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, 1999

                                       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
------------------
(State or Other Jurisdiction of Incorporation or Organization)
                                                                 04-2095007  
                                                             -------------------
                                                              (I.R.S. Employer
                                                             Identification No.)
221 West Aztec Avenue, Gallup, New Mexico
(Address of Principal Executive Offices)
                                                                   87301     
                                                               -------------
                                                                 (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 May 3, 1999,  there were issued and  outstanding  1,020,286  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, 1999 and June 30, 1998                                 3

        Consolidated Statements of Earnings and Comprehensive Earnings
            Three months and nine months ended March 31, 1999 and 1998       4

        Consolidated Statements of Cash Flows
            Nine months ended March 31, 1999 and 1998                        6

        Notes to Consolidated Financial Statements                           8

Item 2. Management's Discussion and Analysis or Plan of Operation           10

                           PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K                                    17

        Signatures                                                          18



                                        2


<PAGE>
                               GFSB Bancorp, Inc.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                                 March 31,               June 30,
                                                                                    1999                   1998
                                                                              -----------------      ------------------
                                                                                (Unaudited)
                                     ASSETS
<S>                                                                        <C>                    <C>                
Cash and due from banks                                                     $        2,206,531     $         2,047,860
Interest-bearing deposits with banks                                                 1,174,123               2,490,120
Federal funds sold                                                                           0                       0
Available-for-sale investment securities                                             9,327,271               5,188,095
Available-for-sale mortgage-backed securities                                       27,681,128              33,551,219
Held-to-Maturity investment securities                                               1,676,147                 144,993
Stock of Federal Home Loan Bank, at cost, restricted                                 2,433,900               1,965,200
Loans receivable, net, substantially pledged                                        91,458,960              75,836,642
Accrued interest and dividends receivable                                              829,628                 675,485
Premises and equipment                                                               1,445,306               1,035,668
Other real estate and repossessed property                                             150,459                 159,106
Prepaid and other assets                                                                72,670                  46,316
Deferred tax asset                                                                      68,377                  68,377
                                                                              -----------------      ------------------

        TOTAL ASSETS                                                        $      138,524,500             123,209,081
                                                                              =================      ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Transaction and NOW accounts                                                $       12,233,365     $         6,979,785
Savings and MMDA deposits                                                           15,550,806              13,901,860
Time deposits                                                                       49,726,494              48,497,496
Accrued interest payable                                                               243,776                 223,702
Advances from borrowers for taxes and insurance                                        484,416                 225,597
Accounts payable and accrued liabilities                                               413,197                 260,332
Deferred income taxes                                                                  353,348                 426,553
Dividends declared and payable                                                          72,454                  82,446
Advances from Federal Home Loan Bank                                                46,568,913              38,247,631
Income taxes payable                                                                    91,921                 154,757
                                                                              -----------------      ------------------

        TOTAL LIABILITIES                                                          125,738,689             109,000,159


COMMITMENTS AND CONTINGENCIES                                                                -                       -


STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 1,500,000
  shares authorized;  1,165,537 issued and outstanding
  at June 30, 1998 and 1,025,286 shares issued and
  outstanding at March 31 1999, adjusted for                                                          
  30,389 and 40,035 shares at June 30, 1998 and March 31, 1999,
  for unallocated Management Stock Bonus Plan shares                                                  
  held by the Company's wholly owned subsidiary, respectively.                          98,525                 113,515
Preferred stock, $.10 par value, 500,000
  shares authorized;  no shares issued or
  outstanding                                                                                -                       -
Additional paid-in-capital                                                           3,868,003               5,777,881
Unearned ESOP stock                                                                   (383,024)               (415,695)
Retained earnings, substantially
  restricted                                                                         8,516,397               8,041,610
Accumulated other comprehensive
earnings                                                                               685,910                 691,611
                                                                              -----------------      ------------------

        TOTAL STOCKHOLDERS' EQUITY                                                  12,785,811              14,208,922
                                                                              -----------------      ------------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $      138,524,500     $       123,209,081
                                                                              =================      ==================
</TABLE>

See notes to consolidated financial statements.

                                        3

<PAGE>
                               GFSB Bancorp, Inc.

