EXHIBIT 13

                           REGISTRANT'S ANNUAL REPORT
                               TO SECURITY HOLDERS
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1999 ANNUAL REPORT

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[LOGO]

                        STATEFED FINANCIAL CORPORATION
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TABLE OF CONTENTS

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President's Message .......................................................    1
Selected Consolidated Financial Information ...............................    4
Management's Discussion and Analysis of Financial
  Condition and Results of Operation ......................................    6
Consolidated Financial Statements .........................................   18
Stockholder Information ...................................................   47
Corporate Information .....................................................   48


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October 20, 1999

Dear Shareholder,

      Again we are pleased to report to you on the financial condition of your
company as of June 30, 1999.

      It was an exceedingly challenging year as evidenced by media reports, for
all financial institutions, but for StateFed Financial Corporation it was also a
very rewarding year. For the second consecutive time in our seventy-three years
of operation we achieved the one million dollar mark in profitability which,
importantly, came primarily from ordinary income. As a result of the company's
excellent profitability again during fiscal 1999 the Board felt that all
stockholders should be personally rewarded for their investment in and
commitment to the company and consequently, on March 31, 1999, the dividend was
increased by 50% to $.30 per share per annum. Total assets also increased to
$90,823,708, and net diluted earnings per share rose from $.66 per share to $.67
per share.

      A peer group analysis compiled by America's Community Bankers showed State
Federal Savings and Loan's ROA (return on assets) at 1.12% for the first
calendar quarter of 1999 compared to a national average ratio of 0.73% for
similarly sized thrifts.

      These numbers tell us that we are doing something right, which oftentimes
translates into not necessarily doing what everyone else is doing.

      Resultantly this motivated us into the development of the 22 unit
apartment building at 4010 University, as was true ten years ago when we began
the construction of the sixty unit apartment complex in the suburb of Pleasant
Hill, Iowa. Today, that investment, based on opinions by many local real estate
brokers, is valued at an approximate figure of over three million dollars. As
pointed out in past reports, the cost of construction of that project was
$1,400,000 and today is being carried on the company's books at $955,100. The
company also enjoys a current occupancy ratio of 100% in both complexes. The
total gross income for fiscal year 1999 totaled $473,482 from these two
investments. It would be difficult to conceive of another similar investment
that could generate that amount of cash flow per year. In this connection,
income from real estate operations totaled $565,503 in fiscal 1999, a $125,000
improvement from the prior fiscal year. Overall, non-interest income was
$773,151, a $172,000 improvement from the prior fiscal year.

      The past year has also brought about other very significant changes in the
financial industry, the stock market having reached heights many thought
heretofore were unreachable. Also we witnessed the tremendous effect the
secondary market brought to the mortgage business, especially in the traditional
home mortgage lending area.

      Today articles published in trade journals geared to this segment of the
market boast of having achieved a 70% market share of home mortgage
originations. As evidenced by the media, many advertisements unwisely urge
homeowners to borrow amounts far in excess of prudent standards based on the
values of the borrowers' homes, as well as testing their ability to adequately
manage their financial affairs.


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      This, of course, flies in the face of the original motto of the Savings
and Loan industry - "Thrift and Home Ownership". These were the stated goals for
all American citizens and they served America well for over 150 years.

      This was the primary reason for our maintaining the company title of State
Federal Savings and Loan Association in the conversion to a stock company. We
are proud of the heritage that this name represents as a member of the singular
group of financial institutions that carried the torch in the building of
America into a nation of homeowners. This will forever remain as the great
legacy bestowed on America by the Savings and Loan industry, and we wanted to
continue this connotation by retaining the well-known and respected name of
State Federal Savings and Loan Association of Des Moines into our new corporate
structure.

      Hopefully the holders of these 70% of our nation's mortgages, if this is
true, will be as generous and benevolent as the thrift industry proved to be to
the homeowner in times of financial stress, which oftentimes follows levels of
prosperity now extant in America. It is a well-known fact that the Savings and
Loan Associations in America carried the burden of providing financing for the
vast majority of purchases and renovations of homes for Americans many decades
prior to the passage of the Community Reinvestment Act.

      In retrospect, with interest rates having declined steadily during the
year, and, contrastingly in light of the increases the Federal Reserve Board has
recently put into effect, we are pleased that we held the line in booking below
par investments during the past year. Today we are able to purchase investments
and book mortgages that provide a much better return than those offered during
the past twelve to fifteen months.

