UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------
                                   FORM 10-KSB
(Mark One):

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended June 30, 2003, OR

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

Commission File Number:  0-25854

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

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

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

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

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

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

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

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

     State issuer's revenues for its most recent fiscal year. $13,366,462

     The aggregate market value of the voting and non-voting  common equity held
by non-affiliates of the registrant, based on the average bid and asked price of
the  registrant's  Common Stock on the Nasdaq  Smallcap  Market at September 15,
2003, was $9.4 million.

     As of  September  15,  2003,  there were issued and  outstanding  1,146,270
shares of the registrant's Common Stock.

     Transitional Small Business Disclosure format (check one):

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

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Annual  Report to  Stockholders  for Fiscal Year ended June 30,
     2003. (Part II)
2.   Portions of Proxy  Statement for the 2003 Annual  Meeting of  Stockholders.
     (Part III)
<PAGE>
                                     PART I

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

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

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

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

GENERAL

     The Company is a unitary  savings and loan  holding  company  which,  under
existing laws,  generally is not restricted in the types of business  activities
in which it may engage provided that the Bank retains a specified  amount of its
assets in  housing-related  investments.  The Company  conducts  no  significant
business or  operations  of its own other than  holding  all of the  outstanding
stock of the Bank.  References to the Company or Registrant  generally refers to
the  consolidated  entity which includes the main operating  company,  the Bank,
unless the context indicates otherwise.

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

     The Registrant  operates a traditional  savings bank  business,  attracting
deposit accounts from the general public and using those deposits, together with
other  funds,  primarily  to  originate  and invest in loans

                                       1
<PAGE>

secured by one- to  four-family  residential  loans and  commercial  real estate
loans. To a lesser extent,  the Registrant also originates  construction  loans,
commercial business loans, consumer loans, and multi-family loans.

COMPETITION

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


                                       2
<PAGE>
LENDING ACTIVITIES

     The following  table sets forth the  composition of the  Registrant's  loan
portfolio in dollar amounts, percentages of the respective portfolios, and types
of security, at the dates indicated.
<TABLE>
<CAPTION>
                                                                              At June 30,
                                               ---------------------------------------------------------------------------
                                                      2003                        2002                    2001
                                               -----------------------       ------------------      ------------------
                                                  $                %            $           %           $          %
                                               -------          ------       -------     ------      -------     ------
                                                                                               (Dollars in Thousands)
<S>                                           <C>                <C>        <C>           <C>       <C>           <C>
Type of Loans:
  Mortgage loans:
    Residential.............................  $ 85,730(1)        57.51%     $ 89,804(1)   61.42%    $ 81,662(1)   60.44%
    Commercial real estate..................    25,913           17.38        21,726      14.86       23,085      17.09
  Construction:
    Residential.............................     2,735            1.84         2,623       1.79          830        .62
    Commercial..............................     5,280            3.54         4,715       3.23        5,397       3.99
                                               -------          ------       -------     ------      -------     ------
                                               119,658           80.27       118,868      81.30      110,974      82.14
                                               -------          ------       -------     ------      -------     ------
  Commercial business.......................    23,655           15.87        21,824      14.93       18,042      13.35
                                               -------          ------       -------     ------      -------     ------
  Consumer:
    Savings account.........................     1,212             .81         1,452        .99        1,228        .91
    Automobile and other....................     4,538            3.05         4,061       2.78        4,867       3.60
                                               -------          ------       -------     ------      -------     ------
                                                 5,750            3.86         5,513       3.77        6,095       4.51
                                               -------          ------       -------     ------      -------     ------

  Total loans...............................  $149,063          100.00%     $146,205     100.00%    $135,111     100.00%
                                               -------          ======       -------     ======      -------     ======
Less:
  Loan participations sold..................      (475)                         (773)                 (3,156)
  Loans in process..........................        --                            --                      --
  Deferred loan origination fees and costs..      (796)                         (767)                   (699)
  Allowance for loan losses.................    (1,396)                         (984)                   (825)
                                               -------                       -------                 -------
Total loans, net............................  $146,396                      $143,681                $130,431
                                               =======                       =======                 =======

Type of Security:
 Mortgage loans:
    One-to-four-family......................  $ 83,052           55.72%     $ 87,661      59.96%    $ 83,251      61.62%
    Commercial real estate..................    32,554           21.84        28,662      19.60       26,546      19.65
    Multi-family............................     3,255            2.18         2,437       1.67          991        .73
                                               -------          ------       -------     ------      -------     ------
                                               118,861           79.74       118,760      81.23      110,788      82.00
                                               -------          ------       -------     ------      -------     ------
  Commercial business.......................    24,444           16.40        21,928      15.00       18,228      13.49
                                               -------          ------       -------     ------      -------     ------
  Consumer:
    Savings accounts........................     1,212             .81         1,453        .99        1,188        .88
    Automobile and other....................     4,546            3.05         4,064       2.78        4,907       3.63
                                               -------          ------       -------     ------      -------     ------
                                                 5,758            3.86         5,517       3.77        6,095       4.51
                                               -------          ------       -------     ------      -------     ------
Total.......................................  $149,063          100.00%     $146,205     100.00%    $135,111     100.00%
                                               =======          ======       =======     ======      =======     ======

<CAPTION>
                                                                At June 30,
                                                 -------------------------------------------
                                                         2000                    1999
                                                 -------------------      ------------------
                                                    $           %            $          %
                                                 -------      ------      -------     ------
                                                        (Dollars in thousands)
<S>                                             <C>            <C>       <C>           <C>
Type of Loans:
  Mortgage loans:
    Residential...............................  $ 78,920       69.08%    $ 72,290      70.85%
    Commercial real estate....................    18,376       16.09       17,199      16.86
  Construction:
    Residential...............................       581         .51          828        .81
    Commercial................................     3,787        3.31        2,733       2.68
                                                 -------      ------      -------     ------
                                                 101,664       88.99       93,050      91.20
                                                 -------      ------      -------     ------
  Commercial business.........................     6,853        6.00        4,460       4.36
                                                 -------      ------      -------     ------
  Consumer:
    Savings account...........................     1,083         .95        1,067       1.05
    Automobile and other......................     4,642        4.06        3,459       3.39
                                                 -------      ------      -------     ------
                                                   5,725        5.01        4,526       4.44
                                                 -------      ------      -------     ------