                       CONSOLIDATED STATEMENTS OF EARNINGS
                           AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
                                                                      Three months ended                   Nine months ended
                                                                          March 31,                            March 31,
                                                                -------------------------------      ------------------------------
                                                                    1999              1998              1999              1998
                                                                -------------------------------      ------------------------------
                                                                (Unaudited)        (Unaudited)       (Unaudited)       (Unaudited)
<S>                                                          <C>                <C>               <C>                   <C>      
Interest income
           Loans receivable
                          Mortgage loans                      $    1,684,895     $   1,297,923     $   4,807,011         3,636,241
                          Commercial loans                           126,488            82,480           363,185           199,318
                          Share and consumer loans                   102,616            80,561           298,412           220,984
           Investment and mortgage-backed securities                 455,300           623,415         1,450,586         1,938,938
           Other interest-earning assets                              49,280            39,652           152,894           130,108
                                                                -------------      ------------      ------------      ------------
                          TOTAL INTEREST EARNINGS                  2,418,579         2,124,030         7,072,088         6,125,589
Interest expense
           Deposits                                                  787,428           775,293         2,438,034         2,316,258
           Advances from Federal Home Loan Bank                      593,183           502,467         1,745,165         1,435,393
                                                                -------------      ------------      ------------      ------------
                          TOTAL INTEREST EXPENSE                   1,380,612         1,277,760         4,183,199         3,751,650
                                                                -------------      ------------      ------------      ------------
                          NET INTEREST EARNINGS                    1,037,967           846,270         2,888,889         2,373,938
Provision for loan losses                                             25,000            15,758            65,000            53,217 
                                                                -------------      ------------      ------------      ------------
                          NET INTEREST EARNINGS AFTER
                            PROVISION FOR LOAN LOSSES              1,012,967           830,512         2,823,889         2,320,721

Non-interest earnings
           Income from real estate operations                              -                 -                 -                 -
           Miscellaneous income                                        2,805             1,210            14,095             7,992
           Net gains from sales of loans                              31,828            (2,503)           41,053             1,710
           Service charge income                                      42,052            24,362           115,246            54,609
                                                                -------------      ------------      ------------      ------------
                          TOTAL NON-INTEREST EARNINGS                 76,686            23,070           170,394            64,311

Non-interest expense
           Compensation and benefits                                 365,635           243,150         1,062,061           692,259
           Insurance                                                  16,183            13,742            46,005            40,069
           Stock services                                              3,962             5,147            20,606            12,817
           Occupancy                                                  79,448            41,450           206,006           120,963
           Data processing                                            50,329            30,624           149,426            93,367
           Professional fees                                          10,170            12,892            37,862            81,867
           Advertising                                                20,224             7,067            55,626            34,576
           Stationary, printing and office supplies                   17,476             8,807            51,835            37,995
           ATM Expense                                                10,016            10,704            32,374            29,245
           Supervisory Exam Fees                                       8,992             8,697            27,482            23,000
           Postage                                                    11,188             5,057            24,865            15,650
           Other                                                      53,812            59,735           163,916           138,750
                                                                -------------      ------------      ------------      ------------
                          TOTAL NON-INTEREST EXPENSE                 647,435           447,072         1,878,063         1,320,558

</TABLE>

                                        4

<PAGE>



                               GFSB Bancorp, Inc.

                       CONSOLIDATED STATEMENTS OF EARNINGS
                     AND COMPREHENSIVE EARNINGS - CONTINUED
<TABLE>
<CAPTION>
                                                                      Three months ended                   Nine months ended
                                                                          March 31,                            March 31,
                                                                -------------------------------      ------------------------------
                                                                    1999              1998              1999              1998
                                                                -------------------------------      ------------------------------
                                                                (Unaudited)        (Unaudited)       (Unaudited)       (Unaudited)
<S>                                                            <C>               <C>               <C>               <C>      
                          EARNINGS BEFORE INCOME TAXES               442,218           406,509         1,116,220         1,064,474

Income tax expense
           Currently payable                                         166,159           155,337           418,448           404,838
           Deferred provision                                              -                 -                 -                 -
                                                                -------------      ------------      ------------      ------------

                                                                     166,159           155,337           418,448           404,838
                                                                -------------      ------------      ------------      ------------

                          NET EARNINGS                        $      276,058     $     251,171           697,772           659,636
                                                                =============      ============      ============      ============



Other Comprehensive Earnings                                                        
           Unrealized gain (loss), net of tax                       (206,486)           36,380            (5,701)          128,804