      The repurchase of company shares, as approved by the Board of Directors on
May 24, 1999, has progressed very well. The number of shares to be purchased was
set at five percent of the total outstanding, which would amount to a buy-back
of 77,450 shares. To date, September 2, 1999, we have purchased a total of
45,500 shares ranging in price from $11.25 to $11.50 per share for a total cash
outlay of $518,250. With a current book value of $10.61 and the Wall Street
Journal currently quoting a NASDAQ price of $11.00 to $12.00 per share, it would
appear that our repurchase program has been and will continue to be an excellent
investment for the company.

      Looking ahead, we are very pleased to have begun the construction of our
new branch facility and leasehold investment in the western suburb of Clive,
Iowa, a fast-rising star in the local business market. Almost five years ago,
when this parcel became available for sale, we determined that this was an
exceptional opportunity and submitted an offer that was accepted. Fortunately we
took this step at that time, as prices of land in Clive have increased
considerably. The location is on University Avenue, the major East-West
thoroughfare in the area, and the size of the lot, 1.25 acres, fits our plans
perfectly. The building will be of contemporary design, masonry exterior, with a
total of 14,000 square feet. Our branch facility will occupy approximately 3,000
square feet and, excluding the basement area, the remaining space will be
available for lease.

      Also included in our strategic plan for the future was a total revamping
of our computer system. With the Y2K situation having become a major concern for
the fast-approaching date of January 1, 2000, it was most fortuitous that we
will be meeting that date with a totally updated computer system. Our primary
supplier, NCR, assures that our equipment is now "state-of-the-art" and should
hold us in good stead for the Y2K conundrum and many more years to come.


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      Among other disturbing events that were spawned during fiscal 1999 with
the precipitous reduction in interest rates, were resultantly, the huge numbers
of mortgage refinancings and the calling of many financial instruments that were
issued with built-in call provisions. This, of course, heralded a substantial
upturn in the national economy, but largely at the expense of the saver,
however, which continues to some extent to the present. All Americans must be
aware that there are two areas of the economy that are not faring well in the
nation's new-found largesse. These are the important sectors of agriculture and
livestock production which are experiencing very difficult straits. Typical
prices of most farm products are currently well below the cost of production,
which eventually, could have a negative effect on the entire national economy.
At present there is a great deal of discussion among elected political figures
regarding possible congressional support programs, but as of now, very little of
substance has come to pass. The ripple effect could have significant
consequences on the nation, with emphasis on all agricultural states, Iowa being
only one of many. Congress has taken note of the problem and, hopefully, appears
to be positioning itself to take some form of remedial action in the near
future.

      Thank you again for your many kind and supportive letters and calls during
the past year. They are appreciated. The Board, management and staff wish you
the best for the coming year.

      Please remember: Enhance the value of your investment - do business with
the bank in which you own an interest! - State Federal Savings and Loan
Association. During the coming year your management team will be very busy with
the construction of the Clive facility but will always welcome a call or letter
from you at any time.

      I hope you will find it possible to join us at the annual meeting on
October 20th.

                                       Sincerely,


                                       John F. Golden
                                       President and Chairman of the Board


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                  SELECTED CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                          June 30,
                                     ---------------------------------------------------
                                       1999       1998      1997       1996       1995
                                       ----       ----      ----       ----       ----
                                                      (In Thousands)
<S>                                  <C>       <C>         <C>       <C>         <C>
Selected Financial Condition Data:

Total assets .....................   $90,824   $ 89,802    $85,679   $ 76,705    $71,271
Cash & cash equivalents ..........     8,481      9,445      3,634      2,564      3,938
Certificates of deposits in other
  institutions ...................       884     1,4794     4,4354     4,4404     5,6344
Investment securities ............     1,944      2,744      3,477      2,347      1,114
Loans receivable, net ............    72,331     68,980     68,178     62,708     56,420
Deposits .........................    54,713     53,672     50,346     45,732     45,596
FHLB advances ....................    18,877     18,965     19,000     15,000     10,000
Stockholders' equity .............    16,123     16,084     15,233     14,928     14,533

<CAPTION>
                                                    Years Ended June 30,
                                     ---------------------------------------------------
                                       1999       1998      1997       1996       1995
                                       ----       ----      ----       ----       ----
                                                      (In Thousands)
<S>                                  <C>       <C>         <C>       <C>         <C>
Selected Operations Data:

