<PAGE>
<PAGE>

                           UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                        Washington, DC  20549

                          FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
     For the fiscal year ended June 30, 1997
                           OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from _________ to __________

                Commission File Number 0-22742 

                      GFS BANCORP, INC.
-----------------------------------------------------------------
          (Name of small business issuer in its charter)

         Delaware                         42-1410536
--------------------------------    -----------------------------
(State or other jurisdiction        (IRS Employer Identification
of incorporation or organization)   No.)

1025 Main Street, Grinnell, Iowa                     50112-0030 
-----------------------------------------------------------------
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code:(515) 236-3121 
                                                   -------------- 

  Securities Registered Pursuant to Section 12(b) of the Act:

                              None
                              ----
                            
  Securities Registered Pursuant to Section 12(g) of the Act:

           Common Stock, par value $0.01 per share
           ---------------------------------------
                     (Title of class)

    Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. 
YES [X] . NO  [   ] 

    Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained herein, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]  

     State the issuer's revenues for its most recent fiscal year: 
$7.3 million.

     The aggregate market value of the voting stock held by non-
affiliates of the registrant, computed by reference to the
closing prices of such stock on the Nasdaq System as of September
22, 1997, was 12.3 million.  (The exclusion from such amount of
the market value of the shares owned by any person shall not be
deemed an admission by the registrant that such person is an
affiliate of the registrant.)

     As of September 3, 1997, there were issued and outstanding
988,242 shares of the Registrant's Common Stock.

      Transitional Small Business disclosure format (check one):
yes [  ] no [x] 

             DOCUMENTS INCORPORATED BY REFERENCE

     Part II of Form 10-KSB - Annual Report to Stockholders for
the fiscal year ended June 30, 1997.

     Part III of Form 10-KSB - Proxy Statement for 1997 Annual
Meeting of Stockholders.<PAGE>
<PAGE>
                           PART I
     
ITEM 1.  DESCRIPTION OF BUSINESS  
         -----------------------

GENERAL

     THE COMPANY.  GFS Bancorp, Inc. (the "Company"), a Delaware
corporation, was formed in September 1993 to act as the holding
company for Grinnell Federal Savings Bank ("Grinnell Federal" or
the "Bank") upon the completion of the Bank's conversion from the
mutual to the stock form (the "Conversion").  The Company
received approval from the Office of Thrift Supervision (the
"OTS") to acquire all of the common stock of the Bank to be
outstanding upon completion of the Conversion.  The Conversion
was completed on January 5, 1994.  The primary business activity
of the Company is to act as the holding company of the Bank.  The
Company also invests in U.S. government obligations, common and
preferred stocks and mutual funds.

     The executive offices of the Company and its subsidiary are
located at 1025 Main Street, Grinnell, Iowa 50112 and the
telephone number at that address is (515) 236-3121.

     GRINNELL FEDERAL.   Grinnell Federal, originally chartered
in 1935, is a federally chartered savings bank headquartered in
Grinnell, Iowa.  Its deposits are insured up to the maximum
allowable amount by the Federal Deposit Insurance Corporation
(the "FDIC").  As a federally chartered savings bank, the Bank is
regulated by the Office of Thrift Supervision, Department of the
Treasury ("OTS").

     Grinnell Federal primarily serves Poweshiek County, as well
as, parts of Marshall, Iowa, and Jasper Counties, Iowa through
its office located at 1025 Main Street, Grinnell, Iowa  50112. 
The Bank competes in loan originations and in attracting deposits
with approximately six financial institutions serving its primary
market area.

     Grinnell Federal is a community-oriented financial
institution offering a variety of financial services to meet the
needs of the communities it serves.  The Bank attracts deposits
from the general public and uses the deposits, together with
borrowings and other funds, to originate loans secured by first
mortgages on owner-occupied one- to four-family residences.  To a
lesser extent, the Bank also originates loans secured by
commercial and multi-

                             2<PAGE>
<PAGE>
family real estate, and construction, consumer and commercial
business loans.

     In addition, in order to supplement loan demand in its
market area, Grinnell Federal has purchased whole loans and
participation interests in loans secured by one- to four-family
owner-occupied real estate in the Des Moines, Iowa metropolitan
area, and multi-family and commercial real estate in the Madison
and Milwaukee, Wisconsin metropolitan areas, originated by a
mortgage broker located in Wisconsin and other savings
institutions headquartered in Iowa.  All of such purchased loans
meet the Bank's underwriting standards.

     The Bank also invests in U.S. Government and agency
securities and other investment securities.  See "- Investment
Activities."

     The Bank offers a variety of accounts having a wide range of
interest rates and terms.  The Bank only solicits deposits in its
primary market area and does not accept brokered deposits.

     MARKET AREA.  The office of the Bank is located at 1025 Main
Street, Grinnell, Iowa  50112.  Through this office, Grinnell
Federal currently serves primarily Poweshiek County and, to a
lesser extent, portions of Marshall, Iowa, and Jasper Counties,
Iowa.

     Grinnell, Iowa is located in Poweshiek County, and is
approximately 55 miles east of Des Moines, Iowa.  Poweshiek
County has a population of approximately 19,000 persons, and
Grinnell's population is estimated at 8,900 people.  Grinnell has
a mixed industrial and agricultural economy consisting of some
200 retail and service enterprises serving the Grinnell area. 
Major employers include Grinnell College, Grinnell Mutual
Reinsurance Company, DeLong Sportswear, GTE, Grinnell Regional
Medical Center, Donaldson Company, CertainTeed Company, Wenco of
Iowa, Mayflower Homes and
Van Wyk Freight Lines.

LENDING ACTIVITIES

     GENERAL.   Historically, the Bank originated fixed-rate
mortgage loans.  Since the early 1980s, however, the Bank has
emphasized, subject to market conditions, the origination and
holding of adjustable-rate mortgage ("ARM") loans and loans with
shorter terms to maturity than traditional 30-year, fixed-rate
loans.  Management's strategy has been to increase the percentage

                             3<PAGE>
<PAGE>
of assets in its portfolio with more frequent repricing or
shorter maturities.  In response to customer demand, however, the
Bank continues to originate for its loan portfolio fixed-rate
mortgages with terms not greater than 30 years.

     The Bank's primary focus in lending activities is on the
origination of loans secured by first mortgages on owner-
occupied, one- to four-family residences.  The Bank also
originates and purchases loans secured by commercial and multi-
family real estate and a limited number of construction, consumer
and commercial business loans.  During fiscal 1997, the Bank
originated $13.7 million and purchased $35.4 million in loans
which contributed to the increase in the Bank's loan portfolio. 
Of the $35.4 million in loans purchased during the 1997 fiscal
year, $26.9 million in participation interests were sold to other
financial institutions with the Bank retaining the servicing. 
See "- Originations, Purchases and Sales of Loans and
Mortgage-Backed Securities" herein and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in
the Company's 1997 Annual Report to Stockholders attached hereto
as Exhibit 13 (the "Annual Report").  At June 30, 1997, the
Bank's net loan portfolio totaled $78.5 million.

     All members of the Board of Directors serve as Loan
Committee members.  At any given time, the approval of at least
two outside directors and one inside director is required to
approve loans for which approval of the Loan Committee is
required.  Loan Committee approval is required for unsecured
consumer loans greater than $25,000, secured consumer loans over
$50,000,  and commercial (non-real estate) loans of more than
$50,000.  The Loan Committee must also approve all loans secured
by real estate over $300,000.

     The aggregate amount of loans that the Bank is permitted to
make under applicable federal regulations to any one borrower,
including related entities, or the aggregate amount that the Bank
can invest in any one real estate project is, with certain
exceptions, generally the greater of 15% of unimpaired capital
and surplus or $500,000.  See "Regulation - Federal Regulation of
Savings Associations."  At June 30, 1997, the maximum amount
which the Bank could have lent to any one borrower and the
borrower's related entities was approximately $1.3 million.  At
June 30, 1997, the Bank had no loans with aggregate outstanding
balances in excess of this amount.  Since the Bank's current
lending policy generally limits loans secured by real estate to
$500,000 and consumer loans
                             4<PAGE>
<PAGE>
to $50,000, the Bank has not been materially restricted by this
lending limit.  

     At June 30, 1997, the Bank had five (5) lending
relationships exceeding $750,000 secured primarily by multi-
family and commercial real estate properties.  At June 30, 1997,
the foregoing loans were performing in accordance with their loan
repayment terms.

     LOAN PORTFOLIO COMPOSITION.  The following table presents
the composition of the Bank's loan portfolios in dollar amounts
and in percentages (before deductions for loans in process,
deferred fees and discounts and allowances for losses) as of the
dates indicated.
<TABLE>
<CAPTION>

                                                        June 30,
                                            --------------------------------
                                                   1997            1996    
                                            ---------------  ---------------  
                                            Amount      %    Amount      %   
                                            ------    -----  ------    -----  
                                                 (Dollars in thousands)
<S>                                         <C>       <C>    <C>       <C>   
Real Estate Loans:                 
-----------------
 One-to four-family . . . . . . . . . . .  $53,391   66.3   $49,015   65.3
 Multi-family . . . . . . . . . . . . . .   11,346   14.1    11,589   15.4
 Commercial . . . . . . . . . . . . . . .    8,786   10.9     8,184   10.9
 Construction and land. . . . . . . . . .    4,311    5.4     3,721    5.0
                                           -------  -----   -------  -----
     Total real estate loan. . . . . . .    77,834   96.7    72,509   96.6
                                           -------  -----   -------  -----
Other Loans:                  
-----------
 Consumer Loans:                   
  Deposit account . . . . . . . . . .           56     .1        42     .1
  Automobile. . . . . . . . . . . . .          752     .9       669     .9
  Home equity line of credit. . . . .          419     .5       274     .3
  Home improvement. . . . . . . . . .           13    ---         7    ---
  Other . . . . . . . . . . . . . . .          260     .3       296     .4
                                           -------  -----   -------  -----
     Total consumer loans . . . . . .        1,500    1.8     1,288    1.7
 Commercial business loans(1) . . . .        1,169    1.5     1,297    1.7 
                                           -------  -----   -------  -----
     Total other loans. . . . . . . .        2,669    3.3     2,585    3.4
                                           -------  -----   -------  -----
     Total loans. . . . . . . . . . .       80,503  100.0%   75,094  100.0%
                                                    =====            =====
Less:
 Loans in process . . . . . . . . . .        1,147            2,473
 Deferred fees and discounts. . . . .          235              207
 Allowance for losse. . . . . . . . .          646              641
                                           -------          -------
 Total loans receivable,net . . . . .      $78,475          $71,773
                                           =======          =======
<FN>
__________
(1)  Includes commercial leases totaling $165,000 as of June 30, 1997.
</FN>
</TABLE>
                             5<PAGE>
<PAGE>
     The following table shows the composition of the Bank's loan
 portfolios by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                       June 30,
                                            --------------------------------
                                                   1997            1996    
                                            ---------------  ---------------  
                                            Amount      %    Amount      %   
                                            ------    -----  ------    -----  
                                                 (Dollars in thousands)
<S>                                         <C>       <C>    <C>       <C>   
Fixed-Rate Loans:                  
----------------                   
 Real estate:
  One- to four-family. . . . . . . . . . . $24,114    29.9%  $22,568   30.1%
  Multi-family . . . . . . . . . . . . . .   1,224     1.5     1,236    1.6
  Commercial . . . . . . . . . . . . . . .     938     1.2     1,174    1.6
  Construction and land. . . . . . . . . .   4,256     5.3     3,469    4.7
                                           -------   -----   -------  -----
    Total fixed-rate real
      estate loans. . . . . . . . . . . .   30,532    37.9    28,447   38.0

 Non-real estate:                  
  Consumer . . . . . . . . . . . . . . .     1,081     1.3     1,014    1.3
  Commercial business(2) . . . . . . . .       376      .5       695     .9
                                           -------   -----   -------  -----
    Total fixed-rate loans . . . . . . .    31,989    39.7    30,156   40.2
                                           -------   -----   -------  -----

Adjustable-Rate Loans:                  
---------------------                   
 Real estate:
  One- to four-family. . . . . . . . . .    29,277    36.4    26,447   35.2
  Multi-family . . . . . . . . . . . . .    10,122    12.6    10,353   13.8
  Commercial . . . . . . . . . . . . . .     7,848     9.7     7,010    9.3
  Construction and land. . . . . . . . .        55      .1       252     .3
                                           -------   -----   -------  -----
    Total adjustable-rate
     real estate loans . . . . . . . . .    47,302    58.8    44,062   58.6
                    
 Non-real estate:                  
  Home equity line of credit . . . . . .       419      .5       274     .4
  Commercial business. . . . . . . . . .       793     1.0       602     .8
                                           -------   -----   -------  -----
    Total adjustable-rate loans. . . . .    48,514    60.3    44,938   59.8
                                           -------   -----   -------  -----
    Total loans. . . . . . . . . . . . .    80,503   100.0%   75,094  100.0%
                                                     =====           =====
Less:                    
----
 Loans in process. . . . . . . . . . . .     1,147             2,473
 Deferred fees and discounts . . . . . .       235               207
 Allowance for loan losses . . . . . . .       646               641
                                           -------           -------
   Total loans receivable, net . . . . .   $78,475           $71,773
                                           =======           =======
____________
(2)  Includes commercial leases totaling $165,000 at June 30, 1997.     