                                                                =============      ============      ============      ============
                          COMPREHENSIVE EARNINGS                      69,572           287,551           692,071           788,440
                                                                =============      ============      ============      ============


Earnings per common share
           Basic                                              $         0.28              0.22              0.67              0.58
                                                                =============      ============      ============      ============

Weighted average number of common shares outstanding
           Basic                                                     979,857         1,135,435         1,035,898         1,133,850
                                                                =============      ============      ============      ============

Earnings per common share
           Diluted                                                      0.27              0.22              0.66              0.57
                                                                =============      ============      ============      ============

Weighted average number of common shares outstanding
           Diluted                                                 1,006,191         1,152,779         1,064,377         1,149,642
                                                                =============      ============      ============      ============



Comprehensive earnings per common share
           Basic                                                        0.07              0.25              0.67              0.70
                                                                =============      ============      ============      ============

           Diluted                                                      0.07              0.25              0.65              0.69
                                                                =============      ============      ============      ============
</TABLE>
                                        5

<PAGE>
                               GFSB Bancorp, Inc.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
                                                                              Nine months ended
                                                                                  March 31,
                                                                      -----------------------------------
                                                                          1999                 1998
                                                                      --------------       --------------
                                                                       (Unaudited)          (Unaudited)
<S>                                                               <C>                  <C>            
Cash flows from operating activities
           Net earnings                                             $       697,772      $       659,636
           Adjustments to reconcile net earnings to
             net cash provided by operations
                     Deferred loan origination fees                        (223,663)            (125,956)
                     Gain on sale of sold loans                             (41,053)              (1,709)
                     Provision for loan losses                               65,000               53,217
                     Depreciation of premises and equipment                 113,570               58,730
                     Amortization of investment and mortgage-
                       backed securities premiums (discounts)               294,702              206,436
                     Stock dividends on FHLB stock                          (95,400)             (77,400)
                     Release of ESOP stock                                   76,724               69,734
                     Stock compensation                                      79,883               37,217
                     Provision (benefit) for deferred income taxes                -                    -

           Net changes in operating assets and liabilities
                     Accrued interest and dividends receivable             (154,143)            (128,716)
                     Prepaid taxes                                                -                    -
                     Prepaid and other assets                               (26,355)             (17,631)
                     Accrued interest payable                                20,074              155,551
                     Accounts payable and accrued liabilities               112,526               35,823
                     Income taxes payable                                   (62,836)            (103,429)
                     Dividends declared and payable                          (9,992)                 802
                                                                      --------------       --------------

                               Net cash provided by
                               operating activities                         846,809              822,305

Cash flows from investing activities
           Purchase of premises and equipment                              (523,208)            (286,154)
           Loan originations and principal                                                  
             repayment on loans, net                                    (15,413,958)         (17,295,270)
           Principal payments on mortgage-backed
             securities                                                   8,207,158            7,101,219
           Purchases of mortgage-backed securities                       (2,928,670)         (10,770,665)
           Purchases of available-for-sale securities                    (6,002,335)          (2,487,601)
           Maturities and proceeds from sale of
             available-for-sale securities                                2,010,000              500,000
           Principal payments on available-for-sale securities               70,000                    -
           Purchases of held-to-maturity securities                      (1,530,000)                   -
           Maturities and proceeds from sale of
            held-to-maturity securities                                           -                    -
           Purchase of FHLB stock                                          (373,300)            (798,600)
                                                                      --------------       --------------

                               Net cash used by
                               investing activities                     (16,484,313)         (24,037,071)

</TABLE>
                                        6

<PAGE>

                                           GFSB Bancorp, Inc.