Total interest income ............   $ 6,695   $  6,823    $ 6,407   $  5,785    $ 5,107
Total interest expense ...........     3,999      4,043      3,626      3,194      2,601
                                     -------   --------    -------   --------    -------
Net interest income ..............     2,696      2,780      2,781      2,591      2,506
Provision for loan losses ........        36         52         36         24         24
                                     -------   --------    -------   --------    -------
Net interest income after ........         0          5          7
provision for loan losses ........     2,660      2,728      2,745      2,567      2,482
Non-interest income:
Real estate operations ...........       566        441        404        395        386
Gain on sale of real estate and
  investments ....................       106         44       1584         41          2
Net realized loss on sale of
  available-for-sale securities ..        --         (2)        --        (24)        --
Other non-interest income ........       101        118        108         58         57
                                     -------   --------    -------   --------    -------
Total non-interest income ........       773        601        670        470        445
Total non-interest expense .......     1,926      1,821      1,991      1,679      1,637
                                     -------   --------    -------   --------    -------
Income before income taxes .......     1,507      1,508      1,424      1,358      1,290
Income tax expense ...............       489        491        503        475        486
                                     -------   --------    -------   --------    -------

Net income .......................   $ 1,018   $  1,017    $   921   $    883    $   804
                                     =======   ========    =======   ========    =======
</TABLE>


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<TABLE>
<CAPTION>
                                                              Year Ended June 30,
                                                   --------------------------------------------
                                                   1999      1998      1997      1996      1995
                                                   ----      ----      ----      ----      ----
<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) .................         1.13      1.15      1.12      1.20      1.20
  Interest rate spread information:
   Average during year ...................         2.50      2.60      2.77      2.72      2.98
   End of year ...........................         2.62      2.41      2.65      2.80      2.52
  Net interest margin(1) .................         3.20      3.35      3.58      3.72      3.95
  Ratio of operating expense to average
   total assets ..........................         2.13      2.06      2.42      2.29      2.44
  Return on equity (ratio of net
   income to average equity) .............         6.3       6.51      6.19      6.00      5.62

Quality Ratios:
 Non-performing assets to total assets at
   end of year ...........................         1.84      1.50      1.55       .62       .20
 Allowance for loan losses to
   non-performing loans ..................        27.36    127.44     22.30     50.21    151.05

Capital Ratios:
 Stockholders' Equity to total assets at
   end of year ...........................        17.75     17.91     17.78     19.46     20.39
Average Stockholders' Equity to average
  assets .................................        17.81     17.71     18.10     20.05     21.33
 Ratio of average interest-earning assets
  to average interest-bearing liabilities          1.147x    1.153x    1.173x    1.218x    1.235x
 Number of full-service offices ..........         2         2         2         2         2
</TABLE>

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(1) Net interest income divided by average interest-earning assets.

(2) No non-performing loans at year-end.


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                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

      When used in this filing and in future filings by StateFed Financial
Corporation (the "Company") with the Securities and Exchange Commission, in the
Company's press releases or other public or shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
words or phrases "would be," "will allow," "intends to," "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to risks and uncertainties, including but not limited to
changes in economic conditions in the Company's market area, changes in policies
by regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, all or some of which could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected.

      The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.

      The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.

General

      The principal business of the Company has historically consisted of
attracting deposits from the general public, and making loans secured by
residential real estate. The Company's profitability is primarily dependent upon
its net interest income, which is the difference between interest income on its
loan and investment portfolio and interest paid on deposits and other borrowed
funds. Net interest income is directly affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest rates
earned or paid on such amounts. The Company's profitability is also affected by
the provision for loan losses and the level of non-interest income and expenses.
Noninterest income consists primarily of service charges and other fees, gains
(losses) on sales of assets and income from real estate operations. Non-interest
expense includes salaries and employee benefits, real estate operations,
occupancy of premises, federal deposit insurance premiums, data processing
expenses and other operating expenses.

      StateFed Financial generally has sought to enhance its net earnings by,
among other things, maintaining asset quality and levels of capital above
federally required minimum standards and by controlling general and
administrative expenses. Although no assurances can be made about future
periods, the Company's results in these areas have enabled it to be consistently
profitable and well capitalized.

      The operating results of the Company are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
policies of agencies that regulate financial institutions. StateFed Financial's
cost of funds is influenced by interest rates on competing investments and
general market rates of interest. Lending activities are influenced by the
demand for real estate loans and other types of loans, which is in turn affected
by the interest rates at which such loans are made, general economic conditions
affecting loan demand and the availability of funds for lending activities.

