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                     GFS BANCORP, INC.

                         [LOGO]



















                                              1997 ANNUAL REPORT

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<PAGE>
<PAGE>
A MESSAGE FROM THE PRESIDENT


Dear Fellow Stockholder:

Our balance sheet once again reflects solid growth with respect
to total assets (up 10.6%), loans receivable (up 9.3%) and
deposits (up 12.1%).   More importantly, this was not simply
"growth for growth's sake", but was profitable growth. 
Excluding the one-time BIF/SAIF assessment paid by all thrift
institutions in the September 1996 quarter, GFS Bancorp's
earnings would have been another record high at $1,052,000, a
17.5% increase over last year.  Even including the
aforementioned assessment, the Bancorp still produced very
respectable earnings of $871,000, or about the same as last
year's $895,000.  We were particularly pleased about the fact
that $588,000 of net income was generated in the last half of
the fiscal year.

Net interest income, the main driver of our earnings, increased
to more than $3 million, up 20.7%.  This substantial increase
was fueled by a combination of record local lending volume and
the continuation of our relationship with Bache Funding Corp. of
Wisconsin, a mortgage banking firm headquartered in Madison. 
These two sources provided over $20 million for our loan
portfolio and nearly $27 million in related servicing.

Other highlights for the year included another increase in our
cash dividend, a 100% stock dividend, the unveiling of our
Hometown Checking program, on-site banking service for residents
of the Mayflower Home (a senior care facility), and securing a
long term lease on property adjacent to our office which will
allow for a planned expansion of our facility.

We pledge to continue our focus on earnings per share.  To this
end, we will strive to increase market share by  providing
attractive and reasonably priced banking products and services. 
You, our investors, can help us by using our services and
recommending us to your family and friends.

As always, we are indebted to our valued customers, dedicated
staff and loyal stockholders. Thank you!


                         Sincerely,
 
                         Steven L. Opsal
                         President<PAGE>
<PAGE>
________________________________________________________________

                     TABLE OF CONTENTS
________________________________________________________________

President's Letter to Shareholders . . . . . . . . . . . . . . 1

Selected Consolidated Financial Information. . . . . . . . . . 2

Management's Discussion and Analysis of Financial 
   Condition and Results of Operation. . . . . . . . . . . . . 4 

Consolidated Financial Statements . . . . . . . . . . . . . . 18

Stockholder Information . . . . . . . . . . . . . . . . . . . 45

Corporate Information . . . . . . . . . . . . . . . . . . . . 46



<PAGE>
<PAGE>
                          GFS BANCORP, INC.
              SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                          June 30,
                                        ------------------------------------------
                                           1997    1996    1995    1994    1993
                                        ------------------------------------------
                                                        (In Thousands)
<S>                                      <C>     <C>      <C>      <C>      <C>
Selected Financial Condition Data:                         
---------------------------------
Total assets. . . . . . . . . . . . . . $92,063  $83,305  $70,950  $57,179  $51,213
Cash and cash equivalents . . . . . . .   4,643    2,271    4,107      968    4,923
Mortgage-backed securities, net . . . .   3,146    3,435    3,950    4,237    5,716
Investment securities . . . . . . . . .   3,407    3,255    6,078    6,690    5,001
FHLB stock. . . . . . . . . . . . . . .   1,159    1,159      832      832      832
Loans receivable, net . . . . . . . . .  78,475   71,773   54,999   43,682   33,898
Deposits. . . . . . . . . . . . . . . .  59,551   53,122   46,082   42,016   43,249
FHLB advances . . . . . . . . . . . . .  20,961   19,318   14,578    5,870    3,500
Stockholders' equity. . . . . . . . . .  10,537    9,945    9,540    8,811    4,042
</TABLE>
<TABLE>
<CAPTION>
                                                    Year Ended June 30,
                                        ------------------------------------------
                                           1997    1996    1995    1994    1993
                                        ------------------------------------------
                                        (Dollars in Thousands Except Per Share Data)
<S>                                      <C>     <C>      <C>      <C>      <C>
Selected Operations Data:
------------------------
Total interest income . . . . . . . . . $7,139  $ 6,245  $ 4,778  $ 4,013  $ 4,098
Total interest expense. . . . . . . . .  4,092    3,720    2,638    2,228    2,547
                                        ------  -------  -------  -------  -------
  Net interest income . . . . . . . . .  3,047    2,525    2,140    1,785    1,551
Provision (credit) for loan losses. . .    121      249      ---       20       (4)
                                        ------  -------  -------  -------  -------
  Net interest income after provision
   for losses on loans. . . . . . . . .  2,926    2,276    2,140    1,765    1,555
Non-interest income:
  Gain (loss) on sale of investments. .     (3)     (48)      36      ---      ---
  Gains on sale of real estate. . . . .      4      ---       11       34        5
  Other non-interest income . . . . . .    149      186       81       79       47
                                        ------  -------  -------  -------  -------
Total non-interest income . . . . . . .    150      138      128      113       52
Total non-interest expense. . . . . . .  1,828    1,335    1,321    1,061      856
                                        ------  -------  -------  -------  -------
  Income before income taxes. . . . . .  1,248    1,079      947      817      751
Income tax expense. . . . . . . . . . .    377      184      316      281      237
                                        ------  -------  -------  -------  -------
  Net income before accounting change .    871      895      631      536      514
Accounting change for income taxes. . .    ---      ---      ---      ---      (64)
                                        ------  -------  -------  -------  -------
  Income before extraordinary item. . .    871      895      631      536      450
Extraordinary item - penalty for early
 extinguishment of debt, net of income
 tax benefit . . . . . . . . . . . . .     ---      ---      ---       51      ---
                                        ------  -------  -------  -------  -------
  Net income . . . . . . . . . . . . .  $  871  $   895  $   631  $   485  $   450
                                        ======  =======  =======  =======  =======
Per common share data after giving 
retroactive effect for the 2 for 1 
stock split(1):
  Net income per common share. . . . .  $  .85  $   .86  $   .60  $   .26     N/A    
  Cash dividends declared per share. .  $.2150  $ .1625  $ .0375      ---     N/A    
  Dividend payout ratio  . . . . . . .     .25      .19      .06
<FN>
____________
(1) Subsequent to the conversion of Grinnell Federal Savings Bank to the stock form,
    effective January 5, 1994.  See Notes to Consolidated Financial Statements for
    additional information regarding earnings per common share data.
</FN>
</TABLE>
                                2<PAGE>
<PAGE>
    SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
                                                    Year Ended June 30,
                                        ------------------------------------------
                                           1997    1996    1995    1994    1993
                                        ------------------------------------------
<S>                                      <C>     <C>      <C>      <C>      <C>
Selected Financial Ratios and Other Data:
----------------------------------------                         
Performance Ratios:
  Return on assets (ratio of net income
  to average total assets). . . . . . . .  0.99%    1.15%    1.01%     .89%     .90%
  Interest rate spread information:                         
   Average during year. . . . . . . . . .  2.85     2.56     2.70     2.81     2.76
   End of year. . . . . . . . . . . . . .  2.64     2.51     2.14     2.84     2.60
  Net interest margin(1). . . . . . . . .  3.52     3.30     3.48     3.34     3.15
  Ratio of operating expense to average 
   total assets . . . . . . . . . . . . .  2.07     1.72     2.10     1.91     1.66
  Return on equity (ratio of net income
   to average equity) . . . . . . . . . .  8.63     9.25     6.89     7.76    11.79

Quality Ratios:
  Non-performing assets to total assets 
    at end of year(2) . . . . . . . . . .  1.00     1.15      .02      .44      .56
  Allowance for loan losses to non-
    performing loans(3) . . . . . . . . . 70.03    87.24  2857.43  1290.32  6198.40
                         
Capital Ratios:                         
  Equity to total assets at end of 
    year . . . . . . . . . . . . . . . .   11.45    11.94    13.45    15.41    7.89
  Average equity to average assets . . .   11.47    12.43    14.70    11.50    7.65
  Average interest-earning assets to 
    average interest-bearing 
    liabilities. . . . . . . . . . . . .  114.36   115.34   118.24   112.66  107.50

Number of full-service offices . . . . .       1        1        1        1       1
<FN>
____________________
(1) Net interest income divided by average interest earning assets.
(2) Non-performing assets consist of non-accruing loans, accruing loans past due 90
    or more days and real estate owned.
(3) Excludes real estate owned.
</FN>
</TABLE>
                                3
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<PAGE>
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS

BUSINESS

     GFS Bancorp, Inc. (the "Company") was  formed to be the
holding company for Grinnell Federal Savings Bank ("Grinnell
Federal" or the "Bank") in connection with the Bank's conversion
to stock form.  The Company completed its initial public
offering on January 5, 1994 with the sale of 1,058,000 shares at
$5.00 per share after giving retroactive effect for the 2
for 1 stock split.  The primary activity of the Company is to
act as a holding company for the Bank.   As a result, unless
otherwise noted, the following discussion relates primarily to
the Bank.  The primary business of savings banks, including
Grinnell Federal, has historically consisted of attracting
deposits from the general public and providing financing for the
purchase of residential properties.  The operations of the Bank
are significantly affected by prevailing economic conditions as
well as by government policies and regulations relating to
monetary and fiscal affairs, housing and financial institutions.

     Net income is primarily dependent upon the difference (or
"spread") between the average yield earned on loans, mortgage-
backed and related securities and investments, and the average
rate paid on deposits and borrowings, as well as the relative
amounts of such assets and liabilities.  The interest rate
spread is affected by regulatory, economic and competitive
factors that influence interest rates, loan demand and deposit
flows.  The Bank, like other thrift institutions, is subject to
interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different times, or on a
different basis, than its interest-earning assets.

     Net income is also affected by, among other things, gains
and losses on sales of real estate and investments, mortgage-
backed and related securities, investment securities and
foreclosed assets, provisions for loan losses, service charges
and other fees, operating expenses and income taxes.

FINANCIAL CONDITION

     June 30, 1997 compared to June 30, 1996.  Total assets
increased $8.8 million, or 10.6%, from  $83.3 million at
June 30, 1996 to $92.1 million at June 30, 1997.  This increase
was due  primarily to increases in loans receivable, cash and
cash equivalents and investment securities, which increases were
partially offset by decreases in mortgage backed securities and
the disposition of real estate acquired in settlement of loans.

     Cash and amounts due from depository institutions increased
$2.3 million from $2.3 million at June 30, 1996 to $4.6 million
at June 30, 1997.   Investment securities increased $100,000, or
3.0%, from $3.3 million at June 30, 1996 to $3.4 million at
June 30, 1997.  At June 30, 1997, the investment portfolio
consisted primarily of $1.5 million in U.S. agency obligations,
$770,000 in mutual funds, and $1.1 million in equity securities
consisting of common stocks of one bank holding company and one
thrift holding company, and preferred stocks of a life insurance
company, a bank holding company, two power companies and an
automobile manufacturer.

     Total mortgage-backed securities decreased $290,000,  or
8.5%,  from $3.4 million at June 30, 1996 to $3.1 million at
June 30, 1997.  The decrease in mortgage-backed securities was
due to repayments and prepayments.     

     Net loans receivable increased $6.7 million, or 9.3%, from
$71.8 million at June 30, 1996 to $78.5 million at June 30,
1997.  Mortgage loans originated during fiscal 1997  totaled
$11.4 million and were secured primarily by one-to-four family
dwellings in the Bank's market area.   During this period, the
Bank
                               4
<PAGE>
<PAGE>
also purchased $35.4 million in loans secured by real estate
located primarily  in the Madison, Wisconsin area, including
$7.3 million of loans secured by one-to-four family dwellings,
$24.3 million secured by multi-family dwellings, $3.5 million
secured by commercial real estate and $316,000 secured by
residential land development.  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.

   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 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.
     
     Total deposits of  the Bank increased by $6.4 million, or
12.1%, from $53.1 million at June 30, 1996 to $59.5 million at
June 30, 1997.  This increase was primarily due to growth  of
$1.6 million in demand and negotiable order of withdrawal
accounts, $1.5 million in money market savings accounts and $3.3
million in certificates of deposit. Management believes that
this increase was primarily attributable to successful marketing
initiatives and competitive pricing.     

     Total borrowed funds consisted of advances from the Federal
Home Loan Bank ("FHLB") of Des Moines.  FHLB advances increased
by  $1.7 million, or 8.8%,  from $19.3 million at June 30, 1996
to $21.0 million at June 30, 1997.  This increase in borrowing
was due to the  utilization of FHLB advances to partially fund
the origination and purchase of  loans.  Management attempts to
use borrowing  to maintain the Bank's current spread and provide
a stable source of funding for loans.  During fiscal 1997,
management utilized a combination of fixed-rate FHLB advances
with maturities of 30 days to 3 years.  At June 30, 1997,
approximately 71% of borrowing carried maturities greater than
one year.  Although this strategy could reduce the short-term
impact of an increase in interest rates, the Bank may be exposed
to an increase in interest rate risk in future periods to the
extent the actual repricing of assets differs from management's
assumptions.     

     Stockholders' equity increased $592,000 from $9.9 million
at June 30, 1996 to $10.5 million at June 30, 1997.  This
increase was due to net income of $871,000, amortization of
Recognition and Retention Plan ("RRP") awards, allocations to
the Employee Stock Ownership Plan ("ESOP"), and a decrease in
unrealized loss on decline in value of investments available for
sale.  The increase in stockholders' equity was  partially
offset by the Company's repurchase of 33,262 shares of its stock
and the declaration of $0.215 dividends per share for the 1997
fiscal year.     