  Total loans.................................  $114,242      100.00%    $102,036     100.00%
                                                 -------      ======      -------     ======
Less:
  Loan participations sold....................    (3,308)                  (2,938)
  Loans in process............................        --                   (1,443)
  Deferred loan origination fees and costs....      (645)                    (647)
  Allowance for loan losses...................      (512)                    (443)
                                                 -------                  -------
Total loans, net..............................  $109,777                $  96,565
                                                 =======                 ========

Type of Security:
 Mortgage loans:
    One-to-four-family........................  $ 78,790       68.97%    $ 72,174      70.73%
    Commercial real estate....................    22,135       19.38       19,844      19.45
    Multi-family..............................       711         .62          944        .93
                                                 -------      ------      -------     ------
                                                 101,636       88.97       92,962      91.11
                                                 -------      ------      -------     ------
  Commercial business.........................     6,881        6.02        4,548       4.45
                                                 -------      ------      -------     ------
  Consumer:
    Savings accounts..........................     1,083         .95        1,067       1.05
    Automobile and other......................     4,642        4.06        3,459       3.39
                                                 -------      ------      -------     ------
                                                   5,725        5.01        4,526       4.44
                                                 -------      ------      -------     ------
Total.........................................  $114,242      100.00%    $102,036     100.00%
                                                 =======      ======      =======     ======
<FN>
_________
(1)  Included  in  this  category  are  loans  classified  as held  for  sale of
     $132,000,  $297,000,  and  $980,000,  respectively.  Such loans  constitute
     one-to-four family mortgage loans.
</FN>
</TABLE>
                                       3
<PAGE>

LOAN MATURITY TABLES

     The following table sets forth the estimated  maturity of the  Registrant's
loan  portfolio  at June 30,  2003.  The table does not include  prepayments  or
scheduled principal  repayments.  Prepayments or scheduled principal  repayments
totaled $40.7 million for the year ended June 30, 2003.  All mortgage  loans are
shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>
                                                               Due         Due after
                                                              within       1 through     Due after
                                                              1 year        5 years       5 years        Total
                                                              ------       ----------    ----------      -----
                                                                              (In Thousands)
<S>                                                          <C>            <C>           <C>           <C>
One-to-four-family.........................................  $   658        $ 5,995       $74,702       $ 81,355
Multi-family and commercial real estate....................    4,379         16,439         8,673         29,491
Construction...............................................    3,898          4,023            94          8,015
Commercial business........................................   12,918          7,217         4,309         24,444
Consumer...................................................    1,531          2,342         1,885          5,758
                                                              ------         ------        ------        -------
Total......................................................  $23,384        $36,016       $89,663       $149,063
                                                              ======         ======        ======        =======
</TABLE>

     The following table sets forth as of June 30, 2003 the dollar amount of all
loans due after June 30,  2004,  which have fixed rates of interest and floating
or adjustable interest rates.
<TABLE>
<CAPTION>
                                                                             Floating or
                                                          Fixed Rates       Adjustable Rates        Total
                                                          -----------       ----------------        -----
                                                                            (In Thousands)
<S>                                                        <C>                  <C>               <C>
One-to-four-family........................................ $ 79,328             $ 1,369           $ 80,697
Multi-family and commercial real estate...................   15,795               9,317             25,112
Construction..............................................      940               3,177              4,117
Commercial business.......................................    2,653               8,873             11,526
Consumer..................................................    2,460               1,767              4,227
                                                            -------              ------            -------
Total..................................................... $101,176             $24,503           $125,679
                                                            =======              ======            =======
</TABLE>

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

     The Registrant  primarily  originates  fixed-rate  mortgage loans that have
maturities of up to 15 years. In addition,  the Registrant originates loans with
terms  over  15  years  for  sale  in  the  secondary  market.   Generally,  the
Registrant's  underwriting  guidelines  conform  to Federal  Home Loan  Mortgage
Corporation   ("FreddieMac")   and   Federal   National   Mortgage   Association
("FannieMae")  guidelines.  At June 30,  2003,  fixed rate  loans  held-for-sale
totalled  approximately  $132,000.


                                       4
<PAGE>
     For  all  adjustable-rate  mortgage  loans,  the  Registrant  requires  the
borrower to qualify at the initial  index  interest  rate.  The  adjustable-rate
mortgage  loans  provide for annual  interest  rate  adjustments  based upon the
one-year treasury rate with a maximum annual adjustment of not more than 2% over
the initial rate of interest.  Adjustable-rate mortgage loans reprice every year
and provide for terms of up to 30 years with most loans having terms of 15 or 30
years.

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

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

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

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

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

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

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

                                       5
<PAGE>

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

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

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

     LOAN APPROVAL  AUTHORITY  AND  UNDERWRITING.  The loan approval  process is
segmented by the type and size of loan. All loans secured by deposit accounts as
well as small real  estate,  commercial  and  consumer  loans may be approved by
certain loan officers within  designated  limits.  Members of senior  management
have varying  individual levels of authority to approve loans up to a maximum of
$100,000 for unsecured loans and $350,000 for secured loans. The Management Loan
Committee,  consisting of all senior  management and one non-employee  Director,
may  approve  loans in excess of  individual  officer  limits up to a maximum of
$1,000,000 secured and $500,000 unsecured. The Board of Directors approves loans
over $1,000,000  secured and $500,000  unsecured and also reviews all loans that
have been approved by officers or committees.

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

     LOAN  COMMITMENTS.  At June 30,  2003,  the  Registrant  had $11 million of
outstanding  commitments  to originate new loans at market  interest  rates,  $4
million in  undisbursed  funds related to  construction  loans and $6 million in
commitment to fund lines and letters of credit.

                                       6
<PAGE>
NON-PERFORMING AND PROBLEM ASSETS

     LOAN  DELINQUENCIES.  The Registrant's  collection  procedures provide that
when a mortgage  loan is 15 days past due, a notice of  nonpayment  is sent.  If
payment is still  delinquent after 30 days past due, the customer will receive a
telephone call within ten days. If the delinquency continues, similar subsequent
efforts  are made to  eliminate  the  delinquency.  If the loan  continues  in a
delinquent  status for 120 days or more and no repayment plan is in effect,  the
Bank typically initiates foreclosure  proceedings.  For consumer loans, a notice
is  generated  when the loan is ten days past due.  Further  collection  efforts
generally  commence for consumer  loans by the time a payment is  delinquent  20
days. Collection procedures for other non-mortgage loans generally begin after a
loan is one day  delinquent.  Loans  are  reviewed  on a  monthly  basis and are
generally placed on a non-accrual status when the loan becomes more than 90 days
delinquent  and, in the opinion of  management,  the  collection  of  additional
interest is doubtful.  Interest  accrued and unpaid at the time a loan is placed
on non-accrual  status is charged against interest income.  Subsequent  interest
payments,  if any, are either applied to the  outstanding  principal  balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility of the loan.