      StateFed Financial's basic mission is to maintain a strong capital
position and continue to record core earnings while serving its local community.
Specifically, it offers a range of customer services and products, including
deposit accounts and loans with a special emphasis on one-to-four family
mortgage lending and, to a lesser extent, multi-family


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and commercial real estate lending. Yet smaller portions of the Company's loans
receivable consists of construction and consumer loans. Management has focused
on adjustable rate mortgage loans and loans with three to seven year balloons
and/or calls in recent years, achieving a loan portfolio consisting of 39.98%
adjustable rate loans, 36.14% fixed rate loans, and 23.88% balloon loans.

Financial Condition

      Comparison of Fiscal Years Ended June 30, 1999 and June 30, 1998.

      The Company's total assets increased from $89.8 million at June 30, 1998
to $90.8 million at June 30, 1999, an increase of $1.0 million, or 1.1%. The
increase was primarily due to the increase in loans receivable of $3.3 million,
partially offset by a decrease in cash and cash equivalents of $964,200, and a
decrease in investment securities of $799,100, and a decrease in investments in
certificates of deposit of $594,200. The increase in loans receivable was funded
primarily from an increase in deposits of $1.0 million, a decrease in cash and
cash equivalents of $964,200, a decrease in investment securities
available-for-sale of $799,100, and a decrease in investments in certificates of
deposit of $594,200.

      Net loans increased $3.3 million from $69.0 million at June 30, 1998 to
$72.3 million at June 30, 1999. The increase in the loan portfolio was comprised
primarily of $16.6 million in mortgage loans originated and $1.4 million in
purchased loans, partially offset by $14.4 million in principal repayments.

      Total deposits increased $1.0 million from $53.7 million at June 30, 1998
to $54.7 million at June 30, 1999. During fiscal 1999, NOW accounts increased
$640,000, money market accounts increased $345,000, and passbook accounts
increased $150,000, while certificates of deposit decreased $94,000. The Company
did not offer any special marketing programs during the 1999 fiscal year.

      Total stockholders' equity increased $39,100 from $16.08 million at June
30, 1998 to $16.12 million at June 30, 1999. The increase was primarily the
result of net income of $1.0 million, exercised stock options of $60,600,
allocations to the Employee Stock Ownership Plan ("ESOP") totaling $151,300,
partially offset by $689,700 expended for the repurchase of 59,000 shares of
Company common stock, dividends declared totaling $385,200, and the decrease in
unrealized gains on available-for-sale securities of $116,100.

      Comparison of Fiscal Years Ended June 30,1998 and June 30, 1997.

      The Company's total assets increased from $85.7 million at June 30, 1997
to $89.8 million at June 30, 1998, an increase of $4.1 million, or 4.81%. The
increase was primarily due to the increase in cash and cash equivalents of $5.8
million, the increase in property acquired in settlement of loans of $952,500,
and the increase in loans receivable of $802,000. The increase in loans
receivable was funded primarily from a decrease in investment in certificates of
deposit held for investment of $3.0 million and an increase in deposits of $3.3
million.

      Net loans increased $802,000 from $68.2 million at June 30, 1997 to $69.0
million at June 30, 1998. The increase in the loan portfolio was comprised
primarily of $16.5 million in mortgage loans originated and $2.2 million in
purchased loans, partially offset by $18.2 million in principal repayments.

      Total deposits increased $3.3 million from $50.3 million at June 30, 1997
to $53.7 million at June 30, 1998. During fiscal 1998, certificates of deposit
increased $3.2 million, money market accounts increased by $313,000, and NOW
accounts increased $343,000, while passbook accounts decreased $538,000. The
Company did not offer any special marketing programs during the 1998 fiscal
year.

      Total stockholders' equity increased $ 851,300 from $15.2 million at June
30, 1997 to $16.1 million at June 30, 1998. The increase was primarily the
result of net income of $1.0 million, exercised stock options of $67,200,


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amortization of recognition and retention plan ("RRP") awards and allocations to
the Employee Stock Ownership Plan ("ESOP") totaling $200,900, and the increase
in unrealized gains on available for sale securities of $62,500, offset by
$184,000 expended for the repurchase of 10,000 shares of Company common stock
and dividends declared totaling $312,200.

Results of Operations

      Comparison of Fiscal Years ended June 30, 1999 and June 30, 1998.