RESULTS OF OPERATIONS

     The Company's results of operations depend primarily on the
level of its net interest income and non-interest income and the
level of its operating expenses.  Net interest income depends
upon the volume of interest-earning assets and interest-bearing
liabilities and interest rates earned or paid.
                                5
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996

     General.  The Company's net income decreased by $24,000, or
2.7%, from $895,000 for fiscal 1996 to $871,000 for fiscal 1997. 
As discussed in more detail below, the primary reasons for this
decrease were the one time after-tax special assessment of
$181,000 ($287,568 before the effect of federal and state income
taxes) levied by the Federal Deposit Insurance Corporation (the
"FDIC") in order to capitalize the Savings Association Insurance
Fund, and increases in non-interest expense and provision for
income taxes.  The increase in expenses  was largely offset by
increases in net interest income and non-interest income and a
reduction in provision for loan losses.   

     Interest Income.  Interest income increased by $900,000 to
$7.1 million in fiscal 1997 from $6.2 million in fiscal 1996
primarily as a result of an  increase in the volume of interest-
earning assets and, to a lesser extent, the average rates earned
on interest earning assets.  The average balance of  interest-
earning assets increased $9.9 million, or 12.9%, to $86.5
million in fiscal 1997 from $76.6 million  in  fiscal 1996
primarily due to an increase in the average balances of loans
resulting from increased loan originations and purchases.  The
average yield on interest earning assets increased from 8.16%
for 1996 to 8.26% in 1997.  

     Interest Expense.  Interest expense increased $400,000 to
$4.1 million in fiscal 1997 from $3.7 million in fiscal 1996 due
primarily to an increase in the volume of interest-bearing
liabilities which was partially offset by a decrease in the
average rates paid on interest-bearing liabilities.  The average
balance of interest-bearing liabilities increased $9.2 million
from $66.4 million in fiscal 1996 to $75.6 million in fiscal
1997 primarily as a result of an increase in certificates of
deposit and, to a lesser extent, savings and NOW accounts, money
market accounts, and FHLB advances.  The average rates paid on
interest-bearing liabilities decreased  from 5.60% during fiscal
1996 to 5.41% during fiscal 1997.  

     Net Interest Income.  Net interest income increased
$500,000 to $3.0 million in fiscal 1997 as compared to $2.5
million in fiscal 1996.  The Company's average spread increased
from 2.56% for the fiscal year ended June 30, 1996 to 2.85% for
the fiscal year ended June 30, 1997 due to the increased yields
on interest earning assets and a decline in rates paid on
interest costing liabilities.   Net interest margin increased
from 3.30% for the fiscal year ended June 30, 1996 to 3.52% for
the fiscal year ended June 30, 1997.  The ratio of average
interest-earning assets to average interest-bearing liabilities
decreased from 115.3% during fiscal 1996 to 114.4% during 
fiscal 1997.      
    
     Provision for Loan Losses.  The provision for loan losses
is determined by management as the amount to be added to the
allowance for loan losses after net charge-offs have been
deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in
accordance with generally accepted accounting principles.  A
$121,000 provision for loan losses  was made for fiscal 1997, as
compared to $249,000 in fiscal 1996.  The allowance for loan
losses at June 30, 1997 increased $5,000 to $646,000 from
$641,000 at June 30, 1996.  This $5,000 increase reflects the
net effect of the $121,000 provision for loan losses referenced
above as offset by a $115,000 charge-off on equipment leases 
during the 1997 fiscal year.

     Management believes that the current allowance for loan
losses is adequate.  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)
totaled  $922,000,  or 1.00% of total assets at June 30, 1997 as
compared to $962,000,  or 1.15%at June 30, 1996.  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 a
                               6
<PAGE>
<PAGE>
$40,000 decrease in nonperforming assets coupled with the $5,000
increase in allowance for loan losses referenced above.  The
ratio of the allowance for loan losses to total loans was 0.8%
at June 30, 1997 as compared to 0.9% at June 30, 1996.  (See
discussion of Asset Quality below.)  Future additions to the
allowance for loan losses are dependent upon the performance and
composition  of the loan portfolio, the economy, changes in real
estate values and interest rates, the view of the regulatory
authorities toward adequate reserve levels and inflation.

     Non-interest Income.  Non-interest income increased by
$12,000 to $150,000 in fiscal 1997 from $138,000 in fiscal 1996. 

     Non-interest Expense.  Non-interest expense increased by
$500,000 to $1.8 million in fiscal 1997 from $1.3 million in
fiscal 1996.  This increase was primarily due to: (i) a one time
special assessment of $287,568 ($181,000 after the effect of
federal and state income taxes) levied by the FDIC  in order to
capitalize the Savings Association Insurance Fund, (ii) a
$126,000 increase in salaries and employee benefits resulting
from staff additions, fiscal year-end salary increases and
increased expenses associated with higher market values of
allocated ESOP shares, and (iii) an $84,000 increase in other
non-interest expense.  

     Income Tax Expense.  Income tax expense increased by
$193,000, to $377,000 in fiscal 1997 as compared  to $184,000 in
fiscal 1996.  This increase was primarily attributable to
resolution of a  $137,000  tax contingency during fiscal 1996
and, to a lessor extent, the amount of  income subject to income
taxes.     

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995

     General.  The Company's net income increased by $264,000,
or 41.8%, to $895,000 in fiscal 1996 from net income of $631,000
in fiscal 1995.  As discussed in more detail below, the primary
reason for this increase was the $385,000 increase in net
interest income, a $10,000 increase in non-interest income and a
$132,000 decrease in provision for income taxes, which together
more than offset the $249,000 and $14,000 increases in provision
for loan losses and  non-interest expense, respectively, over
the year earlier period. 

     Interest Income.  Interest income increased $1.4 million to
$6.2 million in fiscal 1996 from $4.8 million in fiscal 1995
primarily as a result of an  increase in the volume of interest-
earning assets and, to a lesser extent, the average rates earned
on interest earning assets.  The average balance of  interest-
earning assets increased $15.1 million, or 24.6%, to $76.6
million in fiscal 1996 from $61.5 million  in  fiscal 1995
primarily due to an increase in the average balances of loans
resulting from increased loan originations and purchases.  The
average yield on interest earning assets increased from 7.77%
for 1995 to 8.16% in 1996.  

     Interest Expense.  Interest expense increased $1.1 million
to $3.7 million in fiscal 1996 from $2.6 million in fiscal 1995
due primarily to an increase in the volume of interest-bearing
liabilities and, to a lesser extent, the average rates paid on
interest-bearing liabilities.  The average balance of interest-
bearing liabilities increased $14.4 million from $52.0 million
in fiscal 1995 to $66.4 million in fiscal 1996 primarily as a
result of an increase in FHLB advances and to a lesser extent
NOW accounts, money market accounts, and certificate of deposit
accounts.  The average rates paid on interest-bearing
liabilities increased from 5.07% during fiscal 1995 to 5.60%
during fiscal 1996 due to an overall increase in rates paid to
attract deposits.  
<PAGE>
     Net Interest Income.  Net interest income increased
$385,000 to $2.5 million in fiscal 1996 as compared to $2.1
million in fiscal 1995.  The Company's average spread decreased
from 2.70% for the fiscal year ended June 30, 1995 to 2.56% for
the fiscal year ended June 30, 1996 due to the fact that rates
paid on interest costing liabilities increased more than yields
on interest earning assets.   Net interest margin decreased from
3.48% for the fiscal year ended June 30, 1995 to 3.30% for the
fiscal year ended June 30, 1996.  The
                              7
<PAGE>
<PAGE>
ratio of average interest-earning assets to average interest-
bearing liabilities decreased to 115.3% during  fiscal 1996 from
118.2% during fiscal 1995.

     Provision for Loan Losses.  A $249,000 provision for loan
losses  was made for fiscal 1996, as compared to no provision in
fiscal 1995.  The allowance for loan losses at June 30, 1996
increased $241,000 to $641,000 from $400,000 at June 30, 1995. 
This increase resulted from the $241,000 net addition to
provision for loan losses during the 1996 fiscal year. 
Management believes these increases were prudent due to the
level of non-performing assets at June 30, 1996 and the increase
in the loan portfolio.

     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) totaled  $962,000 or
1.15% of total assets at June 30, 1996 as compared to $14,000 at
June 30, 1995 or .02% of total assets.   The ratio of the
allowance for loan losses to total loans was 0.9% at June 30,
1996 as compared to 0.7% at June 30, 1995. 

     Non-interest Income.  Non-interest income increased by
$10,000 to $138,000 in fiscal 1996 from $128,000 in fiscal 1995. 
This increase was primarily due to $87,000 in interest on
refunds of prior years income taxes recognized in fiscal 1996,
which was partially offset by a $48,000 loss on investment
securities in 1996, as compared to a $36,000 gain in fiscal
1995.

     Non-interest Expense.  Non-interest expense for fiscal 1996
at $1.3 million  was unchanged from  fiscal 1995 levels.  

     Income Tax Expense.  Income tax expense was $184,000 in
fiscal 1996 compared to $316,000 in fiscal 1995, a decrease of
$132,000, or 41.8%.  This decrease was primarily due to a
$137,000 resolution of a tax contingency and $30,000 in income
tax credits on an investment in a low and moderate income multi-
family housing development.     

ASSET QUALITY

     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.  All loans
for which payments have been due and uncollected for a period in
excess of 90 days are placed on non-accrual status.  
     
     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 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. 
                              8
<PAGE>
<PAGE>
     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.

     Assets classified pursuant to the Office of Thrift
Supervision ("OTS") regulations and assets designated special
mention totaled $2.0 million at June 30,1997 as compared to $2.5
million at June 30, 1996.  The decrease in classified assets
reflects the changes in composition of  the non-performing and
other assets of concern described above.  At June 30, 1997, all
classified assets were included in non-performing assets or
other assets of concern.     
     
AVERAGE BALANCES, INTEREST RATES AND YIELDS

     The following table presents for the periods indicated the
total dollar amount of interest income from average interest-
earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, and the
resultant costs, expressed both in dollars and rates.  No tax
equivalent adjustments were made.  All average balances are
monthly average balances.  Interest on non-accruing loans has
been included in the table to the extent received.

<TABLE>
<CAPTION>
                                                  Year Ended June 30, 
                               ---------------------------------------------------------------------------------
                                             1997                        1996                     1995
                               ---------------------------------------------------------------------------------
                                 Average   Interest          Average   Interest         Average  Interest 
                               Outstanding  Earned/ Yield/ Outstanding  Earned/ Yield/Outstanding Earned/ Yield/
                                Balance      Paid    Rate    Balance     Paid    Rate    Balance   Paid   Rate
                               ---------------------------------------------------------------------------------
                                                             (Dollars in Thousands)
<S>                               <C>       <C>      <C>      <C>        <C>     <C>     <C>       <C>     <C>  
Interest-Earning Assets:                                             
 Interest-earning bank accounts   $ 2,955   $   90   3.05%    $ 2,641   $  122  4.61%   $ 1,320   $   58  4.39%
 Investments and other securities   3,244      211   6.50       5,078      325  6.40      6,461      384  5.94
 Mortgage-backed securities         3,256      241   7.40       3,660      272  7.44      4,074      303  7.44
 Loans receivable(1)               75,848    6,516   8.59      64,140    5,450  8.50     48,789    3,968  8.13
 FHLB stock                         1,159       81   6.99       1,046       76  7.26        832       65  7.81
                                  -------   ------           -------    ------          -------   ------
  Total interest-earning assets   $86,462   $7,139   8.26     $76,565   $6,245  8.16    $61,476   $4,778  7.77
                                  -------   ------           -------    ------          -------   ------
                                            
Interest-Bearing Liabilities:                                             
  Passbook accounts               $ 3,731   $   98   2.63     $ 3,504   $   88  2.51    $ 3,756   $   95  2.53
  NOW accounts                      4,455      183   4.11       2,005       64  3.18      1,598       34  2.12
  Money market accounts             6,952      328   4.72       4,399      214  4.86      1,776       67  3.77
  Certificates of deposit          41,228    2,319   5.62      37,764    2,179  5.77     36,011    1,883  5.23
  FHLB advances                    19,236    1,165   6.06      18,711    1,175  6.28      8,851      559  6.32
                                  -------   ------           -------    ------          -------   ------
   Total interest-bearing 
     liabilities                  $75,602   $4,093   5.41     $66,383   $3,720  5.60    $51,992   $2,638  5.07
                                  -------   ------           -------    ------          -------   ------
Net interest income                         $3,046                      $2,525                    $2,140
                                            ======                      ======                    ======
Net interest rate spread                             2.85%                       2.56%                     2.70%
                                            
Net earning assets                $10,860                    $10,182                    $ 9,484
                                  =======                    =======                    =======
Net interest margin                                  3.52%                       3.30%                     3.48%

Average interest-earning assets 
 to average interest-bearing 
 liabilities                                114.36%                     115.34%                   118.24%
                                            ======                      ======                    ====== 
<FN>
__________
(1)  Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.
</FN>
</TABLE>
                              9<PAGE>
<PAGE>
RATE/VOLUME ANALYSIS OF THE NET INTEREST INCOME
     
