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,  administered  by the Federal Deposit
Insurance  Corporation,  and the Bank is a member of the Federal  Home Loan Bank
System.  The  Bank  is  a  community  oriented,   full  service  retail  savings
institution  offering primarily  traditional  mortgage loan products.  It is the
Bank's intent to remain an independent  community savings bank serving the local
banking needs of its community.

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

Stock Market Information

     Since its issuance on June 29, 1995,  the  Company's  common stock has been
         traded on the NASDAQ 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.  The table  reflects a 25 percent stock  dividend
         paid to all  shareholders  of record as of December 15, 2000. The stock
         dividend was declared on October 31, 2000.


                                                                    Dividends
         Quarter Ended                   High            Low         Declared
         -------------                   ----            ---         --------
         September 30, 1999             10.700         10.400          .06
         December 31, 1999              11.800         10.800          .08
         March 31, 2000                 10.800         10.600          .08
         June 30, 2000                  11.300         10.900          .08
         September 30, 2000             11.700         11.300          .08
         December 31, 2000              10.875         10.625          .08
         March 31, 2001                 11.750         11.375          .09
         June 30, 2001                  12.600         12.250          .09


                                                                               2
<PAGE>



GFSB Bancorp, Inc.
Corporate Profile (continued)

The  number of  stockholders  of record of common  stock as of the  record  date
September 14, 2001 ("Record Date"), was approximately 213. This does not reflect
the number of persons or  entities  who held stock in nominee or  "street"  name
through various  brokerage  firms.  As of the Record Date,  there were 1,150,106
shares outstanding.

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



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                                                                               3
<PAGE>


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

At June 30,                                         2001       2000       1999

Total assets                                      $197,151   $176,786   $150,754
Cash and cash equivalents                            4,262      4,091      5,147
Loans receivable, net                              130,431    109,777     96,565
Available for sale mortgage-backed securities       32,377     28,931     31,712
Available for sale investment securities            21,804     25,439     10,296
Hold to maturity investment securities               1,946      1,681      1,677
Stock of Federal Home Loan Bank                      3,649      4,207      2,815
Deposits                                           106,660     79,948     81,229
Advances from the Federal Home Loan Bank            72,106     82,935     55,541
Retained earnings (substantially restricted)        11,238      9,975      8,759


Summary of Operations
(Dollars in Thousands)

Year ended June 30,

Interest income                                   $ 14,437   $ 11,989   $  9,651
Interest expense                                     9,033      7,118      5,599
                                                  --------   --------   --------
        Net interest income                          5,404      4,871      4,052
Provision for loan losses                              345        205        138
                                                  --------   --------   --------

        Net interest income after provision for
        loan losses                                  5,059      4,666      3,913
Non-interest income:
        Income from real estate operations              16          5          -
        Other                                          402        245        243
                                                  --------   --------   --------
             Total non-interest income                 418        250        243
                                                  --------   --------   --------
Non-interest expense:
        Compensation and benefits                    1,727      1,507      1,363
        Professional fees                               82         86         66
        Occupancy                                      352        336        283
        Advertising                                     77         70         71
        Data processing                                266        200        202
        Insurance and SAIF premiums                     50         64         65
        Other and stock subscription services          506        436        451
                                                  --------   --------   --------
             Total non-interest expense              3,060      2,699      2,501
                                                  --------   --------   --------
Earnings before income taxes                         2,417      2,217      1,655
Income tax expense                                     757        657        639
                                                  --------   --------   --------
Net earnings                                      $  1,660   $  1,560   $  1,016
                                                  ========   ========   ========

Basic net earnings per share                          1.50       1.36        .79
                                                  ========   ========   ========
Dilutive net earnings per share                       1.46       1.34        .78
                                                  ========   ========   ========

                                                                               4
<PAGE>


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

Selected Operating Ratios

Year ended June 30,                                  2001      2000       1999

Performance ratios:
  Return on average assets (net income
      divided by average total assets)                 .89%     0.96%      0.75%
  Return on average equity (net income
     divided by average equity)                      11.90     12.58       7.76
   Average interest earning assets to average
      interest-bearing liabilities                    1.11X     1.10X      1.13X

  Net interest income after provision for
      loan losses, to total other expenses          176.59%   172.89%    156.46%
  Net interest rate spread                            2.44%     2.62%      2.53%
   Net yield on average interest-earnings
      assets                                          2.98%     3.10%      3.11%

Equity ratios:
  Average equity to average assets
      (average equity divided by average total
      assets)                                         7.44       7.62      9.70
   Equity to assets at period end                     7.60       7.18      8.25
Assets quality ratios:
    Non-performing loans to total assets               .31        .41       .15
    Non-performing loans to net loans                  .47        .66       .23
        Allowance for loan losses, REO and other
          repossessed assets to non-performing
          assets                                    136.78      76.53    271.43
        Allowance for loan losses to total loans,
          net
                                                       .63        .47       .46
Dividend payout ratio                                23.80      23.60     31.90

                                                                               5
<PAGE>

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

General

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

Overview

GFSB Bancorp,  Inc. ("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. All references  refer  collectively to the Company and the
Bank, unless the context indicates otherwise.

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, 2001, the Company
had  approximately  $ 30 million,  or 28%, 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 Bank uses the OTS Net Portfolio Value ("NPV") Model to monitor
its exposure to interest rate risk,  which  calculates  changes in net portfolio
value. The NPV model, in addition to management's  suggestions,  are reviewed by
the Investment Committee and reported to the Board of Directors quarterly.

The Bank  computes  amounts  by which  the net  present  value of cash flow from
assets, liabilities and off balance sheet items ("net portfolio value" or "NPV")
would  change  in the event of a range of  assumed  changes  in market  interest
rates.  Based upon OTS  assumptions,  the  following  table  presents the Bank's
percentage change in NPV, assuming an immediate change in interest rates of plus
or minus 300 basis points from the level at June 30, 2001.

                   Change in
                   Interest rates
                   In basis points        NPV
                    ("BP")                Ratio (2)       Change (3)
                   --------------         ---------       ----------
                   +300  bp                 5.02%         -315  bp
                   +200  bp (1)             6.16%         -201  bp
                   +100  bp                 7.27%          -90  bp
                         0  bp              8.17%
                   -100  bp                 8.63%           47  bp
                   -200  bp                 8.76%           59  bp
                   -300  bp                 8.91%           74  bp

(1)      Denotes the rate shock used to compute the NPV capital ratios.
(2)      Calculated as the estimated NPV divided by present value of assets.
(3)      Calculated  as the excess  (deficiency)  of the NPV ratio  assuming the
         indicated  change  in  interest  rates  over the  estimated  NPV  ratio
         assuming no change in interest rates.

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

                                                                               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.