      General. Net income for the year ended June 30, 1999 remained virtually
unchanged at $1.0 million, however, due to stock repurchases, diluted earnings
per shared increased $.01. Non-interest income increased $172,300 and the
provision for loan losses decreased $16,000. These gains were partially offset
by a decrease in net interest income of $84,200, and an increase in non-interest
expense of $104,700.

      Interest Income. Interest income decreased $127,100 to $6.67 million for
fiscal 1999 compared to $6.82 million for fiscal 1998 due primarily to a
decrease in the rates earned on loans receivable, investment securities, and
other assets.

      Interest Expense. Interest expense decreased $43,000 from $4.04 million
for fiscal 1998 to $4.00 million in fiscal 1999. The decrease was due to the
decrease in the rates paid on deposits and advances from the Federal Home Loan
Bank.

      Provision for Loan Losses. The provision for loan losses for fiscal 1999
was $36,000, a decrease of $16,000 compared to $52,000 for the year ended June
30, 1998. The amounts provided during the fiscal year were based on management's
quarterly analysis of the allowance for loan losses, based on, among other
things, the condition of the loan portfolio, the local economy, and regulatory
comments. Although the Company maintains its allowance for loan losses at a
level which it considers to be adequate to provide for potential losses, there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods. In
addition, the Company's determination as to the amount of the allowance for loan
losses is subject to review by the regulatory agencies, which can order the
establishment of additional general or specific allowances.

      Non-Interest Income. Non-interest income increased from $600,800 in fiscal
1998 to $773,100 in fiscal 1999. The increase of $172,300 is primarily the
result of a $124,800 increase in investment in real estate operations, a $54,500
increase in gains on sale of investments, and a $9,800 increase in gains on
sales of real estate, offset by a $16,800 decrease in other non-interest income.

      Non-Interest Expense. Non-interest expense increased from $1.8 million in
fiscal 1998 to $1.9 million in fiscal 1999. The increase of $104,700 is
primarily the result of an increase in investment real estate operations expense
of $61,000 as a result of depreciation expenses of a full year of operations in
the new 22 unit apartment building, an increase in occupancy expense of $27,500
as a result of the increase in depreciation of the new computer equipment, an
increase in data processing services of $12,200, and an increase in other
non-interest expense of $15,500, partially offset by a decrease in salaries and
employee benefits of $14,200.

      Income Tax Expense. Income tax expense was $488,900 in fiscal 1999
compared to $490,500 in fiscal 1998, a decrease of $1,600. Income taxes
decreased primarily due to tax benefits of tax credits on investments.

      Comparison of Fiscal Years ended June 30, 1998 and June 30, 1997.

      General. Net income for the year ended June 30, 1997 was $1,017,000, an
increase of $96,000 compared to net income for the year ended June 30, 1997 of
$921,000. The increase was primarily the result of a decrease in non-


                                       8
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interest expense of $169,900 and a decrease in income taxes of $12,400,
partially offset by a decrease in non-interest income of $69,100 and an increase
in the provision for loan losses of $16,000.

      Interest Income. Interest income increased $415,500 to $6.8 million for
fiscal 1998 compared to $6.4 million for fiscal 1997 due primarily to an
increase in the volume of loans receivable, and investment securities and other
assets.

      Interest Expense. Interest expense increased $416,800 from $3.6 million
for fiscal 1997 to $4.0 million in fiscal 1998. The increase was due to the
increase in the balance of certificates of deposit.

      Provision for Loan Losses. The provision for loan losses for fiscal 1998
was $52,000, an increase of $16,000 compared to the year ended June 30, 1997 of
$36,000. The amounts provided during the fiscal year were based on management's
quarterly analysis of the allowance for loan losses, based on, among other
things, the condition of the loan portfolio, the local economy, and regulatory
comments. Although the Company maintains its allowance for loan losses at a
level which it considers to be adequate to provide for potential losses, there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods. In
addition, the Company's determination as to the amount of the allowance for loan
losses is subject to review by the regulatory agencies which can order the
establishment of additional general or specific allowances.

      Non-Interest Income. Non-interest income decreased from $670,000 in fiscal
1997 to $601,000 in fiscal 1998. The decrease of $69,000 is primarily the result
of a $114,100 decrease in gains on sales of real estate, offset by a $36,700
increase in investment in real estate operations and a $8,400 increase in other
non-interest income.