     The following schedule presents the dollar amount of
changes in interest income and interest expense for major
components of interest-earning assets and interest-bearing
liabilities.  It distinguishes between the increase related to
higher outstanding balances and that due to the levels and
volatility of interest rates.  For each category of interest-
earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume 
(i.e.,changes in volume multiplied by old rate) and (ii) changes in
rate (i.e., changes in rate multiplied by old volume).  For
purposes of this table, changes attributable to both rate and
volume, which cannot be segregated have been allocated
proportionately to the change due to volume and the change due
to rate.
<TABLE>
<CAPTION>
                                                   Year Ended June 30,
                                    -----------------------------------------------------
                                         1997 vs. 1996                1996 vs.1995
                                    -------------------------    ------------------------
                                      Increase                      Increase   
                                     (Decrease)                    (Decrease)
                                       Due to          Total         Due to        Total
                                    -------------    Increase    -------------   Increase
                                    Volume   Rate   (Decrease)   Volume   Rate  (Decrease)
                                    ------   ----   ----------   ------   ----  ----------
<S>                                 <C>     <C>      <C>         <C>     <C>      <C>
Interest-earning assets:                                             
 Interest-earning bank accounts    $   13    $(45)    $  (32)    $   61   $  3    $   64
 Investments and other securities    (119)      5       (114)       (87)    28       (59)
 Mortgage-backed securities           (30)     (1)       (31)       (31)     0       (31)
 Loans receivable                   1,009      57      1,066      1,295    187     1,482
 FHLB stock                             6      (1)         5         16     (5)       11
                                   ------    ----     ------     ------   ----    ------
   Total interest-earning assets   $  879    $ 15     $  894     $1,254   $213    $1,467
                                   ======    ====     ======     ======   ====    ======
Interest-bearing liabilities:                                             
 Passbook accounts                      6       4         10         (6)    (1)       (7)
 NOW accounts                          96      23        119         10     20        30
 Money market accounts                121      (7)       114        123     24       147
 Certificates of deposit              196     (56)       140         95    201       296
 FHLB advances                         32     (42)       (10)       619     (3)      616
                                   ------    ----     ------     ------   ----    ------
                                                 
   Total interest-bearing 
     liabilities                   $  451    $(78)    $  373     $  841   $241    $1,082
                                   ======    ====     ======     ======   ====    ======
Net interest income                                   $  521                      $  385
                                                      ======                      ======
</TABLE>

                              10<PAGE>
<PAGE>
     The following table sets forth the weighted average yields
on the Company's interest-earning assets, the weighted average
interest rates on interest-bearing liabilities and the interest
rate spread between weighted average yields and rates for the
Company at the dates indicated.  
<TABLE>
<CAPTION> 
                                                            At June 30,
                                                 -----------------------------
                                                  1997       1996       1995
                                                 ------     ------     ------
<S>                                              <C>        <C>        <C>
Weighted average yield on:
-------------------------
 Interest-earning bank accounts                   5.21%     4.89%      5.74%
 Investment and other securities                  6.53      6.51       6.01
 Mortgage-backed securities                       7.38      7.37       7.42
 Loans receivable                                 8.41      8.23       8.15
 FHLB stock                                       7.00      7.00       7.00

Combined weighted average yield on interest-
  earning assets                                  8.14      8.03       7.78

Weighted average rate paid on:
-----------------------------
 Passbook accounts                                2.57      2.57       2.57
 NOW Accounts                                     4.29      3.93       2.10
 Money market accounts                            4.76      4.79       4.88
 Certificates of deposit                          5.73      5.87       5.84
 FHLB advances liabilities                        6.12      5.98       6.34
                   
Combined weighted average rate paid on
  interest-bearing liabilities                    5.50      5.52       5.64
                   
Spread                                            2.64      2.51       2.14
</TABLE>

ASSET/LIABILITY MANAGEMENT

     The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap."  An asset or liability is said
to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period.  The interest
rate sensitivity gap is defined as the difference between the
amount of interest-earning assets anticipated, based upon
certain assumptions, to mature or reprice within a specific time
period and the amount of interest-bearing liabilities
anticipated, based upon certain assumptions, to mature or
reprice within that time period.  A gap is considered positive
when the amount of interest rate sensitive assets exceed the
amount of interest rate sensitive liabilities.  A gap is
considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive
assets.  During a period of rising interest rates, a negative
gap would tend to adversely affect operations while a positive
gap would tend to benefit operations.  During a period of
falling interest rates, a negative gap would tend to benefit
operations while a positive gap would tend to adversely affect
operations.

     Since the early 1980's, the Bank's asset/liability
management strategy has been directed toward reducing and
controlling the Bank's exposure to fluctuations in interest
rates.  In order to properly monitor interest rate risk, the
Board of Directors in 1990 created an Asset/Liability Committee. 
The committee is currently composed of the Chairman of the
Board, the  President, two Senior Vice Presidents, and
Commercial Loan Officer, which meet quarterly to review the
Bank's interest rate risk position.  The principal
responsibilities of this Committee are to assess the Bank's
asset/liability mix and recommend strategies to the Board that
will enhance income while managing the Bank's vulnerability to
changes in interest rates.
                              11<PAGE>
<PAGE>
     The Bank's asset/liability management strategy emphasizes
the origination or purchase of mortgages with adjustable rates. 
The Bank's ARM's adjust based upon various indices.  The Bank
monitors the mix of indices on its adjustable-rate assets and
seeks, consistent with market conditions and a degree of risk
deemed acceptable to management, to achieve a relative balance
in repricing characteristics of its assets and liabilities.  In
the future, the Bank intends, subject to market conditions, to
continue to stress the origination or purchase of adjustable-
rate mortgage loans, including commercial and multi-family real
estate loans.  In response to customer demand, however, the Bank
continues to originate and purchase for its loan portfolio
fixed-rate mortgages with terms not greater than 30 years. 

     As part of its asset/liability management strategy, the
Bank has also emphasized core deposits.  Consumer savings
accounts, demand accounts, money market deposit accounts and NOW
accounts amounted to $17.9 million, or 30% of the Bank's total
deposits, as of June 30, 1997.  Although at June 30, 1997
approximately 66.6% of the Bank's certificates of deposit were
scheduled to mature during the next year, management believes
that this reflects current consumer preference for short-term
investments as a result of the current interest rate
environment.  Over 65.4% and 10.9% of the Bank's total
certificates of deposit at June 30, 1997 had an original term of
more than one      and three years, respectively.  Based on its
experience, the Bank's certificates of deposit have been a
relatively stable source of long-term funds as such certificates
are generally renewed upon maturity since the Bank has
established long-term banking relationships with its customers. 
In addition, in recent years, the Bank has increased its use of
borrowings in an effort to maintain current spreads in a rising
rate environment and to reduce the short-term impact of
increases in interest rates.

     In managing its asset/liability mix, Grinnell Federal may,
at times, depending on the relationship between long- and short-
term interest rates, market conditions and consumer preference,
place greater emphasis on maximizing its net interest margin
than on better matching the interest rate sensitivity of its
assets and liabilities in an effort to improve its spread. 
Management believes that the increased net income resulting from
a mismatch in the maturity of its asset and liability portfolios
can provide high enough returns to justify the increased
vulnerability to sudden and unexpected increases in interest
rates.

                              12<PAGE>
<PAGE>
     The following table sets forth the repricing dates of the
Bank's interest-earning assets and interest-bearing liabilities
at June 30, 1997 and the Bank's interest rate sensitivity "gap",
which is defined as the amount by which assets repricing within
the respective periods exceed liabilities repricing within such
periods.  All prepayment and liability repricing assumptions are
those used by the FHLB of Des Moines at such date for the
purpose of assessing the interest rate sensitivity of member
thrift institutions and are set forth in detail  following the
table. 
<TABLE>
<CAPTION>
                                                  Maturing or Repricing
                                      ---------------------------------------------------
                                      Less than   6-12  Over 1-3 Over 3-5   Over
                                      6-Months   Months   Years    Years   5 Years  Total 
                                      ---------  ------ -------- --------- -------  -----
                                                  (Dollars in Thousands)
<S>                                    <C>       <C>     <C>      <C>      <C>     <C>
Fixed-rate one- to four-family loans
 (including mortgage-backed 
 securities)                           $ 3,017  $ 2,739 $ 8,656   $ 5,911 $ 9,768 $30,091
Adjustable-rate one- to four-family 
 loans                                  10,999    9,458   3,030       747     ---  24,234
Fixed- and adjustable-rate construction
 loans, multi-family, commercial real
 estate and second mortgages            12,614    9,314     998       839   2,204  25,969
Commercial business loans                  630       95     342       103     ---   1,170
Consumer loans                             238      230     575       ---     ---   1,043
Investment securities and other          5,393      ---     ---     1,498     ---   6,891
                                       -------  ------- -------   -------  ------ -------
    Total interest-earning assets       32,891   21,836  13,601     9,098  11,972  89,398
                                       -------  ------- -------   -------  ------ -------

Money market                             8,056      ---     ---       ---     ---   8,056
Passbook accounts                          308      281     894       616   1,364   3,463
Demand and NOW accounts                  1,057      839   1,946       773     508   5,123
Certificates                            16,408   11,334  12,756     1,162     ---  41,660
FHLB advances & Other Borrowings         1,500    4,500   5,500     8,662   1,011  21,173
                                       -------  ------- -------   -------  ------ -------
   Total interest-bearing liabilities   27,329   16,954  21,096    11,213   2,883  79,475
                                       -------  ------- -------   -------  ------ -------
Interest-earning assets less interest-
  bearing liabilities                  $ 5,562  $ 4,882 $(7,495)  $(2,115) $9,089 $ 9,923
                                       =======  ======= =======   =======  ====== =======
Cumulative interest rate sensitivity 
  gap                                  $ 5,562  $10,444 $ 2,949   $   834  $9,923 $ 9,923
                                       =======  ======= =======   =======  ====== =======

Cumulative interest rate gap as a 
  percentage of assets                    6.14%   11.53%   3.26%     0.92%  10.96%  10.96%
                                       =======  ======= =======   =======  ====== =======
</TABLE>
     In preparing the table above, it has been assumed, with the assumptions
used by the FHLB of Des Moines at June 30, 1997, that (i) adjustable-rate
mortgage loans on one- to four-family residential properties prepay at the
rate of 8% per year; (ii) first mortgage loans on residential properties of
five or more units and non-residential properties will prepay at the rate of
8% per year; (iii) fixed-rate construction loans, commercial loans and
consumer loans are assumed to prepay at annual rate of 5%, 8% and 8%,
respectively; (iv) one- to four-family fixed-rate mortgage loans and mortgage-
backed securities will prepay annually as follows:
<TABLE>
<CAPTION>
                                              Annual
                                         Prepayment Rate
                                      ---------------------
                                      15-year       30-year
                                      -------       -------
<S>                                   <C>           <C>
Less than 8.00%                         7.00%        6.00%
8.00% to 8.99%                         13.00        14.00
9.00% to 9.99%                         16.00        18.00
10.00% to 10.99%                       12.00        14.00
11.00% or more                         11.00        12.00
</TABLE>
                              13<PAGE>
<PAGE>
     In addition, it is assumed that fixed maturity deposits are not withdrawn
prior to maturity, and that passbook accounts and NOW accounts reprice at
annual rates of 17% and 37%, respectively.  The effect of these assumptions is
to quantify the dollar amount of items that are interest-sensitive and can be
repriced within each of the periods specified.  Such repricing can occur in
one of three ways:  (1) the rate of interest to be paid on an asset or
liability may adjust periodically on the basis of an index; (2) an asset or
liability such as a mortgage loan may amortize, permitting reinvestment of
cash flows at the then-prevailing interest rates;  or (3) an asset or
liability may mature, at which time the proceeds can be reinvested at current
market rates.

     Certain shortcomings are inherent in the method of analysis presented in
the foregoing tables.  For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in
different degrees to changes in market interest rates.  Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates.  Additionally, certain assets, such as ARM
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset.  Further, in the event of change in
interest rates, prepayments and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table.  Finally, the
ability of many borrowers to service their debt may decrease in the event of
an interest rate increase.

     In addition, the previous table does not necessarily indicate the impact
of general interest rate movement on the Bank's net interest income because
the repricing of certain categories of assets and liabilities is subject to
competitive and other pressures beyond the Bank's control.  As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may, in fact, mature or reprice at different times and
at different volumes.

     The following table, as of June 30, 1997, is an analysis of the Bank's
interest rate risk as measured by changes in the Bank's market value of
portfolio equity ("MVPE"), the market value of total assets less the market
value of total liabilities, for instantaneous and sustained parallel shifts in
the yield curve, in 100 basis point increments, up and down 300 basis points
and compared to Board policy limits.  Assumptions used in calculating the
amounts in this table are FHLB assumptions.
<TABLE>
<CAPTION>

              Change in                         At June 30, 1997
            Interest Rate      Board Limit   ----------------------
           (Basis Points)        % Change    $Change       % Change
           --------------      -----------   -------       --------
                              (Dollars in thousands)
           <S>                 <C>           <C>           <C>
              +300              (35)%        $(1,713)      (17.7)%
              +200              (25)          (1,013)      (10.5)
              +100              (15)            (358)       (3.7)
                 0                0              ---         ---
              -100               10              115         1.2
              -200               15              (68)       (0.7)
              -300               20             (121)       (1.2)
</TABLE>
     As indicated in the table above, management has structured its assets and
liabilities to minimize its exposure to interest rate risk.  In the event of a
200 basis point change in interest rates, the Bank would experience a 0.7%
decrease in MVPE in a declining rate environment and a 10.5% decrease in a
rising rate environment.

     In evaluating the Bank's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing
table must be considered.  For example, although certain assets and
                              14<PAGE>
<PAGE>
liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates.  Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates.  Further, in the event of a
change in interest rates, prepayments and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table.  Finally,
the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase.  As a result, the actual effect of changing
interest rates may differ from that presented in the foregoing table.

LIQUIDITY AND CAPITAL RESOURCES

     The OTS requires minimum levels of liquid assets.  OTS regulations
presently require Grinnell Federal to maintain an average daily balance of
liquid assets (United State Treasury, federal agency and other investments
having maturities of five years or less) equal to at least 5.0% of the sum of
its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less.  Such requirements may be changed from time to
time by the OTS to reflect changing economic conditions.  Such investments are
intended to provide a source of relatively liquid funds upon which Grinnell
Federal may rely, if necessary, to fund deposit withdrawals and other
short-term funding needs.  The Bank has historically maintained its liquidity
ratio in excess of that required.  At June 30, 1997, the amount of the Bank's
liquidity was $4.6 million, resulting in a liquidity ratio of 7.3%. 

