UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1997
                                                ----------------

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                            THE 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                            (I.R.S. Employer
Incorporation 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
                                                       -----------------

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
                               --------               ------------


As of April 30, 1997,  there were issued and  outstanding  804,208 shares of the
registrant's Common Stock.


<PAGE>

                               GFSB Bancorp, Inc.


                                     Index

                                                             Page No.
                                                             --------

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements:

Consolidated Statements of Financial Condition
March 31, 1997 and June 30, 1996                                 3

Consolidated Statements of Earnings
Three and nine months ended March 31, 1997 and 1996              4

Consolidated Statements of Cash Flows
Nine months ended March 31, 1997 and 1996                        5

Notes to Consolidated Financial Statements                       7

Item 2.  Management's Discussion and Analysis of 
          Financial Condition and Results of Operations          8

PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                       14

Signatures                                                      15







                                       2

<PAGE>

                               GFSB Bancorp, Inc.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                         March 31,         June 30,
                                                            1997             1996
                                                         -----------     -----------
                                                         (Unaudited)
                ASSETS
<S>                                                    <C>             <C>         
Cash and due from banks                                $  2,077,012    $  1,671,053
Interest-bearing deposits with banks                        632,022       1,346,141
Federal funds sold                                          100,000         150,000
Available-for-sale investment securities                  4,115,151       4,572,647
Available-for-sale mortgage-backed securities            32,789,071      25,245,896
Stock of Federal Home Loan Bank, at cost, restricted        869,200         550,600
Loans receivable, net, substantially pledged             45,025,808      38,727,535
Accrued interest and dividend receivable                    499,329         400,316
Premises and equipment                                      691,753         537,042
Prepaid income taxes                                         44,687               -
Prepaid and other assets                                     67,062          49,405
                                                       ------------    ------------
TOTAL ASSETS                                           $ 86,911,095    $ 73,250,635
                                                       ============    ============
        LIABILITIES AND STOCKHOLDERS' EQUITY

Transaction accounts                                   $  3,194,168    $  3,239,079
Savings and now deposits                                 11,492,648      10,758,974
Time deposits                                            40,598,220      31,991,757
Accrued interest payable                                    106,915         103,507
Advances from borrowers for taxes and insurance             302,406         174,532
Accounts payable and accrued liabilities                    137,328         172,717
Deferred income taxes                                       171,401          81,087
Dividends declared and payable                               80,533         402,577
Advances from Federal Home Loan Bank                     16,450,000      10,854,000
Income taxes payable                                        211,537         108,929
                                                       ------------    ------------
TOTAL LIABILITIES                                        72,745,156      57,887,159


COMMITMENTS AND CONTINGENCIES                                     -               -


STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 2,000,000
  shares authorized;  839,208 issued and
  outstanding at March 31, 1997 and 948,750 shares
  issued and outstanding at June 30, 1996                    80,533          91,080
Preferred stock, $.10 par value, 500,000
  shares authorized;  no shares issued or
  outstanding                                                     -               -
Additional paid-in-capital                                6,924,025       8,486,822
Unearned ESOP stock                                        (474,987)       (541,333)
Retained earnings, substantially
  restricted                                              7,333,505       7,199,360
Unrealized gain on available for sale
  securities, net of taxes                                  302,863         127,547
                                                       ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                               14,165,939      15,363,476
                                                       ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $ 86,911,095    $ 73,250,635
                                                       ============    ============

</TABLE>

See notes to consolidated financial statements.


                                       3


<PAGE>


                               GFSB Bancorp, Inc.

                      CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                      Three months ended        Nine months ended
                                                           March 31,                March 31,
                                                  ------------------------   ------------------------
                                                      1997         1996         1997         1996
                                                  ------------------------   ------------------------
                                                  (Unaudited)   (Unaudited)  (Unaudited)  (Unaudited)
<S>                                                <C>          <C>         <C>          <C>    
Interest income
  Loans receivable
     Mortgage loans                                $  859,176   $  716,700  $ 2,533,572  $ 2,106,253
     Commercial loans                                  71,407       56,441      165,368      157,864
     Share and consumer loans                          44,477       28,441      123,682       82,503
     Available-for-sale investment securities and
       mortgage-backed securities                     478,173      440,909    1,505,487    1,097,555
     Other interest-earning assets                     37,304       38,714       99,449      132,710
                                                   ----------   ----------  -----------  -----------
       TOTAL INTEREST EARNINGS                      1,490,537    1,281,205    4,427,558    3,576,885

Interest expense
    Deposits                                          676,545      518,207    1,890,603    1,516,409
    Advances from Federal Home Loan Bank              160,986      140,727      552,649      188,951
                                                   ----------   ----------  -----------  -----------
       TOTAL INTEREST EXPENSE                         837,531      658,934    2,443,252    1,705,360
                                                   ----------   ----------  -----------  -----------
       NET INTEREST EARNINGS                          653,005      622,271    1,984,306    1,871,525

