050      91.19
                                             ---------      ------     ---------     ------
  Commercial business ....................       6,993        6.00         4,460       4.37
                                             ---------      ------     ---------     ------
  Consumer:
  Savings account ........................       1,083         .93         1,067       1.05
  Automobile and other ...................       4,642        3.99         3,459       3.39
                                             ---------      ------     ---------     ------
                                                 5,725        4.92         4,526       4.44
                                             ---------      ------     ---------     ------
  Total loans ............................   $ 116,487      100.00%    $ 102,036     100.00%
                                             =========      ======     =========     ======

Less:
  Loans in process .......................      (2,246)                   (1,443)
  Loan participations sold ...............      (3,307)                   (2,938)
  Deferred loan origination fees and costs        (645)                     (647)
  Allowance for loan losses ..............        (512)                     (443)
                                             ---------                 ---------
Total loans, net .........................   $ 109,777                 $  96,565
                                             =========                 =========

Type of Security:
-----------------
 Mortgage loans:
    One-to-four-family ...................   $  79,604       68.34%    $  72,174      70.74%
    Commercial real estate ...............      23,426       20.11        19,844      19.44
    Multi-family .........................         711         .61           944        .92
                                             ---------      ------     ---------     ------
                                               103,741       89.06        92,962      91.10
                                             ---------      ------     ---------     ------
  Commercial business ....................       7,021        6.03         4,548       4.46
                                             ---------      ------     ---------     ------
  Consumer:
    Savings accounts .....................       1,083         .93         1,067       1.05
    Automobile and other .................       4,642        3.99         3,459       3.39
                                             ---------      ------     ---------     ------
                                                 5,725        4.92         4,526       4.44
                                             ---------      ------     ---------     ------

Total ....................................   $ 116,487      100.00%    $ 102,036     100.00%
                                             =========      ======     =========     ======
</TABLE>

                                      -3-
<PAGE>
Loan Maturity Tables

         The  following   table  sets  forth  the  estimated   maturity  of  the
Registrant's  loan  portfolio  at June 30,  2000.  The  table  does not  include
prepayments  or  scheduled  principal   repayments.   Prepayments  or  scheduled
principal repayments totaled $22.9 million for the year ended June 30, 2000. All
mortgage loans are shown as maturing based on contractual maturities.

<TABLE>
<CAPTION>
                                                      Due        Due after
                                                     within      1 through     Due after
                                                      1 year      5 years       5 years        Total
                                                   --------      ---------      --------      --------
                                                                      (In Thousands)
<S>                                               <C>           <C>            <C>           <C>
  One-to-four-family.........................      $    797      $   1,652      $ 76,074      $ 78,523
  Multi-family and commercial real estate....         2,134         10,642         7,200        19,976
  Construction...............................           574            223         4,445         5,242
  Commercial business........................         2,648          2,208         2,165         7,021
  Consumer...................................           849          2,983         1,893         5,725
                                                   --------      ---------      --------      --------
  Total......................................      $  7,002      $  17,708      $ 91,777      $116,487
                                                   ========      =========      ========      ========
</TABLE>

         The following table sets forth as of June 30, 2000 the dollar amount of
all loans due after  June 30,  2001,  which  have fixed  rates of  interest  and
floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                              Floating or
                                                            Fixed Rates     Adjustable Rates         Total
                                                            -----------     ----------------         -----
                                                                             (In Thousands)
<S>                                                          <C>                <C>               <C>
     One-to-four-family.............................          $ 69,172           $  8,554          $  77,726
     Multi-family and commercial real estate........            11,484              6,358             17,842
     Construction...................................             3,276              1,392              4,668
     Commercial business............................             1,822              2,551              4,373
     Consumer.......................................             3,058              1,818              4,876
                                                              --------           --------          ---------
     Total..........................................          $ 88,812           $ 20,673          $ 109,485
                                                              ========           ========          =========
</TABLE>

         One-to-Four-Family  Residential Loans. The Registrant's primary lending
activity consists of the origination of one-to-four-family  residential mortgage
loans secured by property  located in its primary  market areas.  The Registrant
generally  originates  owner-occupied  one-to-four-family  residential  mortgage
loans in amounts up to 80% of the lesser of the appraised value or selling price
of the mortgaged property without requiring mortgage  insurance.  The Registrant
will  originate  a  mortgage  loan in an amount  up to 95% of the  lesser of the
appraised  value or selling  price of a mortgaged  property,  however,  mortgage
insurance is  generally  required for the amount in excess of 80% of such value.
Non-owner-occupied  residential  mortgage  loans are originated up to 80% of the
lesser of the appraised value or selling price of the property.

         The Registrant primarily originates fixed-rate mortgage loans that have
maturities of up to 15 years. In addition,  the Registrant originates loans with
terms  over  15  years  for  sale  in  the  secondary  market.   Generally,  the
Registrant's  underwriting  guidelines conform to FHLMC and FNMA guidelines.  At
June  30,  2000,  fixed  rate  loans   held-for-sale   constituted  88%  of  the
one-to-four-family residential loan portfolio.

                                      -4-
<PAGE>

         For all  adjustable-rate  mortgage loans,  the Registrant  requires the
borrower to qualify at the initial  index  interest  rate.  The  adjustable-rate
mortgage  loans  provide for annual  interest  rate  adjustments  based upon the
one-year  treasury  rate with a maximum  adjustment of not more than 2% over the
initial rate of interest.  Adjustable-rate mortgage loans reprice every year and
provide  for terms of up to 30 years  with most loans  having  terms of 15 or 30
years.

         It is the current policy of the Registrant to remain a portfolio lender
for its adjustable rate loans. Adjustable rate loans do have higher credit risks
compared to fixed-rate mortgage loans due to the possibility of borrower default
when interest rates reset higher and monthly payment amounts increase.

         The one-to-four-family  residential loan portfolio also includes second
mortgage loans if the Registrant holds the first mortgage loan for such property
and the combined loan to value ratio is no greater than 80%.