     Liquidity management is both a daily and long-term responsibility of
management.  The Company adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-bearing deposits and (iv) the
objectives of its asset/liability management program.  Excess liquidity
generally is invested in interest-bearing overnight deposits and other short-
term government and agency obligations.  If the Bank requires additional
funds, beyond its internal ability to generate, it has additional borrowing
capacity with the FHLB of Des Moines and collateral eligible for repurchase
agreements.

     The Company's liquidity, represented by cash and cash equivalents, is a
combination of its operating, investing and financing activities.  These
activities are summarized below for the years ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>

                                                      Year Ended June 30,
                                                      -------------------
                                                       1997         1996 
                                                      ------       ------
                                                         (In Thousands)
<S>                                                   <C>          <C>
Net income                                            $   871     $    895
Adjustments to reconcile net income to net
  cash provided by operating activities                    39          343 
                                                      -------     -------- 
Net cash provided by operating activities                 910        1,238 
Net cash provided by (used in) investing activities    (6,367)     (14,348)
Net cash provided by financing activities               7,829       11,274
                                                      -------     -------- 
Net increase (decrease) in cash and cash equivalents    2,372       (1,836)
Cash and cash equivalents at beginning of year          2,271        4,107
                                                      -------     -------- 
Cash and cash equivalents at end of year              $ 4,643     $  2,271
                                                      =======     ========
</TABLE> 
     The Company principally uses its liquidity resources to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain
liquidity, and to meet operating expenses.  At June 30, 1997, there were loans
in process totaling $1.1 
                              15<PAGE>
<PAGE>
million, loan commitments totaling $893,000 and commitments for unused line of
credit loans totaling $529,000.  The Company anticipates that it will have
sufficient funds available to meet current commitments. 

     Certificates of deposit scheduled to mature in a year or less at June 30,
1997 totaled $27.8 million.  Based on historical experience, management
believes that a significant portion of such deposits will remain with the
Bank; however, there can be no assurance that the Bank can retain all such
deposits.

     Management believes that loan repayments and other sources of funds will
be adequate to meet and exceed the Bank's foreseeable short- and long-term
liquidity needs.

     The primary investing activities of the Company include investing in
loans, mortgage-backed securities, agency  bonds, Treasury Securities, 
corporate stocks and mutual funds.  At June 30, 1997, these assets accounted
for over 92% of the Company's total assets.  The purchases are funded
primarily from loan repayments, maturities of securities, FHLB advances and
increases in deposits and net income.

     The Bank has utilized borrowing to offset reductions in other sources of
funds and to assist in asset/liability management objectives.  At June 30,
1997, the Bank had outstanding borrowing of $21.0 million from the FHLB of Des
Moines.

CAPITAL REQUIREMENTS

     OTS regulations establish three capital requirements for savings banks. 
The following table sets forth Grinnell Federal's compliance with its capital
requirements at June 30, 1997.
<TABLE>
<CAPTION>

                                                      Year Ended June 30,
                                                      --------------------
                                                      Amount       Percent
                                                      ------       -------
                                                      (Dollars in Thousands)
<S>                                                   <C>          <C>
Tangible Capital:      
   Capital level                                      $8,880       9.80%
   Requirement                                         1,360       1.50
                                                      ------       ----
   Excess                                             $7,520       8.30%
                                                      ======       ====
Core Capital:
   Capital level(2)                                   $8,880       9.80%
   Requirement                                         2,719       3.00
                                                      ------       ----
   Excess                                             $6,161       6.80%
                                                      ======       ====
              
Fully Phased-In Risk-Based Capital:         
   Capital level(3)                                   $9,526      18.31%
   Requirement                                         4,162       8.00
                                                      ------      -----
   Excess                                             $5,364      10.31%
                                                      ======      =====
<FN>
_____________          
(1) Tangible and core capital levels are shown as a percentage of adjusted
    total assets; risk-based capital levels are shown as a percentage of
    risk-weighted assets.

(2) Under current regulatory capital regulations, the Bank must have:  (a)
    core capital equal to 3% of adjusted total assets,(b) tangible capital
    equal to 1.5% of adjusted assets, and (c) total capital equal to 8.0% of
    risk-weighted assets. Risk-weighted assets are comprised of both on- and
    off-balance sheet items and are assigned a risk weight ranging from 0-100%
    based on their relative risk.                        

(3) Includes $646,000 of general valuation allowances.
</FN>
</TABLE>
                              16<PAGE>
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES

     The financial statements and related data presented herein
have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial
position and results of operations in terms of historical
dollars without considering changes in the relative purchasing
power of money over time because of inflation.

     Unlike most industrial companies, virtually all of the
assets and liabilities of the Company are monetary in nature. 
As a result, interest rates have a more significant impact on
the Company's performance than the effects of general levels of
inflation.  Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and
services.  In the present interest rate environment, the
liquidity, maturity structure and quality of the Company's
assets and liabilities are important factors in the maintenance
of acceptable performance levels.

EFFECT OF NEW ACCOUNTING STANDARDS

The Financial Accounting Standard Board issued in February,
1997, Statement No.128, Earnings Per Share.  The Financial
Accounting Standard Board has approved, effective for years
beginning after December 15, 1997, Statement No. 129, Disclosure
of Information About Capital Structure, Statement No. 130,
Reporting Comprehensive Income and Statement No. 131, Disclosure
About Segments of an Enterprise and Related Information.  FASB
Statements No.128, 129, 130, and 131 are expected to have no
impact on the Company's financial statements when adopted.  For
additional information, see Note 14 of the Notes to Consolidated
Financial Statements.     

RECENT DEVELOPMENTS - PENDING FINANCIAL SERVICES MODERNIZATION
LEGISLATION

     Legislation currently under consideration by Congress would
repeal the federal thrift charter and require federal
associations like the Bank to convert to national banks two
years after the enactment of the bill.  The bill, in its current
form, would permit federal thrifts that converted to national
banks to exercise any authority which they were legally entitled
to exercise immediately prior to such conversion and would not
be required to divest any branches.  Further, these institutions
could continue to branch in any state in which they were located
to the same extent as national banks.  Unitary savings and loan
holding companies, like the Company, could continue to exercise
any powers they had prior to their subsidiary becoming a bank by
operation of law as long as they did not acquire another bank. 
Powers of those unitary savings and loan holding companies that
were grandfathered, however, could not be transferred to another
company which acquires control of the unitary holding company
after the effective date of the law.  There can be no assurance
that this legislation will be passed in its current form.  At
this time, the Company is unable to predict whether such
legislation would significantly impact its operation.     

                       DIVIDENDS

     The Company declared  $0.215 in dividends during fiscal
1997, including an increase to a $0.065 quarterly cash dividend
on June 20, 1997, payable on  July 25, 1997 to stockholders of
record on July 11, 1997.  The Company intends to continue to pay
quarterly cash dividends in the future, dependent on the results
of operations and financial condition of the Bank, tax
considerations, industry standards, economic conditions, general
business practices and other factors.  The Company's ability to
pay dividends is dependent on the dividend payments it receives
from its subsidiary, the Bank, which are subject to regulations
and the Bank's continued compliance with all regulatory capital
requirements.       
                              17<PAGE>
<PAGE>


                   McGLADREY & PULLEN, LLP
                   -----------------------
        Certified Public Accountants and Consultants




                 INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
GFS Bancorp, Inc.
Grinnell, Iowa

We have audited the accompanying consolidated balance sheets of
GFS Bancorp, Inc. and subsidiaries as of June 30, 1997  and 
1996, and the related consolidated  statements of income, 
stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The
consolidated balance sheet of GFS Bancorp,  Inc. and 
subsidiaries as of June 30, 1995 and the related consolidated
statements of income, stockholders' equity and cash flows for
the year ended June 30, 1995 were audited by other auditors
whose report, dated July 19, 1995, expressed an unqualified
opinion on those statements.

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

In our opinion, the 1997 and 1996 consolidated financial
statements referred to above present fairly, in all material 
respects, the financial position of GFS Bancorp, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

Des Moines, Iowa
July 30, 1997

                              18<PAGE>
<PAGE>

           
         Vroman, McGowen, Hurst, Clark & Smith, P.C.
         -------------------------------------------
      Certified Public Accountants and Business Advisors


                    INDEPENDENT AUDITOR'S REPORT
                    ----------------------------

Board of Directors
GFS Bancorp, Inc.
Grinnell, Iowa

We have audited the accompanying consolidated balance sheets of
GFS Bancorp, Inc. and subsidiary as of June 30, 1995 and 1994,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended June 30,
1995, 1994 and 1993.  These financial statements are the
responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of GFS Bancorp, Inc. and its
subsidiary as of June 30, 1995 and 1994 and the consolidated
results of their operations and their cash flows for the years
ended June 30, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.



         /s/ Vroman, McGowen, Hurst, Clark & Smith, P.C.


Des Moines, Iowa
July 19, 1995

                              18.1
<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 and 1996
<TABLE>
<CAPTION>


ASSETS                                                   1997            1996
------------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Cash and amounts due from depository institutions:    
   Noninterest bearing                                 $   334,287    $   222,461
Interest bearing                                         4,308,632   2,048,671
Securities available for sale (Note 2)                   1,909,490   1,672,763
Securities held to maturity (Note 2)                     1,497,785   1,582,188
Mortgage-backed securities held to maturity (Note 2)     3,145,696      3,435,254
Stock in Federal Home Loan Bank (Note 7)                 1,159,000   1,159,000
Loans receivable, net (Notes 3 and 7)                   78,474,914     71,772,896
Real estate acquired in settlement of loans, net                --        226,616
Premises and equipment, net (Note 4)                       223,236        234,415
Accrued interest receivable (Note 5)                       520,661        439,392
Other assets                                               489,552     510,960
                                                       -----------    -----------
      TOTAL ASSETS                                     $92,063,253    $83,304,616
                                                       ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY   

LIABILITIES   
Deposits (Note 6):
  Demand                                               $ 6,273,344    $ 4,651,689
  Savings and money market                              11,617,756     10,140,487
  Certificates of deposit                               41,659,676     38,330,207
                                                       -----------    -----------
      TOTAL DEPOSITS                                    59,550,776     53,122,383
                                                       ===========    ===========

Advances from Federal Home Loan Bank (Note 7)           20,961,466     19,317,997
Advances from borrowers for taxes and insurance            713,593        432,970
Income taxes (Note 8): 
  Current                                                       --         90,994
  Deferred                                                  73,500          8,000
Dividends payable                                           64,235         51,460
Other liabilities                                           162,505        335,921
                                                       -----------    -----------
      TOTAL LIABILITIES                                 81,526,075     73,359,725
                                                       -----------    -----------
COMMITMENTS AND CONTINGENCIES (NOTE 14)     

STOCKHOLDERS' EQUITY (Note 10)    
  Preferred stock, $.01 par value, authorized 500,000
    shares, issued none                                          -              -
  Common stock, $.01 par value, authorized 
    2,000,000 shares; issued 1997 1,100,720 shares; 
    1996 1,100,320 shares                                   11,007          5,501
Additional paid-in capital                               5,202,310      5,138,066
Retained earnings, substantially restricted (Note 8)     6,523,527      5,856,546
Less: (Note 9)     
  Unearned employee stock ownership plan                  (197,631)      (259,781)
  Unearned recognition and retention plan                   (7,225)       (32,659)
  Treasury stock, at cost 1997 112,478 shares; 
    1996 81,120 shares                                  (1,055,302)      (728,800)
  Unrealized gain (loss) on securities available 
    for sale, net (Note 2)                                  60,492        (33,982)
                                                       -----------    -----------
      TOTAL STOCKHOLDERS' EQUITY                        10,537,178      9,944,891
                                                       -----------    -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $92,063,253    $83,304,616
                                                       ===========    ===========
</TABLE>
See Notes to Consolidated Financial Statements.
                              19<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                1997        1996        1995
------------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>
Interest income:   
  Loans receivable                              $6,515,512  $5,449,941 $3,968,174
  Mortgage-backed securities                       241,445     272,367    303,401
  Other securities and interest-bearing 
    cash accounts                                  382,413     522,332    506,547
                                                ----------  ---------- ----------
                                                 7,139,370   6,244,640  4,778,122
Interest expense:  
  Deposits (Note 6)                              2,927,257   2,545,116  2,078,795
  Advances from Federal Home Loan Bank           1,165,397   1,174,763    559,007
                                                ----------  ---------- ----------
                                                 4,092,654   3,719,879  2,637,802
                                                ----------  ---------- ----------
      NET INTEREST INCOME                        3,046,716   2,524,761  2,140,320

Provision for loan losses  (Note 3)                121,000     249,000         --
                                                ----------  ---------- ----------
      NET INTEREST INCOME AFTER PROVISION
        FOR LOAN LOSSES                          2,925,716   2,275,761  2,140,320
                                                ----------  ---------- ----------

Noninterest income:    
  Gain (loss) on sale of securities 
    available for sale (Note 2)                     (2,525)    (47,750)    36,250
  Real estate operations                                --          --     10,036
  Gain on sale of real estate                       (3,623)         --     11,388
  Other                                            149,100     186,175     69,876
                                                ----------  ---------- ----------
                                                   150,198     138,425    127,550
                                                ----------  ---------- ----------
Noninterest expenses:  
  Salaries and employee benefits (Note 9)          917,752     791,912    756,480
  Real estate operations                             4,043         214     11,068
  Occupancy expenses                                86,157      73,457     59,124
  Federal deposit insurance premiums             71,553     105,530     97,078
  Federal deposit insurance special assessment     287,568          --         --
  Data processing services                          75,094      63,213     64,368
  Other                                            385,409     301,503    333,216
                                                ----------  ---------- ----------
                                                 1,827,576   1,335,829  1,321,334
                                                ----------  ---------- ----------
      INCOME BEFORE PROVISION FOR INCOME TAXES   1,248,338   1,078,357    946,536