Provision for loan losses                              15,506            -       20,794       28,099
                                                   ----------   ----------  -----------  -----------
       NET INTEREST EARNINGS AFTER
       PROVISION FOR LOAN LOSSES                      637,499      622,271    1,963,512    1,843,426

Non-interest earnings
    Income from real estate operations                      -            -            -        3,300
    Miscellaneous income                                1,127          446        2,848        9,627
    Net gains from sales of loans                         272            -        5,214            -
    Service charge income                               9,850        6,191       26,586       11,982
                                                   ----------   ----------  -----------  -----------
       TOTAL NON-INTEREST EARNINGS                     11,249        6,637       34,648       24,909

Non-interest expense
    Compensation and benefits                         211,088      177,445      635,676      418,623
    Professional fees                                  23,657       53,307       78,450      122,959
    Occupancy                                          38,208       25,126      105,680       80,677
    Advertising                                        12,481       10,481       35,098       25,649
    Data processing                                    19,432       20,824       65,257       64,664
    Insurance                                           7,097       26,387      317,304       76,541
    Other                                              59,540       42,671      181,602      119,027
                                                   ----------   ----------  -----------  -----------
       TOTAL NON-INTEREST EXPENSE                     371,503      356,241    1,419,067      908,140


      EARNINGS BEFORE INCOME TAXES                    277,246      272,667      579,094      960,195

Income tax expense                                    105,775      112,984      226,921      359,795
                                                   ----------   ----------  -----------  -----------
      NET EARNINGS                                 $  171,471   $  159,683      352,173      600,400
                                                   ==========   ==========      =======      =======

WEIGHTED AVERAGE NUMBER OF
   SHARES OUTSTANDING                                 800,366      894,636      838,106      893,381

EARNINGS PER COMMON SHARE                          $     0.21         0.18         0.42         0.67
                                                   ==========         ====         ====         ====

</TABLE>


                                        4

<PAGE>


                               GFSB Bancorp, Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                Increase (decrease) in cash and cash equivalents

<TABLE>
<CAPTION>
                                                            Nine months ended
                                                                 March 31,
                                                           1997             1996
                                                      (Unaudited)       (Unaudited)
Cash flows from operating activities
<S>                                                   <C>             <C>         
    Net earnings                                      $    352,173    $    600,400
    Adjustments to reconcile net earnings to
      net cash provided by operations
        Deferred loan origination fees                     (99,299)        (86,330)
        Gain on sale of sold loans                          (5,214)         (7,414)
        Provision for loan losses                           20,794          28,099
        Depreciation of premises and equipment              51,152          39,256
        Amortization of investment and mortgage-
           backed securities premiums (discounts)          134,162          85,753
        Stock dividends on FHLB stock                      (23,600)        (49,800)
        Stock compensation                                 (13,732)              -
        ESOP stock committed to be released                101,696          26,168
   Net changes in operating assets and liabilities
        Accrued interest receivable                        (99,013)       (184,419)
        Prepaid and other assets                           (17,657)        (20,606)
        Accrued interest payable                             3,408          52,529
        Accounts payable and accrued liabilities           (21,655)        (36,347)
        Income taxes payable                                57,921         178,429
        Dividends declared and payable                    (322,044)              -
                                                      ------------    ------------

            Net cash provided by
            operating activities                           119,092         625,718

Cash flows from investing activities
        Purchase of premises and equipment                (205,863)        (62,803)
        Loan originations and principal
          repayment on loans, net                       (6,214,554)     (2,765,391)
        Principal payments on mortgage-backed
          securities                                     4,232,576       2,342,106
        Purchases of mortgage-backed securities        (11,793,195)    (15,840,882)
        Purchases of U.S. Agency Securities, FHLB
        Debentures, bonds, and mutual funds                (93,593)              -
        Maturities and proceeds from sale of FHLB
          Debentures, U.S. Agency Securities,
            certificates of deposit, and bonds             700,000       1,035,000
        Purchase of FHLB stock                            (295,000)        (51,200)
                                                      ------------    ------------
             Net cash used by
             investing activities                      (13,669,629)    (15,343,170)

</TABLE>






                                       5

<PAGE>

                               GFSB Bancorp, Inc.