         Multi-family  and  Commercial  Real  Estate  Loans.   Multi-family  and
commercial  real estate secured loans are originated in amounts  generally up to
80% of the appraised  value of the property.  Such appraised value is determined
by  an  independent  appraiser  previously  approved  by  the  Registrant.   The
Registrant's  commercial  real  estate  loans are  permanent  loans  secured  by
approved  property  such as churches,  motels,  small office  buildings,  retail
stores, small strip plazas, and other non-residential  buildings. The Registrant
generally  originates  fixed-rate  commercial  real  estate  loans with  balloon
maturities of five years and with amortization periods of up to 25 years, and to
a lesser  extent,  adjustable-rate  loans based on a margin over the Wall Street
Journal prime rate.

         Multi-family  loans  are  primarily  secured  by  apartment  buildings,
located in the  Registrant's  primary market area. Loans secured by multi-family
property  may be  originated  in amounts up to 80% of the  appraised  value with
either  fixed  or  adjustable  rates  of  interest.   The  Registrant  generally
originates  fixed-rate  multi-family loans with balloon maturities of five years
and  with  amortization  periods  of up to 25  years,  and to a  lesser  extent,
adjustable-rate loans based on a margin over the Wall Street Journal prime rate.

         Multi-family and commercial real estate loans have  significantly  more
risk than  one-to-four-family  mortgage  loans due to the  usually  higher  loan
amounts and the credit risk,  which arises from  concentration of principal in a
smaller number of loans,  the effects of general  economic  conditions on income
producing property and the difficulty of evaluating and monitoring the loans.

         Construction   Loans.  The  Registrant  makes   construction  loans  to
individuals to construct single-family  owner-occupied homes and to builders who
have a proven track record on either a pre-sold or speculative basis. Loans made
to  individual  property  owners  are   construction-to-permanent   loans  which
generally  provide for the payment of interest  during a construction  period at
fixed or adjustable  interest rates and then covert to permanent  loans,  having
terms similar to  one-to-four-family  residential  mortgage loans. Loans made to
builders  are  generally  loans  which  require the payment of interest at fixed
rates during the  construction  term and the payment of the principal in full at
the end of the construction period, which generally is for a term of 6 months.

         Construction  financing  generally  has a higher  degree of credit risk
than one-to-four-family  residential loans. The risk is dependent largely on the
value  of the  property  when  completed  as  compared  to the  estimated  cost,
including  interest,  of  building  the  property.  If the  estimated  value  is
inaccurate,  the Registrant may have a completed project with a value too low to
assure full repayment of the loan.

         Construction  loans made to builders  who are building to resell have a
maximum  loan-to-value  ratio of 80% of the  appraised  value  of the  property.
Construction  loans to  individuals  who intend to occupy the finished  premises
generally have a maximum loan-to-value ratio of 80%.

                                      -5-

<PAGE>

         Commercial  Business  Loans.   Commercial  business  loans,   primarily
consisting of revolving lines of credit,  short-term  working capital loans, and
term loans up to seven years,  are  originated  to meet the needs of local small
businesses.  The  majority  of the loans are  secured by  inventory,  equipment,
accounts  receivable,  marketable  securities,  savings  deposits,  real estate,
personal guaranties,  or a combination of these types of collateral.  Commercial
business  loans  generally  involve  a greater  degree of risk than  residential
mortgage loans and frequently carry larger loan balances.  The Registrant offers
fixed-rate  commercial  business  loans and  adjustable-rate  loans which adjust
daily based upon Wall Street  Journal  prime.  This  increased  credit risk is a
result of several factors, including the concentration of principal in a limited
number of loans and  borrowers,  the effects of general  economic  conditions on
business cash flow, and the difficulty of evaluating and monitoring  these types
of loans.

         Consumer Loans.  Consumer loans primarily  consist of automobile loans,
home equity lines of credit,  loans  secured by savings  accounts and  unsecured
personal loans. Home equity lines of credit are originated on an adjustable rate
basis,  with a loan to value  ratio of 90%,  if the  Registrant  holds the first
mortgage loan. Otherwise,  the maximum loan to value ratio is 80%. Loans secured
by  vehicles  are  financed  for terms of up to 60 months,  with fixed  interest
rates. The underwriting  standards employed by the Registrant for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of the  borrower's  ability to make payments on the proposed loan and
other indebtedness.  In addition to the  creditworthiness of the applicant,  the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount. Consumer loans tend to have higher
interest rates and shorter  maturities  than one- to four-family  first mortgage
loans,  but are  considered  to entail a greater  risk of  default  than  one-to
four-family mortgage loans.

         Loan Approval Authority and Underwriting.  The loan approval process is
segmented by the type and size of loan. All loans secured by deposit accounts as
well as small real  estate,  commercial  and  consumer  loans may be approved by
certain loan officers within  designated  limits.  Members of senior  management
have varying  individual levels of authority to approve loans up to a maximum of
$100,000 for unsecured loans and $250,000 for secured loans. The Management Loan
Committee,  consisting of all senior  management and one non-employee  Director,
may  approve  loans in excess of  individual  officer  limits up to a maximum of
$350,000. The Executive Committee may approve loans up to $750,000. The Board of
Directors  approves  loans over  $750,000.  The Board of Directors  ratifies all
loans that have been approved by officers or committees.

         The Registrant  uses board approved  independent fee appraisers on most
real estate loans.  It is the  Registrant's  policy to obtain title insurance on
all  properties  securing  real estate  loans and to obtain  insurance  coverage
appropriate to the collateral on secured loans.

         Loan Commitments.  At June 30, 2000, the Registrant had $9.1 million of
outstanding  commitments  to originate  new loans at market  interest  rates and
$876,000 in undisbursed funds related to construction loans.