Provision for income taxes  (Note 8)               377,180     183,517    315,650
                                                ----------  ---------- ----------
      NET INCOME                                $  871,158  $  894,840 $  630,886
                                                ==========  ========== ==========
Earnings per common share                       $     0.85  $     0.86 $     0.60
                                                ==========  ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
                              20<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                             Common
                                                   Additional                 Stock
                                      Common        Paid-in      Retained   Acquired by
                                       Stock        Capital      Earnings       ESOP
------------------------------------------------------------------------------------------
<S>                                   <C>           <C>         <C>         <C>
Balance, June 30, 1994                $ 5,497      $5,045,663   $4,526,773  $(392,971)
  Net income                               --              --      630,886         --
  Dividends on common stock, $.15
    per share                              --              --      (40,592)        --
  ESOP common stock released for 
    allocation                             --          30,065           --     67,960
  Amortization of RRP contributions        --              --           --         --
  Purchase of 17,000 shares of 
    treasury stock                         --              --           --         --
  Net change in unrealized (loss) on
    securities available for sale, net
    (Note 2)                               --              --           --         --
                                      -----------------------------------------------
Balance, June 30, 1995                  5,497       5,075,728    5,117,067   (325,011)
  Net income                               --              --      894,840         --
  Dividends on common stock, $.65 per
    share                                  --              --     (155,361)        --
  ESOP common stock released for 
    allocation                             --          59,442           --     65,230
  Amortization of RRP contributions        --              --           --         --
  Purchase of 66,024 shares of treasury
    stock                                  --              --           --         --
  Treasury stock reissued to fund stock
    options exercised (1,904 shares)
    (Note 9)                               --          (5,446)          --         --
  Issuance of common stock (856 RRP
    shares)                                 4           8,342           --         --
  Net change in unrealized (loss) on 
    securities available for sale, 
    net (Note 2)                           --              --           --         --
                                      -----------------------------------------------
Balance, June 30, 1996                  5,501       5,138,066    5,856,546   (259,781)

  Net income
  Dividends on common stock, $.215 
    per share                              --              --      871,158         --
  ESOP common stock released for
    allocation                             --              --     (204,177)        --
  Amortization of RRP contributions        --          75,813           --     62,150
  Purchase of 33,262 shares of 
    treasury stock                         --              --           --         --
  Treasury stock reissued to fund
    stock options exercised (1,904
    shares) (Note 9)                       --          (8,063)          --         --
  Additional shares issued in two-for-
    one stock split effected in the 
    form of a stock dividend            5,502          (5,502)          --         --
  Common stock issued to fund stock
    options exercised (400 shares)
    (Note 9)                                4           1,996           --         --
  Net change in unrealized gain (loss)
    on securities available for
    sale, net (Note 2)                     --              --           --         --
                                      -----------------------------------------------
BALANCE, JUNE 30, 1997                $11,007      $5,202,310   $6,523,527  $(197,631)
                                      ===============================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                               Unrealized
                                      Common                  Gain (Loss) on
                                       Stock                    Securities
                                    Acquired by   Treasury    Available for
                                        RRP        Stock       Sale, Net        Total
------------------------------------------------------------------------------------------
<S>                                  <C>           <C>         <C>         <C>
Balance, June 30, 1994              $(158,712)    $        --  $(214,822)  $ 8,811,428
  Net income                               --              --         --       630,886
  Dividends on common stock, $.15
    per share                              --              --         --       (40,592)
  ESOP common stock released for 
    allocation                             --              --         --        98,025
  Amortization of RRP contributions    86,910              --         --        86,910
  Purchase of 17,000 shares of 
    treasury stock                         --        (131,313)        --      (131,313)
  Net change in unrealized (loss) on
    securities available for sale, net
    (Note 2)                               --              --     84,243        84,243
                                     -------------------------------------------------
Balance, June 30, 1995                (71,802)       (131,313)  (130,579)    9,539,587
  Net income                               --              --         --       894,840
  Dividends on common stock, $.65 per
    share                                  --              --         --      (155,361)
  ESOP common stock released for 
    allocation                             --              --         --       124,672
  Amortization of RRP contributions    47,489              --         --        47,489
  Purchase of 66,024 shares of treasury
    stock                                  --        (612,453)        --      (612,453)
  Treasury stock reissued to fund stock
    options exercised (1,904 shares)       --          14,966         --         9,520
    (Note 9)                          
  Issuance of common stock (856 RRP    (8,346)             --         --            --
    shares)                           
  Net change in unrealized (loss) on 
    securities available for sale, 
    net (Note 2)                           --              --     96,597        96,597
                                      ------------------------------------------------
Balance, June 30, 1996                (32,659)       (728,800)   (33,982)    9,944,891

  Net income                               --              --         --       871,158
  Dividends on common stock, $.215 
    per share                              --              --         --      (204,177)
  ESOP common stock released for
    allocation                             --              --         --       137,963
  Amortization of RRP contributions    25,434              --         --        25,434
  Purchase of 33,262 shares of 
    treasury stock                         --        (344,085)        --      (344,085)
  Treasury stock reissued to fund
    stock options exercised (1,904
    shares) (Note 9)                       --          17,583         --         9,520
  Additional shares issued in two-for-
    one stock split effected in the 
    form of a stock dividend               --              --         --            --
  Common stock issued to fund stock
    options exercised (400 shares)
    (Note 9)                               --              --         --         2,000
  Net change in unrealized gain (loss)
    on securities available for
    sale, net (Note 2)                     --              --     94,474        94,474
                                      ------------------------------------------------
Balance, June 30, 1997                $(7,225)    $(1,055,302)   $60,492    10,537,178
                                      ================================================
</TABLE>
See Notes to Consolidated Financial Statements.
                              21    <PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                              1997          1996         1995
------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                $    871,158  $    894,840  $    630,886
Adjustments to reconcile net income to net 
  cash provided by operating activities:    
  Depreciation                                  37,235        30,396        19,291
  (Gain) loss on sale of securities available
    for sale                                     2,525        47,750       (36,250)
  (Gain) on sale of real estate                 (3,624)           --       (11,388)
  Stock dividend on FHLB stock                    --       (20,800)           --
  ESOP and RRP expense                         163,397       172,161       184,935
  Deferred loan fees, net                       28,762        40,201        67,087
  Provision for loan losses                    121,000       249,000            --
  Purchases of loans for resale          (26,875,167)   (9,299,768)           --
  Proceeds from the sale of loans           26,875,167     9,299,768            --
  Deferred taxes                                14,000       (61,000)      (12,935)
Change in:    
  Accrued interest receivable                  (81,269)     (121,142)      (98,714)
  Other assets                                  21,408         7,663       (21,336)
  Income taxes payable                         (90,994)       73,993        17,001
  Other liabilities                           (173,416)      (74,853)      185,521
                                          ------------   -----------    ----------
      NET CASH PROVIDED BY OPERATING 
        ACTIVITIES                             910,182     1,238,209       924,098
                                          ------------   -----------    ----------
CASH FLOWS FROM INVESTING ACTIVITIES   
  Maturity of securities held to maturity         84,403     1,551,800     1,490,000
  Maturity of securities available for sale         --       150,000       225,000
  Proceeds from sales of securities    
    available for sale                         147,425     2,912,584       113,750
  Purchase of securities held to maturity             --    (1,582,188)     (994,769)
  Purchase of securities available for sale   (240,703)     (181,500)     (101,610)
  Purchase of FHLB stock                            --      (306,000)           --
  Principal payments received on mortgage-
    backed securities                          289,558       515,135       286,986
  Net (increase) decrease in loans 
    outstanding                              1,705,318    (3,699,752)      367,469
  Purchase of loans to be held in portfolio (8,557,098)  (13,589,856)  (11,751,736)
  Proceeds from sale of real estate            230,240            --       234,778
  Purchase of premises and equipment           (26,056)      (68,541)      (85,369)
  Investment in other assets                        --       (50,000)     (250,000)
                                          ------------   -----------    ----------
      NET CASH (USED BY) INVESTING 
        ACTIVITIES                          (6,366,913)  (14,348,318)  (10,465,501)
                                          ------------   -----------    ----------
</TABLE>
                              (Continued)
                                 22<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                              1997          1996         1995
------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>
CASH FLOWS FROM FINANCING ACTIVITIES   
  Net increase in deposits              $  6,428,393  $ 7,040,438  $ 4,066,421
  Advances from the Federal Home Loan
    Bank                                  13,500,000    9,500,000   15,600,000
  Repayment of advances from the 
    Federal Home Loan Bank               (11,856,531)  (4,759,955)  (6,892,025)
  Net increase in advances from 
    borrowers for taxes and insurance        280,623      240,838       37,790
  Proceeds from the issuance of common 
    stock for stock options exercised          2,000           --           --
  Net proceeds from reissuance of treasury 
    stock                                      9,520        9,520           --
  Purchase of treasury stock                (344,085)    (612,453)    (131,313)
  Dividends paid                            (191,402)    (144,493)          --
                                        ------------  -----------  -----------
      NET CASH PROVIDED BY FINANCING 
        ACTIVITIES                         7,828,518   11,273,895   12,680,873
                                        ------------  -----------  -----------
      NET INCREASE (DECREASE) IN CASH
        AND CASH EQUIVALENTS               2,371,787   (1,836,214)   3,139,470

CASH AND CASH EQUIVALENTS    
  Beginning                                2,271,132    4,107,346      967,876
                                        ------------  -----------  -----------
  End                                   $  4,642,919  $ 2,271,132  $ 4,107,346
                                        ============  ===========  ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW  
  INFORMATION 
  Cash payments for:   
    Income taxes                        $    454,174  $   170,523  $   323,000
    Interest on deposits and advances
      from Federal Home Loan Bank          4,093,029    3,718,737    2,637,802

SUPPLEMENTAL SCHEDULE OF NONCASH  
  INVESTING AND FINANCING ACTIVITIES   
  Real estate acquired in settlement 
    of loans                            $           --  $   226,616  $        --
</TABLE>
See Notes to Consolidated Financial Statements.
                              23<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business:  GFS Bancorp, Inc. (the Company) located in Grinnell,
Iowa, owns 100% of the outstanding capital stock issued by
Grinnell Federal Savings Bank (the Bank).  The only significant
assets of the Company are investment securities and stock of the
Bank. Its business consists primarily of the operation of the
Bank.

The Bank provides a full range of banking services to individual
and corporate customers from its office located in Grinnell,
Iowa. The Bank's wholly-owned subsidiary, Grinnell Service
Corporation, had no significant operations during 1997, 1996 or
1995.

Principles of consolidation:  The consolidated financial
statements include the accounts of GFS Bancorp, Inc., Grinnell
Federal Savings Bank and its wholly-owned subsidiary, Grinnell
Service Corporation.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

Accounting estimates and assumptions:  The consolidated
financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and
liabilities as of the date of the financial statements and
revenues and expenses for the period. Actual results could
differ from those estimates.

Securities:  Securities which management has the intent and the
Company has the ability to hold to maturity are carried at cost,
adjusted for purchase premiums or discounts. Purchase premiums
or discounts are recognized in interest income using the
interest method over the period to maturity.

Securities to be held for indefinite periods of time, including
debt securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk, the need
to increase regulatory capital or other similar factors, are
classified as available for sale. Securities available for sale
are carried at fair value. Unrealized gains or losses, net of
the related deferred tax effect, are reported as increases or
decreases in stockholders' equity. Realized gains and losses are
determined using the specific identification method of specific
securities sold and are included in earnings.

Loans receivable:  Loans are stated at unpaid principal
balances, less the allowance for loan losses, deferred loan
origination fees and discounts. 
                                 24<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

A valuation allowance is provided for estimated losses on loans
when a probable and reasonably estimable loss or decline in
value occurs. Major loans are reviewed periodically to determine
potential problems at an early date. The Company's experience
has shown that foreclosures on loans can result in some loss.
Therefore, in addition to an allowance for specific loans, the
Company makes a provision for losses based in part on experience
and part on prevailing market conditions. Additions to the
allowance are charged to earnings. Although management uses the
best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are
significant changes in economic conditions.  Impaired loans are
measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's desirable market price or the
fair value of the collateral if the loan is collateral
dependent. A loan is impaired when it is probable the creditor
will be unable to collect all principal and interest payments
due in accordance with the terms of the loan agreement.

Uncollectible interest on loans that are contractually past due
is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established
by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the
extent that cash payments are received until, in management's
judgment, the borrower's ability to make periodic interest and
principal payments returns to normal, in which case the loan is
returned to accrual status. 

Real estate acquired in settlement of loans:  Real estate
acquired in the settlement of loans, or where the loan is
in-substance foreclosed, is initially recorded at the lower of
fair value (less estimated costs to sell the real estate) or the
loan balance. Costs relating to improvement of the property are
capitalized, whereas costs relating to the holding of the
property are expensed. Valuation allowances are established and
adjusted periodically by management if the carrying value of the
property exceeds its fair value, less estimated costs to sell
the property.

Premises and equipment:  Premises and equipment are carried at
cost, less accumulated depreciation. Buildings and furniture,
fixtures and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets, which
range from 5 to 50 years.

Income taxes:  Deferred taxes are provided on an asset and
liability method whereby deferred tax assets are recognized for
deductible temporary differences, and operating loss or tax
credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the
differences between the amount of assets and liabilities
recorded for income tax and financial reporting purposes.
Deferred tax assets are reduced by a valuation allowance when
management determines that it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.