               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                Increase (decrease) in cash and cash equivalents

<TABLE>
<CAPTION>

                                                        Nine months ended
                                                              March 31,
                                                     ----------------------------
                                                         1997            1996
                                                      (Unaudited)     (Unaudited)
Cash flows from financing activities
    Net increase in transaction accounts, passbook
      savings, money market accounts, and
<S>                                                  <C>             <C>         
      certificates of deposit                        $  9,295,226    $  6,653,929
    Net increase in mortgage escrow funds                 127,874          75,091
    Proceeds from FHLB advances                        75,948,910      10,000,000
    Repayments on FHLB advances                       (70,352,910)              -
    Dividends paid or to be paid in cash                 (218,028)       (142,313)
    Purchase of retired treasury stock                 (1,664,847)              -
    Price paid for vested MSBP Stock                       56,152
                                                     ------------    ------------

          Net cash provided by
          financing activities                         13,192,377      16,586,707
                                                     ------------    ------------

    Increase (decrease) in cash and cash equiv           (358,160)      1,869,255

    Cash and cash equivalents at beginning of           3,167,194       4,914,517
                                                     ------------    ------------

    Cash and cash equivalents at end of period       $  2,809,034       6,783,772
                                                     ============       =========


Supplemental disclosures
    Cash paid during the period for
         Interest on deposits and advances           $  2,439,844    $  1,652,831
         Income taxes                                     160,000         161,954

    Change in unrealized gain, net of deferred
      taxes for implementation of FASB #115               175,315          72,633

    Dividends declared not yet paid                              -         94,875

</TABLE>


                                       6





<PAGE>

                               GFSB BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.  The  interim  financial  data  is  unaudited;  however,  in the  opinion  of
management, the interim data includes all adjustments, consisting only of normal
recurring  adjustments  necessary  for a fair  statement  of the results for the
interim periods.  The financial statements included herein have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission.  Certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations,  although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading.

The organization and business of the Company,  accounting  policies  followed by
the Company and other  information  is contained  in the notes to the  Company's
financial  statements filed as part of the Company's June 30, 1996, Form 10-KSB.
This quarterly report should be read in conjunction with such annual report.

2.    Dividends
---------------

During the quarter ended  December 31, 1996,  the Board of Directors  declared a
cash  dividend of $0.10 per share on the  Company's  outstanding  common  stock,
payable to  stockholders  of record as of December 31, 1996.  The dividends were
paid in January 1997.

During the  quarter  ended March 31,  1997,  the Board of  Directors  declared a
quarterly cash dividend of $0.10 per share on the Company's  outstanding  common
stock,  payable to  stockholders  of record as of March 31, 1997.  The dividends
were paid in April 1997.

3.    Employee Stock Ownership Plan
-----------------------------------

On December 31, 1996,  the Company  released  5568.06 shares of its common stock
owned by the  Company's  ESOP.  On March 31, 1997,  the Company was committed to
release 1010.61 shares of this common stock. The commitment  resulted in $17,000
of additional compensation cost.

4.    Management Stock Bonus Plan
---------------------------------

On January 5, 1996,  the  Company  made  awards  under the Plan in the amount of
20,382 shares. The shares were awarded at a price of $13 7/8 per share. At March
31, 1997,  17,568 shares remained to be awarded under the Plan. Awards under the
Plan  are  earned  at the  rate of  one-fifth  of the  award  per year as of the
one-year  anniversary  of the  effective  date of the Plan.  As a result of this
vesting  and  the  dividends  earned  on the  vested  shares,  a  liability  and
corresponding  compensation  cost in the amount of $14,000 has been  recorded at
March 31,  1997,  under the  provisions  of the Plan.  On January 5, 1997,  4075
shares under the Plan were earned, and the corresponding liability was paid.

5.    BIF/SAIF Insurance Premium
--------------------------------

The one-time BIF/SAIF  Insurance Premium assessed by Congress in September 1996,
resulted  in a  $250,000  charge to the Bank.  This  assessment  was  charged to
earnings in September 1996, and was paid in November 1996.




                                        7

<PAGE>


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

GFSB  Bancorp,  Inc.,  is the 100% owner of Gallup  Federal  Savings  Bank ("the
Bank"), and the Bank is currently the only entity with which the holding company
has an  ownership  interest.  The Bank is  primarily  engaged in the business of
accepting  deposit  accounts  from the  general  public  and using such funds to
originate mortgage loans for the purchase and refinancing of  one-to-four-family
homes located in its primary market area. The Bank also originates multi-family,
commercial real estate,  construction,  consumer and commercial  business loans,
and purchases participations in one-to-four family mortgage loans. The Bank also
purchases  mortgage-backed and investment securities.  The largest components of
the Bank's net earnings are net interest income, which is the difference between
interest income and interest expense,  and noninterest  income derived primarily
from fees.  Consequently,  the Bank's  earnings are  dependent on its ability to
originate  loans,  and the  relative  amounts  of  interest-earning  assets  and
interest-bearing  liabilities.  The Bank's net earnings is also  affected by its
provision  for loan  losses  as well as the  amount  of other  expense,  such as
compensation  and benefit  expense,  occupancy  expense  and  deposit  insurance
premium  expenses.  Earnings  of the Bank  also are  affected  significantly  by
general  economic and  competitive  conditions,  particularly  changes in market
interest rates, government policies and actions of regulatory  authorities.  The
disparity  in  premiums  paid by BIF and SAIF  insured  institutions  have  also
adversely impacted the Bank.