                             6<PAGE>
<PAGE>
     The following table illustrates the interest rate
sensitivity of the Bank's loan portfolio at June 30, 1997. 
Mortgages which have adjustable or renegotiable interest rates
are shown as maturing in the period during which the contract is
due.  The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.

</TABLE>
<TABLE>
<CAPTION>
                               Real Estate
                              --------------
                   One- to     Multi-family  Construction(1)           Commercial
                 four-family  and Commercial  and Land       Consumer  Business   Total
                 -----------------------------------------------------------------------
                   Amount         Amount        Amount       Amount    Amount    Amount 
                 -----------------------------------------------------------------------
                                           (Dollars in Thousands)
<S>                <C>            <C>           <C>          <C>       <C>       <C>
Due During Years
Ending June 30,   
1998 . . .  . . . . $  492       $   399        $3,115       $237      $ 54     $ 4,297
1999 . . .  . . . .    488            94         1,141        202        56       1,981
2000 and 2001 . . .  1,834           765            46        512       529       3,686
2002 and 2006 . . .  6,001        10,116            --        425       188      16,730
2007 to 2011. . . . 10,197         3,877             9        124        24      14,231
2012 and 
  thereafter. . . . 34,379         4,881            --         --       318      39,578
<FN>
__________
(1)Assumes the term during the construction phase.
</FN>
</TABLE>
     At June 30, 1997 the total amount of loans due after June
30, 1998 which had fixed interest rates was $27.9 million, while
the total amount of loans due after such dates which had
floating or adjustable interest rates was $48.3 million.

     ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING. 
Residential loan originations are generated by the Bank's
marketing efforts, its present customers, walk-in customers and
referrals from real estate brokers and builders.  The Bank has
focused its lending efforts primarily on the origination of
loans secured by first mortgages on owner-occupied,
single-family residences in its market area.  At June 30, 1997,
the Bank's one- to four-family residential mortgage loans
totaled $53.4 million, or 66.3%, of the Bank's loan portfolio.

     The Bank currently makes adjustable-rate one- to
four-family residential mortgage loans in amounts of up to 90%
of the lesser of the appraised value or selling price of the
security property.  For loans with loan-to-value ratios of
greater than 80%, the Bank typically requires private mortgage
insurance to reduce the Bank's exposure to 70% of the appraised
value or selling price of the security property.
                             7<PAGE>
<PAGE>
     The Bank currently offers one-year, three-year and five-
year ARM loans at rates determined in accordance with market and
competitive factors for a term of up to 30 years.  The interest
rate charged on adjustable-rate mortgage loans currently
originated by the Bank is based upon the one year, three year
and five year Treasury Constant Maturity rate.  The
adjustable-rate loans currently originated by the Bank provide
for a 1% to 3% annual cap and floor, and a 5% to 6% lifetime cap
on the interest rate over the rate in effect on the date of
origination.  The annual and lifetime caps on increases in
interest rates reduce the extent to which these loans can help
protect the Bank against interest rate risk.  See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management" in the Annual Report. 
Approximately 46.0% of the loans secured by one- to four-family
real estate originated by the Bank during fiscal 1997 were
originated with adjustable-rates of interest.  See
"- Originations, Purchases and Sales of Loans and
Mortgage-Backed Securities."

     Adjustable-rate loans decrease the risks associated with
changes in interest rates but involve other risks, primarily
because as interest rates rise, the payment by the borrower
rises to the extent permitted by the terms of the loan, thereby
increasing the potential for default.  At the same time, the
marketability of the underlying property may be adversely
affected by higher interest rates.  The Bank believes that these
risks have not had a material adverse effect on the Bank to
date.

     The Bank also originates fixed-rate mortgage loans.  These
fixed-rate loans currently originated by the Bank have terms of
up to 30 years.  Interest rates charged on these fixed-rate
loans are competitively priced according to local market
conditions.

     In underwriting residential real estate loans, the Bank
evaluates both the borrower's ability to make monthly payments,
employment history, credit history and the value of the property
securing the loan.  Potential borrowers are qualified for
fixed-rate loans based upon the initial or stated rate of the
loan.  Borrowers on adjustable-rate loans are currently
qualified at the fully indexed rate.  However, in the past, the
Bank qualified borrowers at the initial rate.

     An appraisal or evaluation report of the security property
from Board-approved appraisers is obtained on all mortgage loan
applications.  In connection with origination of residential
real
                             8<PAGE>
<PAGE>
estate loans, the Bank generally requires that the borrower
obtain an opinion from an attorney regarding the title to the
property and fire and casualty insurance to protect the Bank's
interest.

     In addition, in order to supplement loan demand in the
Bank's primary market area, the Bank has purchased whole loans
secured by one- to four-family real estate located in Iowa,
Texas, Colorado,  Utah, and Wisconsin originated by financial
institutions and mortgage companies.  With minor exceptions, the
loans  purchased  by the Bank over the last 2 years are being
serviced by the Bank.  The potential risks associated with out
of area lending include the lack of control over loan servicing
when loans are serviced by others and the inability to closely
monitor and inspect the property.  In order to mitigate these
risks, the Bank only purchases loans that meet its underwriting
standards used in originating loans in its market area.

     During fiscal 1997, the Bank purchased 47 loans secured by
one- to four-family real estate totalling $7.3 million;
substantially all of which were located in the State of
Wisconsin.  Of this $7.3 million in purchased one- to four-
family loans, $4.4 million were sold to other financial
institutions.  At June 30, 1997, approximately $16.9 million, or
31.6% of the Bank's one- to four-family residential mortgage
loan portfolio was purchased by the Bank.  See "- Originations,
Purchases and Sales of Loans and Mortgage-Backed Securities."

     The Bank's residential mortgage loans customarily include
due-on-sale clauses giving the Bank the right to declare the
loan immediately due and payable in the event, among other
things, the borrower sells or otherwise disposes of the property
subject to the mortgage and the loan is not repaid.  The Bank on
occasion has enforced due-on-sale clauses in its mortgage
contracts for the purpose of increasing its loan portfolio
yield.  The yield increase is obtained through the authorization
of assumptions of existing loans at higher rates of interest and
the imposition of assumption fees.  One- to four-family real
estate loans may be assumed provided home buyers meet the Bank's
underwriting standards and the loan terms are modified, to the
extent necessary, to conform with the Bank's present yield and
maturity requirements.

     CONSTRUCTION AND LAND LENDING.  The Bank also originates
and purchases construction loans for the construction of one- to
four-family, multi-family and commercial real estate, and loans
secured
                             9<PAGE>
<PAGE>
by land.  At June 30, 1997, the Bank's construction and land
loan portfolio totaled $4.3 million.

     Construction loans to individuals for their residences are
structured to be converted to permanent loans at the end of the
construction phase, which typically runs up to 12 months.  These
construction loans have rates and terms which match any one- to
four-family loans then offered by the Bank, except that during
the construction phase, the borrower pays interest only. 
Residential construction loans are generally underwritten
pursuant to the same guidelines used for originating permanent
residential loans.  

     Construction loans are obtained principally through
continued business from individuals who have previously borrowed
from the Bank, as well as referrals from existing customers and
walk-in customers.  The application process includes a
submission to the Bank of accurate plans, specifications and
costs of the project to be constructed/developed.  These items
are used as a basis to determine the appraised value of the
subject property.  Loans are limited to a percentage of the
lesser of current appraised value and/or the cost of
construction (land plus building).

     In addition, the Bank has originated and purchased
construction loans for the construction of multi-family and
commercial properties located in its market area and the Madison
and Milwaukee, Wisconsin area.  Construction loans on commercial
real estate projects may be secured by strip shopping centers,
apartments, small office building, churches or other property
and are structured to be converted to permanent loans at the end
of the construction phase, which generally runs up to 12 months. 
These construction loans have rates and terms which match the
permanent non-residential real estate loans then offered by the
Bank, except that during the construction phase, the borrower
pays interest only.  These loans generally provide for the
payment of interest and loan fees from loan proceeds.  At
June 30, 1997, the Bank had $2.2 million of outstanding loans
for the construction of commercial and multi-family buildings. 
See "Multi-Family Commercial Real Estate Lending" and
"Originations, Purchases and Sales of Loans and Mortgage-Backed
Securities."

     No construction loan is approved unless there is evidence
of a commitment for permanent financing upon completion of the
property, whether through the Bank or another financial
institution.
                             10<PAGE>
<PAGE>
     Construction lending involves greater risk than permanent 
mortgage lending.  Because of the uncertainties inherent in
estimating construction costs, it is relatively difficult to
evaluate accurately the total loan funds required to complete a
project.  Also, the funding of loan fees and interest during the
construction phase makes the monitoring of the progress of the
project particularly important, as customary early warning
signals of project difficulties may not be present.

     To a very limited extent, the Bank originates or purchases
loans secured by raw land in its market area and in the Madison,
Wisconsin area.  Such loans carry fixed and adjustable rates and
terms of one to ten years.  At June 30, 1997, there was $469,000
in outstanding loans secured by raw land.

     MULTI-FAMILY/COMMERCIAL REAL ESTATE LENDING.  The Bank has
purchased whole loans and participation interests in loans
originated by other lenders and, to a limited extent, has
originated loans secured by multi-family and commercial real
estate.  At June 30, 1997, the Bank had $20.1 million in multi-
family and commercial real estate loans, representing 25% of the
bank's loan portfolio.

     In the past, the Bank purchased whole loans and interests
in loans secured by multi-family and commercial real estate from
financial institutions and mortgage companies located throughout
the United States.  Approximately  66% of the property securing
the Bank's multi-family and commercial real estate loan
portfolio is located outside the State of Iowa.  Many of the
properties securing these purchased loans and participations are
located in Wisconsin, Colorado and Utah.  Some of these areas
have experienced adverse economic conditions, including a
general softening in the real estate markets and local
economies, which resulted in increased delinquencies and loan
losses during prior years.  However, many of the Bank's
multi-family and commercial real estate loans are now seasoned. 
During the 1996 and 1997 fiscal years, the Bank has experienced
several delinquencies in its Wisconsin multifamily and
commercial real estate portfolio.  See discussion under "Asset
Quality" herein.

     On October 5, 1995, the Bank entered into an exclusive
agreement effective November 1, 1995 ("Agreement") with Bache
Funding Corp. of Wisconsin  ("Bache"), a mortgage banking firm
headquartered in Madison, Wisconsin.  Under the Agreement, the
Bank has a right of first refusal on any real estate loans
generated by
                             11<PAGE>
<PAGE>
Bache, including one-to-four family, multi-family, commercial
real estate, and land development loans secured by properties
located primarily in the Madison, Wisconsin metropolitan area. 
The Bank normally sells majority participation interests in
these loans to financial institutions located in Iowa and
contiguous states.  Although these purchased loans are subject
to the same underwriting guidelines as loans originated, they
entail a certain amount of added risk.  In addition to the risks
associated with the specific type of loan purchased, loans
purchased outside the Bank's market carry a greater degree of
risk than those loans originated by the Bank since the
origination function is performed by third parties and the
property is located outside the Bank's normal lending territory. 
The Company's net investment as of June 30, 1997 in loans
generated under this Agreement totaled $13.2 million.  Such net
investment reflects an outstanding principal balance of $46.4
million in loans purchased and serviced by the Company, less
interests sold to other financial institutions of $33.2 million.