      Non-Interest Expense. Non-interest expense decreased from $2.0 million in
fiscal 1997 to $1.8 million in fiscal 1998. The decrease of $170,000, or 8.53%,
is primarily the result of a decrease in the Savings Association Insurance Fund
special assessment of $291,000, a decrease in advertising of $19,000, and a
decrease in Federal Deposit Insurance premiums of $30,000, partially offset by
an increase in investment real estate operations of $23,000, an increase in
other non-interest expense of $22,000, an increase in salaries and employee
benefits of $96,000, an increase in occupancy expense of $14,000, and an
increase in data processing services of $15,000.

      Income Tax Expense. Income tax expense was $490,000 in fiscal 1998
compared to $503,000 in fiscal 1997, a decrease of $13,000. Income taxes
decreased primarily due to tax benefits of tax credits on investments.

Asset/Liability Management

      The measurement and analysis of the exposure of the Association to changes
in the interest rate environment is referred to as asset/liability management. A
primary objective of asset/liability management is to manage interest rate risk.
The Association monitors its asset/liability mix on an ongoing basis and, from
time to time, may institute certain changes in its product mix and asset and
liability maturities.

      The Association focuses lending efforts toward offering adjustable-rate
loan products and balloon loans as an alternative to more traditional fixed-rate
30 year mortgage loans. At June 30, 1999, the Company had $27.9 million of
adjustable-rate loans which comprised over 39.98% of the Association's loan
portfolio. StateFed Financial has not historically sold its loans.

      The primary objective of the Association's investment strategy is to
provide liquidity necessary to meet funding needs as well as to address daily,
cyclical and long-term changes in the asset/liability mix, while contributing to
profitability by providing a stable flow of dependable earnings. Investments
generally include interest-bearing deposits in other federally insured financial
institutions, FHLB stock, U.S. Government securities, and certain issues of
corporate equity securities.


                                       9
<PAGE>

      Generally, the investment policy of the Association is to invest funds
among various categories of investments and maturities based upon the Company's
need for liquidity, to achieve the proper balance between its desire to minimize
risk and maximize yield, to provide collateral for borrowings, and to fulfill
the Association's asset/liability management policies.

      StateFed Financial's cost of funds responds to changes in interest rates
due to the relatively short-term nature of its deposit portfolio. Consequently,
the results of operations are influenced by the levels of short-term interest
rates. The Association offers a range of maturities on its deposit products at
competitive rates and monitors the maturities on an ongoing basis.

      An approach used by management to quantify interest rate risk is the net
portfolio value ("NPV") analysis. In essence, this approach calculates the
difference between the present value of liabilities, expected cash flows from
assets and cash flows from off balance sheet contracts. Under OTS regulations,
an institution's "normal" level of interest rate risk in the event of an
immediate and sustained 200 basis point change in interest rates is a decrease
in the institution's NPV in an amount not exceeding 2% of the present value of
its assets. Pursuant to this regulation, thrift institutions with greater than
"normal" interest rate exposure must take a deduction from their total capital
available to meet their risk-based capital requirement. The amount of that
deduction is one-half of the difference between (a) the institution's actual
calculated exposure to the 200 basis point interest rate increase or decrease
(whichever results in the greater pro forma decrease in NPV) and (b) its
"normal" level of exposure which is 2% of the present value of its assets.
Savings institutions, however, with less than $300 million in assets and a total
capital ratio in excess of 12%, will be exempt from this requirement unless the
OTS determines otherwise. The OTS has postponed the implementation of the rule
until further notice. Based upon its asset size and capital level at June 30,
1999, the Company would qualify for an exemption from this rule.

      The following table sets forth, at June 30, 1999, an analysis of the
Bank's interest rate risk as measured by the estimated changes in NPV resulting
from instantaneous and sustained parallel shifts in the yield curve (+/-400
basis points, measured in 100 basis point increments).

                                            Estimated Increase (Decrease) in NPV
Change in Interest Rates     Estimated NPV  ------------------------------------
    (Basis Points)              Amount          Amount            Percent
    --------------              ------          ------            -------
                                (Dollars in Thousands)
       +300                 $  8,829             $(2,179)           (20)%
       +200                    9,748              (1,260)           (11)
       +100                   10,520                (487)            (4)
        ---                   11,008
       -100                   11,222                 214              2
       -200                   11,377                 369              3
       -300                   11,579                 571              5

      Certain assumptions utilized in assessing the interest rate risk of thrift
institutions were employed in preparing the preceding table. These assumptions
relate to interest rates, loan prepayment rates, deposit decay rates, and the
market values of certain assets under the various interest rate scenarios. It
was also assumed that delinquency rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Company's assets and liabilities would perform as set forth
above. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the NPV than indicated above.