In  September  1996,  Congress  enacted  a plan to  mitigate  the  effect of the
BIF/SAIF  insurance  premium  disparity.  This  plan  required  all SAIF  member
institutions,  including the Bank, to pay a one-time  assessment to recapitalize
the SAIF.  The effect of this  reduced  the capital of the Bank by the amount of
the fee, and such amount was charged to earnings in the quarter ended  September
30, 1996. The  assessment  amount the Bank paid was $250,000 which is 65.7 basis
points on the amount of deposits held by the Bank at March 31, 1995.

Beginning January 1, 1997, deposit insurance assessments for SAIF members are to
be .064% of deposits on an annual  basis.  This rate is expected to be effective
through the end of 1999.  During this same  period,  BIF members  (predominantly
composed of commercial banks) are to be assessed .013% of deposits.  Thereafter,
assessments  for BIF and SAIF members should be the same and BIF and SAIF may be
merged.  As a result of these  changes,  beginning  January 1, 1997, the rate of
deposit insurance  assessed the Bank declined by approximately 70% from the rate
in effect prior to September 30, 1996.

Management Strategy

Management's  strategy  has been to monitor  interest  rate  risk,  by asset and
liability  management,  and maintain asset quality while enhancing  earnings and
profitability.   The  Bank's   strategy  has  been   primarily  to  make  loans,
secondarily,  to invest in mortgage-backed securities and investment securities,
and thirdly, to purchase  participations in adjustable rate,  one-to-four family
mortgage loans primarily secured by one-to-four  family  residences.  The Bank's
purchase of  mortgage-backed  securities and  investment  securities is designed
primarily for safety of principal and secondarily for rate of return. The Bank's
lending  strategy has  historically  focused on the  origination  of traditional
one-to-four-family  mortgage  loans  primarily  secured by  one-to-four-  family
residences in the Bank's primary market area.  These loans  typically have fixed
rates. The Bank also invests a portion of its assets in construction,  consumer,
commercial business,  multi-fami ly and commercial real estate loans as a method
of enhancing earnings and profitability  while also reducing interest rate risk.
Since 1994,  the Bank has  actively  originated  commercial  business  loans and
increased  its  origination  of  commercial  real estate loans and  construction
loans. These loans typically have adjustable  interest rates and are for shorter
terms than  residential  first mortgage loans.  The Bank has limited  experience
with these types of loans, and this type of lending generally has more risk than
residential  lending.  The Bank's purchase of participations in adjustable rate,
one-to-four  family  mortgage loans is designed to increase  earnings and reduce
interest  rate risk.  These  loans have more risk than loans  originated  by the
Bank,  therefore,  they have  adjustable  rates that are higher  than  standard.
Management is currently  considering  purchasing  automobile loans from dealers.
These loans would have risk and terms  comparable to automobile loans originated
in the Bank.  Investment  securities  in the  Bank's  portfolio  typically  have
shorter terms to maturity than residential  first mortgage loans. As part of its
asset/liability management strategy, the Bank sells its fixed rate mortgage

                                        8

<PAGE>



loans with terms over 15 years into the secondary market. The Bank has sought to
remain  competitive  in its market by offering a variety of products.  Automatic
Teller  Machine  access and  commercial  and consumer  credit life insurance are
additional products now offered by the the Bank. The Bank attempts to manage the
interest rates it pays on deposits  while  maintaining a stable deposit base and
providing quality services to its customers.

During the past few years the competing financial institutions located in Gallup
have all been acquired by statewide and regional  bank holding  companies.  As a
result,  as of 1995, the Bank is the only local  institution  headquartered  and
managed in Gallup, New Mexico.  The Bank believes that its "hometown"  advantage
will  provide  an  opportunity  to  expand  its  operations  as the  only  local
independent  financial  institution and that the  reorganization  to the holding
company format and the capital raised from the conversion will enable it to take
advantage of this opportunity. The new structure and capital has already enabled
the Bank to  expand  both  the  amount  and  scope of its  current  lending  and
investment  activities.  The Bank also believes that it has a unique  ability to
grow as a result of the  relatively  large number of local retail and  wholesale
businesses  specializing in Indian jewelry.  In addition,  the Bank is exploring
methods of  increasing  its business with the large Native  American  population
located in the nearby Navajo and Zuni Pueblo Indian reservations.