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                                                                               8
<PAGE>

Average Balance Sheet

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

<TABLE>
<CAPTION>
                                          Year ended June 30, 2001                       Year ended June 30, 2000
                                    -------------------------------------        --------------------------------------
                                    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)               $121,237       $10,544           8.70%       $103,252        $ 8,660           8.39%
Investment securities and
  mortgage-backed securities         55,007         3,584           6.52%         49,270          3,001           6.09%
  Other interest-earning
    assets (2)                        5,356           309           5.77%          4,739            328           6.92%
                                   --------       -------                       --------         ------         ------

Total interest-earning assets       181,600        14,437           7.95%        157,261         11,989           7.62%
Non-interest-earning assets           5,839                                        5,337
                                   --------                                     --------

Total assets                       $187,439                                     $162,598

Interest-bearing liabilities:
  Transaction accounts               $6,506            94           1.45%       $  5,975        $    90           1.51%
  Passbook savings                    4,868            91           1.87%          5,018            102           2.03%
  Money market accounts               9,583           322           3.36%         10,304            310           3.01%
  Certificates of deposit            61,546         3,587           5.83%         52,660          2,703           5.13%
  Other liabilities (3)              81,488         4,939           6.06%         68,442          3,912           5.72%
                                   --------       -------                       --------        -------
Total interest-bearing
   liabilities                      163,991         9,033           5.51%        142,399          7,117            5.0%
Non-interest bearing
   liabilities                        9,502                                        7,801
                                   --------                                     --------

Total liabilities                   173,493                                      150,200

Stockholders' equity                 13,946                                       12,398
                                   --------                                     --------

Total liabilities and
  stockholders' equity             $187,439                                     $162,598

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

</TABLE>

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

                                                                               9
<PAGE>

Rate/Volume Analysis

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

                                               Year ended June 30,
                                                   2001 vs. 2000
                                                 Increase (Decrease)
                                                        Due to
                                       ----------------------------------------
                                                             Rate/
                                        Volume     Rate      Volume       Net
                                        ------     ----      ------     -----
                                                (Dollars in Thousands)
Interest income:
  Loans receivable                     $ 1,509    $   320    $    55    $ 1,884
  Mortgage-backed securities and
     Investment securities                 349        212         22        583
  Other interest-earning  assets            43        (54)        (8)       (19)
                                       -------    -------    -------    -------
     Total interest-earning assets       1,901        478         69      2,448

Interest expense:
  Transaction Accounts                       8         (4)         -          4
  Savings accounts                          (3)        (8)         -        (11)
  Money markets                            (21)        36         (3)        12
  Certificates of deposit                  456        369         59        884
  Other liabilities                        746        231         50      1,027
                                       -------    -------    -------    -------
   Total interest-bearing liabilities    1,186        624        106      1,916
                                       -------    -------    -------    -------

Net change in interest income          $   715    $  (146)   $   (37)   $   532
                                       =======    =======    =======    =======

Financial Condition

General. The Company's total assets increased $20.4 million, or 11.5 percent, to
$197.2 million from $176.8 million at June 30, 2000. This increase was primarily
the result of a $20.6 million increase in the Company's net loan portfolio.

Loans receivable, net increased $20.6 million to $130.4 million at June 30, 2001
from $109.8 million at June 30, 2000. Of such increase in loans receivable,  net
for the year  ended  June 30,  2001,  one-to-four  family  residences  increased
approximately  $6.8 million,  construction  loans increased  approximately  $4.3
million,  and commercial  business loans increased  approximately $11.0 million.
The increase in loans receivable,  net are primarily  attributable to the hiring
of a new senior lending  officer in May 2000 and management  efforts to increase
lending activity.

At June 30, 2001,  total  liabilities  increased $18.1 million to $182.1 million
from $164.1 million at June 30, 2000. The increase in total  liabilities at June
30, 2001 was primarily attributable to an increase in deposits of $26.7 million,
an increase in repurchase  agreements  of $1.1 million,  offset by a decrease in
advances from the Federal Home Loan Bank ("FHLB") of $10.8  million.  Funds from
the growth in  deposits  and  repurchase  agreements  were used to pay down FHLB
advances.

                                                                              10
<PAGE>

The increase in deposits was  primarily the result in of growth in the Company's
volume of jumbo  certificates  of deposits  (public,  brokered  and private) and
transaction  and NOW  accounts.  At June  30,  2001,  certificates  of  deposits
increased  $24.0  million to $76.7  million from $52.7 million at June 30, 2000.
Transactions  and NOW accounts  increased  $3.1 million to $15.5 million at June
30, 2001 from $12.4 million at June 30, 2000.

The Company offers its corporate  customers an investment  product  fashioned in
the form of a repurchase agreement.  Under the terms of the agreement,  deposits
in designated demand accounts of the customers are put in an investment  vehicle
which is used daily to purchase an interest in  designated  U.S.  Government  or
Agencies' securities. The Company in turn agrees to repurchase these investments
on a daily basis and pay the  customer  the daily  interest  earned based on the
current  market  rate.  At June 30,  2001,  repurchase  agreements  totaled $1.3
million

Total  stockholders'  equity at June 30, 2001  increased  $2.3  million to $15.0
million from $12.7  million at June 30,  2000.  The  increases to  stockholders'
equity  reflects net income of $1.7 million for the year ended June 30, 2001 and
a $1.1  million  increase  in  accumulated  other  comprehensive  earnings.  The
increase in accumulated other comprehensive  earnings at June 30, 2001 primarily
reflects market gains on the Company's available for sale investment securities.

Comparison of Operating Results for Years Ended June 30, 2001 and 2000

General.  Net earnings increased $100,000 or 6.4 percent for the year ended June
30, 2001 from the year ended June 30,  2000.  This  increase was  primarily  the
result of an increase in net interest  earnings of $533,000,  and an increase in
non-interest  earnings of $168,000 offset by an increase in non-interest expense
of  $361,000,  an increase  in  provision  for loan  losses of  $140,000  and an
increase in provision for income tax expense of $100,000.

Interest  Earnings.  Total  interest  earnings  increased  $2.4  million or 20.4
percent  from $12 million for the year ended June 30, 2000 to $14.4  million for
the year ended June 30, 2001.  The  increase is primarily  due to an increase in
the Company's lending  activities.  Details are contained in the Average Balance
Sheet on page 9 and the Rate/Volume Analysis on page 10.

Interest Expense.  Total interest expense increased $1.9 million or 26.9 percent
from $7.1  million  for the year ended June 30,  2000 to $9 million for the year
ended June 30,  2001.  This  increase  was  primarily  due to an  increase of $1
million of interest incurred on increased Federal Home Loan Bank advances and an
increase of $.9 million of interest incurred on deposits.  Details are contained
in the Average Balance Sheet on page 9 and the Rate/Volume Analysis on page 10.

Provision  for Losses on Loans.  The Company  maintains  an  allowance  for loan
losses based upon management's  periodic  evaluation of known and inherent risks
in the loan portfolio, past loss experience,  adverse situations that may affect
the  borrowers'  ability  to repay  loans,  estimated  value  of the  underlying
collateral,  and current and expected market conditions.  The provision for loan
losses was  $345,000  and  $205,000  for the years ended June 30, 2001 and 2000,
respectively.  The increase in the  provision for loan losses for the year ended
June 30, 2001 was the result of the growth in the  construction  and  commercial
business loans  portfolios of  approximately  $15.3 million.  Such loans tend to
have greater credit risk than residential  real estate loans.  While the Company
maintains its allowance for losses at a level which it considers to be adequate,
there can be no assurance  that further  additions  will not be made to the loss
allowances  and that such losses will not exceed the estimated  amounts.  Recent
substantial  increases  in the loan  portfolio  of the  Company may result in an
increase of provisions for losses on loans.