Non-Performing and Problem Assets

         Loan Delinquencies. The Registrant's collection procedures provide that
when a mortgage  loan is 15 days past due, a notice of  nonpayment  is sent.  If
payment is still  delinquent after 30 days past due, the customer will receive a
telephone call within ten days. If the delinquency continues, similar subsequent
efforts  are made to  eliminate  the  delinquency.  If the loan  continues  in a
delinquent  status  for 120  days or more or more  and no  repayment  plan is in
effect, the Board of Directors  typically approves the initiation of foreclosure
proceedings. For consumer loans, a notice is generated when the loan is ten days
past due. Further  collection  efforts generally  commence for consumer loans by
the time a  payment  is  delinquent  20 days.  Collection  procedures  for other
non-mortgage loans generally begin after a loan is one day delinquent. Loans are

                                      -6-

<PAGE>

reviewed on a monthly  basis and are generally  placed on a  non-accrual  status
when the loan  becomes  more than 90 days  delinquent  and,  in the  opinion  of
management, the collection of additional interest is doubtful.  Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent interest payments, if any, are either applied to the
outstanding  principal balance or recorded as interest income,  depending on the
assessment of the ultimate collectibility of the loan.

         The following table sets forth information  regarding  nonaccrual loans
and real estate owned,  as of the dates  indicated.  The Registrant has no loans
categorized as troubled debt restructurings  within the meaning of the Statement
of Financial  Accounting  Standards ("SFAS") 15 and no impaired loans within the
meaning of SFAS 114,  as amended by SFAS 118.  Interest  income  that would have
been recorded on loans  accounted  for on a nonaccrual  basis under the original
terms of such loans was not material for the year ended June 30, 2000.

                                      -7-
<PAGE>

                                                                   At June 30,
                                                                   -----------
                                                                   2000    1999
                                                                   ----    ----
                                                                  (In Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
  Permanent loans secured by 1-4 dwelling units ................   $542    $ 78
  All other mortgage loans .....................................     83      75

Non-mortgage loans:
  Commercial ...................................................     16      --
  Consumer .....................................................     78      66
                                                                   ----    ----
      Total ....................................................   $719    $219
                                                                   ====    ====
Accruing loans which are contractually past due 90 days or more:

Mortgage loans:
  Permanent loans secured by 1-4 dwelling units ................   $ --    $ --
  All other mortgage loans .....................................     --      --
                                                                   ----    ----
     Total ....................................................    $ --    $ --
                                                                   ====    ====
Total non-accrual and accrual loans ............................   $719    $219
Real estate owned ..............................................     38     150
                                                                   ----    ----
Total non-performing assets ....................................   $757    $369
                                                                   ====    ====

Total non-accrual and accrual loans to net loans ...............   0.66%   0.23%
Total non-accrual and accrual loans to total assets.............   0.41%   0.15%
Total non-performing assets to total assets ....................   0.43%   0.24%


         Classified Assets. OTS regulations provide for a classification  system
for problem  assets of insured  institutions  which  covers all problem  assets.
Under this  classification  system,  problem assets of insured  institutions are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
substandard if it is inadequately  protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include  those  characterized  by the  "distinct  possibility"  that the insured
institution  will sustain  "some loss" if the  deficiencies  are not  corrected.
Assets  classified  as  doubtful  have all of the  weaknesses  inherent in those
classified  substandard,  with the  added  characteristic  that  the  weaknesses
present  make  "collection  or  liquidation  in full," on the basis of currently
existing facts,  conditions and values,  "highly  questionable  and improbable."
Assets  classified  as loss are  those  considered  "uncollectible"  and of such
little value that their  continuance  as assets without the  establishment  of a
specific  loss  reserve  is not  warranted.  Assets may be  designated  "special
mention"  because  of a  potential  weakness  that  does not  currently  warrant
classification in one of the aforementioned categories.

         When  an  insured  institution  classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending

                                      -8-
<PAGE>

activities,  but which, unlike specific  allowances,  have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as loss,  it is required  either to  establish a specific  allowance  for losses
equal to 100% of that portion of the asset so  classified  or to charge off such
amount.  An institution's  determination as to the  classification of its assets
and the  amount of its  valuation  allowances  is  subject to review by the OTS,
which may  order the  establishment  of  additional  general  or  specific  loss
allowances.  A portion of general loss allowances  established to cover possible
losses  related to assets  classified as substandard or doubtful may be included
in determining an institution's  regulatory  capital,  while specific  valuation
allowances for loan losses generally do not qualify as regulatory capital.

         At June 30,  2000,  there  were no loans with  respect  to which  known
information  about the  possible  credit  problems of the  borrowers or the cash
flows of the security  properties have caused  management to have concerns as to
the ability of the borrowers to comply with present loan repayment terms.

         The following table sets forth the  Registrant's  classified  assets in
accordance with its classification system at June 30, 2000 (in thousands):

                  Special mention.............    $ 2,406
                  Substandard.................        906
                  Doubtful ...................         --
                  Loss .......................         --
                                                  -------
                  Total.......................    $ 3,312
                                                  =======

         Real  Estate  Owned.  Real  estate  acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold.  When  property is acquired it is recorded at the lower of the
cost or fair value.  The Bank records loans as in substance  foreclosures if the
borrower  has  little or no equity in the  property  based  upon its  documented
current fair value,  the Bank can only expect repayment of the loan to come from
the sale of the property and if the borrower has effectively  abandoned  control
of the  collateral  or has  continued to retain  control of the  collateral  but
because of the current  financial  status of the  borrower  it is  doubtful  the
borrower will be able to repay the loan in the foreseeable  future. In substance
foreclosures  are accounted  for as real estate  acquired  through  foreclosure,
however, title to the collateral has not been acquired by the Bank. There may be
significant  other  expenses  incurred such as attorney and other  extraordinary
servicing costs involved with in substance foreclosures.