                           CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                            Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
                                                                              Nine months ended
                                                                                  March 31,
                                                                      -----------------------------------
                                                                          1999                 1998
                                                                      --------------       --------------
                                                                       (Unaudited)          (Unaudited)
<S>                                                                 <C>                  <C>          
Cash flows from financing activities
           Net increase in transaction accounts, passbook
             savings, money market accounts, and
             certificates of deposit                                $     8,131,524      $     9,299,731
           Net increase (decrease) in mortgage escrow funds                 258,819              157,805
           Proceeds from FHLB advances                                  217,685,527          378,820,950
           Repayments on FHLB advances                                 (209,364,245)        (364,790,074)
           Purchase of GFSB Bancorp stock under the
             stock repurchase plan in cash                               (2,058,528)                   -
           Dividends paid or to be paid in cash                            (222,984)            (226,656)
           Price paid for vested management bonus
           stock plan stock                                                  50,065                    -
                                                                      --------------       --------------

                               Net cash provided by
                               financing activities                      14,480,178           23,261,756
                                                                      --------------       --------------

           Increase (decrease) in cash and cash equivalents              (1,157,326)              46,990

           Cash and cash equivalents at beginning of period               4,537,980            2,994,128
                                                                      --------------       --------------

           Cash and cash equivalents at end of period               $     3,380,654            3,041,118
                                                                      ==============       ==============
Supplemental disclosures
           Cash paid during the period for
                     Interest on deposits and advances              $     4,163,126      $     3,596,099
                     Income taxes                                           481,284              508,267

           Change in unrealized gain (loss), net of deferred
             taxes on available-for-sale securities                          (5,701)             128,804

           Dividends declared not yet paid                                   72,454               76,217
</TABLE>
                                        7

<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, 1998, Form 10-KSB.
This quarterly report should be read in conjunction with such annual report.

2.       Dividends
         ---------
During the quarter ended  December 31, 1998,  the Board of Directors  declared a
cash  dividend of $0.075 per share on the  Company's  outstanding  common stock,
payable to  stockholders  of record as of December 31, 1998.  The dividends were
paid in January 1999.

During the  quarter  ended March 31,  1999,  the Board of  Directors  declared a
quarterly cash dividend of $0.075 per share on the Company's  outstanding common
stock,  payable to  stockholders  of record as of March 31, 1999.  The dividends
were paid in April 1999.

As required by SOP 93-6,  the  dividends  on  unallocated  ESOP shares have been
recorded as an additional  $4,000  compensation  cost rather than a reduction of
retained earnings.

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

On December 31, 1998 the Company  released  7,022.36  shares of its common stock
owned by the  Company's  ESOP.  On March 31, 1999,  the Company was committed to
release 1776.12 shares of this common stock. The commitment  resulted in $26,000
of additional compensation cost.

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

On January 5, 1996,  the  Company  made  awards  under the Plan in the amount of
30,573 shares. The shares were awarded at a price of $9.25 per share. On January
5, 1998,  the Company made awards under the Plan in the amount of 2,250  shares.
The retirement during the quarter ended September 30, 1997 of an officer to whom
an award had been made under the Plan,  resulted in a reduction  of 3,000 shares
in the total number of shares  awarded.  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
grant of the award. On January 5, 1997, 6,112 shares under the Plan were earned,
and the corresponding liability was paid. On January 5, 1998, 5,363 shares under
the Plan were earned,  and the  corresponding  liability was paid. On January 5,
1999, 5,548 shares under the Plan were earned,  and the corresponding  liability
was paid.

At March 31, 1999,  27,102  shares  remained to be awarded  under 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 $13,000 has been
recorded at March 31, 1999, under the provisions of the Plan.

                                       8
<PAGE>

5.       Earnings Per Share
         ------------------

The Company has potential  dilutive common stock (stock options to employees and
directors)  and  accordingly  presents  basic and  diluted  earnings  per share.
Diluted per share  amounts  assume the  conversion,  exercise or issuance of all
potential  common  stock  instruments  unless  the effect is to reduce a loss or
increase the income per common share

The weighted  average number of shares of common stock used to compute the basic
earnings  per share was  increased  by 26,334 for the three month  period  ended
March 31,  1999,  and by 17,344 for the three month period ended March 31, 1998,
in computing the diluted per share data.

The weighted  average number of shares of common stock used to compute the basic
earnings per share was increased by 28,479 for the nine month period ended March
31,  1999,  and by 15,792 for the nine month  period  ended March 31,  1998,  in
computing the diluted per share data.


6.       Comprehensive Earnings
         ----------------------

Comprehensive earnings, defined as the change in equity of a business enterprise
from transactions and other events and circumstances from non-owner sources, was
presented for the first time in the quarter ended  September 30, 1998.  The only
item of other  comprehensive  earnings  for the Company is the  unrealized  gain
(loss) on available-for-sale securities.


                                        9

<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 non-interest 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 and equipment  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.