Non-Interest Earnings. The non-interest income increase of $168,000 for the year
ended June 30, 2001 is primarily due to an increase of $37,000 in  miscellaneous
income, an increase of $90,000 in net gains from the sale of  available-for-sale
loans and  securities,  and an  increase  of  $46,000 in  service  charge  fees,

                                                                              11
<PAGE>


partially offset by a $5,000 decrease in real estate operations. The increase in
miscellaneous  income is  primarily  due to an  increase in gains on the sale of
other real estate owned of $8,000, an increase in commission fees collected from
credit  card  merchant  sales of  $19,000,  a gain on the sale of  equipment  of
$2,000,  $6,000 from a wining  raffle  ticket,  which the  Company  subsequently
donated  to  several  local  charities,  and a net  increase  in  various  other
miscellaneous   income   accounts   of   $2,000.   Gains   from   the   sale  of
available-for-sale  loans  increased  $8,000  and net  gains  from  the  sale of
available-for-sale securities increased $82,000, representing a $66,000 net loss
in the fiscal  year ended June 30,  2000  compared to a $16,000 net gain for the
fiscal year ended June 30, 2001.

Non-Interest  Expense.   Total  non-interest  expense  increased  $361,000  from
$2,699,000  for the year ended June 30,  2000 to  $3,060,000  for the year ended
June 30, 2001. The most significant changes in non-interest expense for the year
ended June 30, 2001 were the following  increases:  $220,000 in compensation and
benefits,  $66,000 in data processing,  $16,000 in occupancy expense and $58,000
in  non-interest  expenses,  which were offset by a $7,800 net  decrease in FDIC
insurance  assessments.  The increase in  compensation  and  benefits  primarily
reflects a $259,000  increase in general salaries and benefits due to the hiring
of additional  staff,  merit increases,  and general increases in benefit costs.
Additionally,  compensation  and  benefits  expenses  were  offset by  decreased
expenses of $11,900 related to the 1996 management stock  compensation  plan and
$41,000 in state gross  receipt  tax.  Participants  of the 1996 awards from the
stock  compensation  plan  became  fully  vested on January 5, 2001.  During the
quarter  ended March 31, 2000,  the Company  paid to the state  $41,000 in gross
receipts  tax for  director's  fees.  The  increase in data  processing  expense
increased primarily due to an increase in service bureau and computer expense of
$53,000 resulting from the service bureau conversion during fourth quarter 2001.
Occupancy expense increased  primarily due to increased automated teller machine
maintenance  expense.  Other non-interest  expense increased  primarily due to a
$26,000  increase  in  telephone  expense  related to the  upgrade in  telephone
services and a $21,000 increase in cash and other operating shortages. Effective
January  2000,  FDIC  assessments  were  lowered  which were  offset by a $6,500
increase in supervisory exam fees.

Income Tax  Expense.  Income tax expense  increased  $100,000 or 15 percent from
$657,000  for the year ended June 30, 2000 to  $757,000  for the year ended June
30, 2001.  This increase was primarily  attributable  to the increase in pre-tax
earnings of $200,000.  Deferred tax liabilities increased by $586,000 due to the
impact of other comprehensive earnings.

Liquidity and Capital Resources

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

The Bank's  most  liquid  assets are cash and cash  equivalents,  which  include
investments in highly liquid short-term  investments.  The level of these assets
is dependent on the Company's  operating,  financing,  and investing  activities
during any given period.  At June 30, 2001,  cash and cash  equivalents  totaled
$4.3  million.  The Bank has an  additional  source of  liquidity  if a need for
additional funds should arise, that being FHLB of Dallas advances. The Bank also
has the ability to borrow against mortgage-backed and other securities.  At June
30, 2001, the Bank had  outstanding  borrowings from the FHLB of Dallas of $72.1
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  $59.6  million  in  total  loans   (including  loan   participations

                                                                              12
<PAGE>


purchased),  of which  $30  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,   municipal  general
obligation  revenue bonds, and FHLB of Dallas  overnight  funds.  During periods
when the  Bank's  loan  demand  is  limited,  the Bank may  purchase  short-term
investment securities to obtain a higher yield than otherwise available.

The Company's  cash flows are comprised of three primary  classifications:  cash
flows from operating activities,  investing activities and financing activities.
Cash flows from operating  activities,  consisting  principally of net earnings,
provision  for loan losses,  amortization  of  investment  and  mortgage  backed
securities  premiums and discounts,  stock based  compensation  costs and income
taxes less  disbursements of interest and dividends,  and loan origination fees,
were  $2.1  and $1  million  for  the  years  ended  June  30,  2001  and  2000,
respectively.  Net cash used for investing  activities  consisting  primarily of
disbursement of loan  originations and investment and  mortgage-backed  security
purchases,  offset  by  principal  collections  on loans and  proceeds  from the
maturities of investment securities and mortgage-backed  securities,  were $18.4
million  and  $27.3  million  for the  years  ended  June  30,  2001  and  2000,
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 $16.5 million and $25.3 million for the years ended June 30,
2001 and 2000, respectively.

The Bank  anticipates  that it will have sufficient  funds available to meet its
current commitments. As of June 30, 2001, the Bank had commitments to fund loans
of $8 million.  Certificates of deposit  scheduled to mature in one year or less
totaled $21.3  million.  Based on historical  withdrawals  and outflows,  and on
internal monthly deposit reports  monitored by management,  management  believes
that a majority of deposits will remain with the Bank.  As a result,  no adverse
liquidity effects are expected.

On September 5, 2001, the Company  entered into a Purchase  Agreement to acquire
real  estate and a building  in San Juan  County,  New Mexico for the purpose of
opening a branch office of Gallup  Federal  Savings Bank.  The Bank  anticipates
opening a branch  facility  during the third quarter of fiscal 2002,  subject to
necessary  banking  regulatory  approval.  The  Company  will pay  approximately
$900,000 for real estate and related building and expects to spend approximately
$200,000 for remodeling and equipment. Management believes the purchase will not
have a negative impact on the liquidity of the Company.

At June 30, 2001,  the Bank exceeded each of the three OTS capital  requirements
on a fully phased in basis. See Note 8 to the Consolidated Financial Statements.

                                                                              13
<PAGE>

[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,
2001  and  2000,  and  the  related  consolidated  statements  of  earnings  and
comprehensive earnings,  changes in stockholders' equity, and cash flows for the
years  ended  June  30,  2001  and  2000.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of GFSB Bancorp,  Inc.
and Subsidiary as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for the years then ended,  in  conformity  with  accounting
principles generally accepted in the United States of America.


/s/ NEFF & RICCI LLP

Albuquerque, New Mexico
July 26, 2001


<TABLE>
<CAPTION>
<S>                                          <C>
McGLADREY NETWORK                                        CONSULTANTS & CERTIFIED PUBLIC ACCOUNTANTS
-----------------                                6100 Uptown Blvd. NE - Suite 400 - Albuquerque, NM 87110
An Independently Owned Member                 (505) 830-6200 - Fax (505) 830-6282 - e-mail: info@neffcpa.com
Worldwide Services Through RSM International
</TABLE>
                                                                              14
<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2001



ASSETS
<TABLE>
<CAPTION>
                                                            2001           2000

<S>                                                  <C>               <C>
Cash and due from banks                                $  3,216,000      2,875,537
Interest-bearing deposits with banks                      1,046,254      1,215,428
Available-for-sale investment securities                 21,804,107     25,438,540
Available-for-sale mortgage-backed securities            32,376,812     28,930,510
Hold-to-maturity investment securities                    1,945,720      1,681,310
Stock of Federal Home Loan Bank, at cost, restricted      3,649,000      4,206,900
Loans receivable, net, substantially pledged            130,430,937    109,777,269
Accrued interest and dividends receivable                 1,185,400      1,033,974
Premises and equipment                                    1,323,770      1,296,048
Prepaid and other assets                                     74,624        235,883
Deferred tax asset                                           98,006         94,517
                                                       ---------------------------

           Total assets                                $197,150,630    176,785,916
                                                       ===========================
</TABLE>

See Notes to Financial Statements.