         Allowances  for Loan Losses.  A provision for loan losses is charged to
operations  based on management's  evaluation of the losses that may be incurred
in the Registrant's loan portfolio. Such evaluation,  which includes a review of
all loans of which full  collectibility  of interest  and  principal  may not be
reasonably assured, considers the Registrant's 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,  any
existing guarantees,  past performance of the loan, available  documentation for
the loan, legal impediments to collection,  financial condition of the borrower,
and current economic conditions.

         Management  will  continue  to review  the  entire  loan  portfolio  to
determine the extent, if any, to which further additional loss provisions may be
deemed  necessary.  There can be no assurance that the allowance for losses will
be adequate to cover losses which may in fact be realized in the future and that
additional provisions for losses will not be required.

                                      -9-
<PAGE>

         The  following  table  sets  forth  information  with  respect  to  the
Registant's allowance for loan losses at the dates indicated.


                                                     At June 30,
                                              -----------------------
                                                 2000          1999
                                              ---------     ---------
                                               (Dollars in Thousands)

Total loans outstanding, net ..............   $ 109,777     $  96,565
                                              =========     =========
Average loans outstanding .................   $ 103,252     $  88,355
                                              =========     =========

Allowance balances (at beginning of period)   $     443     $     387
Provision:
  Residential .............................          57            14
  Consumer and commercial business ........         148           124
                                              ---------     ---------
                                                    648           525
                                              ---------     ---------
Charge-offs:
  Residential .............................        (113)          (64)
  Consumer and commercial business ........         (25)          (18)
Recoveries:
  Residential .............................          --            --
  Consumer and commercial business ........           2            --
                                              ---------     ---------
Net (charge-offs) recoveries ..............        (136)          (82)
                                              ---------     ---------

Allowance balance (at end of period) ......   $     512     $     443
                                              =========     =========
Allowance for loan losses as a percent
  of total loans outstanding, net .........         .47%          .46%
                                              =========     =========


                                      -10-
<PAGE>

Analysis of the Allowance for Loan Losses

         The  following  table sets forth the  allocation  of the  allowance  by
category,  which  management  believes can be allocated  only on an  approximate
basis.  The  allocation  of the  allowance to each  category is not  necessarily
indicative  of future loss and does not  restrict  the use of the  allowance  to
absorb losses in any category.

                                              At June 30,
                            -----------------------------------------------
                                  2000                   1999
                            ----------------------   ----------------------
                                      Percent of               Percent of
                                     Loans in Each            Loans in Each
                                     Category to               Category to
                            Amount    Total Loans    Amount    Total Loans
                            ------   -------------   ------   -------------
                                       (Dollars in Thousands)

Residential real estate..    $ 217         69%       $ 273          72%
Commercial real estate...      131         20           71          20
Consumer and
  commercial business....      164         11          100           8
                             -----        ---        -----         ---
  Total..................    $ 512        100%       $ 443         100%
                             =====        ===        =====         ===

Investment Activities

         The  Registrant  is required  under federal  regulations  to maintain a
minimum  amount of liquid  assets which may be invested in specified  short-term
securities  and certain  other  investments.  The level of liquid  assets varies
depending  upon  several  factors,  including:  (i)  the  yields  on  investment
alternatives,  (ii) management's judgment as to the attractiveness of the yields
then available in relation to other  opportunities,  (iii) expectation of future
yield levels, and (iv) management's  projections as to the short-term demand for
funds  to  be  used  in  loan  origination  and  other  activities.   Investment
securities,  including mortgage-backed securities, are classified at the time of
purchase,  based upon management's  intentions and abilities, as securities held
to maturity or securities available-for-sale.  Debt securities acquired with the
intent and ability to hold-to-maturity  are classified as  held-to-maturity  and
are stated at cost and adjusted  for  amortization  of premium and  accretion of
discount,  which are  computed  using the level yield method and  recognized  as
adjustments  of interest  income.  All other debt  securities  are classified as
available-for-sale.

         Current  regulatory  and  accounting  guidelines  regarding  investment
securities  (including  mortgage- backed  securities)  require the Registrant to
categorize securities as "held-to-maturity,"  "available-for-sale" or "trading."
As of June  30,  2000,  Registrant  had  securities  (including  mortgage-backed
securities)  classified as "held-to-maturity"  and  "available-for-sale"  in the
amount  of  $1,681,310  and  $54,369,050  respectively  and  had  no  securities
classified  as "trading."  Securities  classified  as  "available-for-sale"  are
reported  for  financial  reporting  purposes at the fair market  value with net
changes  in the  market  value  from  period to period  included  as a  separate
component of stockholders'  equity,  net of income taxes.  Changes in the market
value of securities  available-for-sale  do not affect the Company's  income. In
addition,  changes in the market value of securities  available-for-sale  do not
affect the Bank's regulatory  capital  requirements or its loan-to-one  borrower
limit.

         At June 30, 2000, the Registrant's  investment portfolio policy allowed
investments in instruments  such as: (i) U.S.  Treasury  obligations,  (ii) U.S.
federal  agency or  federally  sponsored  agency  obligations,  (iii)  municipal
obligations,  (iv) mortgage-backed  securities,  (v) banker's acceptances,  (vi)
certificates of deposit,

                                      -11-
<PAGE>



(vii) investment grade corporate bonds, (viii) mortgage  derivative  securities,
(ix) private-label mortgage pass-thru securities and commercial paper. The board
of directors may authorize additional investments.

         As a  source  of  liquidity  and  to  supplement  Registrant's  lending
activities,   the  Registrant   has  invested  in  residential   mortgage-backed
securities.  Mortgage-backed  securities  can serve as collateral for borrowings
and, through repayments,  as a source of liquidity.  Mortgage-backed  securities
represent a participation  interest in a pool of  single-family or other type of
mortgages.  Principal  and  interest  payments  are  passed  from  the  mortgage
originators, through intermediaries (generally quasi-governmental agencies) that
pool and repackage the  participation  interests in the form of  securities,  to
investors,  like us. The  quasi-governmental  agencies  guarantee the payment of
principal  and interest to investors  and include the Federal Home Loan Mortgage
Corporation  ("FHLMC"),  Government National Mortgage Association ("GNMA"),  and
Federal National Mortgage Association ("FNMA").

