Document:

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                                  EXHIBIT 10.3

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                      FIRST FEDERAL BANK ROSWELL NEW MEXICO

                              EMPLOYMENT AGREEMENT
                                       FOR
                                LEONARD C. SCALZI

        This Agreement (this "Agreement") is entered into as of the ____ day of
_____________, 2004 by and between First Federal Bank, Roswell, New Mexico (the
"Bank"), a federally chartered savings association, with its principal
administrative office at 300 North Pennsylvania Avenue, Roswell, New Mexico
88201, and Leonard C. Scalzi ("Executive"). All references to "Company" herein
shall refer to First Federal Banc of the Southwest, Inc., the holding company of
the Bank.

        WHEREAS, contemporaneously herewith, the Bank has entered into an
Agreement and Plan of Merger dated as of ____________, 2004 (the "Merger
Agreement"), by and between First Federal Bank of the Southwest, Inc. and GFSB
Bancorp, Inc. ("GFSB") pursuant to which GFSB shall merge with and into the
Company, and the separate existence of GFSB shall cease; and

        WHEREAS, Executive is currently employed as the Senior Vice President of
GFSB; and

        WHEREAS, in consideration of Executive's outstanding service to GFSB,
and in order to induce Executive to join the employ of the Bank, and to induce
the Bank to enter into the Merger Agreement, the Bank and Executive desire to
enter into this Agreement to effect the terms of Executive's employment by the
Bank.

        NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:

1.      POSITION AND RESPONSIBILITIES

        During the period of his employment hereunder, Executive agrees to serve
as Senior Vice President of the Bank.

2.      TERMS AND DUTIES

        (a)     The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement ("Anniversary Date") and continuing on each Anniversary Date
thereafter, this Agreement shall renew for an additional year such that the
remaining term shall be two (2) years unless written notice of non-renewal
("Non-Renewal Notice") is provided to Executive at least thirty (30) days and
not more than sixty (60) days prior to any such Anniversary Date, in which case
his employment shall cease at the end of twenty-four (24) months following such
Anniversary Date. Prior to each notice period for non-renewal, senior management
of the Bank will conduct a performance review of Executive for purposes of
determining whether to provide notice of nonrenewal.

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        (b)     During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence approved by the Board, Executive shall devote
substantially all his business time, attention, skill and efforts to the
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank.

3.      COMPENSATION AND REIMBURSEMENT

        (a)     The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $________________
per year ("Base Salary"). Such Base Salary shall be payable biweekly, or in
accordance with the normal payroll practices of the Bank. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase, but not decrease, Executive's Base Salary (any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement). In
addition to the Base Salary provided in this Section 3(a), the Bank shall
provide Executive at no cost to Executive with all such other benefits as are
provided uniformly to permanent full-time employees of the Bank.

        (b)     The Executive will be entitled to participate in or receive
benefits under any employee benefit plans of the Bank or the Company including,
but not limited to, retirement plans, supplemental retirement plans, pension
plans, profit-sharing plans, stock option and restricted stock plans,
health-and-accident plans, medical coverage and any other employee benefit plan
or arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate. Nothing paid
to Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which Executive is entitled under this Agreement.

        (c)     In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Bank shall reimburse Executive for his ordinary and necessary business expenses,
including, without limitation, fees for memberships in such clubs and
organizations as Executive and the Board shall mutually agree are necessary and
appropriate for business purposes, and travel and entertainment expenses,
incurred in connection with the performance of his duties under this Agreement,
upon presentation to the Bank of an itemized account of such expenses in such
form as the Bank may reasonably require.

4.      PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

        The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 13.

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        (a)     The provisions of this Section shall apply upon the occurrence
of an Event of Termination (as herein defined) during Executive's term of
employment under this Agreement. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:

        (i)     the termination by the Bank of Executive's full-time employment
hereunder for any reason other than (A) Disability or Retirement, as defined in
Section 5 below, or (B) Termination for Cause as defined in Section 6 hereof; or

        (ii)    Executive's resignation from the Bank's employ, upon any

                (A)     failure to elect or reelect or to appoint or reappoint
                        Executive as Senior Vice President of the Bank,

                (B)     material change in Executive's function, duties, or
                        responsibilities, which change would cause Executive's
                        position to become one of lesser responsibility,
                        importance, or scope from the position and attributes
                        thereof described in Section 1 above,

                (C)     relocation of Executive's principal place of employment
                        by more than 30 miles from its location at the effective
                        date of this Agreement,

                (D)     liquidation or dissolution of the Bank or Company other
                        than liquidations or dissolutions that are caused by
                        reorganizations that do not affect the status of
                        Executive, or

                (E)     material breach of this Agreement by the Bank.

Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E) above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four (4) calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, Executive, after giving due notice within the prescribed time frame of an
initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) or (E) above.

        (iii)   Executive's involuntary termination by the Bank or voluntary
resignation from the Bank's employ on the effective date of, or at any time
following, a Change in Control during the term of this Agreement, including
extensions thereof. For these purposes, a Change in Control of the Bank or the
Company shall mean a change in control of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners' Loan
Act, as amended, and applicable rules and regulations promulgated thereunder
(collectively, the "HOLA") as in effect at the time of the Change in

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Control; or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (a) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of Company's outstanding securities, except for any securities purchased by any
employee benefit plan or trust maintained by the Bank or the Company; or (b)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, PROVIDED that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be considered, for purposes of this clause (b), as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Company or
similar transaction in which the Bank or Company is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Company, by someone other than the then current Board of
Directors of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar transaction
with one or more corporations as a result of which the outstanding shares of the
common stock of the Company are exchanged for or converted into cash or property
or securities not issued by the Company; or (e) a tender offer is made for 35%
or more of the voting securities of the Company and the shareholders owning
beneficially or of record 35% or more of the outstanding securities of the
Company have tendered or offered to sell their shares pursuant to such tender
offer and such tendered shares have been accepted by the tender offeror.

        (b)     Upon the occurrence of an Event of Termination, as defined in
Section 4(a)(i), (ii) or (iii), on the Date of Termination, as defined in
Section 7(b) or, if different, within the time frame set forth in any
sub-paragraph below, the Bank shall pay, provide or credit to Executive (or, in
the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be):

        (i)     his earned but unpaid salary as of the date of termination of
employment with the Bank;

        (ii)    as severance pay or liquidated damages, or both, a lump sum
equal to the greater of the payments due for the remaining term of the
Agreement, or two (2) times the highest annual rate of Base Salary paid to
Executive at any time under this Agreement within sixty (60) days of termination
of employment. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.

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        (c)     Notwithstanding the preceding paragraphs of this Section, in the
event that:

        (i)     the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be deemed to
include an "excess parachute payment" under Section 280G of the Code or any
successor thereto, and

        (ii)    if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to the total amount of payments permissible under Section 280G of
the Code or any successor thereto,

then the Termination Benefits to be paid to Executive shall be so reduced so as
to be a Non-Triggering Amount.

5.      TERMINATION UPON RETIREMENT

        For purposes of this Agreement, termination by the Bank of Executive's
employment based on "Retirement" shall mean termination in accordance with the
Bank's retirement policy or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, no amounts or benefits shall be due to Executive
under this Agreement, and Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a party.

6.      TERMINATION FOR CAUSE

        The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than minor
traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement. In determining incompetence,
the acts or omissions shall be measured against standards generally prevailing
in the savings institution industry. For purposes of this paragraph, no act or
failure to act on the part of Executive shall be considered "willful" unless
done, or omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best interest
of the Bank. Notwithstanding the foregoing, Executive shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than three-fourths of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. Any stock options granted
to Executive under any stock option plan of the Bank, the Company or any
subsidiary or affiliate thereof, shall become null and void effective upon
Executive's receipt of Notice of Termination for Cause pursuant to Section 7
hereof, and shall not be exercisable by Executive at any time subsequent to such
Termination for Cause.

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7.      NOTICE

        (a)     Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.

        (b)     "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).

8.      POST-TERMINATION OBLIGATIONS

        (a)     All payments and benefits to Executive under this Agreement
shall be subject to Executive's compliance with paragraph (b) of this Section
during the term of this Agreement and for one (1) full year after the expiration
or termination hereof.

        (b)     Executive shall, upon reasonable notice, furnish such
information and assistance to the Bank as may reasonably be required by the Bank
in connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.

9.      NON-COMPETITION

        (a)     Upon any termination of Executive's employment hereunder, other
than a termination (whether voluntary or involuntary) in connection with a
Change in Control, as a result of which the Bank and/or the Company is paying
Executive the benefits entitled to Executive under Section 4 of this Agreement,
Executive agrees not to compete with the Bank and/or the Company for a period of
two (2) years following such termination in any city, town or county in which
the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said area,
cities, towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Bank and/or the Company. The parties hereto, recognizing that irreparable
injury would result to the Bank and/or the Company, its business and property in
the event of Executive's breach of this Subsection 9(a), agree that in the event
of any such breach by Executive, the Bank and/or the Company would be entitled,
in addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
employers, employees and all persons acting for or with Executive. Nothing
herein shall be construed as prohibiting the Bank and/or the Company from
pursuing any other remedies available to the

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Bank and/or the Company for such breach or threatened breach, including the
recovery of damages from Executive.