                                                                              15
<PAGE>

<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                         2001             2000

<S>                                                               <C>               <C>
     Transaction and NOW accounts                                  $  15,462,712       12,409,069
     Savings deposits                                                 14,521,879       14,801,893
     Time deposits                                                    76,675,576       52,736,983
     Advances from the Federal Home Loan Bank                         72,105,997       82,935,066
     Repurchase agreements                                             1,324,335          230,839
     Accrued interest payable                                            473,446          288,350
     Advances from borrowers for taxes and insurance                     440,048          305,909
     Accounts payable and accrued liabilities                            219,855          236,070
     Deferred income taxes                                               653,197           67,157
     Dividends declared and payable                                       98,453           88,875
     Income taxes payable                                                195,854                -
                                                                   ------------------------------

               Total liabilities                                     182,171,352      164,100,211
                                                                   ------------------------------
Commitments and Contingencies                                                  -                -

Stockholders' Equity
     Common stock, $.10 par value, 1,500,000 shares authorized;
        1,150,106 shares in 2001 and 940,958 shares in 2000
        issued and outstanding                                           115,011           94,096
     Preferred stock, $.10 par value, 500,000 shares authorized;
        no shares issued or outstanding                                        -                -
     Additional paid-in capital                                        2,630,860        2,810,626
     Unearned ESOP stock                                                (272,480)        (323,911)
     Retained earnings, substantially restricted                      11,237,917        9,974,531
     Accumulated other comprehensive earnings                          1,267,970          130,363
                                                                   ------------------------------
               Total stockholders' equity                             14,979,278       12,685,705
                                                                   ------------------------------

              Total liabilities and stockholders' equity           $ 197,150,630      176,785,916
                                                                   ==============================
</TABLE>

                                                                              16

<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
Years Ended June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                             2001            2000
<S>                                                   <C>              <C>
Interest Earnings
     Loans receivable
         Mortgage loans                                 $  8,360,060       7,414,091
         Commercial loans                                  1,229,761         480,810
         Share and consumer loans                            612,717         465,581
         Service fee income                                  341,680         299,942
     Investment and mortgage-backed securities             3,583,835       3,000,669
     Other interest-earning assets                           308,906         327,597
                                                        ---------------------------
                Total interest earnings                   14,436,959      11,988,690
                                                        ----------------------------
Interest Expense
     Deposits                                              4,093,573       3,205,280
     Advances from Federal Home Loan Bank                  4,873,600       3,905,867
     Repurchase Agreements                                    65,610           6,345
                                                        ----------------------------
                Total interest expense                     9,032,783       7,117,492
                                                        ----------------------------

                Net interest earnings                      5,404,176       4,871,198

Provision for Loan Losses                                    345,000         205,000
                                                        ----------------------------
                Net interest earnings after provision
                   for loan losses                         5,059,176       4,666,198
                                                        ----------------------------
Non-Interest Earnings
     Service charge income                                   297,565         251,243
     Miscellaneous income                                     68,999          36,540
     Gain from sales of loans                                 35,664          28,070
     Gain on sale of available-for-sale securities            16,297           4,539
     Loss on sale of available-for-sale securities              (335)        (70,552)
                                                        ----------------------------
                Total non-interest earnings                  418,190         249,840
                                                        ----------------------------
Non-Interest Expense
     Compensation and benefits                             1,726,948       1,506,693
     Insurance                                                50,044          64,278
     Stationery, printing, and office supplies                75,683          78,483
     ATM expense                                              47,859          48,200
     Supervisory exam fees                                    46,211          39,751
     Postage                                                  42,234          37,618
</TABLE>

See Notes to Financial Statements.

                                                                              17
<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS - CONTINUED
Years Ended June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                    2001           2000
<S>                                                           <C>             <C>
Non-Interest Expense - Continued
     Other                                                      $   277,534        219,185
     Occupancy                                                      351,786        335,564
     Data processing                                                266,409        200,165
     Professional fees                                               82,353         86,158
     Advertising                                                     76,543         70,287
     Stock services                                                  16,680         12,623
                                                                --------------------------
                Total non-interest expense                        3,060,284      2,699,005
                                                                --------------------------

Earnings before Income Taxes                                      2,417,082      2,217,033
                                                                --------------------------
Income Tax Expense
     Currently payable                                              760,355        659,475
     Deferred benefit                                                (3,488)        (2,248)
                                                                --------------------------
                Total income tax expense                            756,867        657,227
                                                                --------------------------
                Net earnings                                      1,660,215      1,559,806

Other Comprehensive Earnings
     Unrealized investment gains (losses), net of tax of
         $586,040 in 2001 and $(198,160) in 2000                  1,137,607       (384,662)
                                                                --------------------------
                Net comprehensive earnings                      $ 2,797,822      1,175,144
                                                                ==========================


Basic Net Earnings per Share                                           1.50           1.36

Dilutive Net Earnings per Share                                        1.46           1.34

Weighted average number of common shares outstanding-basic        1,107,243      1,143,924

Weighted average number of common shares outstanding-dilutive     1,139,951      1,168,249

</TABLE>

See Notes to Financial Statements.

                                                                              18

<PAGE>

GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended June 30, 2001 and 2000
<TABLE>
<CAPTION>

                                                                                                      Accumulated
                                     Common Stock           Additional      Unearned                     Other
                               -----------------------       Paid-in          ESOP        Retained    Comprehensive
                                   Shares      Amount        Capital          Stock       Earnings      Earnings         Total
<S>                            <C>          <C>           <C>        <C>               <C>            <C>             <C>
Balances, June 30, 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
                                                                                                                       -----------
Comprehensive earnings
     Net earnings                        -          -               -              -      1,660,215             -        1,660,215
     Unrealized loss on
       available for sale
         securities,
         net of taxes                    -          -               -              -              -     1,137,607        1,137,607
                                                                                                                       -----------
         Total
         comprehensive
         earnings                                                                                                        2,797,822
                                                                                                                       -----------
Distribution of stock
     vested under the
     management stock
     bonus plan                          -          -          50,513              -              -             -           50,513
Acquisition of common
     stock by the Company
     under the stock
     repurchase plan               (21,766)    (2,176)       (289,753)             -              -             -         (291,929)
Released and committed to
     be released 13,990.8389
     shares of common stock
     owned by the ESOP                   -          -          59,474         51,431              -             -          110,905
Issuance of stock dividend         230,914     23,091               -              -        (23,091)            -                -
Cash paid on fractional
     shares in lieu of
     stock dividend                      -          -               -              -         (1,281)            -           (1,281)
Dividends declared and paid
     to stockholders                     -          -               -              -       (372,457)            -         (372,457)
                                 ---------   --------      ----------      ---------    -----------    ----------      -----------
Balances, June 30, 2001          1,150,106   $115,011      $2,630,860      $(272,480)   $11,237,917    $1,267,970      $14,979,278
                                 =========   ========      ==========      =========    ===========    ==========      ===========

</TABLE>

See Notes to Financial Statements.