         Mortgage-backed  securities  typically are issued with stated principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying  pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk  characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable  rate) and the prepayment  risk, are passed on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying  mortgages.  Expected  maturities will differ from contractual
maturities due to scheduled  repayments and because borrowers may have the right
to  call  or  prepay   obligations   with  or  without   prepayment   penalties.
Mortgage-backed securities issued by FHLMC, GNMA, and FNMA make up a majority of
the pass-through certificates market.


                                      -12-

<PAGE>

         Investment Portfolio. The following table sets forth the carrying value
of the Registrant's securities at the dates indicated.

                                                               At June 30,
                                                            ----------------
                                                              2000     1999
                                                            -------  -------
                                                              (In Thousands)
          Securities held-to-maturity:
            Tax-exempt securities ..........................$   695  $   695
            Corporate debt securities.......................    986      982
                                                            -------  -------
              Total securities held-to-maturity.............  1,681    1,677
                                                            -------  -------
          Securities available-for-sale:
            Mutual funds....................................  2,552    2,409
            US Agency securities............................  4,582    3,699
            FHLMC stock.....................................      8        8
            FNMA preferred..................................  1,513       --
            SLMA asset-backed note..........................  1,992    1,991
            Tax-exempt securities ..........................  4,695      987
            Taxable securities .............................    330       --
            CMO securities .................................  9,068       --
            Mortgage-backed securities...................... 29,432   32,133
                                                            -------  -------
              Total securities available for sale........... 54,172   41,227
                                                            -------  -------
          Total investment and mortgage-backed securities...$55,853  $42,904
                                                            =======  =======

                                      -13-
<PAGE>
         The  following  table sets forth  information  regarding  the scheduled
maturities,  carrying  values,  market value and weighted average yields for the
Bank's  investment  securities  portfolio at June 30, 2000. The following  table
does not take into  consideration  the effects of  scheduled  repayments  or the
effects of possible prepayments.

<TABLE>
<CAPTION>
                                                                   At June 30, 2000
                                ----------------------------------------------------------------------------------------------------
                                    Less than           1 to             Over 5 to          Over 10                 Total
                                     1 year            5 years           10 years            years                Securities
                                ----------------- ----------------- -----------------  -----------------  --------------------------
                                Carrying  Average Carrying  Average Carrying  Average  Carrying  Average  Carrying          Market
                                 Value     Yield   Value     Yield   Value     Yield    Value     Yield    Value    Yield   Value
                                 -----     -----   -----     -----   -----     -----    -----     -----    -----    -----   -----
<S>                            <C>         <C>     <C>      <C>      <C>        <C>    <C>        <C>    <C>        <C>   <C>
Securities held-to-maturity:
  Tax-exempt securities (1).....$   --        --%   $   --     --%    $  145     4.25%  $   550    8.00%  $   695    7.22% $   673
  Corporate debt securities.....    --        --       986   7.65         --       --        --      --       986    7.65      999
                                ------      ----    ------   ----     ------     ----   -------     ----  -------    ----  -------
      Total securities
        held-to-maturity........    --        --       986   7.65        145     4.25       550    8.00     1,681    7.47    1,671
                                ------      ----    ------   ----     ------     ----   -------     ----  -------    ----  -------
Securities available-for-sale:
  Mutual funds.................. 2,552      5.74        --     --         --       --        --      --     2,552    5.74    2,523
  US Agency securities..........    --        --     3,585   6.09        997     6.89        --      --     4,582    6.26    4,497
  FHLMC stock (2)...............    --        --        --     --         --       --         8    1.31         8    1.31      890
  FNMA preferred................    --        --        --     --         --       --     1,513    5.76     1,513    5.76    1,995
  SLMA asset-backed securities      --        --        --     --         --       --     1,992    6.85     1,992    6.85    1,515
  Tax-exempt securities (1).....   101      4.03       802   4.86         --       --     3,792    5.93     4,695    5.72    4,676
  Taxable securities............    --        --       165  10.00        165    10.00        --      --       330   10.00      329
  CMO securities................    --        --        --     --      1,957     7.11     7,111    6.70     9,068    6.79    9,013
   Mortgage-backed securities...    --        --        --     --         --       --    29,432    6.48    29,432    6.48   28,931
                                ------      ----    ------   ----     ------     ----   -------    ----   -------    ----  -------
      Total securities
        available-for-sale...... 2,653      5.52     4,552   6.30      3,119     7.19    43,848    6.46    54,172    6.43   54,370
                                ------      ----    ------   ----     ------     ----   -------    ----   -------    ----  -------
Total investment and
   mortgage-backed
   securities...................$2,653      5.52%   $5,538   6.30%    $3,264     7.06%  $44,398    6.48%  $55,853    6.46% $56,041
                                ======      ====    ======   ====     ======     ====   =======    ====   =======    ====  =======
</TABLE>

----------------------------
(1)  Average  yield  is  computed  on a  book  value  basis  rather  than  a tax
     equivalent basis.
(2)  Average yield is computed on a redemption value basis.

                                      -14-
<PAGE>



Sources of Funds

         General. Deposits are a major external source of the Registrant's funds
for lending and other  investment  purposes.  The Registrant  derives funds from
amortization and prepayment of loans and, to a much lesser extent, maturities of
investment securities,  borrowings,  mortgage-backed  securities and operations.
Scheduled  loan principal  repayments  are a relatively  stable source of funds,
while  deposit  inflows and  outflows  and loan  prepayments  are  significantly
influenced by general interest rates and market conditions.

         Deposits.  Consumer and commercial  deposits are attracted  principally
from  within the  Registrant's  primary  market area  through the  offering of a
selection of deposit  instruments  including  regular  savings  accounts,  money
market  accounts,  and term  certificate  accounts.  Deposit  account terms vary
according to the minimum balance required, the time period the funds must remain
on deposit,  and the interest rate,  among other factors.  At June 30, 2000, the
Registrant had no brokered accounts.