Asset and Liability Management

In an effort to reduce  interest  rate  risk and  protect  it from the  negative
effect  of  rapid  increases  and  decreases  in  interest  rates,  the Bank has
instituted  certain asset and liability  management  measures.  See  "Management
Strategy."

The Bank, like many other thrift institutions,  is exposed to interest rate risk
as a result of the  difference in the maturity of  interest-bearing  liabilities
and  interest-earning  assets and the volatility of interest rates. Most deposit
accounts  react  more  quickly to market  interest  rate  movements  than do the
existing  mortgage  loans  because of their  shorter  terms to  maturity;  sharp
decreases  in  interest  rates  would  typically  positively  affect  the Bank's
earnings.  Conversely,  this same mismatch will generally  adversely  affect the
Bank's earnings during periods of inclining interest rates.

During the low interest  rate  environment  that existed from 1991 through 1993,
the Bank, like other financial institutions,  experienced a significant increase
in homeowners seeking to refinance their existing mortgages. This trend resulted
in a decrease in the yield on the Bank's  interest  earning  assets,  namely the
loan portfolio and mortgage-backed  securities portfolios. The net interest rate
spread may  decrease  if deposits  reprice  upward more  rapidly  than  interest
earning assets.

FINANCIAL CONDITION

The Bank's total assets  increased  $13.6 million or 18.6% from $73.3 million at
June 30, 1996 to $86.9 million at March 31, 1997. This increase is the result of
a $7.5  million  increase  in  mortgage-backed  securities,  and a $6.3  million
increase in the Bank's net loan  portfolio.  The majority of the  increases  are
directly  attributable  to  efforts  of  Management  to  take  advantage  of the
increased  capital  infusion made as a result of the conversion from a mutual to
stock form of ownership  through  increased  investment and lending activity and
from FHLB borrowings. During the same period, deposits increased $9.3 million or
20.2% from $46.0  million at June 30, 1996,  to $55.3 million at March 31, 1997.
This  increase  is  primarily  due to an  increase  in the Bank's  volume of NOW
accounts, business checking accounts, local (non-brokered) Jumbo Certificates of
Deposit and Public (state and city) Certificates of Deposits.  Advances from the
FHLB increased $5.6 million from $10.8 million at June 30, 1996 to $16.5 million
at March 31,  1997.  These  additional  borrowings  funded  purchases  of loans,
securities and mortgage loan participations.  The Bank had $303,000 and $128,000
in unrealized gains (net of deferred taxes) at March 31, 1997 and June 30, 1996,
respectively  from market  gains on the Bank's  investment  and  mortgage-backed
portfolios.  Unrealized gains and losses do not impact the Bank's earnings until
they are realized.

                                        9

<PAGE>





RESULTS OF OPERATIONS

COMPARISON OF OPERATING RESULTS FOR QUARTER ENDED MARCH 31, 1997 COMPARED TO
QUARTER ENDED MARCH 31, 1996

General

Net earnings increased $12,000 or 7.4% for the quarter ended March 31, 1997 from
the quarter  ended March 31, 1996.  This  increase is primarily the result of an
increase  in net  interest  earnings of  $31,000,  an  increase in  non-interest
earnings of $5,000, a decrease in income taxes of $7,000,  offset by an increase
in the  provision  for loan losses of $16,000,  and an increase in  non-interest
expense of $15,000.

Interest Earnings

Total  interest  income  increased  $209,000 or 16.3% from $1.3  million for the
quarter  ended  March 31, 1996 to $1.5  million for the quarter  ended March 31,
1997.  This increase was primarily due to a $8.6 million  increase in the Bank's
mortgage-backed  securities  portfolio,  a $1.4 million  increase in  investment
securities, and a $9.8 million increase in the Bank's net loan portfolio.

Interest Expense

Total interest expense increased $179,000 or 27.1% from $659,000 for the quarter
ended March 31, 1996 to $838,000  for the  quarter  ended March 31,  1997.  This
increase was due to a substantial increase in FHLB borrowings and in the deposit
base, including the increase in volume of NOW accounts and Jumbo Certificates of
Deposit.

Provision for Losses on Loans

The Bank maintains an allowance for loan losses based upon management's periodic
evaluation  of  known  and  inherent  risks  in the loan  portfolio,  past  loss
experience,  adverse  situations that may affect the borrower's ability to repay
loans,  estimated  value of the  underlying  collateral and current and expected
market  conditions.  The  allowance for loan losses was $339,000 and $311,000 at
March 31, 1997 and 1996,  respectively.  The provision for loans was $16,000 and
$0 for the  quarters  ended  March 31, 1997 and 1996,  respectively.  Based on a
historical trend of limited losses on residential  loans, the amount of the loan
loss provision allocated to residential loans remained relatively stable for the
two periods.  While the Bank maintains its allowance for losses at a level which
it considers to be adequate,  there can be no assurance  that further  additions
will not be made to the loss allowances and that such losses will not exceed the
estimated  amounts.  The  establishment  of a loan loss  provision  each  period
adversely impacts the Bank's net earnings.