     The table below sets forth by type of security property of
the Bank's multi-family and commercial real estate loans
(including construction loans) at June 30, 1997.
<TABLE>
<CAPTION>
                                                  Outstanding      Amount
                                       Number of   Principal   Non-Performing
                                         Loans      Balance    or of Concern
                                       ---------  -----------  --------------
                                               (Dollars in Thousands)
<S>                                      <C>       <C>          <C>
Multi-family . . . . . . . . . . . . .    61       $13,392      $  750
Office Building and
   business facilities . . . . . . . .    37         7,472         537
Hotel/Motel. . . . . . . . . . . . . .     2           695         ---
Restaurant . . . . . . . . . . . . . .     4           752         ---
                                         ---       -------      ------
  Total commercial and multi-family
     real estate loans(1). . . . . . .   104       $22,311      $1,287
                                         ===       =======      ======
<FN>
___________
(1) Includes $2,179,000 of multi-family and commercial real estate
    construction loans.
</FN>
</TABLE>
     Multi-family and commercial real estate loans originated by
the Bank generally have terms ranging from 10 to 30 years and up
to 30-year amortization schedules.  Rates on such loans
generally either (i) adjust (subject, in some cases, to
specified interest rate caps) at one, three and five year
intervals to specified spreads over an index, (ii) float
(subject, in some cases, to specified interest rate caps) with
changes in a specified prime rate or (iii) carry fixed rates. 
Under the Bank's current loan policy, multi-family and
commercial real estate loans (other than
                             12<PAGE>
<PAGE>
loans to facilitate) are written in amounts of up to 75% of the
appraised value of the properties.

     Appraisals on properties securing multi-family and
commercial real estate property loans originated by the Bank are
performed by an independent appraiser approved by the Bank at
the time the loan is made.  All appraisals on multi-family and
commercial real estate loans are reviewed by the Bank's
management.  In addition, the Bank's underwriting procedures
generally require verification of the borrower's credit history,
income and financial statements, banking relationships and
income projections for the property.  Personal guarantees are
generally obtained for all or a portion of most of the Bank's
multi-family and commercial real estate loans.  While the Bank
continues to monitor multi-family and commercial real estate
loans on a regular basis after origination, updated appraisals
are not normally obtained after closing unless the Bank believes
that there are questions regarding the progress of the loan or
the value of the collateral.

     Multi-family and commercial real estate lending affords the
Bank an opportunity to receive interest at rates higher than
those generally available from one- to four-family residential
lending.  Nevertheless, loans secured by such properties are
generally larger and involve a greater degree of risk than one-
to four-family residential mortgage loans.  Because payments on
loans secured by multi-family and commercial real estate
properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the
economy.  If the cash flow from the project is reduced (for
example, if leases are not obtained or renewed), the borrower's
ability to repay the loan may be impaired.  The Bank has
attempted to minimize these risks through its underwriting
standards and by lending primarily on existing income-producing
properties.

     CONSUMER LENDING.  Consumer loans generally have shorter
terms to maturity (thus reducing Grinnell Federal's exposure to
changes in interest rates) and carry higher rates of interest
than do one- to four-family residential mortgage loans.  In
addition, management believes that the offering of consumer loan
products helps to expand and create stronger ties to its
existing customer base, by increasing the number of customer
relationships and providing cross-marketing opportunities.  At
June 30, 1997, the Bank's consumer loan portfolio totaled $1.5
million, or 1.8%, of its loan
                             13<PAGE>
<PAGE>
portfolio.  Under applicable federal law, the Bank is authorized
to invest up to 35% of its assets in consumer loans.

     Grinnell Federal offers a variety of secured consumer
loans, including home improvement loans, home equity line of
credit loans, auto loans, mobile home loans and loans secured by
savings deposits and other consumer collateral.  The Bank also
offers a limited amount of unsecured loans.  The Bank currently
originates substantially all of its consumer loans in its market
area.  Consumer loan terms vary according to the type of
collateral, length of contract and creditworthiness of the
borrower.  The Bank's consumer loans generally have a fixed-rate
of interest.

     The Bank does not originate any consumer loans on an 
indirect basis (i.e., where loan contracts are purchased from
retailers of goods or services which have extended credit to
their customers).

     The underwriting standards employed by the Bank for
consumer loans include a determination of the applicant's
payment history on other debts and an assessment of the ability
to meet existing obligations and payments on the proposed loan. 
Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a
comparison of the value of the security, if any, in relation to
the proposed loan amount. 

     Consumer loans may entail greater risk than do residential
mortgage loans, particularly in the case of consumer loans which
are unsecured, such as checking account overdraft privilege
loans, or are secured by rapidly depreciable assets, such as
automobiles.  In such cases, any repossessed collateral for a
defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation.  In
addition, consumer loan collections are dependent on the
borrower's continuing financial stability and thus are more
likely to be affected by adverse personal circumstances. 
Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.  Although the level of
delinquencies in the Bank's consumer loan portfolio has
generally been low (at June 30, 1997, four consumer loans
totaling $36,000 were 90 days or more delinquent), there can be
no assurance that delinquencies will not increase in the future.

     COMMERCIAL BUSINESS LENDING.  Federally chartered savings
institutions, such as Grinnell Federal, are authorized to make 
                             14<PAGE>
<PAGE>
secured or unsecured loans and issue letters of credit for
commercial, corporate, business and agricultural purposes and to
engage in commercial leasing activities, up to a maximum of 10%
of total assets.

     At June 30, 1997, Grinnell Federal had $1.2 million in
commercial business loans outstanding, representing 1.5% of the
Bank's total loan portfolio, with no additional commercial
business loan commitments.  Included in the $1.2 million in
commercial business loans, were $165,000 in commercial equipment
leases.  In addition, at June 30, 1997, Grinnell Federal had no
letters of credit outstanding.

     Most of the Bank's commercial business loans have terms to
maturity of 10 years or less and fixed or adjustable interest
rates.  The Bank's loan policy provides that commercial loans
may not exceed $100,000, without prior Board approval.  

     Unlike residential mortgage loans, which generally are made
on the basis of the borrower's ability to make repayment from
his or her employment and other income, and which are secured by
real property whose value tends to be more easily ascertainable,
commercial business loans are of higher risk and typically are
made on the basis of the borrower's ability to make repayment
from the cash flow of the borrower's business.  As a result, the
availability of funds for the repayment of commercial business
loans may be dependent upon the success of the business itself
(which, in turn, is likely to be dependent upon the general
economic environment).  The Bank's commercial business loans
almost always include personal guarantees and are usually, but
not always, secured by business assets, such as accounts
receivable, equipment 
and inventory as well as real estate.  However, the collateral
securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the
business.

     The Bank recognizes the generally increased risks
associated with commercial business lending.  Grinnell Federal's
commercial business lending policy emphasizes credit file
documentation and analysis of the borrower's character,
management capabilities, capacity to repay the loan, the
adequacy of the borrower's capital and collateral as well as an
evaluation of the industry conditions affecting the borrower. 
Analysis of the borrower's past, present and future cash flows
is also an important aspect of Grinnell Federal's credit
analysis.
                             15<PAGE>
<PAGE>
ORIGINATIONS, PURCHASES AND SALES OF LOANS AND MORTGAGE-BACKED
SECURITIES

     The Bank originates real estate loans through marketing
efforts, the Bank's customer base, walk-in customers and
referrals from real estate brokers.  The Bank originates both
adjustable-rate and fixed-rate loans.  Its ability to originate
loans is dependent upon the relative demand for fixed-rate or
ARM loans in the origination market, which is affected by the
term structure (short term compared to long term) of interest
rates, as well as, the current and expected future level of
interest rates and competition.

     Historically, the Bank has purchased loans and loan
participations for one- to four-family, multi-family and
commercial real estate loans.  Such purchases have enabled
Grinnell Federal to offset the relatively low level of loan
demand in the Bank's principal market area, to take advantage of
favorable lending opportunities in other markets, to diversify
its portfolio and to limit origination expenses while generally
providing the Bank with a higher yield than was available on
mortgage-backed securities.  During fiscal 1996, the Bank
purchased loans from two Iowa-based financial institutions
secured by one- to four-family, multi-family and commercial real
estate located in the Des Moines, Iowa metropolitan area and the
Madison and Milwaukee, Wisconsin areas, respectively.  During
fiscal 1996, the Bank purchased $5.8 million  of loans pursuant
to these agreements.  During fiscal 1997 the Bank's purchased
loans were from the Bache loan agreement.

     Under the Agreement with Bache, the Bank has sold and plans
to continue to sell majority participation interests in loans to
financial institutions located in Iowa and contiguous states. 
During fiscal 1996 and 1997, the Bank purchased $13.3 million
one-to-four family, $32.4 million multi-family, $5.4 million
commercial, and $1.4 million residential land development loans. 
Of the $52.5 million in one-to-four family, multi-family,
commercial real estate, and land development  loans purchased
from Bache during this period, $36.2 million in participation
interests were sold to other financial institutions with the
Bank retaining the servicing.  See "Multi-Family/Commercial Real
Estate Lending".

     The Bank has underwritten its loan purchases utilizing the
same criteria it uses in originating loans.  Prior to November
1995, servicing of purchased multi-family and commercial real
estate loans was generally done by the seller.  At June 30,
1997,
                             16<PAGE>
<PAGE>
approximately $13.6 million of Grinnell Federal's loan portfolio
was serviced by others.  During the past two years, all one- to
four-family purchased real estate loans and all loans purchased
directly from Bache are serviced by the Bank.

     In addition, the Bank has purchased mortgage-backed
securities in the past to supplement loan demand.  During fiscal
1996 and 1997, however, the Bank did not purchase any mortgage-
backed securities.  The mortgage-backed securities purchased in
the past generally had fixed rates and maturities of seven to 30
years.  See "Investment Activities."

                            17<PAGE>
<PAGE>
     The following table shows the loan origination, purchase
and sale activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                            Year Ended
                                              June 30,
                                         -----------------
                                          1997      1996    
                                         -----     ------   
                                           (In thousands)
<S>                                        <C>        <C>
Originations by type          
--------------------
 Adjustable-rate:        
  Real estate - one- to four-family. . . .$ 5,238   $ 5,441
              - multi-family . . . . . . .    ---       ---
              - commercial . . . . . . . .    ---       163
  Non-real estate - consumer . . . . . . .    ---       ---
                  - commercial business. .    135       202
                                          -------   -------
         Total adjustable-rate. . . . . .   5,373     5,806
                                          -------   -------
 Fixed-rate:        
  Real estate - one- to four-family. . . .  6,157     6,336
              - multi-family . . . . . . .    ---       ---
              - commercial . . . . . . . .    ---       548
  Non-real estate - consumer . . . . . . .  1,937     1,422
                  - commercial business. .    280       518
                                          -------   -------
         Total fixed-rate . . . . . . . .   8,374     8,824
                                          -------   -------
         Total loans originated . . . . .  13,747    14,630
                                          -------   -------
Purchases      
---------
  Real Estate - one- to four-family(1). .   7,335     8,472
              - multi-family(2) . . . . .  24,332    10,829
              - commercial and land(3). .   3,767     3,589 
                                          -------   -------
         Total loans purchased. . . . . .  35,434    22,890
  Mortgage-backed securities. . . . . . .     ---       ---
                                          -------   -------
         Total loans and mortgage-backed
            securities purchased. . . . .  35,434    22,890
                                          -------   -------
Sales          
-----
  Real Estate - one- to four-family . . .   4,358     1,211
              - multi-family. . . . . . .  20,619     6,245
              - commercial and land . . .   1,898     1,843
                                          -------   -------
      Total Sales . . . . . . . . . . . .  26,875     9,299
<FN>
___________
(1) Includes $1.7 million of loans for the construction of 
    one- to four-family residences.
(2) Includes $2.0 million of loans for the construction of
    multi-family real estate.
(3) Includes $133,000 of loans for the construction of
    commercial buildings.
</FN>
</TABLE>
                            18<PAGE>
<PAGE>
ASSET QUALITY

     GENERAL.  When a borrower fails to make a required payment
on a loan, the Bank attempts to cause the delinquency to be
cured by  contacting the borrower.  In the case of loans secured
by real estate, a late notice is sent by the 10th of the month
if payment for the prior month is not received.  If the
delinquency is not cured by the 15th of the month, contact with
the borrower is made by phone.  Additional written and verbal
contacts are made with the borrower to the extent necessary.  If
the  delinquency is not cured or a payment plan arranged by the
60th day, the Bank will send a second late notice followed by
additional phone contacts and meetings with the borrower.  If
the delinquency is not cured by the 90th day, a 35-day default
letter is sent and, once that period lapses, appropriate action
to foreclose on the property is initiated.  Interest income on
loans at this point is reduced by the full amount of accrued and
uncollected interest.  If foreclosed, the property is sold at a
sheriff's sale and may be purchased by the Bank.  Delinquent
consumer loans are handled in a similar manner.  If these
efforts fail to bring the loan current, appropriate action may
be taken to collect any loan payment that remains delinquent. 
The Bank's procedures for repossession and sale of consumer
collateral are subject to various requirements under Iowa
consumer protection laws.