GFSB Bancorp,  Inc. (the  "Company")  may from time to time make written or oral
"forward-looking  statements",  including  statements contained in the Company's
filing with the  Securities  and  Exchange  Commission  (including  this quarter
report on Form 10-QSB and the exhibits thereto),  in its reports to stockholders
and in other  communication 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 in not exclusive.  The
Company does not  undertake  to update and  forward-looking  statement,  whether
written  or oral,  that may be made  from  time to time by or on  behalf  of the
Company.

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

                                       10
<PAGE>

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-family  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.  The Bank has recently  begun  purchasing  automobile
loans from  dealers.  These loans 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 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.  Automated  Teller Machine  access and commercial and consumer  credit
life  insurance  are  additional  products  now  offered  by 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
provides an opportunity  to expand its operations as the only local  independent
financial  institution.  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" discussed above).

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 increasing interest rates.

FINANCIAL CONDITION

The Bank's total assets  increased $15.3 million or 12.4% from $123.2 million at
June 30, 1998 to $138.5  million at March 31, 1999.  This  increase is primarily
the result of a $15.6  million  increase in the Bank's net loan  portfolio.  The
majority of the increases are directly  attributable to efforts of Management to
increase  investment  and lending  activity.  During the same  period,  deposits
increased  $8.1  million or 11.7% from $69.4  million at June 30,  1998 to $77.5
million at March 31, 1999.  This increase is primarily due to an increase in the
Bank's  volume of NOW accounts,  savings and MMDA  accounts,  business  checking
accounts and Time  Deposits.  Advances from the FHLB increased $8.3 million from
$38.2  million  at June 30,  1998 to $46.6  million  at March  31,  1999.  These
additional   borrowings   funded   purchases   of  loans   and   mortgage   loan
participations.  The Bank had $686,000 and $692,000 in unrealized  gains (net of
deferred  taxes) at March 31, 1999 and June 30, 1998,  respectively  from market
gains  on  the  Bank's   available-for-sale   investment   and   mortgage-backed
portfolios.

                                       11
<PAGE>

RESULTS OF OPERATIONS

COMPARISON  OF OPERATING  RESULTS FOR QUARTER  ENDED MARCH 31, 1999  COMPARED TO
QUARTER ENDED MARCH 31, 1998

General

Net earnings increased $25,000 or 9.9% for the quarter ended March 31, 1999 from
the quarter  ended March 31, 1998.  This  increase is primarily the result of an
increase in net  interest  earning of  $192,000,  an  increase  in  non-interest
earnings of $54,000,  offset by an increase in non-interest expense of $200,000,
an increase  in income tax  expense of $11,000 and an increase in the  provision
for loan losses of $9,000.

Interest Earnings

Total  interest  income  increased  $295,000 or 13.9% from $2.1  million for the
quarter  ended March 31, 1998,  to $2.4 million for the quarter  ended March 31,
1999. This increase was primarily due to substantial increases in the bank's net
loan portfolio.

Interest Expense

Total  interest  expense  increased  $103,000  or 8% from $1.3  million  for the
quarter  ended  March 31, 1998 to $1.4  million for the quarter  ended March 31,
1999.  This increase was primarily due to an increase in FHLB  borrowings and an
increase in the deposit base.

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 $422,000 and $377,000 at
March 31, 1999 and 1998,  respectively.  The provision for loan loss was $25,000
and $16,000 for the quarter ended March 31, 1999 and 1998,  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. Recent substantial increases in the loan portfolio
of the Bank may result in an  increase  of  provision  for losses on loans.  The
establishment of a loan loss provision each period adversely  impacts the Bank's
net earnings.

Non-Interest Income

Total  non-Interest  income  increased by $54,000 or 232.4% from $23,000 for the
quarter  ended March 31, 1998 to $77,000 for the quarter  ended March 31,  1999.
This increase was primarily due to increased  service and NSF charges on NOW and
checking  accounts  of $18,000  and an  increase  in the net gains from sales of
loans of $34,000.