Non-Interest Expense

Total  non-interest  expense  increased  $15,000 or 4.3% from  $356,000  for the
quarter  ended March 31, 1996 to $372,000 for the quarter  ended March 31, 1997.
This  increase was  primarily  due to an increase in  compensation  and benefits
costs of  $34,000,  an  increase  in other  costs of  $17,000,  an  increase  in
occupancy costs of $13,000 , offset by a decrease in insurance costs of $19,000,
and a decrease in professional fees of $30,000. The increase in compensation and
benefits is due to an increase in staff,  some salary increases and current year
accruals for stock-based  compensation  plans. The increase in other expenses is
primarily  due to increased  supplies,  charitable  contributions  and automatic
teller machine  expenses.  The increase in occupancy costs is due to an increase
in building repairs and small building  improvements.  The decrease in insurance
is due to the  BIF/SAIF  assessment  adjustment.  The  decrease in  professional
services is the result of a lesser need for services since the completion of the
conversion from mutual to stock ownership.


                                       10

<PAGE>




COMPARISON  OF  OPERATING  RESULTS  FOR NINE MONTH  PERIOD  ENDED MARCH 31, 1997
COMPARED TO NINE MONTH PERIOD ENDED MARCH 31, 1996

General

Net earnings  decreased  $248,000 or 41.3% for the nine month period ended March
31, 1997 from the the nine month period ended March 31, 1996.  This  decrease is
primarily the result of an increase in non-interest expense of $511,000,  offset
by an increase in net interest earnings of $120,000 and a decrease in income tax
expense of $133,000.

Total Interest Earnings

Total interest  earnings  increased  $851,000 or 23.7% from $3.6 million for the
nine month  period  ended  March 31,  1996,  to $4.4  million for the nine month
period ended March 31, 1997.  The increase was  primarily  due to a $8.6 million
increase in the Bank's  mortgage-backed  securities  portfolio,  a $9.9  million
increase in the loan portfolio and some general increases in interest rates.

Interest Expense

Total  interest  expense  increased  $738,000 or 43.2% from $1.7 million for the
nine month period ended March 31, 1996 to $2.4 million for the nine month period
ended March 31, 1997. This increase was due to an increase in the Bank's deposit
base of $12.0 million and an increase in FHLB  borrowings  of $6.5 million,  and
higher rates on deposit products.

Non-interest expense

Total  non-interest  expense  increased  $511,000 or 56.2% from $908,000 for the
nine month period ended March 31, 1996 to $1.4 million for the nine month period
ended  March 31,  1997.  This  increase  was  primarily  due to an  increase  in
compensation  and benefits costs of $217,000,  an increase in insurance costs of
$241,000,  an  increase in  occupancy  costs of $25,000 and an increase in other
expense of $63,000,  offset by a decrease in professional  fees of $45,000.  The
increase in  compensation  costs is due to current year accruals for stock-based
compensation  plans and staff salary increases.  The increase in insurance costs
is due to the BIF/SAIF assessment. The increase in occupancy costs is the result
of increased  small  building  improvements  and repairs.  The increase in other
expense  is due to placing  into  service  automatic  teller  machines,  and the
decrease in  professional  services is the result of a lesser need for  services
since the completion of the conversion from mutual to stock ownership.

Liquidity and Capital Resources

The Bank is required under applicable federal  regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S.  Government,  federal
agency and other investments  having  maturities of five years or less.  Current
OTS regulations require that a savings institution maintain liquid assets of not
less than 5% of its average daily balance of net  withdrawable  deposit accounts
and borrowings  payable in one year or less, of which  short-term  liquid assets
must consist of not less than 1%. At March 31, 1997,  the Bank's  liquidity,  as
measured for  regulatory  purposes,  was 11.41%.  The Bank adjusts  liquidity as
appropriate to meet its asset/liability objectives.

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

The Bank's  most  liquid  assets are cash and cash  equivalents,  which  include
investments in highly liquid short- term investments.  The level of these assets
are  dependent on the Bank's  operating,  financing,  and  investing  activities
during any given period.  At March 31, 1997, cash and cash  equivalents  totaled
$2.8 million. The

                                       11

<PAGE>



Bank has other  sources of  liquidity  if a need for  additional  funds  arises.
Additional  sources of funds include FHLB of Dallas  advances and the ability to
borrow against mortgage-backed and other securities. At March 31, 1997, the Bank
had $16.5  million in  outstanding  borrowings  from the FHLB of  Dallas.  These
outstanding   borrowings  were  used  to  purchase  additional   mortgage-backed
securities and mortgage loan participations as a means of enhancing earnings.