     Real estate acquired by Grinnell Federal as a result of
foreclosure or by deed in lieu of foreclosure is classified as
real estate owned until it is sold.  When property is acquired,
it is recorded at the lower of cost or estimated fair value at
the date of acquisition, and any write down resulting therefrom
is charged to the allowance for losses on loans.  Upon
acquisition, all costs incurred in maintaining the property are
expensed.  However, costs relating to the development and
improvement of the property are capitalized to the extent of net
realizable value.

     NON-PERFORMING ASSETS.  The table below sets forth the
amounts and categories of non-performing assets in the Bank's
loan portfolio.  Loans are placed on non-accrual status when the
collection of principal and/or interest become doubtful.  All
loans for which payments have been due and uncollected for a
period in excess of 90 days are placed on non-accrual status. 
For all years presented, the Bank has had no troubled debt
restructurings (which involve forgiving a portion of interest or
principal on any loans 
                            19<PAGE>
<PAGE>
or making loans at a rate materially less than that of market
rates).  Foreclosed assets include assets acquired in settlement
of loans and reflect the lower of cost or fair value less
selling expense.    
<TABLE>
<CAPTION>
                                            Year Ended
                                              June 30,
                                         -----------------
                                          1997      1996    
                                         -----     ------   
                                           (In thousands)
<S>                                      <C>        <C>
Non-accruing loans:      
  One- to four-family. . . . . . . . . . $136      $298
  Multi-family . . . . . . . . . . . . .  750       ---
  Non-mortgage commercial loans. . . . .  ---       437
  Consumer . . . . . . . . . . . . . . .   36         ---

Foreclosed assets:       
  Commercial real estate . . . . . . . .  ---       227
                                         ----      ----     
Total non-performing assets. . . . . . . $922      $962
                                         ====      ====
Total as a percentage of total assets. . 1.00%     1.15%
                                         ====      ====
</TABLE>
     
       Total non-performing assets (defined as non-accruing
loans for which payments have been due and uncollected for a
period in excess of 90 days plus foreclosed assets) decreased
$40,000 to $922,000, or 1.00% of total assets at June 30, 1997,
from $962,000, or 1.15% of total assets at June 30, 1996.  This
$922,000 consisted primarily of  seven loans totaling $136,000
secured by single-family homes, three loans totaling $750,000
secured by multi-family real estate located in Madison,
Wisconsin, and four consumer loans totaling $36,000.  
     
   The decrease in non-performing assets primarily reflects the
net effect of the addition of the three loans totaling $750,000
secured by multi-family real estate located in Madison,
Wisconsin,  the redemption of a $227,000 parcel of real estate
in judgment, which had been non-performing at June 30, 1996, the
settlement of a claim against a bankruptcy trustee concerning a
$437,000 package of equipment leases and the return of a
$286,000 single family home loan in Houston, Texas to performing
status.

     In connection with the settlement of the referenced
bankruptcy claim involving equipment leases, management entered
into an agreement on February 5, 1997, whereby the Company is
receiving a
                            20<PAGE>
<PAGE>
pre-determined percentage of all amounts collected up to 80% of
the then outstanding balance.  The balance of the equipment
packages at June 30, 1997 was $165,000,  reflecting payments of
$157,000 and a $115,000 charge-off against the allowance for
loan losses.  (See Allowance for Loan Losses Below).

     For the fiscal year ended June 30, 1997, gross interest
income which would have been recorded had the non-accruing loans
been current in accordance with their original terms amounted to
$40,600.  Interest income of `$33,600 was recognized for cash
payments received on such loans for the fiscal year ended
June 30, 1997.  

     OTHER ASSETS OF CONCERN.  In addition, at June 30, 1997,
other assets of concern totaled $1.1 million and included nine
loans totaling $240,000 secured by single-family residences in
the Bank's local lending area, one $275,000 loan secured by a
single family residence located in Houston, Texas, one $537,000
loan secured by commercial real estate located in Grinnell,
Iowa, and one $56,000 commercial business loan.  While these
loans raise concerns as to timely collectibility, based upon
information currently available, management does not anticipate
any material loss on these assets.

     CLASSIFIED ASSETS.  Federal regulations provide for the
classification of loans and other assets, such as debt and
equity securities considered by the OTS to be of lesser quality,
as "substandard," "doubtful" or "loss."  An asset is considered
"substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral
pledged, if any.  "Substandard" assets include those
characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not
corrected.  Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently
existing facts, conditions and values, "highly questionable and
improbable."  Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve
is not warranted.

     When an insured institution classifies problem assets as
either substandard or doubtful, it may establish general
allowances for loan losses in an amount deemed prudent by
management.  General allowances represent loss allowances which
have been established to
                            21<PAGE>
<PAGE>
recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated
to particular problem assets.  When an insured institution
classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of that
portion of the asset so classified or to charge-off such amount. 
An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to
review by the regulatory authorities, who may order the
establishment of additional general or specific loss allowances.

     In connection with the filing of its periodic reports with
the OTS and in accordance with its classification of assets
policy, the Bank regularly reviews problem loans and real estate
acquired through foreclosure in its portfolio to determine
whether such assets require classification in accordance with
applicable regulations.  The Bank's Classified assets and assets
designated special mention at June 30, 1997, all of which are
included in the table of non-performing assets above or are
described under the caption "- Other Loans of Concern" above,
were as follows:
<TABLE>
<CAPTION>
                                             June 30,
                                         -----------------
                                          1997      1996    
                                         -----     ------   
                                           (In thousands)
<S>                                      <C>        <C>
Special mention. . . . . . . . . . . . . $  544     $  714
Substandard. . . . . . . . . . . . . . .  1,478      1,789
Doubtful . . . . . . . . . . . . . . . .    ---        ---
Loss . . . . . . . . . . . . . . . . . .    ---        ---
                                         ------     ------
  Total classified assets and
   assets requiring special
   mention . . . . . . . . . . . . . . .$ 2,022     $2,503
                                        =======     ======
</TABLE>
     Classified assets appearing in the table above are included
in the non-performing assets table or discussed under the
caption "Other Loans of Concern."  The specific reserves
established with respect to assets classified as "loss" are
included in the allowance for real estate acquired through
foreclosure or as a reduction in the book value of the real
estate.

     ALLOWANCE FOR LOAN LOSSES.  The allowance for loan losses
is calculated based upon an evaluation of the risk inherent in
its loan portfolio, changes in the nature and volume of its loan
activity, and other pertinent factors underlying the types and 
                            22<PAGE>
<PAGE>
qualities of the Company's loans.  Management considers such
factors as the repayment status of a loan, the estimated fair
value of the underlying collateral, the borrower's ability to
repay the loan, current and anticipated economic conditions
which might affect the borrower's ability to repay the loan and
the Company's past statistical history concerning charge-offs. 
Future adjustments to the allowance may be necessary, and net
income could be significantly affected if circumstances differ
substantially from the assumptions used in making the initial
determinations.  

     At June 30, 1997, the Bank had an allowance for loan losses
of $646,000 or 0.8% of total loans.  The June 30, 1996 allowance
for loan losses was $641,000, or 0.9% of total loans. This
$5,000 increase reflects the addition of $121,000 to the
allowance for loan losses, which was largely offset by a
$115,000 charge off on equipment leases (see Non-Performing
Assets above).  The ratio of  the allowance for loan losses to
non-performing assets increased from 67% of non-performing
assets at June 30, 1996 to 70% of non-performing assets at June
30, 1997, due to the combination of a $40,000 decrease in non-
performing assets with the $5,000 increase in allowance for loan
losses referenced above.  Management believes, upon
consideration of the pertinent factors described above, that the
current allowance for loan losses is adequate.

     The Bank had $121,000 in additions to its allowance for
loan losses in fiscal 1997 as compared to a $249,000 addition in
fiscal 1996 due to settlement of a bankruptcy claim involving
certain equipment leases (See Non-performing Assets above) and
to the reduction in the Bank's level of classified assets from
$2.5 million at June 30, 1996 to $2.0 million at June 30, 1997
(See Classified Assets above).
                            23<PAGE>
<PAGE>

       The following table sets forth an analysis of the Bank's
allowance for loan losses.
<TABLE>
<CAPTION>
                                            At June 30,
                                         -----------------
                                          1997      1996    
                                         -----     ------   
                                       (Dollars in thousands)
<S>                                      <C>        <C>
Balance at beginning of period. . . . . . $641      $400
          
Total Chargeoffs. . . . . . . . . . . . .  116         8

Recoveries. . . . . . . . . . . . . . . .   --        --  
                                          ----      ----
Net charge-offs . . . . . . . . . . . . .  116         8
Additions charged to operations . . . . .  121       249
                                          ----      ----
Balance at end of period. . . . . . . . . $646      $641
                                          ====      ====
Ratio of net charge-offs during the 
  period to average loans outstanding 
  during the period . . . . . . . . . . .   15%      .01%
                                          ====      ====
Ratio of net charge-offs during the 
  period to average non-performing 
  assets. . . . . . . . . . . . . . . . . 8.22%     2.81%
                                          ====      ====
</TABLE>
     The distribution of the Bank's allowance for loan losses at
the dates indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                  June 30,
                                --------------------------------------------
                                        1997                  1996
                                --------------------   ---------------------
                                          Percent                  Percent
                                          of Loans                 of Loans
                                          in Each                  in Each
                                          Category                 Category
                                          to Total                 to Total
                                 Amount    Loans        Amount       Loans
                                 ------   --------      ------     ---------
                                               (Dollars in thousands)
<S>                              <C>       <C>          <C>         <C>
Real Estate:                  
 One- to four-family. . . . . . .$ 74      66.3%        $ 72        65.3%
 Multi-family and
  commercial. . . . . . . . . . . 247      25.0          241        26.3
 Construction . . . . . . . . . .  34       5.4           31         5.0
 Consumer . . . . . . . . . . . .  17       1.8           18         1.7
 Commercial business. . . . . . .  13       1.5          119         1.7
 Unallocated. . . . . . . . . . . 261       ---          160         ---
                                 ----     -----         ----       -----
     Total. . . . . . . . . . . .$646     100.0%        $641       100.0%
                                 ====     =====         ====       =====
</TABLE>
                            24<PAGE>
<PAGE>
INVESTMENT ACTIVITIES

     GENERAL.  Grinnell Federal must maintain minimum levels of
investments that qualify as liquid assets under OTS regulations. 
Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in
relation to the return on loans.  Historically, the Bank has
maintained liquid assets at levels above the minimum
requirements imposed by the OTS regulations and at levels
believed adequate to meet the requirements of normal operations,
including repayments of maturing debt and potential deposit
outflows.  Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained.  At
June 30, 1997, the Bank's liquidity ratio (liquid assets as a
percentage of net withdrawable savings deposits and current
borrowings) was 7.3%.  See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and
Capital Resources" in the Annual Report and "Regulation -
Liquidity."

     Federally chartered savings institutions have the authority
to invest in various types of liquid assets, including United
States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and
savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds.  Subject to various restrictions,
federally chartered savings institutions may also invest their
assets in commercial paper, investment grade corporate debt
securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is
otherwise authorized to make directly.

     Generally, the investment policy of the Company and the
Bank is to invest funds among various categories of investments
and maturities based upon their liquidity needs, asset/liability
management policies, investment quality and marketability and
performance objectives.