Non-Interest Expense

Total  non-interest  expense  increased  $200,000 or 44.8% from $447,000 for the
quarter  ended March 31, 1998 to $647,000 for the quarter  ended March 31, 1999.
This increase was primarily due to an increase in  compensation  and benefits of
$122,000 from the hiring of additional  staff to handle  growth,  general salary
increases,  increases due to accrual for stock-based compensation programs and a
performance bonus plan accrual.  Other factors were increases in occupancy costs
of $38,000,  data processing costs of $20,000,  advertising costs of $13,000, an
increase in stationary,  printing and office  supplies of $9,000 and an increase
in postage of $6,000,  offset by a decrease in professional fees of $3,000 and a
decrease in other operating expense of $6,000. The increase in occupancy cost is
primarily due to lease expense and leasehold improvement expense on the new Loan
Center and depreciation of furniture, fixtures and equipment. The

                                       12
<PAGE>


increase in data processing  expense is primarily due to service bureau expense.
The increase in advertising  costs is a result of efforts of the Bank to achieve
growth  in  deposits   through   attracting  new  customers.   The  decrease  in
professional  fees is  primarily  due to a  decrease  in  audit  and  accounting
accruals.

RESULTS OF OPERATIONS

COMPARISON  OF  OPERATING  RESULTS  FOR NINE MONTH  PERIOD  ENDED MARCH 31, 1999
COMPARED TO NINE MONTH PERIOD ENDED MARCH 31, 1998

General

Net earnings increased $38,000 or 5.8% for the nine-month period ended March 31,
1999 from the nine-month period ended March 31, 1998. This increase is primarily
the result of an increase in net-interest earnings of $515,000 and a increase in
non-interest earnings of $106,000, offset by an increase in non-interest expense
of $557,000,  an increase in provision  for loan loss of $12,000 and an increase
in provision for income taxes of $13,000.

Interest Earnings

Total  interest  income  increased  $946,000 or 15.5% from $6.1  million for the
nine-month  period  ended March 31,  1998,  to $7.1  million for the  nine-month
period ended March 31, 1999.  This  increase was  primarily  due to  substantial
increases in the bank's net loan portfolio.

Interest Expense

Total  interest  expense  increased  $432,000 or 11.5% from $3.8 million for the
nine-month period ended March 31, 1998 to $4.2 million for the nine-month period
ended March 31, 1999.  This  increase was  primarily  due to an increase in FHLB
borrowings and an increase in the deposit base.

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 $422,000 and $377,000 at
March 31, 1999 and 1998,  respectively.  The provision for loan loss was $65,000
and  $53,000  for  the  nine-month   period  ended  March  31,  1999  and  1998,
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.  Recent  substantial
increases  in the loan  portfolio  of the  Bank may  result  in an  increase  of
provision for losses on loans.  The  establishment of a loan loss provision each
period adversely impacts the Bank's net earnings.

Non-Interest Income

Total  non-Interest  income increased by $106,000 or 164.9% from $64,000 for the
nine-month  period  ended March 31, 1998 to $170,000 for the  nine-month  period
ended March 31, 1999.  This increase was primarily due to increased  service and
NSF charges on NOW and checking accounts and an increase in net gains from sales
of loans.

Non-Interest Expense

Total  non-interest  expense increased $557,000 or 42.2% from $1,321,000 for the
nine-month period ended

                                       13
<PAGE>

March 31, 1998 to  $1,878,000  for the  nine-month  period ended March 31, 1999.
This increase was primarily due to an increase in  compensation  and benefits of
$370,000 from the hiring of additional  staff to handle  growth,  general salary
increases and increases due to accrual for  stock-based  compensation  programs.
Other expenses in  compensation  and benefits the nine-month  period ended March
31,  1999  includes  a $131,000  performance  bonus  plan  accrual  and a $8,000
increase  in  education  and  training  due to  employee  training  for  the new
operating system and application  software.  This performance bonus plan accrual
was budgeted for the fiscal year ending June 30, 1999 therefore will continue to
increase non-interest expense in future periods. Other factors were increases in
occupancy costs of $85,000, data processing costs of $56,000,  advertising costs
of $21,000, an increase in stationary,  printing and office supplies of $14,000,
an  increase  in postage of $9,000,  an  increase  in  supervisory  exam fees of
$4,000,  an increase in ATM  expense of $3,000,  an increase in other  operating
costs  $25,000,  an  increase  in stock  services  of $8,000 and an  increase in
insurance  expense  of  $6,000  offset by a  decrease  in  professional  fees of
$44,000.  The increase in occupancy  cost is primarily  due to lease expense and
leasehold improvement expense on the new Loan Center and Furniture, Fixtures and
Equipment  depreciation  for the new Drive-up  facility and New Automated Teller
Machine and  computer  equipment  purchases.  The  increase  in data  processing
expense is  primarily  due to service  bureau  expense  for  upgrading  computer
software.  The increase in other  operating costs is primarily due to other real
estate owned expenses,  year 2000 expense and an increase in organizational dues
and  subscriptions.  The increase in advertising costs is a result of efforts of
the Bank to achieve growth in deposits  through  attracting  new customers.  The
increase in stock  services is primarily due to a fee paid to the OTS for filing
a change of control application.  The decrease in professional fees is primarily
due to a decrease in legal fees and audit and accounting accruals.