The  primary  investment  activity  of the  Bank is the  origination  of  loans,
primarily  mortgage  loans.  During the quarter  ended March 31, 1997,  the Bank
originated  $5.4  million in total loans,  of which $4.2  million were  mortgage
loans.  The Bank also  purchased  $1.3 million in mortgage loan  participations.
Another  investment  activity  of the  Bank is the  investment  of funds in U.S.
Government  Agency  securities,  mortgage-backed  securities,  federal funds and
FHLB-Dallas  overnight  funds.  During  periods  when the Bank's  loan demand is
limited,  the Bank may purchase  short-term  investment  securities  to obtain a
higher yield than otherwise available.

The Bank's cash flows are comprised of three primary classifications: cash flows
from operating activities,  investing activities and financing activities.  Cash
flows provided in operating activities,  consisting principally of net earnings,
amortization  of  investment  and  mortgage  backed   securities   premiums  and
discounts,stock  based compensation costs and income taxes less disbursements of
interest and dividends, and loan origination fees were $119,000 and $626,000 for
the nine month periods ended March 31, 1997 and 1996 respectively. Net cash used
for investing  activities  consisted  primarily of purchases of  mortgage-backed
securities and loan originations,  offset by principal collections on loans, and
principal  collections  and  proceeds  from the  maturities  of  mortgage-backed
securities  and  investment  securities.  Such uses were $13.7 million and $15.3
million for the nine month periods ended March 31, 1997 and 1996,  respectively.
Net cash provided from financing activities consisting primarily of net activity
in deposit  and escrow  accounts,  and new FHLB  borrowings  less  purchases  of
treasury stock,  were $13.2 million and $16.6 million for the nine month periods
ended March 31, 1997 and 1996, respectively.

The Bank  anticipates  that it will have sufficient  funds available to meet its
current  commitments.  As of March 31, 1997,  the Bank had  commitments  to fund
loans of $1.8 million.  Certificates of deposit  scheduled to mature in one year
or less totaled $23.1 million.  Based on historical withdrawals and outflows, on
internal monthly deposit reports monitored by management,  and the fact that the
Bank does not accept any brokered deposits,  management believes that a majority
of deposits will remain with the Bank. As a result, no adverse liquidity effects
are expected.

At March 31, 1997, the Bank exceeded each of the three OTS capital  requirements
on a fully-phased-in basis.

Stock Repurchase Program

In August,  1996, the Company repurchased 47,437 shares, or 5%, of the Company's
common stock.  The Company has decided to retire these shares as authorized  but
unissued at the advice of special counsel.

On October 11, 1996, the Company issued a press release announcing its intention
to repurchase  up to 15% (142,312  shares) of the  Company's  common  stock.  On
November 8, 1996, the Company received  regulatory  approval to repurchase these
shares of common  stock before June 28,  1997.  As of March 31, 1997,  62,105 of
these  shares had been  repurchased.  The Company  has  decided to retire  these
shares also, as authorized  but unissued.  Subsequent to March 31, an additional
35,000 shares have been repurchased. The Company believes that it has sufficient
capital to complete the repurchase  and that the  repurchase  will not cause the
Bank to fail to meet its regulatory capital requirements.

Impact of Inflation and Changing Prices

The  consolidated  financial  statements  of  the  Company  and  notes  thereto,
presented  elsewhere  herein,  have been prepared in accordance  with  Generally
Accepted  Accounting  Principles  ("GAAP"),  which  require the  measurement  of
financial  position  and  operating  results  primarily  in terms of  historical
dollars without considering the change in the relative purchasing power of money
over time and due to  inflation.  The impact of  inflation  is  reflected in the
increased cost of the Company's  operations.  Unlike most industrial  companies,
nearly all the assets and liabilities of the Company are financial. As a result,
interest rates have a greater

                                       12

<PAGE>



impact on the  Company's  performance  than do the effects of general  levels of
inflation.  Interest rates do not  necessarily  move in the same direction or to
the same extent as the prices of goods and services.