     SECURITIES.  At June 30, 1997, the Company's interest-
bearing deposits with banks totaled $4.3 million, or 4.7% of
total assets, and its investment securities totaled $3.4
million, or 3.7% of total assets.  As of such date, the Bank
also had a $1.2 million investment in FHLB stock, satisfying its
requirement for membership in the FHLB of Des Moines.  It is the
general policy of the Bank to purchase investment securities
which are U.S. Government securities or federal agency
obligations or other issues, such as municipal
                            25<PAGE>
<PAGE>
bonds, that are rated investment grade.  At June 30, 1997, the
average term to maturity or repricing of the securities
portfolio was 3.9 years.

     In June 1993, the Financial Accounting Standards Board
("FASB") adopted the Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115").  SFAS 115 addresses the accounting and
reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt
securities.  Such investments should be classified in three
categories and accounted for as follows: (i) debt securities
that the entity has the positive intent and ability to hold to
maturity are to be classified as held to maturity and reported
at amortized cost; (ii) debt and equity securities that are held
for current resale are to be classified as trading securities
and reported at fair value, with unrealized gains and losses
included in earnings; and (iii) debt and equity securities not
classified as either securities held to maturity or trading
securities are to be classified as securities available for sale
and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
shareholders' equity. Management adopted SFAS 115 effective
July 1, 1994.

     At June 30, 1997, the Company held no securities for
trading purposes, but did have $772,000 in mutual funds and $1.1
million in corporate stock, all of which are held as available
for sale and are carried at market value.  The following table
sets forth the composition of the Company's securities portfolio
at the dates indicated.
                            26<PAGE>
<PAGE>
<TABLE>
<CAPTION>
                                            June 30,
                               ---------------------------------
                                    1997              1996
                               ---------------------------------
                               Carrying  % of   Carrying   % of
                                 Value   Total    Value    Total
                               ---------------------------------
                                   (Dollars in Thousands)
<S>                            <C>       <C>    <C>       <C>
Investment Securities:
  U.S. Agency Securities. . .  $1,498    32.8   $1,497    33.9
  Certificates of Deposit . .     ---     ---       85     1.9

  Corporate stock(1). . . . .   1,137    24.9      916    20.8
  Mutual Funds(1) . . . . . .     772    16.9      757    17.1
                               ------   -----   ------   -----
     Subtotal . . . . . . . .  $3,407    74.6   $3,255    73.7

  FHLB Stock. . . . . . . . .   1,159    25.4    1,159    26.3
                               ------   -----   ------   -----
Total Investment Securities
  and FHLB Stock. . . . . . .  $4,566   100.0%  $4,414   100.0%
                               ======   =====   ======   =====

Average remaining life or 
term to repricing of 
securities and other 
interest-earning assets, 
excluding FHLB stock and 
other marketable equity 
securities . . . . . . . . .   3.9 yrs           4.6 yrs

Other Interest-Earning Assets:
  Interest-earning deposits 
    with banks . . . . . . .   $4,309           $2,049
                               ======           ======
<FN>
_________________
(1) Classified as securities available for sale.  All other
    securities are classified as held to maturity.
</FN>
</TABLE>

     The composition and maturities of the Company's securities
portfolio, excluding FHLB stock and equity securities, are
indicated in the following table.
<TABLE>
<CAPTION>
                                        June 30, 1997
                          ---------------------------------------
                          Less Than  1 to 5  Over 5 to    Over    Total Investment
                            1 Year    Years   10 Years  10 Years     Securities
                          --------------------------------------------------------
                          Carrying   Carrying Carrying  Carrying  Carrying Market
                            Value      Value    Value     Value     Value   Value
                          --------------------------------------------------------
                                            (Dollars in Thousands)
<S>                        <C>       <C>      <C>       <C>       <C>      <C>
U.S. agency securities. . .$  ---    $1,498   $  ---    $  ---    $ 1,498  $1,493
                           ------    ------   ------    ------    -------  ------
  Total Securities. . . . .$  ---    $1,498   $  ---    $  ---    $ 1,498  $1,493

Weighted average yield. . .   ---%    6 .53%     ---%      ---%      6.53%   6.53%
                           ======    ======   ======    ======    =======  ======
</TABLE>
                            27<PAGE>
<PAGE>

     At June 30, 1997 the Company's securities portfolio did not
contain securities of any issuer with an aggregate book value in
excess of 10% of the Company's stockholders' equity, excluding
securities issued by the United States Government or its
agencies. 

     The Company's securities portfolio is managed in accordance
with a written investment policy adopted by the Board of
Directors.  Investments may be made by the Company's officers
within specified limits and must be approved in advance by the
Board of Directors for transactions over certain limits.  

      MORTGAGE-BACKED SECURITIES.  Grinnell Federal has in the
past purchased mortgage-backed securities in order to supplement
loan demand in its market area.  Although such securities are
held for investment, they can serve as collateral for borrowings
and deposits, and through repayments, as a source for liquidity. 
The Bank did not purchase any mortgage-backed securities during
fiscal 1997.  At June 30, 1997, the Company's mortgage-backed
securities totaled $3.1 million.

     The following table sets forth the contractual maturities
of the Company's mortgage-backed securities at June 30, 1997.
<TABLE>
<CAPTION>

                                                                    June 30, 1997
                              Less than  1 to 5   5 to 10  Over 10     Balance
                               1 Year     Years    Years    Years    Outstanding
                              ---------  -------  -------  -------- -------------
<S>                           <C>        <C>      <C>      <C>      <C>
Federal Home Loan Mortgage
   Corporation. . . . . . . . $ ---      $ 633    $  43    $   94    $  770
Government National Mortgage
   Association. . . . . . . .   ---        ---      ---     2,376     2,376
                              -----      -----    -----    ------    ------
     Total. . . . . . . . . . $ ---      $ 633    $  43    $2,470    $3,146
                              =====      =====    =====    ======    ======
</TABLE>
     For information regarding the carrying and market values of
the Company's mortgage-backed securities portfolio, see Note 2
of the Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition" in the Annual
Report.

     Under the OTS's risk-based capital requirements, Government
National Mortgage Association ("GNMA") mortgage-backed
securities have a zero percent risk weighting and Federal
National Mortgage Association ("FNMA"), Federal Home Loan
Mortgage Corporation ("FHLMC") and AA-rated mortgage-backed
securities have a 20% risk  weighting, in contrast to the 50%
risk weighting carried by one- to four-family performing
residential mortgage loans.
                            28<PAGE>
<PAGE>
SOURCES OF FUNDS

     GENERAL.  The Company's primary sources of funds are: 
deposits, amortization and repayment of loan principal
(including mortgage-backed securities); sales or maturities of
investment securities, mortgage-backed securities and short-term
investments;  FHLB advances; and funds provided from operations.

     Borrowings are used to compensate for seasonal reductions
in deposits or deposit inflows at less than projected levels,
and to support lending activities.  At June 30, 1997, the only
borrowings outstanding were FHLB advances totalling $21.0
million.  See "- Borrowings" and Note 7 of the Notes to
Consolidated Financial Statements in the Annual Report.

     DEPOSITS.   Grinnell Federal offers a variety of deposit
accounts having a wide range of interest rates and terms.  The
Bank's deposits include savings accounts, money market savings
accounts, NOW, money market checking and regular checking
accounts, and certificate accounts with terms of 3 to 60 months. 
The Bank relies primarily on advertising, competitive pricing
policies and customer service to attract and retain these
deposits.  Grinnell Federal solicits deposits from its market
area only and does not use brokers to obtain deposits.

     The flow of deposits is influenced significantly by general
economic conditions, changes in money market and prevailing
interest rates and competition.  The variety of deposit accounts
offered by the Bank has allowed it to be competitive in
obtaining funds and to respond with flexibility to changes in
consumer demand.  The Bank has become more susceptible to
short-term fluctuations in deposit flows as customers have
become more interest rate conscious.  The Bank manages the
pricing of its deposits in keeping with its asset/liability
management and profitability objectives.  Based on its
experience, the Bank believes that its savings, NOW and
non-interest-bearing checking accounts are relatively stable
sources of deposits.  However, the ability of the Bank to
attract and maintain certificates of deposit, and the rates paid
on these deposits, has been and will continue to be
significantly affected by market conditions.
                            29<PAGE>
<PAGE>
     The following table sets forth the dollar amount of savings
deposits in the various types of deposit programs offered by the
Bank for the dates indicated and the rates offered.

<TABLE>
<CAPTION>

                                                  Year Ended June 30,
                                            --------------------------------
                                                   1997            1996    
                                            ---------------  ---------------  
                                               Percent             Percent
                                       Amount  of Total   Amount   of Total
                                       ------  --------   ------   --------
                                                 (Dollars in thousands)
<S>                                    <C>       <C>      <C>       <C>  
Transactions and Savings Deposits:                    
---------------------------------
Savings Accounts (2.50-2.50%). . . . . $ 3,567   5.99    $ 4,192     7.89%
NOW Accounts (2.00-5.03%). . . . . . .   4,924   8.27      3,626     6.83
Money Market Savings (3.25-5.00%). . .   8,051  13.52      5,948    11.20
Non-interest bearing accounts. . . . .   1,349   2.26      1,026     1.93
                                       ------- ------    -------   ------
Total Non-Certificates . . . . . . . .   7,891  30.04     14,792    27.85
                                       ------- ------    -------   ------
Certificates:                
------------                 
 3.00 -  3.99% . . . . . . . . . . . .     148    .25        164      .31
 4.00 -  5.99% . . . . . . . . . . . .  35,312  59.30     27,392    51.56
 6.00 -  7.99% . . . . . . . . . . . .   6,200  10.41     10,774    20.28
 8.00 -  9.99% . . . . . . . . . . . .     ---    ---        ---      ---
10.00 - 11.99% . . . . . . . . . . . .     ---    ---        ---      ---
12.00% and over. . . . . . . . . . . .     ---    ---        ---      --- 
                                       ------- ------    -------   ------
Total Certificates . . . . . . . . . .  41,660  69.96     38,330    72.15
                                       ------- ------    -------   ------
Total Deposits . . . . . . . . . . . . $59,551 100.00%   $53,122   100.00%
                                       ======= ======    =======   ======
</TABLE>
     The following table sets forth the savings flows at the
Bank during the periods indicated.  Net increase refers to the
amount of deposits during a period less the amount of 
withdrawals during the period.
<TABLE>
<CAPTION>
                                        Year Ended June 30,
                                      ----------------------
                                        1997          1996    
                                      --------      --------   
                                      (Dollars in thousands)
<S>                                      <C>        <C>
Opening balance. . . . . . . . . . . . $  53,122   $  46,082
Deposits . . . . . . . . . . . . . . .   174,583     108,377
Withdrawals. . . . . . . . . . . . . .  (170,464)   (103,249)
Interest credited. . . . . . . . . . .     2,310       1,912
                                       ---------   ---------
Ending balance . . . . . . . . . . . . $  59,551   $  53,122
                                       =========   =========
Net increase . . . . . . . . . . . . . $   6,429   $   7,040
                                       =========   =========
Percent increase . . . . . . . . . . .      12.1%       15.3%
                                       =========   =========
</TABLE>
                            30<PAGE>
<PAGE>
     The following table indicates the amount of the Bank's
certificates of deposit by time remaining until maturity as of
June 30, 1997.
<TABLE>
<CAPTION>
                                                Maturity
                                   --------------------------------------
                                              Over     Over
                                   3 Months  3 to 6   6 to 12     Over
                                   or Less   Months   Months   12 months   Total
                                   --------  ------   -------  ---------   -----
                                              (In thousands)
<S>                                <C>       <C>      <C>      <C>        <C>
Certificates of deposit less 
  than $100,000. . . . . . . . . .  $10,240  $ 6,119  $ 6,852   $11,948   $35,159
Certificates of deposit of 
  $100,000 or more . . . . . . . .      100    2,527    1,319     1,753     5,699
Public funds(1). . . . . . . . . .      401      201      ---       200       802
                                    -------  -------  -------   -------   -------
Total certificates of deposit . . . $10,741  $ 8,847  $ 8,171   $13,901   $41,660
                                    =======  =======  =======   =======   =======
<FN>
___________________
(1)  Deposits from governmental and other public entities.
</FN>
</TABLE>
        BORROWINGS.  Although deposits are the Bank's primary
source of funds, the Bank's policy has been to utilize
borrowings when they are a less costly source of funds or can be 
invested at a positive rate of return.  In addition, the Bank
has relied upon borrowings for short-term liquidity needs.