     The following table sets forth information  regarding  nonaccrual loans and
real  estate  owned,  as of the dates  indicated.  The  Registrant  has no loans
categorized as troubled debt restructurings  within the meaning of the Statement
of Financial  Accounting  Standards ("SFAS") 15 and no impaired loans within the
meaning of SFAS 114,  as amended by SFAS 118.  Interest  income  that would have
been recorded on loans  accounted  for on a nonaccrual  basis under the original
terms of such loans totalled $95,962 for the year ended June 30, 2003.

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                                                  At June 30,
                                                                 -----------------------------------------------
                                                                  2003      2002      2001      2000      1999
                                                                  -----     -----     -----     -----     -----
                                                                                   (In Thousands)
<S>                                                              <C>       <C>       <C>       <C>       <C>
Loans accounted for on a non-accrual basis:

Mortgage loans:
  Construction ...............................................   $1,124    $   --    $   --    $   --    $   --
  Permanent loans secured by 1-4 dwelling units ..............      771        70       398       542        78
  All other mortgage loans ...................................      317         6        48        83        75
Non-mortgage loans:
  Commercial .................................................       56       164        64        16        --
  Consumer ...................................................       49         6        99        78        66
                                                                  -----     -----     -----     -----     -----
      Total ..................................................   $2,317    $  246    $  609    $  719    $  219
                                                                  -----     -----     -----     -----     -----

Accruing loans which are contractually past
 due 90 days or more:
Mortgage loans:
  Permanent loans secured by 1-4 dwelling units ..............   $   --    $  621    $   --    $   --    $   --
  All other mortgage loans ...................................       --       108        --        --        --
  Commercial .................................................       --        20        --        --        --
  Consumer ...................................................       --        67        --        --        --
                                                                  -----     -----     -----     -----     -----
      Total ..................................................   $   --    $  816    $   --    $   --    $   --
                                                                  =====     =====     =====     =====     =====

Total non-accrual and accrual loans ..........................   $2,317    $1,062    $  609    $  719    $  219
                                                                  -----     -----     -----     -----     -----
Real estate owned ............................................      195       143        --        38       150
Other repossessed ............................................       19         7        --        --        --
                                                                  -----     -----     -----     -----     -----
Total non-performing assets ..................................   $2,531    $1,212    $  609    $  757    $  369
                                                                  =====     =====     =====     =====     =====

Total non-accrual and accrual loans to net loans .............     1.59%     .74%       .47%      .66%      .23%
Total non-accrual and accrual loans to total assets ..........     1.01%     .51%       .31%      .41%      .15%
Total non-performing assets to total assets ..................     1.10%     .59%       .31%      .43%      .24%
</TABLE>

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

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

                                       8
<PAGE>

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

     At June 30,  2003,  there  were [NO]  loans  with  respect  to which  known
information  about the  possible  credit  problems of the  borrowers or the cash
flows of the security  properties have caused  management to have concerns as to
the ability of the borrowers to comply with present loan repayment terms.

     The  following  table  sets  forth the  Registrant's  classified  assets in
accordance with its classification system at June 30, 2003 (in thousands):


                   Special mention.........   $5,211
                   Substandard ............    4,033
                   Doubtful ...............       43
                   Loss ...................       --
                                              ------
                   Total ..................   $9,287
                                              ======


     ALLOWANCES  FOR LOAN  LOSSES.  A  provision  for loan  losses is charged to
operations  based on management's  evaluation of the losses that may be incurred
in the Registrant's loan portfolio. Such evaluation,  which includes a review of
all loans of which full  collectibility  of interest  and  principal  may not be
reasonably assured, considers the Registrant's past loan loss experience,  known
and inherent  risks in the  portfolio,  adverse  situations  that may affect the
borrower's ability to repay, estimated value of any underlying  collateral,  any
existing guarantees,  past performance of the loan, available  documentation for
the loan, legal impediments to collection,  financial condition of the borrower,
and current economic conditions.

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

                                       9
<PAGE>
     The following table sets forth information with respect to the Registrant's
allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
                                                                                     At June 30,
                                                           -----------------------------------------------------------------
                                                             2003           2002         2001            2000         1999
                                                           ---------     ---------     ---------     ---------     ---------
                                                                                (Dollars in Thousands)

<S>                                                        <C>           <C>           <C>           <C>           <C>
Total loans outstanding, net ...........................   $ 146,396     $ 143,681     $ 130,431     $ 109,777     $  96,565
                                                           =========     =========     =========     =========     =========
Average loans outstanding ..............................   $ 141,695     $ 132,771     $ 121,237     $ 103,252     $  88,355
                                                           =========     =========     =========     =========     =========

Allowance balances (at beginning of period) ............   $     984     $     825     $     512     $     443     $     387
Provision:
  Residential ..........................................          11            48            58            57            14
  Consumer and commercial business .....................         441           177           287           148           124
                                                           ---------     ---------     ---------     ---------     ---------
                                                                 452           225           345           648           525
                                                           ---------     ---------     ---------     ---------     ---------
Charge-offs:
  Residential ..........................................          (6)          (11)           --          (113)          (64)
  Consumer and commercial business .....................         (37)          (81)          (32)          (25)          (18)
Recoveries:
  Residential ..........................................           1            --            --            --            --
  Consumer and commercial business .....................           2            26            --             2            --
                                                           ---------     ---------     ---------     ---------     ---------
Net (charge-offs) recoveries ...........................         (40)          (66)          (32)         (136)          (82)
                                                           ---------     ---------     ---------     ---------     ---------

Allowance balance (at end of period) ...................   $   1,396     $     984     $     825     $     512     $     443
                                                           =========     =========     =========     =========     =========

Allowance for loan losses as a percent
  of total loans outstanding, net ......................         .95%          .68%          .63%          .47%          .46%
                                                           =========     =========     =========     =========     =========
</TABLE>