         Time  Deposits.  The  following  table  indicates  the  amount  of  the
Registrant's  time deposits of $100,000 or more by time remaining until maturity
as of June 30, 2000.


                      Maturity Period                           Time Deposits
                      ---------------                           -------------
                                                                (In Thousands)
                Within three months.......................           9,039
                More than three through six months........           8,549
                More than six through nine months.........           5,373
                Over nine months..........................           3,977
                                                                   -------
                         Total............................         $26,938
                                                                   =======

Borrowings

         The Registrant may obtain advances from the FHLB of Dallas (the "FHLB")
to supplement its supply of lendable funds. Advances from the FHLB are typically
secured by a pledge of the  Registrant's  stock in the FHLB and a portion of the
Registrant's  first  mortgage  loans and certain other assets.  Each FHLB credit
program has its own interest rate, which may be fixed or variable,  and range of
maturities.  The  Registrant,  if the need  arises,  may also access the Federal
Reserve Bank discount  window to supplement  its supply of lendable funds and to
meet deposit withdrawal requirements. At June 30, 2000, borrowings with the FHLB
totalled $82,935,066,  of which $57,239,000 were short-term. The following table
sets  forth the  maximum  month end  balances  and the  average  balance of FHLB
advances for the periods indicated.

                                      -15-
<PAGE>
                                                          During the Year Ended
                                                               June 30,
                                                       -------------------------
                                                         2000            1999
                                                       ----------     ----------
                                                            (In thousands)
Maximum amount of short-term borrowings
outstanding at any month end:
  Advances from FHLB...........................         $57,239         $27,936
Approximate average short-term borrowings
outstanding with respect to:
  Advances from FHLB...........................         $37,174         $23,098

  Approximate weighted average rate paid on:
  Advances from FHLB...........................            5.98%           5.32%



Personnel

         As of June 30,  2000,  the  Registrant  employed 38  employees  with 35
working  full-time.  None of the  Registrant's  employees are  represented  by a
collective  bargaining group. The Registrant believes that its relationship with
its employees is good.

                                   REGULATION

Regulation

         Set forth below is a brief  description of certain laws which relate to
the regulation of the Company and the Bank. The description  does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.

Recent Regulation

         The Gramm-Leach-Bliley Act (the "Act") became effective March 11, 2000,
which permits  qualifying  bank holding  companies to become  financial  holding
companies and thereby  affiliate with securities  firms and insurance  companies
and engage in other  activities  that are  financial in nature.  The Act defines
"financial  in nature" to include  securities  underwriting,  dealing and market
making; sponsoring mutual funds and investment companies; insurance underwriting
and agency;  merchant  banking  activities;  and  activities  that the Board has
determined to be closely related to banking. A qualifying national bank also may
engage,  subject to limitations on investment,  in activities that are financial
in nature,  other  than  insurance  underwriting,  insurance  company  portfolio
investment,  real  estate  development,  and real estate  investment,  through a
financial subsidiary of the bank.

         The Act also  prohibits  new  unitary  thrift  holding  companies  from
engaging in  nonfinancial  activities or from  affiliating  with an nonfinancial
entity.  As a  grandfathered  unitary thrift holding  company,  the Company will
retain   its   authority   to   engage   in   nonfinancial    activities.    The
Gramm-Leach-Bliley  Act will have few direct effects on the operations or powers
of federal savings associations or of savings and loan holding companies.

         The  Gramm-Leach-Bliley  Act imposes  significant new financial privacy
obligations and reporting requirements on all financial institutions,  including
federal savings  associations.  Specifically,  the statute,  among other things,
will  require  financial  institutions  (a) to  establish  privacy  policies and
disclose them to customers both at the  commencement of a customer  relationship
and on an annual  basis and (b) to permit  customers  to opt out of a  financial
institution's   disclosure  of  financial  information  to  nonaffiliated  third
parties.

                                      -16-
<PAGE>

The   Gramm-Leach-Bliley  Act  requires  the  federal  financial  regulators  to
promulgate  regulations  implementing  these  provisions  within  six  months of
enactment,  and the  statute's  privacy  requirements  will take effect one year
after enactment.

Regulation of the Company

         General.  The  Company is a unitary  savings and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company is required to
register  and  file  reports  with  the OTS and is  subject  to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Company and its non-savings association  subsidiaries,  should such subsidiaries
be formed,  which also permits the OTS to restrict or prohibit  activities  that
are determined to be a serious risk to the subsidiary savings association.  This
regulation  and  oversight  is  intended  primarily  for the  protection  of the
depositors of the Bank and not for the benefit of stockholders of the Company.

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions,  provided the Bank satisfies the Qualified
Thrift Lender  ("QTL") test.  The Act  terminated  the "unitary  thrift  holding
company   exemption"  for  all  companies   that  applied  to  acquire   savings
associations  after May 4, 1999. Since the Company is  grandfathered  under this
provision of the Act, its unitary holding  company powers and  authorities  were
not affected.  However,  if the Company were to acquire control of an additional
savings  association,  its business  activities  would be subject to restriction
under the Home Owners' Loan Act. Furthermore,  if the Company were in the future
to sell control of the Bank to any other company, such company would not succeed
to the Company's  grandfathered status under the Act and would be subject to the
same business activity  restrictions.  See "- Regulation of the Bank - Qualified
Thrift Lender Test."

Regulation of the Bank

         General.  Set forth below is a brief  description  of certain laws that
relate to the  regulation of the Bank.  The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.  As a federally chartered,  SAIF-insured  savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities and other  investments must comply with various federal statutory and
regulatory   requirements.   The  Bank  is  also  subject  to  certain   reserve
requirements promulgated by the Federal Reserve Board.