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.  Prior OTS  regulations  required  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 consist of not less than 1%, with the
qualifying investments limited to those having maturities of five years of less.
Revised OTS regulations  effective  November 13, 1997 lowered the required level
of liquid assets to 4%,  removed the  short-term  liquid asset  requirement  and
deleted  the five year or less  maturity  requirement.  At March 31,  1999,  the
Bank's  liquidity,  as measured for  regulatory  purposes,  was 5.79%.  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, 1999, cash and cash  equivalents  totaled
$3.4 million.  The 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,
1999,  the Bank had $46.7  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, 1999 the Bank
originated  $11.2  million in total loans,  of which $6.5 million were  mortgage
loans.  The Bank also  purchased  $1 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 and readily  marketable equity  securities.  During

                                       14

<PAGE>

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,
provision  for loan losses,  amortization  of  investment  and  mortgage  backed
securities  premiums and discounts,  stock based  compensation  costs and income
taxes less  disbursements  of interest and dividends,  and loan origination fees
were  $847,000 and $822,000 for the  nine-month  period ended March 31, 1999 and
1998 respectively. Net cash used for investing activities consisted primarily of
disbursement of loan  originations and investment and  mortgage-backed  security
purchases,  offset by principal  collections on loans and principal  collections
and proceeds  from  maturities  of  investment  securities  and  mortgage-backed
securities.  Such uses were $16.5  million and $24  million  for the  nine-month
period  ended  March 31, 1999 and 1998,  respectively.  Net cash  provided  from
financing activities  consisting primarily of net activity in deposit and escrow
accounts and new FHLB borrowings,  offset by repayments on FHLB borrowings, were
$14.5 million and $23.3 million for the  nine-month  period ended March 31, 1999
and 1998, respectively.

The Bank  anticipates  that it will have sufficient  funds available to meet its
current  commitments.  As of March 31, 1999,  the Bank had  commitments  to fund
loans of $10 million. Certificates of deposit scheduled to mature in one year or
less totaled $38 million.  Based on  historical  withdrawals  and  outflows,  on
internal daily 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, 1999, the Bank exceeded each of the three OTS capital  requirements
on a fully-phased-in basis.

The Year 2000 issue

Year 2000  expense in the quarter  ended  March 31,  1999 was $7,000.  Year 2000
expense for the nine-month  period ended March 31, 1999 was $19,000.  The Bank's
operating  budget for the fiscal year ending June 30, 1999 includes  $75,000 for
Year 2000 expense.  In September 1998 the bank hired a full time data processing
systems administrator. Although he has other duties, his primary duties are Year
2000 administration,  testing,  remediation,  and contingency planning,  and his
salary will be allocated to Year 2000 expense.  We have identified some personal
computers and software to be upgraded.  Management  believes the $75,000  budget
allocation for Year 2000 expense will cover these costs as well as those for the
systems  administrator.  Because management expects to be Year 2000 compliant in
almost all risk  areas by June 30,  1999,  Year 2000  costs for the fiscal  year
ending June 30, 2000 are not  expected to be  material.  Should the Bank have to
resort to alternative operating procedures due to major systems or communication
failures at the beginning of the Year 2000, the extra costs could be material.

In its initial  Year 2000  Action  Plan,  the Bank  identified  seven  phases as
necessary to  implement a Year 2000  compliant  system.  The Bank is a federally
chartered  financial  institution  regulated by the Office of Thrift Supervision
("OTS"). The OTS identified five phases for Year 2000 compliance.  The following
list describes the five phases as identified by the OTS with  comparable  phases
from the Bank's Year 2000 Action Plan identified in parentheses, if different:

1.       Awareness -- Inform senior  management of Year 2000 issues and possible
         impact to the overall organization.