                                       10
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

     The following table sets forth the allocation of the allowance by category,
which  management  believes can be allocated only on an approximate  basis.  The
allocation of the allowance to each  category is not  necessarily  indicative of
future loss and does not restrict the use of the  allowance to absorb  losses in
any category.
<TABLE>
<CAPTION>
                                                               At June 30,
                                 -----------------------------------------------------------------------------
                                           2003                      2002                     2001
                                 ------------------------   ------------------------   -----------------------
                                              Percent of                 Percent of              Percent of
                                              Loans in Each              Loans in Each           Loans in Each
                                              Category to                Category to             Category to
                                 Amount       Total Loans    Amount      Total Loans   Amount    Total Loans
                                 ------       ------------   ------      ------------  ------    -------------

<S>                              <C>            <C>         <C>            <C>        <C>          <C>
Residential real estate........  $  312         57.51%      $ 307          61.42%     $ 275        60.44%
Commercial real estate.........     221         17.38         163          14.86        156        17.09
Construction, consumer and
  commercial business..........     863         25.11         514          23.72        394        22.47
                                  -----        ------        ----         ------       ----       ------

  Total........................  $1,396        100.00%      $ 984         100.00%     $ 825       100.00%
                                  =====        ======        ====         ======       ====       ======

<CAPTION>
                                                    At June 30,
                                 ----------------------------------------------------
                                          2000                      1999
                                  -----------------------   -------------------------
                                             Percent of                 Percent of
                                             Loans in Each              Loans in Each
                                             Category to                Category to
                                   Amount    Total Loans    Amount      Total Loans
                                   ------    ------------   ------      -------------
<S>                                <C>         <C>          <C>           <C>
Residential real estate.........   $217        69.08%       $273          70.85%
Commercial real estate..........    131        16.09          70          16.86
Construction, consumer and
  commercial business...........    164        14.83         100          12.29
                                    ---       ------         ---         ------

  Total.........................   $512       100.00%       $443         100.00%
                                    ===       ======         ===         ======
</TABLE>

                                       11
<PAGE>

INVESTMENT ACTIVITIES

     The  Registrant  is  required  under  federal   regulation  to  maintain  a
sufficient level of liquid assets (including specified short-term securities and
certain other investments), as determined by management and defined and reviewed
for adequacy by the OTS during its regular examinations.  The OTS, however, does
not prescribe by regulation a minimum amount or percentage of liquid assets. The
level of liquid assets varies depending upon several factors, including: (i) the
yields  on  investment  alternatives,  (ii)  management's  judgment  as  to  the
attractiveness of the yields then available in relation to other  opportunities,
(iii) expectation of future yield levels,  and (iv) management's  projections as
to the  short-term  demand  for funds to be used in loan  origination  and other
activities.  Investment securities,  including mortgage-backed  securities,  are
classified  at the time of  purchase,  based upon  management's  intentions  and
abilities, as securities held to maturity or securities available-for-sale. Debt
securities  acquired  with  the  intent  and  ability  to  hold-to-maturity  are
classified  as  held-to-maturity  and  are  stated  at  cost  and  adjusted  for
amortization of premium and accretion of discount,  which are computed using the
level yield method and recognized as adjustments of interest  income.  All other
debt securities are classified as available-for-sale.

     Current   regulatory  and  accounting   guidelines   regarding   investment
securities  (including  mortgage- backed  securities)  require the Registrant to
categorize securities as "held-to-maturity,"  "available-for-sale" or "trading."
As of June  30,  2003,  Registrant  had  securities  (including  mortgage-backed
securities)  classified as "held-to-maturity"  and  "available-for-sale"  in the
amount  of  $675,997  and  $67,796,520,  respectively,  and  had  no  securities
classified  as "trading."  Securities  classified  as  "available-for-sale"  are
reported  for  financial  reporting  purposes at the fair market  value with net
changes  in the  market  value  from  period to period  included  as a  separate
component of stockholders'  equity,  net of income taxes.  Changes in the market
value of securities  available-for-sale  do not affect the Company's  income. In
addition,  changes in the market value of securities  available-for-sale  do not
affect the Bank's regulatory  capital  requirements or its loan-to-one  borrower
limit.

         At June 30, 2003, the Registrant's  investment portfolio policy allowed
investments in instruments  such as: (i) U.S.  Treasury  obligations,  (ii) U.S.
federal  agency or  federally  sponsored  agency  obligations,  (iii)  municipal
obligations,  (iv) mortgage-backed  securities,  (v) banker's acceptances,  (vi)
certificates of deposit, (vii) investment grade corporate bonds, (viii) mortgage
derivative  securities,  (ix) private-label  mortgage  pass-thru  securities and
commercial paper. The board of directors may authorize additional investments.

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

     Mortgage-backed  securities  typically  are issued  with  stated  principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying  pool of mortgages can be composed of either fixed rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk  characteristics of the underlying pool of

                                       12
<PAGE>

mortgages  (i.e.,  fixed rate or adjustable  rate) and the prepayment  risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security is equal to the life of the underlying  mortgages.  Expected maturities
will differ from contractual  maturities due to scheduled repayments and because
borrowers  may have the  right to call or  prepay  obligations  with or  without
prepayment   penalties.   Mortgage-backed   securities   issued  by  FreddieMac,
GinnieMae,  and FannieMae  make up a majority of the  pass-through  certificates
market.

     The  Registrant  also  invests in  mortgage-related  securities,  primarily
collateralized   mortgage  obligations,   issued  or  sponsored  by  FreddieMac,
GinnieMae,  and FannieMae,  as well as private issuers.  Collateralized mortgage
obligations are a type of debt security that  aggregates  pools of mortgages and
mortgage-backed  securities  and  creates  different  classes of  collateralized
mortgage  obligations   securities  with  varying  maturities  and  amortization
schedules as well as a residual  interest with each class having  different risk
characteristics.  The cash  flows from the  underlying  collateral  are  usually
divided into "tranches" or classes whereby  tranches have descending  priorities
with  respect to the  distribution  of principal  and interest  repayment of the
underlying  mortgages and mortgage backed  securities as opposed to pass through
mortgage  backed  securities  where cash flows are  distributed  pro rata to all
security  holders.  Unlike  mortgage  backed-securities  from which cash flow is
received and prepayment risk is shared pro rata by all securities holders,  cash
flows  from  the   mortgages   and   mortgage   backed   securities   underlying
collateralized  mortgage obligations are paid in accordance with a predetermined
priority  to  investors   holding   various   tranches  of  such  securities  or
obligations.  A particular  tranche or class may carry prepayment risk which may
be  different  from  that  of the  underlying  collateral  and  other  tranches.
Collateralized  mortgage  obligations  attempt  to  moderate  reinvestment  risk
associated  with   conventional   mortgage-backed   securities   resulting  from
unexpected prepayment activity.