    Grinnell Federal may obtain advances from the FHLB of Des
Moines upon the security of its capital stock in the FHLB of Des
Moines and certain of its mortgage loans and mortgage-backed
securities.  Such advances may be made pursuant to several
different credit programs, each of which has its own interest
rate and range of maturities.

      The following table sets forth the maximum month-end
balance and average balance of FHLB advances for the periods
indicated.
<TABLE>
<CAPTION>
                                        Year Ended June 30,
                                      ----------------------
                                        1997          1996    
                                      --------      --------   
                                         (In thousands)
<S>                                   <C>           <C>
Maximum Balance:         
---------------
  FHLB advances. . . . . . . . . . . .$20,961      $22,749
          
Average Balance:
---------------          
  FHLB advances. . . . . . . . . . . .$19,236      $18,711
</TABLE>

      The following table sets forth certain information as to 
the Bank's FHLB advances at the dates indicated.
<TABLE>
<CAPTION>
                                             June 30,
                                      ----------------------
                                        1997          1996    
                                      --------      --------   
                                      (Dollars in thousands)
<S>                                   <C>           <C>
FHLB advances. . . . . . . . . . . .  $20,961      $19,318
          
Weighted average interest
 rate of FHLB advances . . . . . . .     6.12%        5.98%
</TABLE>
                            31<PAGE>
<PAGE>
SERVICE CORPORATION ACTIVITIES

     Federal associations generally may invest up to 2% of their
assets in service corporations, plus an additional 1% of assets
if for community purposes.  In addition, federal associations
may invest up to 50% of their regulatory capital in conforming
loans to their service corporations.  In addition to investments
in service corporations, federal associations are permitted to
invest an unlimited amount in operating subsidiaries engaged
solely in activities which a federal association may engage in
directly.

     Grinnell Federal has one service corporation, Grinnell
Service Corporation, Inc. ("GSCI"), located in Grinnell, Iowa. 
GSCI was organized by the Bank in 1970 in order to purchase land
located in Grinnell, Iowa for development of single-family
building sites.  Due to low demand for such land, GSCI
experienced losses of $30,000 and $83,000 for fiscal years ended
June 30, 1993 and 1992, respectively.  As a result, the Bank
determined to discontinue the development activities engaged in
by its service corporation.  During fiscal 1994, GSCI completed
the sale of its remaining lots for a gain of $34,000.  GSCI has
not engaged in any real estate development or other substantive
activities since June 30, 1994.

REGULATION

     GENERAL.  Grinnell Federal is a federally chartered savings
bank, the deposits of which are federally insured and backed by
the full faith and credit of the United States Government. 
Accordingly, the Bank is subject to broad federal regulation and
oversight extending to all its operations.  The Bank is a member
of the FHLB of Des Moines and is subject to certain limited
regulation by the Board of Governors of the Federal Reserve (the
"Federal Reserve Board").  As the savings and loan holding
company of the Bank, the Company also is subject to federal
regulation and oversight. The Bank is a member of the Savings
Association Insurance Fund (the "SAIF") and the deposits of the
Bank are insured by the FDIC.  As a result, the FDIC has certain
regulatory and examination authority over the Bank.

     Certain of these regulatory requirements and restrictions
are discussed below or elsewhere in this Form 10-KSB.

     FEDERAL REGULATION OF SAVINGS ASSOCIATIONS.  The OTS has
extensive authority over the operations of savings associations. 
As part of this authority, the Bank is required to file periodic 
                            32<PAGE>
<PAGE>
reports with the OTS and is subject to periodic examinations by
the OTS and the FDIC.  The last regular OTS and FDIC
examinations of Grinnell Federal were as of May 1996 and May
1991, respectively.  When these examinations are conducted by
the OTS and the FDIC, the examiners may require the Bank to
provide for higher general or specific loan loss reserves.  All
savings associations are subject to a semi-annual assessment,
based upon the savings association's total assets, to fund the
operations of the OTS.  The Bank's OTS assessment for the fiscal
year ended June 30, 1997, was $27,079.

     The OTS also has extensive enforcement authority over all
savings institutions and their holding companies, including the
Bank and the Company.  This enforcement authority includes,
among other things, the ability to assess civil money penalties,
to issue cease-and-desist or removal orders and to initiate
injunctive actions.  In general, these enforcement actions may
be initiated for violations of laws and regulations and unsafe
or unsound practices.  Other actions or inactions may provide
the basis for enforcement action, including misleading or
untimely reports filed with the OTS.  Except under certain
circumstances, public disclosure of final enforcement actions by
the OTS is required.

     In addition, the investment, lending and branching
authority of the Bank is prescribed by federal laws and it is
prohibited from engaging in any activities not permitted by such
laws.  For instance, no savings institution may invest in non-
investment grade corporate debt securities.  In addition, the
permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of
total capital, except with approval of the OTS. Federal savings
associations are also generally authorized to branch nationwide. 
The Bank is in compliance with the noted restrictions.

     The Bank's general permissible lending limit for loans-to-
one-borrower is equal to the greater of $500,000 or 15% of
unimpaired capital and surplus (except for loans fully secured
by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus). 
At June 30, 1997, the Bank's lending limit under this
restriction was $1.3 million.  At June 30, 1997, the Bank had no
loans in excess of this limit.  The Bank is in compliance with
the loans-to-one-borrower limitation.
                            33<PAGE>
<PAGE>

     The OTS, as well as the other federal banking agencies, has
adopted guidelines establishing safety and soundness standards
on matters such as loan underwriting and documentation, internal
controls and audit systems, interest rate risk exposure and
compensation and other employee benefits.  Any institution which
fails to comply with these standards must submit a compliance
plan.  A failure to submit a plan or to comply with an approved
plan will subject the institution to further enforcement action.

     INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC.  The Bank
is a member of the SAIF, which is administered by the FDIC. 
Deposits are insured up to applicable limits by the FDIC.  As
insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting
by FDIC-insured institutions.  It also may prohibit any FDIC-
insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the
FDIC.  The FDIC also has the authority to initiate enforcement
actions against savings associations, after giving the OTS an
opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in
unsafe or unsound practices, or is in an unsafe or unsound
condition.

          The FDIC's deposit insurance premiums are assessed
through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed
insurance premiums, ranging from .06% to .31% of deposits, based
upon their level of capital and supervisory evaluation.  Under
the system, institutions classified as well capitalized (i.e., a
core capital ratio of at least 5%, a ratio of Tier 1 or core
capital to risk-weighted assets ("Tier 1 risk-based capital") of
at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy pay the lowest premium while institutions
that are less than adequately capitalized (i.e., core or Tier 1
risk-based capital ratios of less than 4% or a risk-based
capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium.  Risk
classification of all insured institutions will be made by the
FDIC for each semi-annual assessment period.
                            34<PAGE>
<PAGE>

     REGULATORY CAPITAL REQUIREMENTS.  Federally insured savings
associations, such as the Bank, are required to maintain a
minimum level of regulatory capital.  The OTS has established
capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings associations. 
These capital requirements must be generally as stringent as the
comparable capital requirements for national banks.  The OTS is
also authorized to impose capital requirements in excess of
these standards on individual associations on a case-by-case
basis.

     The capital regulations require tangible capital of at
least 1.5% of adjusted total assets (as defined by regulation). 
Tangible capital generally includes common stockholders' equity
and retained income, and certain noncumulative perpetual
preferred stock and related income.  In addition, all intangible
assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for
calculating compliance with the requirement.  At June 30, 1997,
the Bank did not have any intangible assets.

     The OTS regulations establish special capitalization
requirements for savings associations that own subsidiaries.  In
determining compliance with the capital requirements, all
subsidiaries engaged solely in activities permissible for
national banks or engaged in certain other activities solely as
agent for its customers are "includable" subsidiaries that are
consolidated for capital purposes in proportion to the
association's level of ownership.  For excludable subsidiaries,
the debt and equity investments in such subsidiaries are
deducted from assets and capital.  All subsidiaries of the Bank
are includable subsidiaries.

     At June 30, 1997, the Bank had tangible capital of $8.9
million, or 9.8% of adjusted total assets, which is
approximately $7.5 million above the minimum requirement of 1.5%
of adjusted total assets in effect on that date.

     The capital standards also require core capital equal to at
least 3% of adjusted total assets.  Core capital generally
consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action
provisions discussed below, however, a savings association must
maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio.
                            35<PAGE>
<PAGE>
At June 30, 1997, the Bank had no intangibles which were subject
to these tests.

     At June 30, 1997, the Bank had core capital equal to $8.9
million, or 9.8% of adjusted total assets, which is $6.2 million
above the minimum leverage ratio requirement of 3% as in effect
on that date.

      The OTS risk-based requirement requires savings
associations to have total capital of at least 8% of risk-
weighted assets.  Total capital consists of core capital, as
defined above, and supplementary capital.  Supplementary capital
consists of certain permanent and maturing capital instruments
that do not qualify as core capital and general valuation loan
and lease loss allowances up to a maximum of 1.25% of risk-
weighted assets.  Supplementary capital may be used to satisfy
the risk-based requirement only to the extent of core capital. 
The OTS is also authorized to require a savings association to
maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional
activities.  At June 30, 1997, the Bank had no capital
instruments that qualify as supplementary capital but had
$646,000 of allowance for loan and lease losses, which was not
in excess of the 1.25% of risk-weighted assets.

     Certain exclusions from capital and assets are required to
be made for the purpose of calculating total capital.  Such
exclusions consist of equity investments (as defined by
regulation) and that portion of land loans and nonresidential
construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments.  The Bank
had no exclusions from capital and assets at June 30, 1997.

     In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet items, will be
multiplied by a risk weight, ranging from 0% to 100%, based on
the risk inherent in the type of asset.  For example, the OTS
has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more
than 90 days delinquent and having a loan to value ratio of not
more than 80% at origination unless insured to such ratio by an
insurer approved by the FNMA or FHLMC.

     The OTS has adopted a final rule that requires every
savings association with more than normal interest rate risk
exposure to deduct from its total capital, for purposes of
determining
                            36<PAGE>
<PAGE>
compliance with such requirement, an amount equal to 50% of its
interest-rate risk exposure multiplied by the present value of
its assets.  This exposure is a measure of the potential decline
in the net portfolio value (the "NPV") of a savings association,
greater than 2% of the present value of its assets, based upon a
hypothetical 200 basis point increase or decrease in interest
rates (whichever results in a greater decline).  NPV is the
present value of expected cash flows from assets, liabilities
and off-balance sheet contracts.  The rule provides for a two
quarter lag between calculating interest rate risk and
recognizing any deduction from capital.  The rule will not
become effective until the OTS evaluates the process by which
savings associations may appeal an interest rate risk deduction
determination.  It is uncertain as to when this evaluation may
be completed.  Any savings association with less than $300
million in assets and a total capital ratio in excess of 12% is
exempt from this requirement unless the OTS determines
otherwise.  The Bank meets the criteria for an exemption from
this requirement and has not been advised by the OTS that it is
otherwise subject to this rule.

     On June 30, 1997, the Bank had total capital of $9.5
million (including $8.9 million in core capital and $646,000 in
qualifying supplementary capital) and risk-weighted assets of
$52.0 million (the Bank had no converted off-balance sheet
assets), or total capital of 18.3% of risk-weighted assets. 
This amount was $5.4 million above the 8% requirement in effect
on that date.

     LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. 
OTS regulations impose various restrictions or requirements on
associations with respect to their ability to pay dividends or
make other distributions of capital.  OTS regulations prohibit
an association from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount
required to be maintained for the liquidation account
established in connection with its mutual to stock conversion.

     The OTS utilizes a three-tiered approach to permit
associations, based on their capital level and supervisory
condition, to make capital distributions which include
dividends, stock redemptions or repurchases, cash-out mergers
and other transactions charged to the capital account.  See "-
Regulatory Capital Requirements."
                            37<PAGE>
<PAGE>
     Generally, Tier 1 associations, which are associations that
before and after the proposed distribution meet their fully
phased-in capital requirements, may make capital distributions
during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital
component, as measured at the beginning of the calendar year, or
the amount authorized for a Tier 2 association.  However, a Tier
1 association deemed to be in need of more than normal
supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination.  The Bank meets
the requirements for a Tier 1 association and has not been
notified of a need for more than normal supervision.  Tier 2
associations, which are associations that before and after the
proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net
income over the most recent four-quarter period.