                                                                         19 - 20


<PAGE>
GFSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                       2001               2000
Cash Flows from Operating Activities
<S>                                                                           <C>                   <C>
     Net earnings                                                              $     1,660,215          1,559,806
     Adjustments to reconcile net earnings to net cash
         provided by operations:
             Deferred loan origination fees                                           (341,680)          (299,942)
             Loss (gain) on sale of loans and securities                               (51,626)            37,943
             Provision for loan losses                                                 345,000            205,000
             Depreciation of premises and equipment                                    191,450            179,938
             Amortization of investment and mortgage-backed
                securities premiums                                                     72,049            159,259
             Stock dividend on FHLB stock                                             (249,135)          (265,467)
             Release of ESOP stock                                                     110,905             96,414
             Stock compensation                                                         41,503             66,803
             Provision (benefit) for deferred income taxes                              (3,489)            (2,248)
     Net changes in operating assets and liabilities: (Increase) decrease in
         assets:
             Accrued interest and dividends receivable                                (151,426)          (169,999)
             Prepaid and other assets                                                  161,259             90,862
             Income taxes receivable                                                   195,854           (121,921)
         Increase (decrease) in liabilities:
             Accrued interest payable                                                  185,096             12,022
             Accounts payable and other accrued liabilities                            (58,999)          (455,528)
             Dividends declared and payable                                              9,578             14,127
             Income taxes payable                                                            -           (203,961)
                                                                               ----------------------------------
                Net cash provided by operating activities                            2,116,554            903,108
                                                                               ----------------------------------
Cash Flows from Investing Activities
     Purchase of premises and equipment                                               (219,172)           (71,370)
     Loan origination and principal repayment on loans, net                        (20,621,324)       (13,089,417)
     Principal payments on mortgage-backed securities                                5,346,685          5,598,842
     Principal payments on available-for-sale securities                               928,643             13,182
     Principal payments on hold-to-maturity securities                                  10,000                  -
     Purchases of mortgage-backed securities                                       (10,054,928)        (6,754,229)
     Purchases of available-for-sale securities                                     (5,170,323)       (16,011,777)
     Purchases of hold-to-maturity securities                                         (270,000)                 -
     Maturities and proceeds from sale of available-for-sale securities              9,072,813            801,194
     Maturities and proceeds from sale of available-for-sale mortgage-
         backed securities                                                           1,728,391          3,377,395
     Proceeds from (purchase of) FHLB stock                                            807,035         (1,126,333)
                                                                               ----------------------------------
                Net cash used by investing activities                              (18,442,180)       (27,262,513)
                                                                               ----------------------------------
</TABLE>


See Notes to Financial Statements

                                                                              21
<PAGE>

GFSB BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended June 30, 2001 and 2000

<TABLE>
<CAPTION>

                                                                                       2001               2000
<S>                                                                          <C>                  <C>
Cash Flows from Financing Activities
     Net increase (decrease) in transaction accounts, passbook savings
         money market accounts, and certificates of deposit                    $    26,712,222         (1,281,376)
     Repurchase agreements                                                           1,093,496            230,839
     Net increase (decrease) in mortgage escrow finds                                  134,139            (23,386)
     Proceeds from FHLB advance                                                  1,718,812,746        894,458,922
     Repayments on FHLB advances                                                (1,729,641,815)      (867,064,682)
     Purchase of GFSB Bancorp stock under the stock
         repurchase plan in cash                                                      (291,929)          (760,531)
     Dividends paid or to be paid in cash                                             (372,457)          (344,700)
     Proceeds from exercise of stock options                                                 -             32,606
     Price paid for vested management bonus stock plan stock                            50,513             55,463
                                                                               ----------------------------------

                Net cash provided by financing activities                           16,496,915         25,303,155
                                                                               ----------------------------------
Increase (decrease) in cash and cash equivalents                                       171,289         (1,056,250)

Cash and cash equivalents at beginning of year                                       4,090,965          5,147,215
                                                                               ----------------------------------

Cash and cash equivalents at end of year                                       $     4,262,254          4,090,965
                                                                               ==================================


Supplemental Disclosures Cash paid during the year for:
         Interest on deposits and advances                                     $     8,847,695          7,099,126
         Income taxes                                                                  628,240            962,233

     Change in unrealized gain, net of deferred taxes on
         available-for-sale securities (other comprehensive
         earnings)                                                                   1,137,607           (384,662)

     Supplemental schedule of non cash and financing activities
         Issuance of stock dividend                                                     23,091                  -
</TABLE>


See Notes to Financial Statements

                                                                              22
<PAGE>


GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


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:
                                                  2001              2000

Cash on hand                                  $ 1,054,347       $   562,397
Cash items                                       (105,372)            3,077
Amounts due from banks                          2,227,183         1,738,926
Interest bearing deposits                         650,255           621,428
Time deposits                                     396,000           594,000
Federal Reserve Bank deposits                      39,841           571,137
                                              -----------------------------

Total cash and cash equivalents               $ 4,262,254       $ 4,090,965
                                              =============================

The amounts due from banks includes $55,376 and $51,305 for the years ended June
30, 2001 and 2000, 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 STATEMENTS
June 30, 2001


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 agency
preferred stock, federal agency debentures,  FFCB debentures,  municipal general
obligation and revenue bonds, 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,  2001,  the  Company  had no  outstanding  commitments  to sell any
securities.

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

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

                                                                              24
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


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, 2001 and 2000, $1,838,965 and
$2,000,000,  respectively,  of loans have been sold.  No  servicing  rights were
retained on these  loans.  Gains on the sale of these loans were $35,664 in 2001
and $28,070 in 2000.

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 STATEMENTS
June 30, 2001

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, 2001, the Company had $22,182 of post 1987 bad debt
reserves. Of this amount, $11,091 was recaptured into taxable income for 2001.

Reclassifications.   Certain  reclassifications  have  been  made  to  the  2000
financial  statements to conform to the 2001 presentation.  All footnotes herein
that  present  comparative  outstanding  shares  have been  restated to show the
affect of the twenty-five percent stock dividend issued in the current year.

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, 2001



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, 2001


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

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

                                                                              28
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001



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

<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>

During the year  ended  June 30,  2001 and 2000,  the  Company  did not have any
proceeds from the sales of mortgage-backed  securities.  The Company had pledged
$14,357,452  and  $10,241,541   (current  face)  at  June  30,  2001  and  2000,
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  $451,281  and  $480,841  at June 30,  2001 and 2000,
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, 2001


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
    June 30, 2001
<S>                            <C>              <C>             <C>            <C>
    Mutual funds                $  2,716,697            287               -       2,716,984
    US Agency securities           1,191,931         45,457               -       1,237,388
    FHLMC stock                        7,786      1,531,094               -       1,538,880
    Tax-exempt securities          4,956,816        173,459         (10,865)      5,119,410
    FNMA/SLMA preferred            2,505,771         12,880          (9,901)      2,508,750
    CMO                            6,562,997        140,088            (390)      6,702,695
    SLMA asset-backed note         1,992,185              -         (12,185)      1,980,000
                                -----------------------------------------------------------
                                $ 19,934,183      1,903,265         (33,341)     21,804,107
                                ===========================================================

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

Hold-to-maturity securities:

   June 30, 2001
    Tax-exempt securities       $    954,995          3,442         (11,551)        946,886
    Corporate debt securities        990,725          4,275               -         995,000
                                -----------------------------------------------------------
                                $  1,945,720          7,717         (11,551)      1,941,886
                                ===========================================================
</TABLE>
                                                                              30
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001



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, 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>

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

                                               Amortized        Fair
                                                 Cost           Value
Hold-to-maturity:
    Due after one year through five years    $   990,725       995,000
    Due after five years through ten years             -             -
    Due after ten years                          954,995       946,886
                                             -------------------------

                                             $ 1,945,720     1,941,886
                                             =========================
Available-for-sale:
    Due within one year                      $   301,106       301,649
    Due after one year through five years      1,611,928     1,669,555
    Due after five years through ten years             -             -
    Due after ten years                        4,235,713     4,385,882
    Mutual funds                               2,716,697     2,716,697
    FHLMC stock                                    7,786     1,538,880
    FNMA                                       1,505,870     1,518,750
    SLMA asset-backed note                     2,992,086     2,970,000
    CMO                                        6,562,997     6,702,694
    Mortgage-backed securities                32,325,570    32,376,812
                                             -------------------------

                                             $52,259,753    54,180,919
                                             =========================

During the year ended June 30,  2001 and 2000,  $10,801,203  and  $4,112,575  in
investments were sold.

                                                                              31
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001



NOTE 4.        LOANS RECEIVABLE
<TABLE>
<CAPTION>
Loans receivable are summarized as follows:
                                                                            2001             2000
<S>                                                                 <C>                 <C>
    First mortgage loans (principally conventional)
        Principal balances
           Secured by one-to-four family residences                   $  75,949,406       69,078,064
           Secured by other properties                                   15,915,258       15,854,366
           Construction loans                                             6,226,951        1,949,807
        Loan participations purchased                                    12,881,325       14,641,330
        Share loans                                                       1,187,725        1,083,057
        Commercial loans                                                 18,042,355        6,993,272
        Consumer loans:
           Unsecured                                                        206,167          215,434
           Secured by vehicles                                            2,010,607        2,280,122
           Home equity lines                                              1,871,632        1,818,151
           Other consumer                                                   819,125          328,068
                                                                      ------------------------------
                                                                        135,110,551      114,241,671
    Less
        Loan participations sold                                         (3,155,852)      (3,307,063)
        Net deferred loan origination fees                                 (698,979)        (644,769)
        Allowance for loan losses                                          (824,783)        (512,570)
                                                                      ------------------------------

Total loans receivable                                                $ 130,430,937      109,777,269
                                                                      ==============================

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


    Balance at beginning of year                                      $     512,570          443,479
    Provision charged to income                                             345,000          205,000
    Charge-offs, recoveries and other                                       (32,787)        (135,909)
                                                                      ------------------------------
Balance at end of year                                                $     824,783          512,570
                                                                      ==============================
The Company has commitments to fund new loans as follows:

    Fixed rate                                                        $   2,287,000        1,228,000
    Variable rate                                                         3,631,000        3,999,000
    Commitments for new originations                                      2,113,000        4,778,000
                                                                      ------------------------------
        Total                                                         $   8,031,000       10,005,000
                                                                      ==============================
</TABLE>

                                                                              32
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 4. LOANS RECEIVABLE (CONTINUED)

Fixed rate  commitments at June 30, 2001 and 2000 had interest rates that ranged
from  7.00  percent  to  10.00  percent.  Total  loans  with  fixed  rates  were
$100,679,119  and  $90,478,307  at June 30, 2001 and 2000,  respectively.  Total
loans with variable rates were  $30,576,601 and $19,811,532 at June 30, 2001 and
2000, respectively.

Non-accrual and  renegotiated  loans for which interest has been reduced totaled
$609,808 and $719,443 at June 30, 2001 and 2000,  respectively.  Interest income
that was  foregone  amounted  to $59,671  and $49,667 at June 30, 2001 and 2000,
respectively.

The  weighted  average  rate for the loan  portfolio  was 8.29  percent and 8.23
percent at June 30, 2001 and 2000, respectively.

The Bank assesses all loans delinquent more than 90 days for impairment and such
loans  amounted  to  $641,407  at June 30,  2001.  Average  balances  for  loans
delinquent  more than 90 days totaled  approximately  $25,656 for the year ended
June 30, 2001. 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:

                                                             2001        2000

    Loans receivable                                     $   793,332     595,651
    Available-for-sale investment securities                 120,194     195,874
    Available-for-sale mortgage-backed securities            229,084     235,962
    Dividends                                                 41,026       4,001
    Time deposits                                              1,764       2,486
                                                         -----------------------

    Total accrued interest and dividends                 $ 1,185,400   1,033,974
                                                         =======================

                                                                              33
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001



NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

                                                          2001           2000

    Buildings                                     $       876,246        866,746
    Furniture, fixtures, and equipment                  1,021,265        819,261
    Land                                                  158,550        158,550
    Parking lot improvements                                5,265          5,265
    Leasehold improvements                                328,163        328,163
                                                  ------------------------------
                                                        2,389,489      2,177,985
    Less allowance for depreciation                     1,065,719        881,937
                                                  ------------------------------

    Total premises and equipment                  $     1,323,770      1,296,048
                                                  ==============================


NOTE 7.        DEPOSITS

Deposits are summarized as follows:

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

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

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

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

    Passbook savings accounts            2.02%          $  5,266,817      6.59 %
    Money market accounts                 3.62             9,535,076     11.96
    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, 2001



NOTE 7.        DEPOSITS (CONTINUED)

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

    Certificates of deposit:
        3.00%-6.00%                       5.28%         $  39,814,847     37.33%

        6.01%-7.00%                       6.27             36,360,331     34.09
        7.01%-8.00%                       7.24                500,398       .47
                                                        ------------------------

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

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


                                        Weighted
                                         Average
                                         Rate at               June 30, 2000
                                        June 30,        ------------------------
                                          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   $47,466,580   and   $26,937,632  at  June  30,  2001  and  2000,
respectively.

Certificates of deposit by remaining maturity are as follows:

                                                         2001            2000

    Less than 1 year                                $ 52,313,307      40,196,681
    1 year to 2 years                                 11,533,293       6,684,750
    2 years to 3 years                                 9,270,813       2,513,204
    3 years to 4 years                                 1,060,959       1,629,692
    4 years to 5 years                                   963,243         834,528
    Thereafter                                         1,533,961         878,128
                                                    ----------------------------
                                                    $ 76,675,576      52,736,983
                                                    ============================

                                                                              35
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 7.        DEPOSITS (CONTINUED)

Interest expense on deposits is summarized as follows:

                                                       2001              2000

    Certificates of deposit                        $ 3,586,750         2,703,535
    Money market accounts                              322,020           310,119
    Passbook savings                                    90,616           101,551
    Transaction and NOW deposits                        94,189            90,075
                                                   -----------------------------

                                                   $ 4,093,573         3,205,280
                                                   =============================


NOTE 8.        REPURCHASE AGREEMENT

Under the terms of the  repurchase  agreement,  deposits  in  designated  demand
accounts of the customer are put into an investment  vehicle which is used daily
to purchase an interest in designated  U.S.  Government or Agencies'  securities
owned by the Bank. The Bank in turn agrees to repurchase these  investments on a
daily basis and pay the customer the daily  interest  earned on them. The amount
of repurchase  agreements was $1,324,335 and $230,839 at June 30, 2001 and 2000,
respectively.