     INVESTMENT PORTFOLIO.  The following table sets forth the carrying value of
the Registrant's securities at the dates indicated.
<TABLE>
<CAPTION>
                                                              At June 30,
                                                     ---------------------------
                                                       2003      2002      2001
                                                     -------   -------   -------
                                                            (In Thousands)
<S>                                                  <C>       <C>       <C>
Securities held-to-maturity:
  Tax-exempt securities ..........................   $   676   $   410   $   955
  Corporate debt securities ......................        --       995       991
                                                     -------   -------   -------
    Total securities held-to-maturity ............       676     1,405     1,946
                                                     -------   -------   -------

Securities available-for-sale:
  Mutual funds ...................................     9,943     2,828     2,717
  US agency securities ...........................     5,626     2,771     1,237
  FreddieMac stock ...............................     1,116     1,346     1,539
  FannieMae/SLMA preferred .......................     1,425     1,500     2,509
  SLMA asset-backed note .........................     1,858     1,980     1,980
  Tax-exempt securities ..........................     5,443     5,610     5,119
  Taxable securities .............................        --        --        --
  Collateralized mortgage obligations ............     3,869     7,939     6,703
  Mortgage-backed securities .....................    38,517    27,290    32,377
                                                     -------   -------   -------
    Total securities available-for-sale ..........    67,797    51,264    54,181
                                                     -------   -------   -------
Total investment and mortgage-backed securities ..   $68,473   $52,669   $56,127
                                                     =======   =======   =======
</TABLE>

                                       13
<PAGE>
     The  following  table  sets  forth  information   regarding  the  scheduled
maturities,  carrying  values,  market value and weighted average yields for the
Bank's  investment  securities  portfolio at June 30, 2003. The following  table
does not take into  consideration  the effects of  scheduled  repayments  or the
effects of possible prepayments.
<TABLE>
<CAPTION>
                                                                              June 30, 2003
                                                   --------------------------------------------------------------------
                                                         Less than                   1 to              Over 5 to
                                                           1 year                   5 years            10 years
                                                   -------------------    -------------------    -------------------
                                                   Carrying    Average    Carrying    Average    Carrying    Average
                                                    Value       Yield       Value      Yield      Value       Yield
                                                    -----       -----       -----      -----      -----       -----
                                                                         (Dollars in Thousands)
<S>                                                  <C>          <C>      <C>          <C>      <C>            <C>
  Securities held-to-maturity:
    Tax-exempt securities (1)....................    $ 270        4.00%    $   145      4.25%    $    --         --%
    Corporate debt securities....................       --          --          --        --          --         --
                                                    ------                  ------                ------
        Total securities held-to-maturity........      270        4.00         145      4.25          --         --
                                                    ------                  ------                ------

  Securities available-for-sale:
    Mutual funds.................................    9,938        2.13          --        --          --         --
    US Agency securities.........................      500        4.41       5,055      2.41          --         --
    FreddieMac stock (2).........................       --          --          --        --          --         --
    FannieMae/SLMA preferred.....................       --          --          --        --          --         --
    SLMA asset-backed securities.................       --          --          --        --          --         --
    Tax-exempt securities (1)....................       --          --         654      4.47          --         --
    Taxable securities...........................       --          --          --        --          --         --
    Collateralized mortgage obligations
         securities..............................       --          --          --        --       1,141       1.42

     Mortgage-backed securities..................       --          --          --        --       2,811       3.99
        Total securities available-for-sale......   10,438        2.24       5,709      2.65       3,952       3.25
                                                    ------                  ------                ------

  Total investment and mortgage-backed
     securities..................................  $10,708       2.28%     $ 5,854     2.64%     $ 3,952      3.25%
                                                    ======       ====       ======     ====       ======      ====
<CAPTION>
                                                                              June 30, 2003
                                                       -----------------------------------------------------
                                                            Over 10                       Total
                                                             years                      Securities
                                                       -----------------     -------------------------------
                                                       Carrying  Average     Carrying                 Market
                                                        Value     Yield       Value       Yield       Value
                                                        -----     -----       -----       -----       -----
                                                                         (Dollars in Thousands)
<S>                                                   <C>          <C>      <C>            <C>      <C>
  Securities held-to-maturity:
    Tax-exempt securities (1)....................     $   261      8.75%    $   676        5.89%    $   697
    Corporate debt securities....................          --        --          --          --          --
                                                       ------                ------                  ------
        Total securities held-to-maturity........         261      8.75         676        5.89         697
                                                       ------                ------                  ------

  Securities available-for-sale:
    Mutual funds.................................          --        --       9,938        2.13       9,943
    US Agency securities.........................          --        --       5,555        2.59       5,626
    FreddieMac stock (2).........................           8      1.90           8        1.90       1,116
    FannieMae/SLMA preferred.....................       1,500      3.54       1,500        3.54       1,425
    SLMA asset-backed securities.................       1,852      1.97       1,852        1.97       1,858
    Tax-exempt securities (1)....................       4,202      6.19       4,856        5.96       5,443
    Taxable securities...........................          --        --          --          --          --
    Collateralized mortgage obligations
         securities..............................       2,713      3.28       3,854        2.73       3,869

     Mortgage-backed securities..................      35,479      3.49      38,290        3.53      38,517
        Total securities available-for-sale......      45,754      3.67      65,853        3.33      67,797
                                                       ------                ------                  ------

  Total investment and mortgage-backed
     securities..................................     $46,015     3.70%     $66,529       3.35%     $68,494
                                                       ======     ====       ======       ====       ======
<FN>
___________
(1)  Average  yield  is  computed  on a  book  value  basis  rather  than  a tax
     equivalent basis.
(2)  Average yield is computed on a redemption value basis.
</FN>
</TABLE>

                                       14
<PAGE>

SOURCES OF FUNDS

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

     DEPOSITS.  Consumer and commercial deposits are attracted  principally from
within the Registrant's  primary market area through the offering of a selection
of  deposit  instruments  including  regular  savings  accounts,   money  market
accounts, and term certificate accounts. Deposit account terms vary according to
the minimum balance required,  the time period the funds must remain on deposit,
and the interest rate, among other factors. At June 30, 2003, the Registrant had
$5,000,000 in brokered accounts.