         The OTS, in conjunction with the FDIC,  regularly examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law,  especially in such matters as the ownership of savings  accounts
and the form and content of the Bank's mortgage documents.

         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.

         Insurance of Deposit  Accounts.  The deposit  accounts held by the Bank
are insured by the SAIF to a maximum of  $100,000  for each  insured  member (as
defined by law and  regulation).  Insurance of deposits may be terminated by the
FDIC  upon a finding  that the  institution  has  engaged  in unsafe or  unsound
practices,

                                      -17-
<PAGE>

is in an unsafe or unsound condition to continue  operations or has violated any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
institution's primary regulator.

         The Bank is required to pay insurance premiums based on a percentage of
its insured  deposits to the FDIC for insurance of its deposits by the SAIF. The
FDIC also  maintains  another  insurance  fund, the Bank Insurance Fund ("BIF"),
which primarily insures  commercial bank deposits.  The FDIC has set the deposit
insurance assessment rates for SAIF-member institutions for the first six months
of 2000 at 0% to .027% of insured  deposits  on an  annualized  basis,  with the
assessment rate for most savings institutions set at 0%.

         In  addition,  all  FDIC-insured   institutions  are  required  to  pay
assessments  to the FDIC at an annual  rate of  approximately  .0212% of insured
deposits to fund interest payments on bonds issued by the Financing  Corporation
("FICO"),  an agency of the Federal  government  established to recapitalize the
predecessor to the SAIF.  These  assessments  will continue until the FICO bonds
mature in 2017.

         Loans to One  Borrower.  A savings  association  may not make a loan or
extend  credit to a single or related group of borrowers in excess of 15% of the
associations's unimpaired capital and surplus. An additional amount may be lent,
equal to 10% of the unimpaired capital and surplus, under certain circumstances.
At June 30,  2000,  the  Bank's  lending  limit  for loans to one  borrower  was
approximately  $1,768,443  and the  bank  had no  outstanding  commitments  that
exceeded the loans to one borrower limit at the time originated or committed.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets, and (3) a risk-based  capital  requirement
equal to 8.0% of total risk-weighted assets.

         Dividend and Other Capital  Distribution  Limitations.  The OTS imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends. A savings association that
is a  subsidiary  of a savings and loan holding  company,  such as the Bank must
file an  application  or a notice with the OTS at least 30 days before  making a
capital  distribution.   Savings  associations  are  not  required  to  file  an
application for permission to make a capital  distribution  and need only file a
notice if the following  conditions are met: (1) they are eligible for expedited
treatment under OTS regulations,  (2) they would remain  adequately  capitalized
after the distribution,  (3) the annual amount of capital  distribution does not
exceed net income for that year to date added to retained net income for the two
preceding  years,  and  (4) the  capital  distribution  would  not  violate  any
agreements  between the OTS and the savings  association or any OTS regulations.
Any other situation would require an application to the OTS.

         The OTS may disapprove an application or notice if the proposed capital
distribution   would:  (i)  make  the  savings   association   undercapitalized,
significantly  undercapitalized,  or  critically  undercapitalized;  (ii)  raise
safety  or  soundness  concerns;  or (iii)  violate  a  statue,  regulation,  or
agreement  with  the OTS (or  with  the  FDIC),  or a  condition  imposed  in an
OTS-approved application or notice. Further, a federal savings association, like
the  Bank,  cannot  distribute   regulatory  capital  that  is  needed  for  its
liquidation account.

         Qualified Thrift Lender Test.  Federal savings  institutions  must meet
one of two Qualified Thrift Lender ("QTL") tests. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal  Revenue Code by maintaining at least 60% of its total assets
in specified types of assets,  including cash,  certain  government  securities,
loans  secured  by and  other  assets  related  to  residential  real  property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by  maintaining at
least 65% of its "portfolio  assets" in  certain"Qualified  Thrift  Investments"
(defined  to include  residential  mortgages  and  related  equity  investments,
certain  mortgage-related  securities,  small business loans,  student loans and
credit card

                                      -18-

<PAGE>

loans,  and 50% of certain  community  development  loans).  For purposes of the
statutory  QTL  test,  portfolio  assets  are  defined  as  total  assets  minus
intangible assets,  property used by the institution in conducting its business,
and liquid  assets  equal to 10% of total  assets.  A savings  institution  must
maintain its status as a QTL on a monthly basis in at least nine out of every 12
months.  A  failure  to  qualify  as a QTL  results  in a number  of  sanctions,
including the imposition of certain operating  restrictions and a restriction on
obtaining  additional  advances from its FHLB. At June 30, 2000, the Bank was in
compliance with its QTL requirement.

         Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of
Dallas,  which is one of 12 regional FHLBs that  administers  the home financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Dallas  in an  amount  equal  to at least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  The current  requirement is 4%, at June 30,
2000 the bank was in compliance with the regulatory requirement.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits.  The balances  maintained
to meet the reserve  requirements  imposed by the Federal  Reserve  Board may be
used to satisfy the liquidity  requirements that are imposed by the OTS. At June
30,  2000,  the  Bank  was  in  compliance  with  these  Federal  Reserve  Board
requirements.

Item 2.  Description of Property.
--------------------------------

         The  Registrant  owns its main office located at 221 West Aztec Avenue,
Gallup,  New Mexico.  The Registrant  leases  additional office space across the
street  from its main  office.  The  lease  expires  December  31,  2007 and the
Registrant 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.

         (b) Investment  Policies.  See "Item 1.  Business"  above for a general
description of the Registrant's  investment policies and any regulatory or Board
of Directors'  percentage of assets limitations  regarding certain  investments.
The Registrant's  investments are primarily acquired to produce income, and to a
lesser extent, possible capital gain.

                  (1)      Investments  in Real  Estate  or  Interests  in  Real
Estate.  See "Item 1.  Business - Lending  Activities  and -  Regulation  of the
Bank," and "Item 2. Description of Property."