NOTE 9.        REGULATORY MATTERS AND RESTRICTIONS ON RETAINED
               EARNINGS

The Bank is subject to certain  restrictions  on the amount of dividends that it
may declare  without  prior  regulatory  approval.  The Bank is also  subject to
various  regulatory  capital  requirements  administered  by the federal banking
agencies.  Failure to meet minimum  capital  requirements  can initiate  certain
mandatory and possibly additional  discretionary  actions by regulators that, if
undertaken,  could  have  a  direct  material  effect  on the  Bank's  financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  quantitative  measures of the Bank's assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts  and  classification  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum  amounts and ratios set forth in the table
below.  Management believes, as of June 30, 2001 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, 2001


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

The Bank at June 30,  2001,  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, 2001:

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

<S>                       <C>            <C>           <C>            <C>       <C>            <C>
   GAAP Capital            $ 13,408,562                  $13,408,562              $13,408,562

   Disallowed servicing
   assets, disallowed
   deferred tax assets,
   and other disallowed
   assets                       (98,005)                     (98,005)                 (98,005)

   Accumulated losses
   (gains) on certain
   available-for-sale
   securities                (1,267,970)                  (1,267,970)              (1,267,970)

   Unrealized (gains)
   losses on available-
   for-sale equity
   securitie                          -                                               690,462

   Qualifying general
   loan loss allowance                -                                               824,783
                           ----------------------------------------------------------------------------

   Regulatory capital
   computed                  12,042,587        6.11%      12,042,587       6.11%   13,557,832     11.67%

   Minimum capital
   requirement                2,957,259        1.50%       7,886,025       4.00%    9,290,880      8.00%
                           ----------------------------------------------------------------------------

   Regulatory capital
   excess                  $  9,085,328        4.61%    $  4,156,562       2.11% $  4,266,952      3.67%
                           ============================================================================

</TABLE>

                                                                              37
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 10.       RELATED PARTY TRANSACTIONS

The Company has several loans  receivable  from related  parties.  The Company's
policy  is that all such  loan  transactions  be on the  same  terms,  including
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:

                                                2001              2000

        Balance, beginning of year           $1,067,032          929,966
        New loans                               757,593          573,626
        Repayments                             (116,781)        (436,560)
                                             ---------------------------
        Balance, end of year                 $1,707,844        1,067,032
                                             ===========================

The Company also has several deposits from related parties. Outstanding deposits
from related parties  amounted to $2,556,000 and $2,538,000 at June 30, 2001 and
2000,  respectively.  The Company  also  expensed  $143,801 and $150,303 for the
years  ended  June 30,  2001 and 2000,  respectively,  for  director's  fees and
compensation under the management stock bonus plan.


NOTE 11.       CONCENTRATIONS OF CREDIT RISK

The Company is active in originating primarily first mortgage loans primarily in
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 $1,971,807 and $1,587,621 at June 30, 2001 and 2000, respectively.

                                                                              38
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 12.       INCOME TAXES

Income tax expense consists of:
                                                    2001              2000
Current
    Federal                                 $       637,862           557,533
    State                                           122,493           101,942
                                            ---------------------------------
                                                    760,355           659,475
                                            ---------------------------------
Deferred provision (benefit)
    Federal                                          (3,279)           (2,113)
    State                                              (209)             (135)
                                            ---------------------------------
                                                     (3,488)           (2,248)
                                            ---------------------------------

Total income tax expense                    $       756,867           657,227
                                            =================================

Deferred taxes,  net of valuation  allowance,  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 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:

                                                       2001             2000

    Tax at statutory rate of 34 percent         $       821,818        753,792
    State income taxes, net of federal
        tax benefit                                     122,284        101,807
    Non-taxable interest, dividends and
        other-net                                      (187,235)      (198,372)
                                                ------------------------------

                                                $       756,867        657,227
                                                ==============================

    Effective tax rate                                       31%            30%


                                                                              39
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 13.       FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The  Company  is a party to twelve  irrevocable  letters of credit  which  total
$233,350.  The Bank's exposure to credit loss in the event of  nonperformance by
the other  party to the  letters  of credit is  represented  by the  contractual
notional  amount of the  letters of credit.  The  Company  uses the same  credit
policies  in  making  commitments  and  conditional  obligations  as it does for
on-balance-sheet instruments.

NOTE 14.       EMPLOYEE STOCK OWNERSHIP PLAN

In  connection  with the  conversion,  the  Company  adopted an  Employee  Stock
Ownership  Plan  (ESOP)  for the  benefit  of all of its  full  time  employees.
Contributions  to the Plan are  determined at the  discretion of the Company and
are limited to the maximum amount  deductible for income tax purposes.  Eligible
employees  include all full time employees with a minimum of one year of service
as of any anniversary date of the Plan. The ESOP purchased  105,000 (as adjusted
for previous stock dividends) common shares of the Company's stock issued in the
conversion,  which was funded by a $560,000 loan from the Company. Per Statement
of Position 93-6,  Employer's Accounting for Employee Stock Ownership Plans, the
unpaid  balance of the ESOP loan  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, 2001, 40,710.3292 ESOP shares were released, and for
the year ended June 30, 2001, $110,905 in contributions were made to the ESOP by
the Company.  As of June 30,  2000,  35,676.6870  ESOP shares were  released and
contributions  of $96,414  were made to the Plan by the Company.  The  remaining
unallocated ESOP shares at June 30, 2001 was 56,185.6705.  The fair value of the
remaining  unallocated  shares  at June  30,  2001  is  $705,130.  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, 2001


NOTE 15.       STOCK PLANS

At June 30, 2001, the Company has four stock-based compensation plans, which are
described below. The Company applies APB Opinion 25 and related  Interpretations
in  accounting  for its  plans.  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 three
stock option based compensation plans been determined based on the fair value at
the grant dates for awards under those plans  consistent with the method of FASB
Statement  123, the  Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
                                                           2001          2000

    Net income (as reported)                          $  1,660,215     1,559,806
      Pro forma                                          1,658,207     1,548,512

    Basic earnings per share (as reported)            $       1.50          1.36
      Pro forma                                               1.50          1.35

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 (177,891 shares as adjusted for previous stock dividends) of the
Corporation  issued and outstanding is reserved for issuance by the Company upon
exercise of stock options which may be granted to directors, officers, and other
key  employees  from time to time.  The Plan provides for both  Incentive  Stock
Options and Non-Incentive Stock Options. The options vest at a rate of one-fifth
of the award per year and have an  exercise  date of ten years  from the date of
grant.  In  connection  with the  adoption of the Plan,  the Company has granted
77,406  incentive  stock options and 53,366  non-incentive  stock options to its
directors,  officers, and other key employees.  The option price established for
the  shares  upon  exercise  range  from  $7.40 per  share to  $12.80  per share
depending on the grant date of the option.  The weighted average  remaining life
of common stock options is 3.6 years.

During the year,  3,750 incentive stock options were granted and 7,124 incentive
stock options were forfeited.  Remaining  shares  available to be granted in the
future  amount to  54,242.  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 $.09 per quarter;  expected  volatility  of 19 percent;  risk-free
interest rate of 6 percent; and expected life of 5 years.