     TIME DEPOSITS. The following table indicates the amount of the Registrant's
time deposits of $100,000 or more by time  remaining  until  maturity as of June
30, 2003.

     Maturity Period                                  Time Deposits
     ---------------                                  -------------
                                                      (In Thousands)

     Within three months............................. $ 6,461
     More than three through six months..............   8,683
     More than six through nine months...............   5,437
     Over nine months................................  24,680
                                                       ------
                     Total                            $45,261
                                                       ======

BORROWINGS

     The Registrant may obtain  advances from the FHLB of Dallas (the "FHLB") to
supplement  its supply of lendable  funds.  Advances from the FHLB are typically
secured  by a pledge of the  Registrant's  stock in the FHLB,  a portion  of the
Registrant's  first  mortgage  loans and certain other assets.  Each FHLB credit
program has its own interest rate, which may be fixed or variable,  and range of
maturities.  The  Registrant,  if the need  arises,  may also access the Federal
Reserve Bank discount  window to supplement  its supply of lendable funds and to
meet deposit withdrawal requirements. At June 30, 2003, borrowings with the FHLB
totaled  $76,641,834 of which  $27,514,387 were short-term.  The following table
sets  forth the  maximum  month end  balances  and the  average  balance of FHLB
advances for the periods indicated.


                                       15
<PAGE>
<TABLE>
<CAPTION>
                                                              June 30,
                                                   -----------------------------
                                                     2003       2002       2001
                                                   -------    -------    -------
                                                         (In Thousands)
<S>                                                <C>        <C>        <C>
Maximum amount of short-term
  borrowings outstanding at any month end:
      Advances from FHLB .......................   $39,954    $34,727    $69,095

Approximate average short-term
  borrowings outstanding with respect to:
      Advances from FHLB .......................   $32,978    $30,072    $54,559

      Approximate weighted average rate paid on:
      Advances from FHLB .......................      1.54%      4.32%      5.17%
</TABLE>

PERSONNEL

     As of June 30, 2003, the  Registrant  employed 52 employees with 50 working
full-time.  None of the  Registrant's  employees are represented by a collective
bargaining  group.  The  Registrant  believes  that  its  relationship  with its
employees is good.

REGULATION

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

REGULATION OF THE COMPANY

     RECENT LEGISLATION TO CURTAIL CORPORATE ACCOUNTING IRREGULARITIES.  On July
30, 2002,  President  Bush signed into law the  Sarbanes-Oxley  Act of 2002 (the
"Act").  The  Securities  and Exchange  Commission  (the "SEC") has  promulgated
certain regulations  pursuant to the Act and will continue to propose additional
implementing  or clarifying  regulations as necessary in furtherance of the Act.
The  passage  of the Act  and the  regulations  implemented  by the SEC  subject
publicly-traded   companies  to  additional   and  more   cumbersome   reporting
regulations   and  disclosure.   Compliance  with  the  Act  and   corresponding
regulations may increase the Company's expenses.

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

     As a unitary savings and loan holding company, the Company generally is not
subject   to  any   restrictions   on  its   business   activities.   While  the
Gramm-Leach-Bliley  Act (the "GLB Act")  terminated the "unitary  thrift holding
company"  exemption  from  activity  restrictions  on a prospective  basis,  the
Company enjoys  grandfathered status under this provision of the GLB Act because
it acquired the Bank prior to May

                                       16
<PAGE>

4, 1999. As a result,  the Company's  freedom from  activity  restrictions  as a
unitary  savings  and loan  holding  company  was not  affected  by the GLB Act.
However,  if the  Company  were to  acquire  control  of an  additional  savings
association,  its business  activities would be subject to restriction under the
Home  Owners' Loan Act.  Furthermore,  if the Company were in the future to sell
control of the Bank to any other company,  such company would not succeed to the
Company's  grandfathered  status  under the GLB Act and would be  subject to the
same activity  restrictions.  The  continuation of the Company's  exemption from
restrictions  on  business  activities  as a unitary  savings  and loan  holding
company is also subject to the Company's continued compliance with the Qualified
Thrift  Lender  ("QTL") test.  See "- Regulation of the Bank - Qualified  Thrift
Lender Test."

REGULATION OF THE BANK

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

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

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

     INSURANCE OF DEPOSIT  ACCOUNTS.  The deposit  accounts held by the Bank are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation). Insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound  condition  to  continue  operations  or has  violated  any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
institution's primary regulator.

     The Bank is required to pay insurance premiums based on a percentage of its
insured  deposits to the FDIC for  insurance of its deposits by the SAIF.  Under
the  risk-based  system  established by the FDIC for setting  deposit  insurance
premiums, the 2003 insurance assessment rates for SAIF-member institutions range
from 0% to .27% of insured deposits on an annualized  basis, with the assessment
rate for most savings  institutions set at 0%. The Bank currently  qualifies for
the  lowest  assessment  rate  under  the  risk-based   assessment  system  and,
accordingly,  did not pay any  deposit  insurance  assessments  during  the past
fiscal year.

                                       17
<PAGE>

     In addition, all FDIC-insured institutions are required through 2017 to pay
assessments  to the  FDIC to fund  interest  payments  on  bonds  issued  by the
Financing Corporation ("FICO"), an agency of the Federal government  established
to  recapitalize  the  predecessor  to the SAIF.  For calendar 2002, the average
annual assessment rate was .0168% of insured deposits and, for 2003, the average
annual assessment rate will be approximately .0160% of insured deposits.

     LOANS TO ONE BORROWER.  A savings association may not make a loan or extend
credit  to a single  or  related  group of  borrowers  in  excess  of 15% of the
associations's unimpaired capital and surplus. An additional amount may be lent,
equal to 10% of the unimpaired capital and surplus, under certain circumstances.
At June 30, 2003, the  Registrant's  lending limit for loans to one borrower was
approximately  $2,404,970 and the Registrant had no outstanding commitments that
exceeded the loans to one borrower limit at the time originated or committed.