        (b)     Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation or other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available to
the Bank for such breach or threatened breach, including the recovery of damages
from Executive.

10.     SOURCE OF PAYMENTS

        All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank.

11.     NO ATTACHMENT

        (a)     Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.

        (b)     This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Bank and their respective successors and assigns.

12.     ENTIRE AGREEMENT; MODIFICATION AND WAIVER

        (a)     This Agreement contains the entire agreement of Executive and
the Bank relating to the subject matter hereof, and supersedes in its entirety
any and all prior agreements, understandings or representations between the
parties relating to the subject matter hereof.

        (b)     This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.

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        (c)     No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.

13.     REQUIRED REGULATORY PROVISIONS

        (a)     The Bank may terminate Executive's employment at any time.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 6 hereinabove.

        (b)     If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
USC ss.1818(e)(3) and ss.1818(g)(1)), the Bank's obligations under this contract
shall be suspended as of the date of service unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay Executive all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of the obligations which were suspended.

        (c)     If Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8g(1) of the Federal Deposit Insurance Act (12 USC
ss.1818(e)(4) and ss.1818(g)(1)), all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.

        (d)     If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 USC ss.1813(x)(1)), all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.

        (e)     All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the Bank by the Director of the Office
of Thrift Supervision ("OTS") or his designee at the time (i) the Federal
Deposit Insurance Corporation ("FDIC") enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the Federal Deposit Insurance Act (12 USC ss.1823(c)); or (ii) the
Director of the OTS or his designee approves a supervisory merger to resolve
problems related to the operation of the Bank or when the Bank is determined by
the Director of the OTS to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall not be affected by such
action.

        (f)     Notwithstanding anything herein contained to the contrary, any
payments to Executive by the Bank pursuant to this Agreement are subject to and
conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated
thereunder in 12 C.F.R. Part 359.

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14.     SEVERABILITY

        If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

15.     HEADINGS FOR REFERENCE ONLY

        The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

16.     GOVERNING LAW

        This Agreement shall be governed by the laws of the State of New Mexico
but only to the extent not superseded by federal law.

17.     ARBITRATION

        Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within
twenty-five miles of Roswell, New Mexico, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.

18.     PAYMENT OF LEGAL FEES

        All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or has been resolved in Executive's favor.

19.     RELEASE

        In consideration for the payments under this Agreement, Executive hereby
agrees to release and hold harmless the Bank, its officers, directors,
employees, affiliates, agents, successors and assigns, from any and all
liability from any claim (whether in law or equity) arising from Executive's
employment with the Bank, the Company, Gallup Federal Savings Bank or GFSB
Bancorp, Inc..

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                                   SIGNATURES

        IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by
its duly authorized officer, and Executive has signed this Agreement, effective
as of the date first above written.

ATTEST:                               FIRST FEDERAL BANK

                                      By:
-------------------------                --------------------------------------
Secretary                                           Aubrey L. Dunn, Jr.

WITNESS:                              EXECUTIVE:

                                      By:
-------------------------                --------------------------------------
                                              Leonard C. Scalzi

                                       10<PAGE>

                                  EXHIBIT 10.4

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                        RELEASE AND NON-COMPETE AGREEMENT

        This RELEASE AND NON-COMPETE AGREEMENT ("Agreement") is made and entered
into this ___ day of _______, 2004 (but shall be effective at the Effective Time
(as hereinafter defined)) by and between Richard P. Gallegos ("Executive") on
the one hand and First Federal Banc of the Southwest, Inc. (the "Company"), the
parent holding company of First Federal Bank (the "Bank"), GFSB Bancorp, Inc.
("GFSB") and Gallup Federal Savings Bank ("Gallup Federal") on the other hand.
Any reference to the Company or the Bank shall include such entities and its
affiliates, as well as any successor thereto.