                                       10
<PAGE>

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,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.

<TABLE>
<CAPTION>
                                                                 Year Ended June 30,
                                         --------------------------------------------------------------------
                                                         1999                               1998
                                         ---------------------------------   -------------------------------
                                           Average     Interest                Average    Interest
                                         Outstanding    Earned/    Yield/    Outstanding   Earned/    Yield/
                                           Balance       Paid       Rate       Balance      Paid       Rate
                                           -------       ----       ----       -------      ----       ----
                                                                        (Dollars in Thousands)
<S>                                        <C>          <C>         <C>        <C>          <C>         <C>
Interest-Earning Assets:
 Interest-earning bank accounts .....      $ 9,678      $  459      4.74%      $ 7,881      $  380      4.82%

 Certificates of deposit invested in
   other institutions ...............        1,332          78      5.86         2,553         148      5.80
 Investment and other securities ....        2,246         137      6.10         3,321         241      7.26
 Loans receivable(1) ................       69,904       5,951      8.51        68,195       5,989      8.78
 FHLB stock .........................        1,102          71      6.44           950          65      6.84
                                           -------      ------      ----       -------      ------      ----
  Total interest-earning assets(1) ..      $84,262      $6,696      7.95       $82,900      $6,823      8.23
                                           =======      ======      ====       =======      ======      ====
Interest-Bearing Liabilities:
  Passbook accounts .................        3,561          97      2.72         3,889         107      2.75
  NOW accounts ......................        2,333          34      1.46         1,901          25      1.32
  Money market accounts .............        4,418         160      3.62         3,654         132      3.61
  Certificates of deposit ...........       44,199       2,597      5.88        43,436       2,624      6.04
  FHLB advances .....................       18,921       1,112      5.88        18,992       1,155      6.08
                                           -------      ------      ----       -------      ------      ----
  Total interest-bearing liabilities       $73,432       4,000      5.45       $71,872       4,043      5.63
                                           =======      ======      ====       =======      ======      ====
Net interest income .................                   $2,696                              $2,780
                                                        ======                              ======
Net interest rate spread ............                               2.50%                               2.60%
                                                                    ====                                ====
Net earning assets ..................      $10,830                             $11,028
                                           =======                             =======
Net yield on average
 interest-earning assets ............                               3.20%                               3.35%
                                                                    ====                                ====
Average interest-earning assets to
 average interest-bearing liabilities                   1.147x                              1.153x
                                                        ======                              ======

<CAPTION>
                                                 Year Ended June 30,
                                         ----------------------------------
                                                         1997
                                         ----------------------------------
                                           Average     Interest
                                         Outstanding    Earned/      Yield/
                                           Balance       Paid         Rate
                                           -------       ----         ----
<S>                                         <C>          <C>         <C>
Interest-Earning Assets:
 Interest-earning bank accounts .....       $ 3,255      $  145      4.45%

 Certificates of deposit invested in
   other institutions ...............         4,445         262      5.89
 Investment and other securities ....         2,483         184      7.41
 Loans receivable(1) ................        66,558       5,752      8.64
 FHLB stock .........................           912          64      7.02
                                            -------      ------      ----
  Total interest-earning assets(1) ..       $77,653       6,407      8.25%
                                            =======      ======      ====
Interest-Bearing Liabilities:
  Passbook accounts .................       $ 4,094      $  113      2.76%
  NOW accounts ......................         1,867          23      1.23
  Money market accounts .............         3,283         117      3.56
  Certificates of deposit ...........        38,745       2,302      5.94
  FHLB advances .....................        18,231       1,071      5.87
                                            -------      ------      ----
  Total interest-bearing liabilities        $66,220       3,626      5.48
                                            =======      ======      ====
Net interest income .................                    $2,781
                                                         ======
Net interest rate spread ............                                2.77%
                                                                     ====
Net earning assets ..................       $11,433
                                            =======
Net yield on average
 interest-earning assets ............                                3.58%
                                                                     ====
Average interest-earning assets to
 average interest-bearing liabilities                    1.173x
                                                         ======
</TABLE>

----------

(1)   Calculated net of deferred loan fees, loan discounts, loans in process and
      loss reserves.