2.       Assessment  (Inventory,  Assessment)  -- Estimate the scope of the Year
         2000  project and develop the budget for project  execution.  Develop a
         complete inventory of hardware, software and systems, and categorize by
         importance.

3.       Renovation  (Analysis,  Renovation) -- Perform a detailed  analysis and
         develop  detailed  plans for  correction,  testing  and  reimplementing
         critical applications. Correct and replace all critical applications.

                                       15
<PAGE>

4.   Validation  (Testing)  -- Test all  critical  applications  unit and system
     level.

5.   Implementation  -- Implement all critical  applications  and databases in a
     production environment. Integration test.

As of March 31, 1999 the following chart shows the current and projected  status
of the Bank's Year 2000 compliance efforts:

Phase                      3/31/99          6/30/99
-----                      -------          -------

Awareness                  100%             -

Assessment                 100%             -

Renovation                 100%             -

Validation                  95%             100%

Implementation              95%             100%



Subsequent Events

In June 1998, the Bank opened a newly constructed  drive-up teller and automated
teller machine facility on a lot previously  purchased for this purpose adjacent
to the present bank  building.  On September  14, 1998,  the Bank moved its loan
operations  into a new Loan Center  across the street from its office.  The 7000
sq. ft.  building  was leased for ten years with an option to  purchase at a set
price.  Management believes the additions will provide the Bank growth potential
by improving its ability to deliver  retail-banking  services in the  community.
These additions have had an impact on financial performance for the Bank for the
quarter ended March 31, 1999 and will materially increase  non-interest  expense
for the Company  during the fiscal  year  ending  June 30,  1999 and  subsequent
years.

Stock Repurchase Program

On November 24, 1998 the Company issued a press release announcing its intention
to repurchase  up to 5% (52,595  shares) of the  Company's  common stock.  As of
March 31, 1999, 30,887 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 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.


Recapture of Post 1987 Bad Debt Reserves

The Small Business Job Protection Act of 1996, among other things, equalized the
taxation  of  thrifts  and  banks.  The bill no longer  allows  thrifts a choice
between the percentage of taxable income method and the

                                       16
<PAGE>

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, 1998,  the Bank had $46,613 of post 1987
bad-debt  reserves of which 1/6th or $9,323 was  recaptured  into taxable income
for the year ended  June 30,  1998.  Future  recapture  of the  Bank's  bad-debt
reserves may have an adverse effect on net earnings. Management does not believe
such  future  recapture  of the  Bank's bad debt  reserves  will have a material
impact on the Bank's financial condition.

Impact of Certain Accounting Standards

Accounting for Stock-Based Compensation

In October,  1995,  the FASB issued SFAS No. 123  "Statement of  Accounting  for
Stock-Based   Compensation"  which  defines  a  "fair  value  based  method"  of
accounting for an employee stock option whereby compensation cost is measured at
the  grant  date  based on the value of the  award  and is  recognized  over the
service  period.  The FASB encouraged all entities to adopt the fair value based
method,  however, it allows entities to continue the use of the "intrinsic value
based method" prescribed by Accounting  Principles Board ("APB") Opinion No. 25.
Under the intrinsic value based method,  compensation  cost is the excess of the
market price of the stock at the grant date over the amount an employee must pay
to acquire the stock.  However,  most stock option plans have no intrinsic value
at the grant date and, as such, no  compensation  cost is  recognized  under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma  disclosures as if the fair value
based method had been  applied.  The Bank has  continued  to use the  "intrinsic
value based method" as prescribed by APB Opinion No. 25.


Disclosure About Segments of an Enterprise and Related Information

Also in June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an Enterprise and Related Information." This Statement establishes standards for
the way that public entities  report  information  about  operating  segments in
annual  financial  statements  and  requires  that  selected  information  about
operating  segments be reported in interim  financial  reports as well.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas and major  customers.  This  Statement is effective for fiscal
years beginning after December 31, 1997, except for interim financial statements
in the initial year of its application.

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

Item 6.  Exhibits and Reports on Form 8-K
None

                                       17
<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 11, 1999

                               /s/ Jerry R. Spurlin
                               -------------------------------------
                               President
                               (Duly Authorized Representative and
                               Principal Financial Officer)