        WHEREAS, Executive is the President of Gallup Federal, the wholly owned
subsidiary of GFSB;

        WHEREAS, Executive is the owner and/or option-holder of shares of GFSB;

        WHEREAS, Executive has entered into a Change in Control Agreement with
GFSB, whereby the termination of Executive's employment under certain
circumstances will trigger the payment of certain benefits to Executive (the
"Severance Benefit");

        WHEREAS, GFSB is entering into an Agreement and Plan of Merger (the
"Merger Agreement") with the Company providing for, among other things, the
merger of GFSB with the Company or a subsidiary of the Company (the "Merger");

        WHEREAS, Executive will derive significant pecuniary benefit from the
consummation of the Merger by virtue of the Executive being the owner and/or
option-holder of the shares of common stock of GFSB as well as the payment of
the Severance Benefit;

        WHEREAS, Executive acknowledges receipt of the sum of THIRTY-FIVE
THOUSAND AND 00/100 DOLLARS ($35,000.00) as additional inducement to enter into
this Agreement (the "Additional Payment");

        NOW THEREFORE, in consideration for the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, the Company and Executive agree as follows:

1.      The Executive's hereby resigns his employment with Gallup Federal and
GFSB at the effective time of the consummation of the Merger (the "Effective
Time").

2.      Non-Competition and Non-Solicitation

        (a)     For a period of two (2) years following termination of
Executive's employment hereunder, Executive agrees not to compete with the Bank
and/or the Company following such termination in McKinley or San Juan Counties,
New Mexico. Executive agrees that during such period and within said Counties,
Executive shall not

<PAGE>

work for or advise, consult or otherwise serve with, directly or indirectly, any
entity whose business materially competes with the depository, lending or other
business activities of the Bank and/or the Company. The parties hereto,
recognizing that irreparable injury would result to the Bank and/or the Company,
its business and property in the event of Executive's breach of this Subsection
2(a), agree that in the event of any such breach by Executive, the Bank and/or
the Company would be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, employers, employees and all persons acting for or
with Executive. Nothing herein shall be construed as prohibiting the Bank and/or
the Company and their successors, heirs, or assigns, from pursuing any other
remedies available to the Bank and/or the Company and their successors, heirs,
or assigns for such breach or threatened breach, including the recovery of
damages from Executive.

        (b)     Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Company, the Bank
and affiliates thereof, as it may exist from time to time, is a valuable,
special and unique asset of the business of the Company and the Bank. Executive
will not, during or after the term of his employment, disclose any knowledge of
the past, present, planned or considered business activities of the Company, the
Bank or affiliates thereof to any person, firm, corporation, or other entity for
any reason or purpose whatsoever (except for such disclosure as may be required
to be provided to any federal banking agency with jurisdiction over the Bank or
Executive). Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Company or the Bank, and Executive may disclose any information regarding the
Bank or the Company which is otherwise publicly available other than from
Executive. In the event of a breach or threatened breach by Executive of the
provisions of this Section, the Company and/or the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Company, the Bank or affiliates thereof, or from rendering any services to any
person, firm, corporation or other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Company or the Bank from pursuing any other
remedies available to the Company or the Bank for such breach or threatened
breach, including the recovery of damages from Executive.

        (c)     For a period of two (2) years after termination of such
employment hereunder, Executive shall not, except in the course of his duties
for the Bank or the Company, directly or indirectly, induce or attempt to induce
or otherwise counsel, advise, ask or encourage any person who at the time is a
current employee of the Bank, the Company or any affiliate of the Bank or the
Company, or who left such employ within the preceding six (6) months, to leave
the employ of the Bank or the Company or to accept employment with another
employer besides the Bank or the Company, or as an independent contractor, or
offer employment to or hire such person, or work for any person or entity that
offers employment to or hires such person. Executive covenants and agrees that
during the term of this Agreement, and for a period of two (2) years after

<PAGE>

termination of such employment for any reason, he shall not directly or
indirectly in any capacity whatsoever (whether as a proprietor, partner,
investor, shareholder, director, officer, employer, employee, agent,
representative or otherwise), solicit business from or perform services for any
customer or prospective customer of the Bank or the Company, with respect to
activities that could compete with activities of the Bank or the Company,
without the prior written consent of the Company, which consent shall not be
unreasonably withheld.

        (d)     In the event that the provisions of this Section 2 are deemed to
exceed the time, geographic or scope limitations permitted by applicable law,
then such provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, as permitted by applicable law.