The Company and its wholly-owned subsidiary file a consolidated
federal income tax return and separate state returns.
                                 25<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

Earnings per share:  Earnings per share for the years ended June
30, 1997, 1996 and 1995 is based on the weighted average number
of shares outstanding during the period, plus the shares that
would be issued assuming the conversion of dilutive stock
options.  The weighted average number of common and common stock
equivalents for the years ended June 30, 1997, 1996 and 1995 was
1,030,266, 1,037,930 and 1,048,722 shares, respectively. The
amount set forth above includes restricted stock issued in
accordance with the recognition and retention plan established
by the Company. In addition, in accordance with American
Institute of Certified Public Accountants Accounting Standards
Division Statement of Position 93-6 on "Employers Accounting for
Employee Stock Ownership Plans," ESOP shares that have not been
committed to be released are not considered outstanding for the
purpose of computing earnings per share.

Common stock split:  On April 11, 1997, the Board of Directors
declared a two-for-one stock split on the Company's common stock
effected in the form of a stock dividend to holders of record on
April 25, 1997.  Common stock issued and additional paid-in
capital as of June 30, 1996 have been restated to reflect this
split.

All share and per share data, including stock option
information, is stated to reflect the split.

Stock option plan:  In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes
a fair value based method for financial accounting and reporting
for stock-based employee compensation plans and for transactions
in which an entity issues its equity instruments to acquire
goods and services from nonemployees. However, the new standard
allows compensation to continue to be measured by using the
intrinsic value based method of accounting prescribed by
Accounting Principle Board opinion (APB) No. 25, "Accounting for
Stock Issued to Employees," but requires expanded disclosures.
The Company has elected to apply the intrinsic value based
method of accounting for stock options issued to employees.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay
to acquire the stock.

Fair value of financial instruments:  Financial Accounting
Standards Board (FASB) Statement No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair
value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
                                 26<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments:

Cash and amounts due from depositing institutions:  The carrying
amount reported in the consolidated balance sheets for cash
approximates fair value.

Securities:  Fair values for all securities are based on quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.

Stock in Federal Home Loan Bank:  The fair value of Federal Home
Loan Bank stock approximates its carrying amount.

Loans receivable, net:  For variable-rate loans that reprice
frequently and that have experienced no significant change in
credit risk, fair values are based on carrying values. Fair
values for all other loans are estimated based on discounted
cash flows, using interest rates currently being offered for
loans with similar terms to borrowers with similar credit
quality.

Accrued interest receivable:  The fair value of accrued interest
receivable approximates its carrying amount.

Off-balance sheet instruments:  Fair values for off-balance
sheet instruments (guarantees, letters of credit, and lending
commitments) are based on quoted fees currently charged to enter
into similar agreements, taking into account the remaining terms
of the agreements and the counterparties' credit standing.

Deposits:  Fair values disclosed for demand savings and money
market deposits equal their carrying amounts, which represent
the amount payable on demand. Fair values for certificates of
deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregate expected monthly
maturities on time deposits.

Federal Home Loan Bank advances:  The fair values of all Federal
Home Loan Bank advances approximate their carrying amounts.
                                 27<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
NOTE 2.  SECURITIES
Securities are summarized below:

<TABLE>
<CAPTION>
                                                           June 30, 1997
                                       ----------------------------------------------------
                                                        Gross       Gross
                                        Amortized     Unrealized  Unrealized    Estimated
                                           cost         Gains     (Losses)     Market Value
                                       ----------------------------------------------------
<S>                                    <C>             <C>         <C>           <C> 
Securities held to maturity: 
  U.S. agency securities               $1,497,785      $ 3,950     $ (8,510)     $1,493,225
                                       ====================================================
  Mortgage-backed securities           $3,145,696      $67,161     $(11,387)     $3,201,470
                                       ====================================================
<CAPTION>
                                                           June 30, 1997
                                      ----------------------------------------------------
                                                        Gross       Gross
                                        Amortized     Unrealized  Unrealized    Estimated
                                           cost         Gains     (Losses)     Market Value
                                       ----------------------------------------------------
<S>                                    <C>             <C>         <C>           <C> 
Securities available for sale:
  Mutual funds                         $  832,245     $     --    $(60,045)     $  772,200
  Corporate stocks                        986,252      152,038       1,000       1,137,290
                                       ----------------------------------------------------
                                       $1,818,497     $152,038    $(61,045)     $1,909,490
                                       ====================================================
<CAPTION>
                                                           June 30, 1996
                                       ----------------------------------------------------
                                                        Gross       Gross
                                        Amortized     Unrealized  Unrealized    Estimated
                                           cost         Gains     (Losses)     Market Value
                                       ----------------------------------------------------
<S>                                    <C>             <C>         <C>           <C> 
Securities held to maturity: 
  U.S. agency securities               $1,497,188      $    --     $(25,313)    $1,471,875
  Certificate of deposit                   85,000           --           --         85,000
                                       ----------------------------------------------------
                                       $1,582,188      $    --     $(25,313)    $1,556,875
  Mortgage-backed securities           $3,435,254      $44,597     $(74,927)    $3,404,924
                                       ====================================================

<CAPTION>
                                                           June 30, 1996
                                       ----------------------------------------------------
                                                        Gross       Gross
                                        Amortized     Unrealized  Unrealized    Estimated
                                           cost         Gains     (Losses)     Market Value
                                       ----------------------------------------------------
<S>                                    <C>             <C>         <C>           <C> 
Securities available for sale:
  Mutual funds                         $  832,245     $     --    $ (75,645)    $  756,600
  Corporate stocks                        895,500       49,500      (28,837)       916,163
                                       ----------------------------------------------------
                                       $1,727,745     $ 49,500    $(104,482)    $1,672,763
                                       ====================================================
</TABLE>
  
                                 28<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

The contractual maturities as of June 30, 1997 of debt securities are shown
below. Maturities will differ from contractual maturities in mortgage backed
securities because mortgages underlying the securities may be called or
prepaid without call or prepayment penalties. Therefore, these securities are
not included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
                                                 Securities Held to Maturity
                                           ----------------------------------------
                                                                        Weighted
                                           Amortized     Estimated       Average
                                            Cost       Market Value   Interest Rate
                                           ----------------------------------------
<S>                                        <C>           <C>             <C>
Due in one year or less                    $       --   $       --         --
Due after one year through five years       1,497,785    1,493,225        6.326%
                                           -----------------------
                                           $1,497,785   $1,493,225
                                           =======================
</TABLE>
Gross realized gains and gross realized losses on sales of
available for sale securities were none and $2,525,
respectively, in 1997; $43,999 and $91,749, respectively, in
1996 and $36,250 and none, respectively, in 1995.

Mortgage-backed securities with a market value of approximately
$2,874,000 and U.S. agency securities with a market value of
approximately $992,000 as of June 30, 1997 were pledged as
collateral to secure certain deposits.
                              29<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
NOTE 3.  LOANS RECEIVABLE
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
                                                        June 30,
                                                 -------------------------
                                                    1997          1996
                                                 -------------------------
<S>                                              <C>           <C>
Real estate mortgage loans:  
  Secured by one to four family residences       $53,390,705   $49,015,217
  Secured by multi-family real estate             11,345,547    11,589,593
  Secured by commercial real estate                8,786,447     8,183,912
  Construction loans and land loans                4,311,310     3,720,627
                                                 -----------   -----------
      TOTAL REAL ESTATE MORTGAGE LOANS            77,834,009    72,509,349
                                                 -----------   -----------
Consumer and other loans:    
  Secured by deposit accounts                         56,212        41,899
  Automobile loans                                   751,828       669,000
  Home improvement loans                              12,411         7,337
  Home equity line-of-credit loans                   419,396       274,145
  Commercial loans                                 1,169,353     1,297,422
  Other loans                                        259,714       295,125
                                                 -----------   -----------
      TOTAL CONSUMER AND OTHER LOANS               2,668,914     2,584,928
                                                 -----------   -----------
      TOTAL LOANS                                 80,502,923    75,094,277
Less:    
  Allowance for loan losses                         (645,757)     (641,205)
  Undisbursed portion of mortgage loans           (1,146,601)   (2,473,287)
  Deferred loan fees                                (235,651)     (206,889)
                                                 -----------   -----------
                                                 $78,474,914   $71,772,896
                                                 ===========   ===========
</TABLE>
The Company's lending activity consists primarily of first
mortgage real estate loans made to individuals and businesses in
the Grinnell, Iowa area. Approximately 47% of the Company's real
estate mortgage loans consists of loans purchased outside of the
Company's primary lending area. These loans are secured by the
underlying properties and are subject to the same underwriting
guidelines as loans originated internally. The concentration of
these out of lending area real estate mortgage loans are as
follows:
<TABLE>
<CAPTION>
                    One-to-four    Multi-               Construction
                      Family       Family   Commercial    and Land       Total
                    -------------------------------------------------------------
<S>                 <C>           <C>        <C>          <C>          <C>
Wisconsin          $ 5,132,734    $6,977,162 $4,922,628   $2,672,053   $19,704,577
Texas                  959,183            --         --           --       959,183
Colorado             68,729            --    372,283           --       441,012
Central Iowa    10,073,846     2,510,012  1,160,962       46,250    13,791,070
Other areas              655,616       437,879    538,180      189,000     1,820,675
                   -----------    ---------- ----------   ----------   -----------
                   $16,890,108    $9,925,053 $6,994,053   $2,907,303   $36,716,517
                   ===========    ========== ==========   ==========   ===========
</TABLE>
                              30<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

The above table includes loans purchased from a mortgage banking
firm headquartered in Madison, Wisconsin.  The Company has an
exclusive agreement with this firm in which the Company has
first refusal on any real estate loans generated, 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 Company has
sold, and anticipates that it will continue to sell, a majority
participation interest in these loans to financial institutions
located in Iowa and contiguous states. The Company's net
investment in loans generated under this agreement as of June
30, 1997 and 1996 is as follows: 
<TABLE>
<CAPTION>
                                                          1997
                                          ---------------------------------
                                          UNDER THE
                                            ABOVE
                                          AGREEMENT      OTHERS      TOTAL
                                          ---------------------------------
<S>                                       <C>            <C>        <C>
Outstanding principal balance of loans      
  purchased and serviced by the Company   $46,407,544   $853,564  $47,261,108
Partial interest sold to other financial
  institutions                             33,222,126    443,032   33,665,158
                                          -----------------------------------
NET INVESTMENT                            $13,185,418   $410,532  $13,595,950
                                          ===================================

<CAPTION>
                                                          1996
                                          ---------------------------------
                                          UNDER THE
                                            ABOVE
                                          AGREEMENT      OTHERS      TOTAL
                                          ---------------------------------
<S>                                       <C>            <C>        <C>
Outstanding principal balance of loans      
  purchased and serviced by the Company   $17,528,669   $825,289  $18,353,958
Partial interest sold to other financial
  institutions                              7,779,891    412,644    8,192,535
                                          -----------------------------------
NET INVESTMENT                            $ 9,748,778   $412,645  $10,161,423
                                          ===================================
</TABLE>
Loan customers of the Company include certain executive
officers, directors, and their related interests. All loans to
this group were made in the ordinary course of business at
prevailing terms and conditions. Such loans at June 30, 1997 and
1996 totaled approximately $710,000 and $736,000, respectively.
During the years ended June 30, 1997 and 1996, new loans to this
group totaled approximately $74,000 while repayments totaled
approximately $100,000.
                              31<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

Activity in the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
                                             Years ended June 30,
                                   ------------------------------------
                                      1997           1996       1995
                                   ------------------------------------
<S>                                <C>            <C>         <C>
Balance, beginning of year         $ 641,205     $399,705     $399,705
Provision charged to income          121,000      249,000           --
Charge-offs                           (116,448)      (7,500)          --
Recoveries                                --           --           --
                                   ---------     --------     --------
Balance, end of year               $ 645,757     $641,205     $399,705
                                   =========     ========     ========
</TABLE>
Impaired loans as of June 30, 1997 and 1996 totaled
approximately $922,000 and $735,000, respectively.  The total
allowance for loan losses specifically related to these loans
was none and $109,000 on June 30, 1997 and 1996, respectively. 
Interest income on impaired loans of $33,567 and none was
recognized for cash payments received for the years ended June
30, 1997 and 1996, respectively.

NOTE 4.  PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                        June 30,
                                                 -------------------------
                                                    1997          1996
                                                 -------------------------
<S>                                              <C>           <C>
Land                                             $  17,483     $  17,483
Bank building                                      240,256       240,256
Furniture, fixtures and equipment                  193,106       167,050
                                                 ------------------------
                                                   450,845       424,789
Less accumulated depreciation                     (227,609)     (190,374)
                                                 ------------------------
                                                 $ 223,236     $ 234,415
                                                 ========================
</TABLE>
NOTE 5.  ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consisted of the following:
<TABLE>
<CAPTION>
                                                        June 30,
                                                 -----------------------
                                                    1997          1996
                                                 -----------------------
<S>                                              <C>           <C>
Securities                                        $ 21,207     $ 25,526
Loans receivable                                   475,814      387,643
Mortgage-backed securities                         23,640       26,223
                                                  ----------------------
                                                  $520,661     $439,392
                                                  ======================

                              32<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

NOTE 6.  DEPOSITS
The scheduled maturities of certificate accounts are as follows
as of June 30, 1997:
                   
1998                          $27,758,883
1999                           10,808,313
2000                            1,930,865
2001                              292,592
2002                              626,216
Thereafter                        242,807
                              -----------
                              $41,659,676
                              ===========
Certificate of deposit accounts with balances of $100,000 and
above totaled $6,501,687 and $3,812,515 at June 30, 1997 and
1996, respectively. These certificates, at June 30, 1997, have
scheduled maturities of $501,063 in 3 months or less, $2,728,373
from 3 to 6 months, $1,318,771 from 6 to 12 months and
$1,953,480 beyond 12 months.