Recent legislation - Recapture of Post 1987 Bad Debt Reserves

The Small Business Job Protection Act of 1996 will, among other things, equalize
the taxation of thrifts and banks.  The bill no longer  allows  thrifts a choice
between the  percentage of taxable  income method and the  experience  method in
determining  additions  to their bad debt  reserves.  Smaller  thrifts with $500
million of assets or less are only allowed to use the experience  method,  which
is generally  available to small banks  currently.  Larger  thrifts must use the
specific  charge off method  regarding its bad debts.  Any reserve amounts added
after 1987 will be taxed over a six year period beginning in 1996; however,  bad
debt reserves set aside through 1987 will  generally not be taxed.  Institutions
can delay these taxes for two years if they meet a  residential  - lending test.
At June 30,  1996,  the Bank had  $55,936 of post 1987  bad-debt  reserves.  Any
recapture  of the Bank's  bad-debt  reserves  may have an adverse  effect on net
earnings. The Bank has evaluated the effects of this legislation and believes it
will not have a material impact on the Bank's financial condition.

Impact of Certain Accounting Standards

Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed of

In March,  1995, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed of." This Statement
is currently  effective for the Bank. This statement  established  standards for
the impairment of long-lived  assets and requires that long-lived assets held by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate  that  the  carrying  value  of an asset  may not be  recoverable.  The
Statement also requires that long-lived  assets to be disposed of be reported at
the lower of  carrying  value or fair value less cost to sell.  Adoption of this
Statement has not had and is not  anticipated  to have a material  impact on the
Bank's financial condition.

Accounting for Mortgage Servicing Rights

In May,  1995,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 122,  "Accounting  for Mortgage  Servicing
Rights." This Statement  amends FASB No. 65,  "Accounting  for Certain  Mortgage
Banking  Activities." This Statement requires that mortgage banking  enterprises
recognize as separate assets right to service mortgage loans for others, however
those servicing rights are acquired.  Mortgage banking  enterprises that acquire
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage  servicing  rights
and the loans  (without the mortgage  servicing  rights) based on their relative
fair values if it is practicable  to estimate those fair values.  This Statement
is effective  in the current  fiscal year.  The Bank  currently  does not retain
servicing  rights on  purchased or sold loans,  therefore,  the adoption of this
Statement has not had and is not  anticipated  to have a material  impact on the
Bank's financial condition.

Accounting for Stock-Based Compensation

Recently the Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation." This
Statement sets forth an alternative  approach to the present method of using APB
Opinion 25,  "Accounting  for Stock Issued to  Employees,"  to account for stock
options. However,  companies are not required to follow the new guidelines,  but
may continue in their present accounting practice with only slight modification.
The Company has chosen to continue  accounting  for its stock  option plan under
the APB Opinion 25. Under this Opinion,  using the intrinsic  value method,  the
excercise  price is the same as the market price of the stock at the grant date,
therefore, no compensation cost is recognized.

                                       13

<PAGE>





Transfer and Servicing of Financial Assets and Extinguishment of Liabilities

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting  Standards No. 125,  "Transfer and Servicing of Financial  Assets and
Extinguishment of Liabilities."  This Statement requires that transferred assets
could be derecognized  only when control is surrendered,  rather than when risks
and rewards  related to the asset are passed to another party. A liability would
be extinguished when the creditor no longer has ultimate  responsibility for the
liability. Adoption of this Statement has not had and is not anticipated to have
a material impact on the Bank's financial condition.

Earnings per Share

Recently the Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards No. 128, "Earnings per Share." It simplifies the standards
for computing earnings per share,  superseding the standards previously found in
Opinion 15. It replaces the  presentation  of primary  earnings per share with a
presentation of basic earnings per share. It also requires dual  presentation of
basic and diluted earnings per share on the face of the income statement for all
entities with complex capital  structures and requires a  reconciliation  of the
numerator and  denominator  of the basic  earnings per share  computation to the
numerator and denominator of the earnings per share computation.  This Statement
will affect the financial  statements  issued by the Company after  December 15,
1997.

Disclosure of Information about an Entity's Capital Structure

The Financial  Accounting Standards Board recently issued Statement of Financial
Accounting  Standards  No. 129,  "Disclosure  of  Information  about an Entity's
Capital Structure." This Statement applies to all entities. Its requirements are
a  consolidation  of those  found in APB  Opinions 10 and 15, and  Statement  of
Financial  Accounting  Standards  No. 47, and it  eliminates  the  exemption  of
nonpublic  entities from certain  disclosure  requirements.  This Statement will
affect the financial statements issued by the Company after December 15, 1997.

PART II.  OTHER INFORMATION
---------------------------

Item 6.  Exhibits and Reports on Form 8-K

A Form 8-K (Items 4 and 7) dated March 12,  1997,  was filed  during the quarter
regarding the registrant's change in accountants.

                                       14

<PAGE>



SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                          GFSB BANCORP, INC.


Date: May 14, 1997                 /s/ Jerry R. Spurlin
                                   -----------------------------------
                                          Jerry R. Spurlin
                                          President
                                          (Duly Authorized Representative and
                                          Principal Financial Officer)


                                       15