3.      Release of Claims

        The Executive hereby agrees that the Executive, on behalf of himself and
also on behalf of any other person or persons claiming or deriving a right from
the Executive, unconditionally and irrevocably forever releases and discharge
the Company, the Bank, GFSB, Gallup Federal, their respective shareholders,
agents, servants, employees, directors, officers, affiliates and/or
subsidiaries, their respective heirs, successors or assigns (the "Releasees")
from any and all charges, complaints, claims, liabilities, obligations,
promises, agreements, controversies, actions, demands, debts, costs, expenses,
damages, injuries or causes of action ("Claims") which the Executive now has, or
ever may have had, arising out of the Executive's employment by, termination of
employment by, or performance of services for, GFSB, Gallup Federal and/or its
affiliates or subsidiaries, up to and including the Effective Time of this
Agreement, whether arising in equity or pursuant to any law, rule or regulation,
including any Claims of which the Executive is not aware or does not suspect to
exist as of the date on which the Executive signs this Agreement. THE EXECUTIVE
UNDERSTANDS THAT BY SIGNING THIS RELEASE, THE EXECUTIVE IS GIVING UP ALL RIGHTS
THAT THE EXECUTIVE HAS UNDER FEDERAL AND/OR STATE LAW.

4.      The Executive acknowledges that:

        (a)     the payments and benefits provided in the Change in Control
Agreement and the Additional Payment are in consideration for the release
contained herein and are the sole benefit Executive is entitled to from GFSB;

        (b)     the Executive has been advised to consult an attorney before
signing this Agreement and has been afforded the opportunity to do so;

        (c)     the Executive has read this Agreement in its entirety,
understands its terms, and knowingly and voluntarily consents to its terms and
conditions;

        (d)     the releases made by the Executive in Paragraph 3 of this
Agreement are

<PAGE>

made knowingly and voluntarily, and without coercion by the Company or any of
the Releasees; and

        (e)     by signing this Agreement, the Executive promises that the
Executive will not file any Claims, or assist in the Claims of others, against
the Company or any of the Releasees. If the Executive breaks this promise by
bringing, participating or assisting in an administrative proceeding with the
Equal Employment Opportunity Commission ("EEOC") or any state or local
government agency serving as a referral agency for the EEOC, then, in addition
to any other remedies that may be available to the Company and the Releasees:

        (i)     if the Executive prevails in such a proceeding, any award that
        the Executive is entitled to receive as a result of such proceeding
        shall be reduced by the payments and benefits provided in the Change in
        Control Agreement; and

        (ii)    if the Executive does not prevail, a court may order the
        Executive to pay the Company damages, including attorneys' fees in
        certain cases (for example, if the court finds that the Executive has
        acted in bad faith).

5.      The Executive agrees hereafter not to disclose or make reference to the
terms of this Agreement without the prior written consent of the Company except
(a) as required by law and (b) upon disclosure to and agreement by such
individual to abide by the terms of this confidentiality provision, to the
Executive's attorney, tax and financial advisors and the Executive's immediate
family. The Executive further understands and agrees that the Executive shall
not hereafter contact or communicate with employees of the Company or former
employees of the Company regarding the subject matter of this Agreement and will
not join in, facilitate or otherwise participate in any action, proceeding or
investigation against the Company. To the extent provided by law, the Executive
will not be prohibited from filing or participating in claims with or
investigations by the EEOC or any state or local government agency serving as a
referral agency for the EEOC.

6.      This Agreement constitutes the entire understanding between the parties,
and supersedes any and all prior understandings and agreements between the
parties.

7.      The parties acknowledge that no representations, promises, consideration
or inducements have been made by the Company or by any of the Releasees to The
Executive other than what is contained in this Agreement.

8.      This Agreement may not be modified except by a writing signed by all
parties.

9.      The parties acknowledge that this Agreement does not constitute or imply
any admission of liability by the Company, or by any of the Releasees, to the
Executive or to anyone deriving or claiming a right through the Executive or on
the Executive's behalf.

10.     If any provision in this Agreement is declared or determined by any
court to be

<PAGE>

illegal, void, or unenforceable, the illegality or unenforceability of such
provision shall have no effect upon, and shall not impair, the enforceability or
validity of any other provisions in this Agreement.

11.     This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.

12.     This Agreement shall be governed by the laws of the United States of
America and, to the extent not preempted by federal law, the laws of the State
of New Mexico.

                  [Remainder of page intentionally left blank]

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first herein written.

EXECUTIVE

_____________________________
Richard P. Gallegos

FIRST FEDERAL BANC OF THE SOUTHWEST, INC.

______________________________
By: Aubrey L. Dunn, Jr.
Its: President and Chief Executive Officer

GFSB BANCORP, INC.

______________________________
By:
Its:

GALLUP FEDERAL SAVINGS BANK

______________________________
By:
Its:

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