                                                                              41
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 15.       STOCK PLANS (CONTINUED)


A summary of common  stock  options  under the Stock  Option  Plan for the years
ended June 30, 2000 and 2001 follows:

                                                          Weighted
                                                          Average      Options
                                         Options           Price     Exercisable

Balance, June 30, 1999                   112,929       $      8.11       49,242
    Granted                                8,750             10.80
    Forfeited                                  -                 -
    Exercised                             (4,406)             7.40
                                         -------------------------

Balance, June 30, 2000                   117,273             8.36        64,905
                                                                       ========
    Granted                                3,750             11.15
    Forfeited                             (7,124)            11.19
    Exercised                                  -                 -
                                         -------------------------
Balance, June 30, 2001                   113,899       $     8.31        78,693
                                         ======================================

On January 5, 1996,  the Company  also  adopted a  Management  Stock Bonus Plan.
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,  2000,  the Company made awards under the Plan (less
forfeited  shares) in the amount of 46,279 shares.  The award price  established
for the shares  upon  exercise  was $7.40 per share.  At June 30, 2001 and 2000,
27,472 and 23,365 shares,  respectively,  remain to be awarded under the Plan in
the future.

Awards  under the Plan are earned at the rate of one-fifth of the award per year
as of the one-year  anniversary of the effective date of the Plan. For the years
ended June 30,  2001 and 2000,  compensation  cost in the amount of $42,503  and
$65,810, 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 11,946 shares available

                                                                              42
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 15.       STOCK PLANS (CONTINUED)

under the Plan to its  Directors.  The option price  established  for the shares
upon exercise is $11.00 per share.

On October 27, 2000, the Board of Directors  adopted the 2000 stock option plan.
Pursuant to the Plan, an amount equal to 5 percent of the shares of common stock
(58,500 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 a  exercise  date of ten  years  from the date of  grant.  No
options were issued during the year ended June 30, 2001.

During the 1997 fiscal year, the Company began a stock repurchase program. As of
June 30, 2001 and 2000, the Company has repurchased  21,766 and 56,140 shares of
its outstanding common stock for $291,929 and $760,531, respectively.


NOTE 16.   FEDERAL HOME LOAN BANK ADVANCES

In October  1995,  the Bank entered  into an  "Advances,  Collateral  Pledge and
Security  Agreement"  (the  Agreement) with the Federal Home Loan Bank of Dallas
(FHLB).  The purpose of the Agreement is to allow the Bank to obtain  extensions
of credit from the FHLB to use in its operations. At June 30, 2001, the Bank has
$72,105,997 in outstanding advances with the FHLB. The advances bear interest at
a fixed rate,  which range from 3.810  percent to 6.970  percent,  and mature as
follows:

Maturities for the fiscal years ending June 30:

                  2002                           $   32,820,346
                  2003                               13,209,900
                  2004                               10,198,000
                  2005                                5,494,710
                  2006                                4,000,000
                  Thereafter                          6,383,041
                                                 --------------

                                                 $   72,105,997
                                                 ==============

                                                                              43
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 16.       FEDERAL HOME LOAN BANK ADVANCES (CONTINUED)

Several of the advances due in July were subsequently refinanced after year-end.
The advances are secured by the Bank's  investment  in FHLB stock of  $3,649,000
and investment and mortgage-backed  securities in the amount of $11,443,162.  In
addition, the advances are secured under a "blanket credit facility" whereby all
of the Bank's 1-4 family and  commercial  real estate loans are also  collateral
under the advance agreement.

NOTE 17.       FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

<TABLE>
<CAPTION>
                                                                    June 30, 2001
                                                            ---------------------------
                                                             Carrying            Fair
                                                               Value             Value
<S>                                                     <C>                 <C>
    Financial Assets:
        Cash and due from banks                          $     3,216,000         3,216,000
        Interest-bearing deposits with banks                   1,046,254         1,046,254
        Available-for-sale-investment securities              21,804,107        21,804,107
        Hold-to-maturity investment securities                 1,945,720         1,941,886
        Available-for-sale mortgage-backed securities         32,376,812        32,376,812
        Loans receivable, net                                130,430,937       134,700,503
        Accrued interest receivable                            1,185,400         1,185,400

</TABLE>
                                                                              44
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 17.       FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

                                                       June 30, 2001
                                                -----------------------------
                                                  Carrying            Fair
                                                   Value             Value
    Financial Liabilities:
        Transaction deposits                     15,462,712        15,462,712
        Savings and NOW deposits                 14,521,879        14,521,879
        Time deposits                            76,675,576        76,675,576
        Accrued interest payable                    473,448           473,448
        Advances from the FHLB                   72,105,997        72,105,997
        Repurchase agreements                     1,324,335         1,324,335

    Off-Balance-Sheet Liabilities:
        Commitments to extend credit              8,031,000         8,031,000

NOTE 18.       EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                         For the Year Ended June 30, 2001
                                                              -----------------------------------------------------
                                                                     Income           Shares              Per-share
                                                                   (Numerator)     (Denominator)           Amount
<S>                                                          <C>                  <C>          <C>
    Income available to common stockholders -
        basic earnings per share                              $     1,660,205        1,107,243   $             1.50
                                                                                                 ==================
    Effect of dilutive securities:
        Options                                                             -           32,708
                                                              --------------------------------
    Income available to common stockholders -
        diluted earnings per share                            $     1,660,205        1,139,951   $             1.46
                                                              =====================================================
</TABLE>

<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        1,143,924   $             1.36
                                                                                                 ==================
    Effect of dilutive securities:
        Options                                                             -           24,325
                                                              --------------------------------
    Income available to common stockholders -
        diluted earnings per share                            $     1,559,806        1,168,249   $             1.34
                                                              =====================================================
</TABLE>

                                                                              45
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 19.       LEASES

The Company is obligated  under a lease  agreement  entered into on December 30,
1997 for the building  across the street from its offices.  For both years ended
June 30, 2001 and 2000, 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

              2002                                   $ 30,000
              2003                                     30,000
              2004                                     30,000
              2005                                     30,000
              2006                                     30,000
           Thereafter                                  15,000


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

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


NOTE 20.       NEW ACCOUNTING STANDARD

During  the year ended June 30,  2001,  the  following  Statement  of  Financial
Accounting  Standard "SFAS" became effective but is not currently  applicable to
the Company:

SFAS No. 140,  Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments  of  Liabilities - a replacement  of FASB Statement No 125. This
Statement  provides   accounting  and  reporting  standards  for  transfers  and
servicing  of  financial  assets  and  extinguishments  of  liabilities.   Those
standards are based on consistent application of a financial-components approach
that  focuses on control.  Under that  approach,  after a transfer of  financial
assets,  an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred,

                                                                              46
<PAGE>
GFSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2001


NOTE 20.        NEW ACCOUNTING STANDARD (CONTINUED)

derecognizes   financial   assets  when  control  has  been   surrendered,   and
derecognizes  liabilities when extinguished.  This statement provides consistent
standards for  extinguishing  transfers of financial  assets that are sales from
transfers that are secured borrowings.


NOTE 21.        STOCK DIVIDEND

On October 31, 2000, a stock dividend was declared to  shareholders of record as
of  December 1, 2000.  As a result of the stock  dividend,  230,914  shares were
issued.  Earnings per share amounts and weighted average shares outstanding have
been  restated  for the year  ended  June 30,  2000 to give  effect of the stock
dividend.

                                                                              47