                  (2)      Investments  in Real Estate  Mortgages.  See "Item 1.
Business - Lending Activities and - Regulation of the Bank."

                  (3)      Investments  in Securities of or Interests in Persons
Primarily  Engaged in Real Estate  Activities.  See "Item 1.  Business - Lending
Activities and - Regulation of the Bank."


                                      -19-
<PAGE>

         (c)     Description of Real Estate and Operating Data.  Not Applicable.

Item 3.  Legal Proceedings
--------------------------

         Neither the  Company nor the Bank are engaged in any legal  proceedings
of a material  nature at the present time. From time to time the Bank is a party
to legal  proceedings in the ordinary course of business wherein it enforces its
security interest in mortgage loans made by it.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

         The  information  contained under the section  captioned  "Stock Market
Information" in the Company's  Annual Report to Stockholders for the fiscal year
ended June 30, 2000 (the "Annual Report") is incorporated herein by reference.

Item 6.  Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------

         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

Item 7.  Financial Statements
-----------------------------

         The Company's  consolidated  financial  statements listed under Item 13
herein are incorporated herein by reference.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure
         --------------------

         Not applicable.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
--------------------------------------------------------------------------------
        with Section 16(a) of the Exchange Act.
        ---------------------------------------

         The  information  required  under this item is  incorporated  herein by
reference  to the  Proxy  Statement  for the 2000  Annual  Meeting  (the  "Proxy
Statement")  contained under the sections  captioned  "Section 16(a)  Beneficial
Ownership  Reporting  Compliance,"  "Proposal I - Election of Directors," and "-
Biographical Information."

Item 10.  Executive Compensation
--------------------------------

         The  information  required by this item is incorporated by reference to
the  Proxy  Statement  contained  under  the  section  captioned  "Director  and
Executive Officer Compensation."

                                      -20-
<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners
         (b)      Security Ownership of Management

                  The information  required by items (a) and (b) is incorporated
                  herein by reference to the Proxy Statement contained under the
                  sections  captioned  "Principal  Holders"  and  "Proposal  I -
                  Election of Directors."

         (c)      Management of the Company knows of no arrangements,  including
                  any pledge by any person of  securities  of the  Company,  the
                  operation of which may at a subsequent date result in a change
                  in control of the Company.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information  required  by this  item  is  incorporated  herein  by
reference to the Proxy Statement  contained under the section captioned "Certain
Relationships and Related Transactions."

Item 13. Exhibits, List, and Reports on Form 8-K
------------------------------------------------

         (a)     Listed below are all financial statements and exhibits filed as
part of this report.

                  1.       The consolidated statements of financial condition of
                           GFSB Bancorp, Inc. 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 each of the
                           two years  ended  June 30,  2000,  together  with the
                           related notes and the independent auditors' report of
                           Neff  &  Ricci  LLP,  independent   certified  public
                           accountants.

                  2.       Schedules omitted as they are not applicable.

                                      -21-
<PAGE>

                           The following exhibits are included in this Report or
                           are incorporated herein by reference.
<TABLE>
<CAPTION>
                  3.       (a)      List of Exhibits
                         <S>       <C>
                           3.1      Certificate of Incorporation of GFSB Bancorp, Inc.*
                           3.2      Bylaws of GFSB Bancorp, Inc.*
                           10.1     1995 Stock Option Plan**
                           10.2     Management Stock Bonus Plan**
                           10.3     Form of Directors Deferred Compensation Agreement between the Bank
                                    and Directors***
                           10.4     Form of Directors Stock Compensation Plan between the Company and
                                    Directors of the Company***
                           13       Portions of the 2000 Annual Report to Stockholders
                           21       Subsidiaries of the Issuer (See "Item 1 - Description of Business")
                           23       Consent of Neff & Ricci LLP
                           27       Financial Data Schedule (electronic filing only)
</TABLE>

--------------
*        Incorporated  herein  by  reference  to  exhibits  3(i)(Certificate  of
         Incorporation) and 3(ii)(Bylaws) to the Registration  Statement on Form
         S-1 of the  Registrant  (File No.  33-90400)  initially  filed with the
         Commission on March 17, 1995.
**       Incorporated by reference to the identically  numbered  exhibits of the
         Annual  Report on Form  10-KSB for the fiscal  year ended June 30, 1997
         (File No. 0-25854) filed with the SEC.
***      Incorporated by reference to the identically  numbered  exhibits of the
         Quarterly  Report on Form 10-QSB for the  quarter  ended March 31, 2000
         filed with the SEC.

(b)      Not applicable.

<PAGE>

                                   SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized as of September 25,
2000.

                                         GFSB BANCORP, INC.


                                     By: /s/Richard C. Kauzlaric
                                         ---------------------------------------
                                         Richard C. Kauzlaric
                                         President and Chief Executive Officer
                                         (Duly Authorized Representative)

          Pursuant to the  requirement of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates  indicated as of September 25,
2000.



By:      /s/Dr. Wallace R. Phillips        By: /s/Richard C. Kauzlaric
         -------------------------------       ---------------------------------
         Dr. Wallace R. Phillips               Richard C. Kauzlaric
         Chairman of the Board                 President, Chief Executive
                                               Officer and Director


By:      /s/Jerry R. Spurlin               By: /s/James Nechero, Jr.
         -------------------------------       ---------------------------------
         Jerry R. Spurlin                      James Nechero, Jr.
         Chief Financial Officer               Director


By:      /s/Vernon I. Hamilton             By: /s/Michael P. Mataya
         -------------------------------       ---------------------------------
         Vernon I. Hamilton                    Michael P. Mataya
         Director                              Director

By:      /s/Charles L. Parker, Jr.         By: /s/George S. Perce
         -------------------------------       ---------------------------------
         Charles L. Parker, Jr.                George S. Perce
         Director                              Director


By:      /s/Richard P. Gallegos
         -------------------------------
         Richard P. Gallegos
         President of Bank