     REGULATORY CAPITAL  REQUIREMENTS.  OTS capital  regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of  total  adjusted  assets,  (2)  core  capital  equal  to at least 3% of total
adjusted assets for savings  institutions  that receive the highest  supervisory
rating for safety and  soundness and 4% of total  adjusted  assets for all other
thrifts,  and (3) risk-based capital equal to 8% of total risk-weighted  assets.
At June 30,  2003,  the  Bank was in  compliance  with  its  regulatory  capital
requirements.

     For purposes of the OTS capital regulations, tangible capital is defined as
core capital less all intangible  assets,  except for certain mortgage servicing
rights,  and less certain  investments.  Core,  or Tier 1, capital is defined as
common  stockholders'  equity,   noncumulative  perpetual  preferred  stock  and
minority interests in the equity accounts of consolidated subsidiaries,  certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill,  less nonqualifying  intangible assets, certain
mortgage servicing rights and certain investments.

     The  risk-based  capital  standard  for savings  institutions  requires the
maintenance  of  total  risk-based  capital  of  8%  of  risk-weighted   assets.
Risk-based  capital  equals  the  sum of core  and  supplementary  capital.  The
components  of  supplementary  capital  include,  among other items,  cumulative
perpetual preferred stock,  perpetual  subordinated debt, mandatory  convertible
subordinated debt, intermediate-term preferred stock, general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted  assets,  and up
to 45% of unrealized gains on equity securities.  Overall, supplementary capital
is limited to 100% of core capital.  A savings  association  must  calculate its
risk-weighted  assets by multiplying  each asset and  off-balance  sheet item by
various risk factors as determined  by the OTS,  which range from 0% for cash to
100% for delinquent  loans,  property acquired through  foreclosure,  commercial
loans, and other assets.

     In addition to the above regulatory capital requirements,  the OTS's prompt
corrective action regulation  classifies savings  associations by capital levels
and  provides  that the OTS will  take  various  corrective  actions,  including
imposing significant operational restrictions,  against any thrift that fails to
meet  the  regulation's  capital  standards.  Under  this  regulation,  a  "well
capitalized"  savings  association  is one that has a total  risk-based  capital
ratio of at least 10%, a Tier 1  risk-based  capital  ratio of at least 6% and a
leverage  capital  ratio  of 5%,  and is not  subject  to any  capital  order or
directive.  A thrift is deemed  "adequately  capitalized"  category  if it has a
total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio
of at least 4%, and a leverage capital ratio of at least 4%.  Institutions  with
lower  capital  levels  are  deemed  to  be  "undercapitalized,"  "significantly
undercapitalized" or "critically  undercapitalized,"  depending on their capital
levels. A thrift that falls within any of the three undercapitalized  categories
is subject to severe  regulatory  sanctions under the prompt  corrective  action
regulation.  At June 30, 2003,  the Bank was  classified as "well  capitalized."


                                       18
<PAGE>

     DIVIDEND  AND  OTHER  CAPITAL  DISTRIBUTION  LIMITATIONS.  The OTS  imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends.

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

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

     QUALIFIED THRIFT LENDER TEST. Federal savings institutions must meet one of
two  Qualified  Thrift  Lender  ("QTL")  tests.  To  qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal  Revenue Code by maintaining at least 60% of its total assets
in specified types of assets,  including cash,  certain  government  securities,
loans  secured  by and  other  assets  related  to  residential  real  property,
educational loans and investments in premises of the institution or (ii) satisfy
the statutory QTL test set forth in the Home Owner's Loan Act by  maintaining at
least 65% of its "portfolio assets" in  certain"Qualified  Thrift  Investments".
Qualified thrift investments  consist primarily of an institution's  residential
mortgage  loans and other loans and  investments  relating to  residential  real
estate and manufactured housing and also include student,  credit card and small
business  loans,  stock  issued by a Federal  Home Loan Bank,  the FHLMC and the
FNMA,  and other  enumerated  assets.  For purposes of the  statutory  QTL test,
portfolio assets are defined as total assets minus intangible  assets,  property
used by the  institution in conducting its business,  and liquid assets equal to
10% of total assets. A savings  institution must maintain its status as a QTL on
a monthly basis in at least nine out of every 12 months. A failure to qualify as
a QTL  would  result  in a number  of  sanctions,  including  certain  operating
restrictions.  At June  30,  2003,  the  Bank  was in  compliance  with  its QTL
requirement, with 81.67% of its assets invested in Qualified Thrift Investments.

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

     As a member,  the Bank is required to purchase  and  maintain  stock in the
FHLB of Dallas in an amount equal to the greater of 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the  beginning of each year or 5% of the Bank's  advances from the FHLB. At June
30, 2003, the Bank was in compliance with this requirement.

                                       19
<PAGE>

     FEDERAL RESERVE  SYSTEM.  The Federal Reserve Board requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW, and Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At June 30,
2003, the Bank was in compliance with these Federal Reserve Board requirements.

ITEM 2.  DESCRIPTION OF PROPERTY.
--------------------------------

     The  Registrant  owns its main office and branch office located at 221 West
Aztec Avenue,  Gallup, New Mexico and 1501 San Juan Boulevard,  Farmington,  New
Mexico, respectively.  The Registrant also leases additional office space across
the street from its main  office.  The lease  expires  December 31, 2007 and the
Registrant has an option,  upon notification of the lessor by August 1, 2007, to
purchase the building for $275,000 or to extend the lease for an  additional  10
years.

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

(1)  INVESTMENTS  IN REAL  ESTATE  OR  INTERESTS  IN REAL  ESTATE.  See "Item 1.
Business  - Lending  Activities  and -  Regulation  of the  Bank,"  and "Item 2.
Description of Property."

(2)  INVESTMENTS  IN REAL  ESTATE  MORTGAGES.  See "Item 1.  Business  - Lending
Activities and - Regulation of the Bank."

(3)  INVESTMENTS IN SECURITIES OF OR INTERESTS IN PERSONS  PRIMARILY  ENGAGED IN
REAL  ESTATE  ACTIVITIES.  See  "Item 1.  Business  - Lending  Activities  and -
Regulation of the Bank."

     (c) DESCRIPTION OF REAL ESTATE AND OPERATING DATA. Not Applicable.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

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

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

         The  information  contained under the section  captioned  "Stock Market
Information" in the Company's  Annual Report to Stockholders for the fiscal year
ended June 30, 2003 (the "Annual Report") is incorporated herein by reference.