     Tier 3 associations (which are associations that do not
meet current minimum capital requirements) that propose to make
any capital distribution and Tier 2 associations that propose to
make a capital distribution in excess of the noted safe harbor
level must obtain OTS approval prior to making such
distribution.  Tier 2 associations proposing to make a capital
distribution within the safe harbor provisions and Tier 1
associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such
distribution.  As a subsidiary of the Company, the Bank is
required to give the OTS 30 days' notice prior to declaring any
dividend on its stock.  The OTS may object to the distribution
during that 30-day period based on safety and soundness
concerns.  See "- Regulatory Capital Requirements."

     LIQUIDITY.  All savings associations, including the Bank,
are required to maintain an average daily balance of liquid
assets equal to a certain percentage of the sum of its average
daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less.  This liquid asset ratio
requirement may vary from time to time (between 4% and 10%)
depending upon economic conditions and savings flows of all
savings associations.  At the present time, the minimum liquid
asset ratio is 5%.
                            38<PAGE>
<PAGE>
     In addition, short-term liquid assets (e.g., cash, certain
time deposits, certain bankers acceptances and short-term United
States Treasury obligations) currently must constitute at least
1% of the association's average daily balance of net
withdrawable deposit accounts and current borrowings.  Penalties
may be imposed upon associations for violations of either liquid
asset ratio requirement.  At June 30, 1997, the Bank was in
compliance with both requirements, with an overall liquid asset
ratio of 7.3% and a short-term liquid assets ratio of 6.5%.

     ACCOUNTING.  An OTS policy statement applicable to all
savings associations clarifies and re-emphasizes that the
investment activities of a savings association must be in
compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with GAAP. 
Under the policy statement, management must support its
classification of and accounting for loans and securities 
(i.e.,whether held for investment, sale or trading) with appropriate
documentation.  The Bank is in compliance with these amended
rules.

     The OTS has adopted an amendment to its accounting
regulations, which may be made more stringent than GAAP by the
OTS, to require that transactions be reported in a manner that
best reflects their underlying economic substance and inherent
risk and that financial reports must incorporate any other
accounting regulations or orders prescribed by the OTS.
     
     QUALIFIED THRIFT LENDER TEST.  All savings associations,
including the Bank, are required to meet a qualified thrift
lender ("QTL") test to avoid certain restrictions on their
operations.  This test requires a savings association to have at
least 65% of its portfolio assets (as defined by regulation) in
qualified thrift investments on a monthly average for nine out
of every 12 months on a rolling basis.  Such assets primarily
consist of residential housing related loans and investments. 
At June 30, 1997, the Bank met the test and has always met the
test since its effectiveness. 

     Any savings association that fails to meet the QTL test
must convert to a national bank charter, unless it requalifies
as a QTL and thereafter remains a QTL.  If an association does
not requalify and converts to a national bank charter, it must
remain SAIF-insured until the FDIC permits it to transfer to the
BIF.  If such an association has not yet requalified or
converted to a national bank, its new investments and activities
are limited to those permissible for both a savings association
and a national bank, and
                            39<PAGE>
<PAGE>
it is limited to national bank branching rights in its home
state.  In addition, the association is immediately ineligible
to receive any new FHLB borrowings and is subject to national
bank limits for payment of dividends.  If such association has
not requalified or converted to a national bank within three
years after the failure, it must divest of all investments and
cease all activities not permissible for a national bank.  In
addition, it must repay promptly any outstanding FHLB
borrowings, which may result in prepayment penalties.  If any
association that fails the QTL test is controlled by a holding
company, then within one year after the failure, the holding
company must register as a bank holding company and become
subject to all restrictions on bank holding companies.  See "-
Holding Company Regulation."

     COMMUNITY REINVESTMENT ACT.  Under the Community
Reinvestment Act ("CRA"), every FDIC insured institution has a
continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its
entire community, including low and moderate income
neighborhoods.  The CRA does not establish specific lending
requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of
products and services that it believes are best suited to its
particular community, consistent with the CRA.  The CRA requires
the OTS, in connection with the examination of the Bank, to
assess the institution's record of meeting the credit needs of
its community and to take such record into account in its
evaluation of certain applications, such as a merger or the
establishment of a branch, by the Bank.  An unsatisfactory
rating may be used as the basis for the denial of an application
by the OTS.

     The federal banking agencies, including the OTS, have
recently revised the CRA regulations and the methodology for
determining an institution's compliance with the CRA.  Due to
the heightened attention being given to the CRA in the past few
years, the Bank may be required to devote additional funds for
investment and lending in its local community.  The Bank was
examined for CRA compliance in September 1996 and received a
rating of satisfactory. 
     
     TRANSACTIONS WITH AFFILIATES.  Generally, transactions
between a savings association or its subsidiaries and its
affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates.  In addition,
certain of these transactions, such as loans to an affiliate,
are restricted to a percentage of the association's capital. 
Affiliates of the Bank
                            40<PAGE>
<PAGE>
include the Company and any company which is under common
control with the Bank.  In addition, a savings association may
not lend to affiliates engaged in activities not permissible for
a bank holding company or acquire the securities of most
affiliates.  The Bank's subsidiaries are not deemed affiliates. 
However, the OTS has the discretion to treat subsidiaries of
savings associations as affiliates on a case-by-case basis. 

     Certain transactions with directors, officers or
controlling persons are also subject to conflict of interest
regulations enforced by the OTS.  These conflict of interest
regulations and other statutes also impose restrictions on loans
to such persons and their related interests. 

     HOLDING COMPANY REGULATION.  The Company is a unitary
savings and loan holding company subject to regulatory oversight
by the OTS.  As such, the Company is registered and files
reports with the OTS and is subject to regulation and
examination by the OTS.  In addition, the OTS has enforcement
authority over the Company and its non-savings association
subsidiaries which also permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the
subsidiary savings association.

     As a unitary savings and loan holding company, the Company
generally is not subject to activity restrictions.  If the
Company acquires control of another savings association as a
separate subsidiary, it would become a multiple savings and loan
holding company, and the activities of the Company and any of
its subsidiaries (other than the Bank or any other SAIF-insured
savings association) would become subject to such restrictions
unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.

     If the Bank fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure,
directly or through its other subsidiaries, any business
activity other than those approved for multiple savings and loan
holding companies or their subsidiaries.  In addition, within
one year of such failure the Company must register as and will
become subject to the restrictions applicable to bank holding
companies.  The activities authorized for a bank holding company
are more limited than are the activities authorized for a
unitary or multiple savings and loan holding company.  See "-
Qualified Thrift Lender Test."
                            41<PAGE>
<PAGE>
     The Company must obtain approval from the OTS before
acquiring control of any other SAIF-insured association.  Such
acquisitions are generally prohibited if they result in a
multiple savings and loan holding company controlling savings
associations in more than one state.  However, such interstate
acquisitions are permitted based on specific state authorization
or in a supervisory acquisition of a failing savings
association.

     FEDERAL SECURITIES LAW.  The stock of the Company is
registered with the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act").  The Company is subject
to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the
Exchange Act.

     Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company
may not be resold without registration or unless sold in
accordance with certain resale restrictions.  If the Company
meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market,
without registration, a limited number of shares in any three-
month period.

     FEDERAL RESERVE SYSTEM.  The Federal Reserve Board requires
all depository institutions to maintain non-interest bearing
reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts).  At
June 30, 1997, the Bank was in compliance with these reserve
requirements.  The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to
satisfy liquidity requirements that may be imposed by the OTS. 
See "- Liquidity."
     
     Savings associations are authorized to borrow from the
Federal Reserve Bank "discount window," but Federal Reserve
Board regulations require associations to exhaust other
reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.

     FEDERAL HOME LOAN BANK SYSTEM.  The Bank is a member of the
FHLB of Des Moines, which is one of 12 regional FHLBs ("FHLB
System"), that administers the home financing credit function of
savings associations.  Each FHLB serves as a reserve or central
bank for its members within its assigned region.  It is funded
primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System.  It makes loans to members
(i.e.,
                            42<PAGE>
<PAGE>
advances) in accordance with policies and procedures established
by the board of directors of the FHLB, which are subject to the
oversight of the Federal Housing Finance Board.  All advances
from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB.  In addition, all long-
term advances are required to provide funds for residential home
financing.

     As a member, the Bank is required to purchase and maintain
stock in the FHLB of Des Moines.  At June 30, 1997, the Bank had
$1.2 million in FHLB stock, which was in compliance with this
requirement.  In past years, the Bank has received substantial
dividends on its FHLB stock.  For the fiscal year ended June 30,
1997, dividends paid by the FHLB of Des Moines to the Bank
totaled $81,000, which constitutes a $5,000 increase over the
amount of dividends received in the fiscal year ended June 30,
1996.

     Under federal law the FHLBs are required to provide funds
for the resolution of troubled savings associations and to
contribute to low- and moderately-priced housing programs
through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing
projects.  These contributions have affected adversely the level
of FHLB dividends paid and could continue to do so in the
future.  These contributions could also have an adverse effect
on the value of FHLB stock in the future.  A reduction in value
of the Bank's FHLB stock may result in a corresponding reduction
in the Bank's capital.

    CHANGE IN CONTROL REGULATIONS.  Federal law provides that no
company "directly or indirectly or acting in concert with one or
more persons, or through one or more subsidiaries, or through
one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. 
In addition, federal regulations require that, prior to
obtaining control of a savings association, a person, other than
a company, must give 60 days' prior notice to the OTS and have
received no OTS objection to such acquisition of control.  Any
company that acquires such control becomes a "savings and loan
holding company" subject to registration, examination and
regulation as a savings and loan holding company.  Under federal
law (as well as the regulations referred to below) the term
"savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered Banks whose
accounts are insured by the FDIC's BIF and holding companies
thereof.  
                            43<PAGE>
<PAGE>
     Control, as defined under federal law, means ownership,
control of or holding irrevocable proxies representing more than
25% of any class of voting stock, control in any manner of the
election of a majority of the savings association's directors,
or a determination by the OTS that the acquiror has the power to
direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. 
Acquisition of more than 10% of any class of a savings
association's voting stock, if the acquiror also is subject to
any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations.  Such control
factors include the acquiror being one of the two largest
stockholders.  The determination of control may be rebutted by 
submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and
circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. 
The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a
savings association's stock must file with the OTS a
certification that the holder is not in control of such
institution, is not subject to a rebuttable determination of
control and will take no action which would result in a
determination or rebuttable determination of control without
prior notice to or approval of the OTS, as applicable.  

FEDERAL AND STATE TAXATION

     FEDERAL TAXATION.  Prior to the enactment, on August 20,
1996, of the Small Business Job Protection Act of 1996 (the
"Small Business Act"), for federal income tax purposes, thrift
institutions such as the Bank, which met certain definitional
tests primarily relating to their assets and the nature of their
business, were permitted to establish tax reserves for bad debts
and to make annual additions thereto, which additions could,
within specified limitations, be deducted in arriving at their
taxable income.  The Company's deduction with respect to
"qualifying loans," which are generally loans secured by certain
interests in real property, could be computed using an amount
based on a six-year moving average of the Company's actual loss
experience (the "Experience Method"), or a percentage equal to
8.0% of the Company's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve.
                            44<PAGE>
<PAGE>
     Under the Small Business Act, the PTI Method was repealed
and the Bank, as a "small bank" (one with assets having an
adjusted basis of $500 million or less) has elected to use the
Experience Method of computing additions to its bad debt reserve
for taxable years beginning with the Company's taxable year
beginning July 1, 1996.  In addition, the Company will be
required to recapture (i.e., take into taxable income) over a
six-year period, beginning with the Company's taxable year
beginning July 1, 1996, the excess of the balance of its bad
debt reserves (other than the supplemental reserve) as of June
30, 1996 over the greater of (a) the balance of its "base year
reserve," i.e., its reserves as of June 30, 1998 or (b) an
amount that would have been the balance of 
such reserves as of June 30, 1996 had the Company always
computed the additions to its reserves using the Experience
Method.  Under the Small Business Act such recapture
requirements could have been suspended for each of the two
successive taxable years beginning July 1, 1996 in which the
Company originated a minimum amount of certain residential loans
during such years that is not less than the average of the
principal amounts of such loans made by the Company during its
six taxable years preceding July 1, 1996.  The Company elected
not to defer the recapture causing approximately $15,000 of
income recapture for the year ended June 30, 1997.  A deferred
tax liability has been previously recorded by the bank for this
item.