Interest expense on deposits is summarized as follows:

</TABLE>
<TABLE>
<CAPTION>
                                                 Years ended June 30,
                                       ------------------------------------
                                           1997           1996       1995
                                       ------------------------------------
<S>                                    <C>            <C>         <C>

NOW accounts                           $  183,150   $   63,698    $   34,290
Money market deposit accounts             327,749      213,988        67,300
Passbook savings accounts                  97,510       87,891        95,112
Certificates of deposit                 2,324,016    2,181,293     1,887,548
                                       ----------   ----------    ----------
                                        2,932,425    2,546,870     2,084,250
Less penalties for early withdrawals       (5,168)      (1,754)       (5,455)
                                       ----------   ----------    ----------
      INTEREST ON DEPOSITS             $2,927,257   $2,545,116    $2,078,795
                                       ==========   ==========    ==========
</TABLE>

Noninterest bearing deposit accounts were approximately
$1,349,000 and $1,026,000 as of June 30, 1997 and 1996,
respectively.

NOTE 7.  ADVANCES FROM FEDERAL HOME LOAN BANK

At June 30, 1997, advances from the Federal Home Loan Bank of
Des Moines consisted of various fixed rate advances with
interest rates ranging from 5.33% to 6.74%. These advances are
due at various dates from August 1997 through November 2008. The
advances are secured by the FHLB stock and real estate loans at
least equal to 150% of the total advances outstanding. Certain
advances are subject to repayment penalties. During the year
ended June 30, 1997, the maximum advances outstanding at a month
end were $20,961,466.
                              33<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

Following is a summary of future maturities of advances from the
Federal Home Loan Bank of Des Moines:
<TABLE>
<CAPTION>
                                        June 30, 1997
                                     ---------------------
                                                  Weighted
                                     Amount         Rate 
                                     ---------------------
<S>                                  <C>           <C>
Year ending June 30:   
    1998                             $ 6,060,588   6.04%
    1999                               1,064,943   5.98
    2000                               4,569,619   6.35
    2001                               8,524,639   6.12
    2002                                  80,031   5.98
    Thereafter                           661,646   5.98
                                     -----------
                                     $20,961,466
                                     ===========
</TABLE>

NOTE 8.  INCOME TAXES AND RETAINED EARNINGS

Under the Internal Revenue Code and similar sections of Iowa
law, the Bank was allowed a special bad debt deduction related
to additions to tax bad debt reserves established for the
purpose of absorbing losses. Through June 30, 1996, the
provisions of the Code permitted the Bank to deduct from taxable
income an allowance for bad debts based on 8% of taxable income
before such deduction or actual loss experience. The Bank used
the percentage of taxable income method to compute its
deductions for the years ended June 30, 1996 and 1995.
Legislation passed in 1996 eliminated the percentage of taxable
income method as an option for computing bad debt deductions for
the year ended June 30, 1997 and in all future years. The Bank
will still be permitted to take deductions for bad debts, but
will be required to compute such deductions using an experience
method.

The Bank will also have to recapture its tax bad debt reserves
which have accumulated since June 30, 1988 amounting to
approximately $89,000. The tax associated with the recaptured
reserves is approximately $33,000 and will be paid over a six
year period beginning June 30, 1997. Deferred income taxes have
been previously established for the taxes associated with the
recaptured reserves.

Retained earnings at June 30, 1997 and 1996 include
approximately $1,350,000 for which no deferred federal income
tax liability has been recognized. These amounts represent an
allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only,
which would be subject to the then current corporate income tax
rate. The unrecorded deferred tax  liability on the above amount
for financial statement purposes was approximately $500,000 at
June 30, 1997 and 1996.
                              34<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
Taxes on income are comprised as follows:
<TABLE>
<CAPTION>
                                          Years ended June 30,
                                    --------------------------------
                                      1997       1996       1995
                                    --------------------------------
<S>                                  <C>          <C>         <C>
Current                             $363,180    $244,517   $328,585
Deferred                              14,000     (61,000)   (12,935)
                                    --------------------------------
                                    $377,180    $183,517   $315,650
                                    ================================
</TABLE>
Taxes on income differ from the "expected" amounts computed by
applying the federal income tax rate of 34 percent to income
before taxes for the following reasons:
<TABLE>
<CAPTION>
                                                    June 30,
                            -----------------------------------------------------------
                                   1997               1996                1995
                            -----------------------------------------------------------
                                     PERCENT             PERCENT              PERCENT
                                    OF PRETAX            OF PRETAX           OF PRETAX
                            AMOUNT   INCOME      AMOUNT   INCOME     AMOUNT    INCOME
                            -----------------------------------------------------------
<S>                         <C>      <C>        <C>       <C>       <C>       <C>
Computed "expected"
  taxes on income           $424,400  34.0%    $366,600   34.0%     $321,800   34.0%
State taxes, net of federal  
  benefit                     32,500   2.6       31,700    2.9        28,600    3.0
Tax-exempt interest and      
  dividends                    (15,200) (1.2)     (27,000)  (2.5)      (261,00)  (2.8)
Resolution of tax  
  contingency                     --    --     (137,000) (12.7)           --     -- 
ESOP                          25,800   2.1       20,200    1.9        10,200    1.1
Low income housing credit    (42,100) (3.4)     (30,500)  (2.8)           --     --
Other                        (48,220) (3.9)     (40,483)  (3.8)      (18,850)  (2.0)
                            -----------------------------------------------------------
     PROVISION FOR
       INCOME TAXES         $377,180  30.2     $183,517   17.0      $315,650   33.3
                            ===========================================================
</TABLE>

Temporary differences between the financial statements carrying
amounts and the tax basis of assets and liabilities that give
rise to the deferred tax liability at June 30, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
                                                        June 30,
                                                 -----------------------
                                                    1997          1996
                                                 -----------------------
<S>                                              <C>           <C>
Federal Home Loan Bank stock                     $ 181,700     $ 181,700
Premises and equipment                              21,600        16,900
Deferred compensation agreements                   (45,700)      (54,000)
Loan fees deferred for financial reporting 
  purposes                                          (6,700)       (9,000)
Allowance for loan losses                         (211,600)     (204,400)
ESOP and RRP plan                                  (15,000)      (19,800)
Other                                              149,200        96,600
                                                 -----------------------
     DEFERRED INCOME TAX LIABILITY               $  73,500     $   8,000
                                                 =======================
</TABLE>
                              35<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

NOTE 9.  EMPLOYEE BENEFITS

Employee pension plan:  The Bank participates in a multi-
employer defined benefit pension plan covering substantially all
employees. There was no pension expense for the years ended June
30, 1997, 1996 and 1995.

Recognition and retention plan (RRP):  The Company has
established a Recognition and Retention Plan as a method of
providing directors, officers and other key employees of the
Company with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Company.
Eligible officers and other key employees of the Company earn
(i.e., become vested in) shares of common stock covered by the
award at a rate of 25% per year starting one year from the date
of the grant. Nonemployee directors vest at a rate of 33% per
year. Under the RRP, 42,320 shares had been awarded to
directors, officers and other key employees as of June 30, 1997.
Expense of approximately $25,000, $47,000 and $87,000 was
recorded for the RRP for the years ended June 30, 1997, 1996 and
1995, respectively.

Employee stock ownership plan (ESOP):  In conjunction with the
stock conversion, the Company established an ESOP for eligible
employees. Employees with at least 1,000 hours of annual service
with the Company and who have attained age 21 are eligible to
participate. The ESOP borrowed $423,200 from the Company to
purchase up to 8% of the common stock issued in the conversion
or 84,640 shares. Collateral for the loan is the common stock
purchased by the ESOP. The loan will be repaid principally from
the Bank's discretionary contributions to the ESOP over a period
of seven years. The interest rate for the loan is 6%. Shares
purchased by the ESOP will be held in a suspense account for
allocation among participants as the loan is repaid. Expense of
$137,963, $124,672 and $98,025 was recorded relative to the ESOP
for the years ended June 30, 1997, 1996 and 1995, respectively.

Contributions to the ESOP and shares released from the suspense
account in an amount proportional to the repayment of the ESOP
loan will be allocated among ESOP participants on the basis of
compensation in the year of allocation. Benefits generally
become 100% vested after five years of credited service. Credit
for vesting purposes is given for years of service prior to the
effective date of the ESOP (July 1, 1993). Prior to the
completion of five years of credited service, a participant who
terminates employment for reasons other than death, normal
retirement, or disability will not receive any benefit under the
ESOP. Forfeitures will be reallocated among remaining
participating employees, in the same proportion as
contributions. Benefits may be payable in the form of stock or
cash upon termination of employment. The Company's contributions
to the ESOP are not fixed, as benefits payable under the ESOP
cannot be estimated.
                              36<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

As shares are released from collateral, the Company reports
compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings per share
calculations. Dividends on the allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. ESOP shares as of June 30 were as follows:
<TABLE>
<CAPTION>

                                                    1997          1996
                                                 -----------------------
<S>                                              <C>           <C>
Allocated shares                                   34,164       21,118
Shares released for allocation                     12,430       13,046
Unreleased shares`                                 38,046       50,476
                                                 -----------------------
     TOTAL ESOP SHARES                             84,640       84,640
                                                 =======================
Fair value of unreleased shares at June 30       $516,000     $511,000

</TABLE>
1993 stock option plan:  The Board of Directors of the Company
has adopted the GFS Bancorp, Inc. 1993 Stock Option and
Incentive Plan (the "Plan"). The number of options authorized
under the Plan is 10% of the common stock issued in the
conversion (105,800 shares).  Officers, directors and employees
of the Company and its subsidiaries are eligible to participate
in the Plan. The option exercise price must be at least 100% of
the market value (as defined in the Plan) of the common stock on
the date of the grant, and the option term cannot exceed 10
years. The Company's Compensation Committee has granted options
for 105,800 shares to certain officers, directors and employees,
primarily at an exercise price of $5 per share. The stock
options are exercisable through January 5, 2004. Options for
2,304 and 1,904 shares were exercised during the years ended
June 30, 1997 and 1996 and no options were exercised during
1995, leaving 101,592 options outstanding.

1997 stock option plan:  The Board of Directors of the Company
has adopted the GFS Bancorp, Inc. 1997 Stock Option and
Incentive Plan (the "Plan"). The number of options authorized
under the Plan is 10% of the common stock issued and outstanding
on the plan date (98,870 shares). Officers, directors and
employees of the Company and its subsidiaries are eligible to
participate in the Plan. The option exercise price must be at
least 50% of the market value (as defined in the Plan) of the
common stock on the date of the grant, and the option term
cannot exceed 10 years. The Company's Compensation Committee has
granted options for 61,920 shares to certain officers and
directors, at an exercise price of $10.4375 pershare, the market
value at the date of the grant. The stock options are
exercisable through February 19, 2007.  
                              37<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
The table below reflects option activity for the period
indicated:

                                                 Year Ended
                                               June 30, 1997
                                               -------------
Balance at beginning of period                      --
Granted                                           61,920
Exercised                                             --
                                                 -------
Balance at end of period                          62,920
                                                 =======
Weighted average fair value per option of 
  options granted during the year                $  3.60
                                                 =======
         
Options exercisable                               61,920
                                                 =======
Remaining shares available for grant              36,950
                                                 =======
Had compensation cost for the Plan been determined based on the
grant date fair values of awards (the method described in FASB
Statement No. 123), the approximate June 30, 1997 reported net
income and earnings per common share would have been decreased
to the pro forma amounts shown below. The June 30, 1996 and June
30, 1995 amounts for net income and earnings per common share
would not have been affected since the Plan was adopted during
the year ending June 30, 1997.
                                               June 30, 1997
                                               -------------
Net income:
   As reported                                  $871,158
   Pro forma                                     730,905

Earnings per common share:
   As reported                                  $    .85
   Proforma                                            .71  

The fair value of the options is estimated at the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:  dividend rate of 2.05%, price
volatility of 25%, risk-free interest rate of 6.36% and expected
lives of 8 years.

Salary continuation plan:  The Company has a nonqualified
deferred compensation plan for the benefit of its Chairman of
the Board of Directors. The nonqualified plan provides for
annual retirement benefits equal to $30,000 per year for a
period of seven years, provided he meets certain employment and
length of service requirements. The Company recognized plan
expenses of $33,945, $22,256 and $30,240 for the years ending
June 30, 1997, 1996 and 1995, respectively.
                              38<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

Employment agreements:  The Company has entered into certain
employment agreements with key officers. Under the terms of the
agreements, the employees are entitled to additional
compensation in the event of a change in control of the Company
and the employees are involuntarily terminated within twelve
months of the change in control. A change in control is
generally triggered by the acquisition or control of 10% of more
of the common stock.

NOTE 10.  REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -
and possible additional discretionary - actions by regulators
that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total, Tier I
capital (as defined in the regulations) to risk-weighted assets
(as defined), of Tier I capital (as defined) to average assets
(as defined) and tangible capital to adjusted assets. Management
believes, as of June 30, 1997, the Bank meets all capital
adequacy requirements to which it is subject.

The Bank's actual capital amounts and ratios are also presented
in the table.
<TABLE>
<CAPTION>
                                                                   To Be Well Capitalized
                                                                        Under Prompt
                                               Minimum for Capital   Corrective Action
                                 Actual         Adequacy Purposes        Provisions
                            -------------------------------------------------------------
                            Amount    Ratio      Amount   Ratio       Amount    Ratio
                            -------------------------------------------------------------
                            (000's)             (000's)               (000's)
<S>                         <C>       <C>       <C>       <C>         <C>       <C>
As of June 30, 1997:   
  Total capital (to risk     
    weighted assets)        $9,526    18.3%     $4,162    8.0%        $5,203    10.0%
  Tier 1 Capital (to risk    
    weighted assets)         8,880    17.1       2,081    4.0          3,122     6.0
  Tier 1 (Core) Capital      
    (to average assets)      8,880     9.8       2,719    3.0          4,532     5.0
  Tangible capital (to
    adjusted assets)         8,880     9.8       1,360    1.5             --      --
As of June 30, 1996:
  Total capital (to risk
    weighted assets)        $8,962    19.1      $3,744    8.0         $4,680    10.0
  Tier 1 Capital (to risk
    weighted assets)         8,376    17.9       1,872    4.0          2,808     6.0
  Tier 1 (Core) Capital  
    (to average assets)      8,376    10.2       2,458    3.0          4,096     5.0
  Tangible capital (to
    adjusted assets)         8,376    10.2       1,229    1.5             --      --
</TABLE> 
                              39<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
The Bank is subject to certain restrictions on the amount of
dividends that may be paid without prior regulatory approval.