                                       20
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

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

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

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

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

         Not applicable.

ITEM 8 A.  CONTROLS AND PROCEDURES
----------------------------------

     (a)  Evaluation  of  disclosure  controls  and  procedures.  Based on their
          -----------------------------------------------------
evaluation of the Company's  disclosure  controls and  procedures (as defined in
Rule 13a-15(e) under the Securities  Exchange Act of 1934 (the "Exchange  Act"))
the Company's  principal  executive officer and principal financial officer have
concluded that as of the end of the period covered by this Annual Report on Form
10-KSB such  disclosure  controls and  procedures  are  effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.

     (b) Changes in internal control over financial  reporting.  During the last
quarter of the year under report,  there was no change in the Company's internal
control over financial reporting that has materially affected,  or is reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

     The  information  required  under  this  item  is  incorporated  herein  by
reference  to the  Proxy  Statement  for the 2003  Annual  Meeting  (the  "Proxy
Statement")  contained under the sections  captioned  "Section 16(a)  Beneficial
Ownership  Reporting  Compliance,"  "Proposal I - Election of Directors," and "-
Biographical Information."

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

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

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
--------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

(a)  Security Ownership of Certain Beneficial Owners

(b)  Security Ownership of Management

                                       21
<PAGE>

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

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


                                       22
<PAGE>

(d)  Securities Authorized for Issuance Under Equity Compensation Plans

         Set forth  below is  information  as of June 30,  2003 with  respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.
<TABLE>
<CAPTION>
                                         EQUITY COMPENSATION PLAN INFORMATION
                                                   (a)                    (b)                     (c)

                                                                                            Number of securities
                                          Number of securities     Weighted-average        remaining available for
                                            to be issued upon      exercise price of    future issuance under equity
                                               exercise of            outstanding       compensation plans (excluding
                                          outstanding options,     options, warrants       securities reflected in
                                          warrants and rights         and rights                 column (a))
                                          -------------------      ------------------    ----------------------------
<S>                                                <C>                   <C>                      <C>
Equity compensation plans
approved by shareholder:

    1995 Stock Option Plan...........              87,724                $ 7.34                   59,680

    Management Stock                                9,290                  0.00                   19,032
         Bonus Plan..................

    2000 Stock Option Plan...........                   0                   N/A                   58,500

Equity compensation plans
not approved by shareholders:

    Directors Stock
        Compensation Plan(1)........               11,946                 11.00                        0
                                                  -------                 -----                  -------
     TOTAL..........................              108,960                $ 7.12                  137,212
                                                  =======                 =====                  =======
<FN>
---------------
(1) Plan approved by the Company's board of directors on March 22, 2000.
</FN>
</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

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

ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K
------------------------------------------------

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

     1. The consolidated statements of financial condition of GFSB Bancorp, Inc.
and  Subsidiary  as of June  30,  2003 and  2002  and the  related  consolidated
statements  of earnings and  comprehensive  earnings,  changes in  stockholders'
equity and cash flows for each of the two years  ended June 30,  2003,  together
with the related notes and the independent auditors' report of Neff + Ricci LLP,
independent certified public accountants.

     2. Schedules omitted as they are not applicable.


                                       23
<PAGE>
       The  following  exhibits are included in this Report or are  incorporated
herein by reference.

         3.     (a)    List of Exhibits

                3.1    Certificate of Incorporation of GFSB Bancorp, Inc.*
                3.2    Bylaws of GFSB Bancorp, Inc.*
                10.1   1995 Stock Option Plan**
                10.2   Management Stock Bonus Plan**
                10.3   Form of Directors Deferred Compensation Agreement between
                         the Bank and Directors***
                10.4   Form of Directors Stock Compensation Plan between the
                         Company and Directors of the Company***
                10.5   2000 Stock Option Plan****
                13     Portions of the 2003 Annual Report to Stockholders
                21     Subsidiaries of the Registrant (See "Item 1 - Description
                         of Business")
                23     Consent of Neff + Ricci LLP
                31.1   Certification pursuant to Section 302 of the Sarbanes-
                         Oxley Act of 2002
                31.2   Certification pursuant to Section 302 of the Sarbanes-
                         Oxley Act of 2002
                32     Certification pursuant to Section 906 of the Sarbanes-
                         Oxley Act of 2002.

--------------
*      Incorporated   herein  by  reference  to  exhibits   3(i)(Certificate  of
       Incorporation)  and  3(ii)(Bylaws) to the Registration  Statement on Form
       S-1 of the  Registrant  (File  No.  33-90400)  initially  filed  with the
       Commission on March 17, 1995.
**     Incorporated  by reference to the  identically  numbered  exhibits of the
       Annual  Report on Form  10-KSB  for the fiscal  year ended June 30,  1997
       (File No. 0-25854) filed with the SEC.
***    Incorporated  by reference to the  identically  numbered  exhibits of the
       Quarterly  Report on Form  10-QSB for the  quarter  ended  March 31, 2001
       filed with the SEC.
****   Incorporated by reference to the Proxy Statement for the Annual Meeting
       of Stockholders on October 27, 2000 and filed with the SEC on
       September 25, 2000.

     (b) Reports on Form 8-K

          Not Applicable.

                                       24
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized as of September 26, 2003.

                               GFSB BANCORP, INC.


                               By: /s/ Richard C. Kauzlaric
                                   ---------------------------------------
                                   Richard C. Kauzlaric
                                   President
                                  (Duly Authorized Representative)


     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated as of September 26, 2003.



/s/ Dr. Wallace R. Phillips                 /s/ Richard C. Kauzlaric
----------------------------------          ---------------------------------
Dr. Wallace R. Phillips                     Richard C. Kauzlaric
Chairman of the Board                       President and Director
                                            (Principal Executive Officer)



/s/ Vernon I. Hamilton                      /s/ Jerry R. Spurlin
----------------------------------          ---------------------------------
Vernon I. Hamilton                          Jerry R. Spurlin
Director                                    Chief Financial Officer
                                            (Principal Financial and Accounting
                                            Officer)



/s/ Charles L. Parker, Jr.                  /s/ Michael P. Mataya
----------------------------------          ---------------------------------
Charles L. Parker, Jr.                      Michael P. Mataya
Director                                    Treasurer and Director




                                            /s/ George S. Perce
----------------------------------          ---------------------------------
James Nechero, Jr.                          George S. Perce
Director                                    Secretary and Director