     In addition to the regular income tax, corporations,
including savings associations such as the Bank, generally are
subject to a minimum tax.  An alternative minimum tax is imposed
at a minimum tax rate of 20% on alternative minimum taxable
income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less
any available exemption.  The alternative minimum tax is imposed
to the extent it exceeds the corporation's regular income tax. 
Net operating losses can offset no more than 90% of alternative
minimum taxable income.  For taxable years beginning after 1986
and before 1996, corporations, including savings associations
such as the Bank, were also subject to an environmental tax
equal to 0.12% of the excess of alternative minimum taxable
income for the taxable year (determined without regard to net
operating losses and the deduction for the environmental tax)
over $2.0 million.  

     To the extent earnings appropriated to a savings
association's bad debt reserves for "qualifying real property
loans" and deducted for federal income tax purposes exceed the
allowable amount of such reserves computed under the experience
method and to the extent of
                            45<PAGE>
<PAGE>
the association's supplemental reserves for losses on loans
("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or
other distributions to a shareholder (including distributions on
redemption, dissolution or liquidation) or for any other purpose
(except to absorb bad debt losses).

     The Company and its subsidiaries file consolidated federal
income tax returns on a fiscal year basis using the accrual
method of accounting.  For years prior to June 30, 1997, savings
associations, such as the Bank, that file federal income tax
returns as part of a consolidated group were required by
applicable Treasury regulations to reduce their taxable income
for purposes of computing the percentage bad debt deduction for
losses attributable to activities of the non-savings association
members of the consolidated group that are functionally related
to the activities of the savings association member.  

     The Company and its consolidated subsidiaries have not been
audited by the IRS with respect to consolidated federal income
tax returns during the past seven years.  In the opinion of
management, any examination of still open returns (including
returns of subsidiaries and predecessors of, or entities merged
into, the Company) would not result in a deficiency which could
have a material adverse effect on the financial condition,
results of operations or liquidity of the Company and its
consolidated subsidiaries.

     IOWA TAXATION.  The Bank currently files an Iowa franchise
tax return, and the Company and the Bank's service corporation
file an Iowa corporation tax return.

     Iowa imposes a franchise tax on the taxable income of both
mutual and stock savings banks.  The tax rate is 5%, which may
effectively be increased, in individual cases, by application of
a minimum tax provision.  Taxable income under the franchise tax
is generally similar to taxable income under the federal
corporate income tax, except that, under the Iowa franchise tax,
no deduction is allowed for Iowa franchise tax payments and
taxable income includes interest on state and municipal
obligations.  Interest on U.S. obligations is taxable under the
Iowa franchise tax and under the federal corporate income tax.
                            46<PAGE>
<PAGE>
     Taxable income under the Iowa corporate income tax is
generally similar to taxable income under the federal corporate
income tax, except that, under the Iowa tax, no deduction is
allowed for Iowa income tax payments; interest from state and
municipal obligations is included in income; interest from U.S.
obligations is excluded from income; and 50% of federal
corporate income tax payments are excluded from income.  The
Iowa corporate income tax rates range from 6% to 12% and may be
effectively increased, in individual cases, by application of a
minimum tax provision.

     DELAWARE TAXATION.  As a Delaware holding company, the
Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual fee to
the State of Delaware.  The Company is also subject to an annual
franchise tax imposed by the State of Delaware.

COMPETITION

     Grinnell Federal faces strong competition, both in
originating real estate and other loans and in attracting
deposits.  Competition in originating real estate loans comes
primarily from commercial banks.  The Bank competes for loans
principally on the basis of the interest rates and loan fees it
charges, the types of loans it originates and the quality of
services it provides to borrowers.

     The Bank attracts most of its deposits from Poweshiek
County where the Bank's office is located and parts of Marshall,
Jasper, and Iowa, Counties, Iowa.  Competition for those
deposits is principally from commercial banks and credit unions
located in the same community.  The ability of the Bank to
attract and retain deposits depends on its ability to provide an
investment opportunity that satisfies the requirements of
investors as to rate of return, liquidity, risk and other
factors.  The Bank competes for these deposits by offering a
variety of deposit accounts at competitive rates and convenient
business hours.

EMPLOYEES

     At June 30, 1997, the Bank had a total of 16 full-time and
four part-time employees.  The Company's employees are not
represented by any collective bargaining group. Management
considers its employee relations to be good.
                            47<PAGE>
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTY
         -----------------------

     The Bank owns its main office located at 1025 Main Street,
Grinnell, Iowa 50112.  The total net book value of the Bank's
premises and equipment at June 30, 1997, was $223,000.  

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

     The Company and  Grinnell Federal are involved from time to
time as plaintiff or defendant in various legal actions arising
in the normal course of its business.  While the ultimate
outcome of these proceedings cannot be predicted with certainty,
it is the opinion of management, after consultation with counsel
representing the Company and Grinnell Federal in the proceed-

ings, that the resolution of these proceedings should not have a
material effect on the Company's consolidated financial position
or results of operations.

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

     No matter was submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the
quarter ended June 30, 1997.

                          PART II

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

     Page 45 of the attached 1997 Annual Report to Stockholders
is herein incorporated by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATION                      
         ------------------------------------------------- 

     Pages 4 through 17 of the attached 1997 Annual Report to
Stockholders are herein incorporated by reference.
                            48<PAGE>
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS
         --------------------

     The following information appearing in the Company's Annual
Report to Stockholders for the year ended June 30, 1997, is
incorporated by reference in this Annual Report on Form 10-KSB
as Exhibit 13.
                                                    PAGES IN 
ANNUAL REPORT SECTION                             ANNUAL REPORT
---------------------                             -------------
Independent Auditors' Report. . . . . . . . . . . . .  18   

Consolidated Balance Sheets as of June 30,
1997 and 1996 . . . . . . . . . . . . . . . . . . . .  19   

Consolidated Statements of Income for the
Years Ended June 30, 1997, 1996 and 1995. . . . . . .  20   
 
Consolidated Statements of Changes in
Stockholders' Equity for Years Ended
June 30, 1997, 1996 and 1995. . . . . . . . . . . . .  21

Consolidated Statements of Cash Flows for
Years Ended June 30, 1997, 1996 and 1995. . . . . . . 22-23  

Notes to Consolidated Financial Statements. . . . . .24-44

     With the exception of the aforementioned information, the
Company's Annual Report to Stockholders for the year ended
June 30, 1997, is not deemed filed as part of this Annual Report
on Form 10-KSB.

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

     On August 18, 1995, the Company dismissed Vroman, McGowen,
Hurst, Clark & Smith, P.C.  ("Vroman  McGowen") as their
independent auditors.  The change of independent auditors was
recommended by the Audit Committee and subsequently approved by
the Board of Directors.  There have been no disagreements
between the Company and Vroman McGowen on any matter of
accounting principles or practices, financial statement
disclosure or auditing scope of procedure in connection with the
audit of the consolidated financial statements of the Company
for two years ended June 30, 1995 and subsequent interim periods
through August 18, 1995, which, if not resolved to the
satisfaction of Vroman McGowen, would have 
                            49<PAGE>
<PAGE>
caused them to make reference to the subject matter of such
disagreements in connection with their report.  The reports of
Vroman  McGowen on the consolidated financial statements of the
Company for the two years ended June 30, 1995 did not contain an
adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.  

     Effective September 15, 1995, the Board of Directors
engaged McGladrey & Pullen, LLP to be its auditors for the 1996
fiscal year, subject to the ratification of the appointment by
the Company's stockholders.  The appointment was ratified at the
Annual Meeting of Stockholders held on October 25, 1995.

                             PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
         ACT
         ------------------------------------------------------

     For information concerning the Board of Directors and
executive officers of the Company, the information contained
under the section captioned "Proposal I -- Election of
Directors" in the Company's definitive proxy statement for the
Company's 1997 Annual Meeting of Stockholders (the "Proxy
Statement") is incorporated herein by reference. 

COMPLIANCE WITH SECTION 16(a)
-----------------------------

     Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the
Company's equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. 
Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of
all Section 16(a) forms they file.

     To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports were required, during the
fiscal years ended June 30, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and greater
than 10 percent beneficial owners were complied with.

                            50<PAGE>
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION
          ----------------------

     The information contained under the sections captioned
"Proposal I -- Election of Directors -- Executive Compensation," 
"-- Director Compensation," and "-- Employment Agreements and
Salary Continuation Plan" in the Proxy Statement is incorporated
herein by reference.

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

    (a) Security Ownership of Certain Beneficial Owners 

     Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders thereof" in the Proxy Statement.

    (b) Security Ownership of Management

    Information required by this item is incorporated herein by
reference to the sections captioned "Proposal I -- Election of
Directors" in the Proxy Statement. 

    (c) Changes in Control

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

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

     The Information required by this item is incorporated
herein by reference to the section captioned "Proposal I --
Election of Directors -- Certain Transactions" in the Proxy
Statement.
                            51<PAGE>
<PAGE>
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
          --------------------------------

(a)  Exhibits
       The following is a list of exhibits filed as part of this
Annual Report on Form 10-KSB:               

Regulation S-B           
Exhibit Number                   Document                     
--------------                   --------

    3             *(a) Articles of Incorporation, including    
                       amendments thereto

                  *(b) By-Laws                      

    10            Material Contracts                  

                  *(a)  Employment Contracts between the Bank
                        and Messrs. Meredith, Opsal, Nassif and
                        Ms. Rose

                  *(b)  1993 Stock Option and Incentive Plan

                  *(c)  Recognition and Retention Plan

                  *(d)  Salary Continuation Plan

                 **(e)  1997 Stock Option Plan
    
    13            Annual Report to Security Holders       

    21            Subsidiaries of Registrant       

    23            (a) Consent of McGladrey & Pullen, LLP

                  (b) Consent of Vroman, McGowen, Hurst, Clark
                      and Smith, P.C.
    
    27            Financial Data Schedule           


*Incorporated by reference to the Company's Form 10KSB for the
fiscal year ended June 30, 1996.
**Incorporated by reference to the Company's Form S-8 filed on
March 28, 1997.

(b)  Reports on Form 8-K
     -------------------

     On June 24, 1997, the Company filed a Current Report on
Form 8-K reporting the increase in its quarterly cash dividend
from $.05 per share to $.065 per share.  No other reports on
Form 8-K were filed during the three-month period ended June 30,
1997.
                            52<PAGE>
<PAGE>
                        SIGNATURES
                        ----------
     Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                 GFS BANCORP, INC.



Date:   September 25, 1997       /s/ Steven L. Opsal
                                 ---------------------------
                                 Steven L. Opsal (Duly
                                 Authorized Representative)

     Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated. 

/s/ Steven L. Opsal               /s/ LeRoy E. Meredith
-------------------------------   ----------------------------   
Steven L. Opsal, President,       LeRoy E. Meredith, Chairman
Chief Executive Officer and         of the Board and Director
Director (Principal Executive     
Officer)     

Date:  September 25, 1997         Date:   September 25, 1997

/s/ Theodore Mokricky             /s/ David Clay
-------------------------------   ----------------------------   
Theodore Mokricky, Vice           David Clay, Director
Chairman of the Board

Date:  September 25, 1997         Date:   September 25, 1997

/s/ Thomas M. Groth               /s/ Scott A. Jensen
-------------------------------   ----------------------------   
Thomas M. Groth, Director         Scott A. Jensen, Director

Date:  September 25, 1997         Date:   September 25, 1997

/s/ Albert C. Eisenman            /s/ Donald H. Howig
-------------------------------   ----------------------------   
Albert C. Eisenman, Director      Donald H. Howig, Director

Date:  September 25, 1997         Date:   September 25, 1997

/s/ Katherine A. Rose             
------------------------------
Katherine A. Rose, Senior Vice 
President and Chief Financial Officer
and Director (Principal Financial and
Accounting Officer)

Date:  September 25, 1997