At the time of the conversion, the Bank established a
liquidation account in an amount equal to its net worth as of
the date of the latest consolidated financial statements
contained in the final prospectus used to sell the common stock
at June 30, 1993. The liquidation account will be maintained for
the benefit of depositors with deposits as of the March 31, 1993
eligibility record date, who continue to maintain their deposits
in the Bank after conversion. In the event of a complete
liquidation (and only in such an event), each eligible depositor
will be entitled to receive a liquidation distribution from the
liquidation account in the proportionate amount of the then
current adjusted balance for deposits then held, before any
liquidation distribution may be made with respect to the
stockholders. Except for the repurchase of stock and payment of
dividends by the Bank, the existence of the liquidation account
will not restrict the use or application of retained earnings.

NOTE 11. PARENT COMPANY FINANCIAL STATEMENTS

Presented below are condensed financial statements for the
parent company, GFS, Bancorp, Inc.:

                  CONDENSED BALANCE SHEET
                  JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
                                                    1997          1996
                                                 -----------------------
<S>                                              <C>           <C>
ASSETS   
  Cash and cash equivalents                     $   142,924    $   277,808
  Investment in subsidiary                        8,842,775      8,328,948
  Securities available for sale, net              1,137,290        916,163
  ESOP note receivable                              211,600        272,057
  Other assets                                      255,969        280,050
                                                --------------------------
      TOTAL ASSETS                              $10,590,558    $10,075,026
                                                ==========================

LIABILITIES, accrued expenses                   $    53,380    $   130,135
                                                --------------------------
STOCKHOLDERS' EQUITY
  Common stock                                       11,007          5,501
  Additional paid-in capital                      5,202,310      5,138,066
  Retained earnings                               6,523,527      5,856,546
  Less common stock acquired by:  
    Employee stock ownership plan                  (197,631)      (259,781)
    Recognition and retention plan                   (7,225)       (32,659)
  Treasury stock, at cost                        (1,055,302)      (728,800)
  Net unrealized losses on investments - 
    subsidiary                                      (37,545)       (47,645)
  Net unrealized gains on investments - 
    parent company                                   98,037         13,663
                                                --------------------------
      TOTAL STOCKHOLDERS' EQUITY                 10,537,178      9,944,891
                                                --------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' 
        EQUITY                                  $10,590,558    $10,075,026
                                                ==========================
</TABLE>
                              40<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

                 Condensed Statements of Income
            Years Ended June 30, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                         1997       1996       1995
                                      ---------------------------------
<S>                                    <C>         <C>        <C>
Interest and other income             $ 80,059     $105,770   $187,345
Operating expenses                     121,551       97,391    101,739
                                      ---------------------------------
    INCOME (LOSS) BEFORE EQUITY IN
     NET INCOME OF SUBSIDIARY              (41,492)       8,379     85,606

Equity in net income of subsidiary     840,330      846,330    573,230
                                      ---------------------------------
    INCOME BEFORE INCOME TAXES         798,838      854,709    658,836

Provision for income taxes (credits)   (72,320)     (40,131)    27,950
                                      ---------------------------------
    NET INCOME                        $871,158     $894,840   $630,886
                                      =================================
</TABLE>
                              41<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

           CONDENSED STATEMENTS OF CASH FLOWS
        YEARS ENDED JUNE 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                1997       1996       1995
                                             -------------------------------
<S>                                           <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                 $ 871,158  $894,840   $630,886
  Adjustments to reconcile net income to 
   net cash provided by operating activities:    
   Equity in undistributed net income of 
     subsidiary                               (340,330) (846,330)  (573,230)
   (Gain) loss on sale of securities 
     available for sale                          2,525    11,956    (36,250)
   Decrease in other assets                     24,081    21,950     10,000
   Increase (decrease) in other liabilities   (135,530)   59,930      7,782
   Other                                            --        --     (5,897)
                                             ------------------------------
      NET CASH PROVIDED BY OPERATING 
        ACTIVITIES                        421,904   142,346     33,291
                                             ------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES   
  Purchase of securities available for sale   (240,703) (181,500)  (541,299)
  Proceeds from maturity and sales of
    securities available for sale            147,425   652,684  1,103,750
  Increase in other assets                          --   (50,000)  (250,000)
  Payments received on ESOP debt                60,457    60,457     60,457
                                             ------------------------------
      NET CASH PROVIDED BY (USED IN)
        INVESTING ACTIVITIES                   (32,821)  481,641    372,908
                                             ------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES   
  Proceeds from issuance on common stock for     
    stock options exercised                      2,000        --         --
  Net proceeds from reissuance of treasury 
    stock                                        9,520     9,520         --
  Purchase of treasury stock                  (344,085) (612,453)  (131,313)
  Dividends paid                              (191,402) (144,493)        --
                                             ------------------------------
      NET CASH (USED IN) FINANCING 
        ACTIVITIES                            (523,967) (747,426)  (131,313)
                                             ------------------------------
      NET INCREASE (DECREASE) IN CASH AND
        CASH EQUIVALENTS                      (134,884) (123,439)   274,886

CASH AND CASH EQUIVALENTS    
  Beginning                                    277,808   401,247    126,361
                                             ------------------------------
  Ending                                     $ 142,924   277,808    401,247
                                             ==============================
</TABLE>

                              42<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------
NOTE 12.  FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments as of June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
                                            JUNE 30, 1997               JUNE 30, 1996
                                       --------------------------------------------------------
                                       CARRYING                    CARRYING
                                        AMOUNT       FAIR VALUE     AMOUNT       FAIR VALUE
                                       --------------------------------------------------------
                                       (Nearest 000) (Nearest 000)  (Nearest 000) (Nearest 000)
<S>                                    <C>            <C>          <C>            <C> 
Financial assets:
  Cash and amounts due from  
    depository institutions            $ 4,643        $ 4,643        $ 2,271       $ 2,271
  Securities                             6,553          6,604          6,690         6,635
  Stock in FHLB                          1,159          1,159          1,159         1,159
  Loans receivable, net                 78,475         78,648         71,773        71,824
  Accrued interest receivable              521            521            439           439
Financial liabilities: 
  Deposits                              59,551         59,657         53,122        53,330
  Advances from FHLB                    20,961         20,961         19,318        19,318
Off balance sheet financial  
  instruments, commitments   
  to extend credit                          --             --             --            --
</TABLE> 

NOTE 13.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
consist primarily of commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
statement of financial condition. The contract ornotional
amounts of those instruments reflect the extent of involvement
the Company has in particular classes of financial instruments.

The Company uses the same credit policies in making commitments
and conditional obligations as they do for on-statement of
financial condition instruments. The Company requires collateral
or other security to support financial instruments with credit
risk.

At June 30, 1997 the Company had outstanding loan commitments
totaling $893,000. The outstanding loan commitments consisted of
$206,000 of fixed rate loan commitments and $687,000 of
adjustable rate loan commitments. The Company had $529,000
commitments for unused lines of credit.

Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts
above do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company, upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral
held varies but normally includes real estate and personal
property.
                              43<PAGE>
<PAGE>
GFS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------

NOTE 14. PENDING ACCOUNTING PRONOUNCEMENTS AND REGULATIONS

In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128").  SFAS No. 128 applies to all entities that have issued
publicly-held common stock or potential common stock. SFAS No.
128 requires the entities to present basic earnings per share
and diluted earnings per share on the face of the statements of
income. Basic earnings per share replaces "primary" earnings per
share and diluted earnings per share replaces "fully diluted"
earnings per share. The Company does not expect SFAS No. 128 to
materially affect its computation of earnings per share and
since the requirements of SFAS No. 128 are disclosure related,
its implementation will have no impact on the Company's
financial condition or results of operations.

In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information About
Capital Structure" ("SFAS No. 129").  SFAS No. 129 requires
separate disclosure about the capital structure of the entity.
While this statement codifies and contains a few more specifics,
it does not expand, in any significant manner, previously
existing disclosure requirements. SFAS No. 129 is effective for
periods ending after December 15, 1997. As the requirements of
SFAS No. 129 are disclosure related, its implementation will
have no impact on the Company's financial condition or results
of operations.

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130").  SFAS No. 130 requires that all items that are components
of comprehensive income defined as "the change in equity [net
assets] of a business enterprise during a period from
transactions and other events and circumstances from nonowner
sources, including all changes in equity during a period except
those resulting from investments by owners and distributions to
owners," be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Companies will be required to (a) classify items of other
comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997, and requires reclassification of prior
periods presented. As the requirements of SFAS No. 130 are
disclosure related, its implementation will have no impact on
the Company's financial condition or results of operations.

In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise
and Related Information ("SFAS No. 131").  SFAS No. 131 requires
that enterprises report certain financial and descriptive
information about operating segments in complete sets of
financial statements of the Company and in condensed financial
statements of interim periods issued to shareholders. It also
requires that a Company report certain information about their
products and services, geographic areas in which they operate
and their major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. As the requirements of
SFAS No. 131 are disclosure related, its implementation will
have no impact on the Company's financial condition or results
of operations.

                             44

<PAGE>
<PAGE>

                STOCKHOLDER INFORMATION

EXECUTIVE OFFICES

1025 Main Street
Grinnell, IA  50112
     
ANNUAL MEETING

     The Annual Meeting of Stockholders will be held  on 
October 23, 1997 at 9:30 a.m., local time,  at the  office of
Grinnell Federal Savings Bank located at 1025 Main Street,
Grinnell, Iowa.

ANNUAL REPORT ON FORM 10-KSB

     A copy of GFS Bancorp, Inc.'s Annual Report on Form 10-KSB
as filed with the Securities and Exchange Commission may be
obtained without charge upon written request to Steven L. Opsal, 
President and Chief Executive Officer, or by calling (515) 236-
3121.
<TABLE>
<CAPTION>
REGISTRAR/TRANSFER AGENT          MARKET MAKERS                 SPECIAL COUNSEL
<S>                            <C>                             <C>
First Bankers Trust Co., N.A.  Everen Securities, Inc.         Housley, Kantarian &
2321 Koch's Lane               Robert W. Baird & Co.           Bronstein,P.C.
Quincy, IL  62301              Herzog, Heine, Geduld, Inc.     Suite 700
                               Howe, Barnes Investments        1220 19th Street, NW
                                                               Washington, DC 20036
</TABLE>
STOCK LISTING

     GFS Bancorp, Inc. common stock is traded over the counter
and is listed on the NASDAQ "Small Cap" Market under the symbol
"GFSB."  At  September 3, 1997 there were 988,242 shares of GFS
Bancorp, Inc. common stock issued and outstanding and there were
approximately 247 holders of record and approximately 505     
beneficial holders.  The price range of the common stock after
giving retroactive effect for the 2 for 1 stock split for each
quarter of fiscal 1996 and  1997 was as follows:
<TABLE>
<CAPTION>
                                                    DIVIDENDS
FISCAL 1996                     HIGH       LOW      DECLARED
-----------                     ----      -----     ----------
<S>                            <C>        <C>        <C>
First Quarter                  $ 9.625    $ 7.625   $0.375
Second Quarter                 $10.00     $ 9.25    $0.375
Third Quarter                  $10.375    $ 9.625   $0.375
Fourth Quarter                 $10.375    $10.00    $0.05

<CAPTION>
                                                    DIVIDENDS
FISCAL 1997                     HIGH       LOW      DECLARED
-----------                     ----      -----     ----------
<S>                            <C>        <C>        <C>
First Quarter                  $10.50     $10.125   $0.05
Second Quarter                 $10.625    $10.125   $0.05
Third Quarter                  $11.50     $10.125   $0.05
Fourth Quarter                 $14.25     $11.50    $0.065
</TABLE>

The stock price information set forth in the table above was
provided by the NARD, Inc.  High, low and closing prices and
daily trading volume are reported in most major newspapers.  
The above quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual
transactions.
                             45<PAGE>
<PAGE>
GFS BANCORP, INC.

     Directors

LeRoy E. Meredith
Chairman of the Board
GFS Bancorp, Inc. and Grinnell Federal Savings Bank

Theodore Mokricky
Vice Chairman of the Board
Executive Director of Continuing Care Facility

David S. Clay
Vice President and Treasurer of Grinnell College

Albert C. Eisenman
Retired Former President of Grinnell Federal Savings Bank

Donald H. Howig
Retired Businessman

Scott A. Jensen
Optometrist and part-owner of Jensen Optometrists

Thomas M. Groth
District Sales Representative

Steven L. Opsal
President and Chief Executive Officer of GFS Bancorp, Inc. and
Grinnell Federal Savings Bank

Katherine A. Rose
Senior Vice President and Chief Financial Officer of
GFS Bancorp, Inc. and Grinnell Federal Savings Bank

Executive Officers

LeRoy E. Meredith
Chairman of the Board

Steven L. Opsal
President and Chief Executive Officer

Katherine A. Rose
Senior Vice President and Chief Financial Officer

William T. Nassif
Senior Vice President and Chief Operating Officer

     GRINNELL FEDERAL SAVINGS BANK

           Executive Officers

LeRoy E. Meredith
Chairman of the Board

Steven L. Opsal
President and Chief Executive Officer

Katherine A. Rose
Senior Vice President, Treasurer and 
Chief Financial Officer

William T. Nassif
Senior Vice President and Chief Operating Officer

               46