                                       11
<PAGE>

Rate/Volume Analysis

      The following schedule presents the dollar amount of changes in interest
income and interest or decrease expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the increase
or decrease related to changes in average outstanding balances and that due to
the 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,
                                             ----------------------------------------------------------------------
                                                        1999 v. 1998                      1998 v. 1997
                                             ---------------------------------  -----------------------------------
                                                   Increase                           Increase
                                                  (Decrease)                         (Decrease)
                                                    Due to                             Due to
                                             --------------------                -------------------
                                                                       Total                              Total
                                                                      Increase                           Increase
                                               Volume      Rate      (Decrease)   Volume      Rate      (Decrease)
                                              ---------  --------  ------------  ---------  --------    ----------
                                                                  (Dollars in Thousands)
<S>                                            <C>         <C>         <C>         <C>         <C>        <C>
Interest-earning assets:
Interest-earning bank accounts ..........      $  85       $  (6)      $  79       $ 222       $ 13       $ 235
Certificates of deposit invested in other        (71)          1         (70)
institutions ............................       (110)         (4)       (114)
Investments and other securities ........        (70)        (34)       (104)         61         (4)         57
Loans receivable ........................        148        (186)        (38)        143         94         237
FHLB stock ..............................         10          (4)          6           3         (2)          1
                                               -----       -----       -----       -----       ----       -----
Total interest-earning assets ...........      $ 102       $(229)      $(127)      $ 319       $ 97       $ 416
                                               =====       =====       =====       =====       ====       =====

Interest-bearing liabilities:
Passbook accounts .......................         (9)         (1)        (10)         (6)        --          (6)
NOW accounts ............................          6           3           9          --          2           2
Money market accounts ...................         28          --          28          13          2          15
Certificates of deposit .................         46         (73)        (27)        283         39         322
FHLB advances ...........................         (4)        (39)        (43)         46         38          84
                                               -----       -----       -----       -----       ----       -----
Total interest-bearing liabilities ......      $  67       $(110)      $ (43)      $ 336       $ 81       $ 417
                                               =====       =====       =====       =====       ====       =====

Net interest income .....................                              $ (84)                             $  (1)
                                                                       =====                              =====
</TABLE>


                                       12
<PAGE>

Interest Rate Spread

      The Company's results of operations are determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
operating expenses. Net interest income is determined by the interest rate
spread between the yields earned on its interest-earning assets and the rates
paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.

      The following table sets forth the weighted average effective interest
rate earned by the Company on its loan and investment portfolios, the weighted
average effective cost of the Company's deposits and borrowings, the interest
rate spread of the Company and the net yield on weighted average
interest-earning assets at year end.

                                                            At June 30,
                                                   -----------------------------
                                                    1999       1998       1997
                                                    ----       ----       ----
Weighted average yield on:
 Loans receivable .............................     8.25%      8.477%     8.517%
 Interest-earning bank accounts ...............     5.49       5.49       5.50
 Certificates of deposit invested in other
   institutions................................     6.54       6.07       6.01
 Investments and other securities .............     5.33       6.71       7.33
 FHLB stock ...................................     6.25       6.75       7.00
   Combined weighted average yield on
     interest-earning assets ..................     7.84       8.028      8.181
Weighted average rate paid on:
 Passbook accounts ............................     2.83       2.827      2.827
 NOW accounts .................................     1.60       1.422      1.070
 Money market accounts ........................     3.29       3.291      3.290
 Certificates of deposit ......................     5.62       6.100      5.830
 FHLB advances ................................     5.70       5.983      6.338
   Combined weighted average rate paid on
      interest-bearing liabilities ............     5.23       5.621      5.534
Spread ........................................     2.62       2.407      2.647

Liquidity and Capital Resources

      The OTS requires minimum levels of liquid assets. OTS regulations
presently require the Company 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 the Company
may rely, if necessary, to fund deposit withdrawals and other short-term funding
needs. The Company's regulatory liquidity at June 30, 1999 was 15.19%. In
addition to the regulatory liquidity requirement, the Company is required to
maintain short-term liquid assets, as defined, equal to 1.0% of the average sum
of net withdrawal deposits and other liabilities, as defined. StateFed
Financial's short-term liquidity ratio at June 30, 1999 was 15.19%.

      The Company's primary sources of funds consist of deposits, FHLB advances,
repayments of loans and interest earned on certificates of deposits in other
institutions. Management believes that loan repayments and other sources of
funds will be adequate to meet the Company's foreseeable liquidity needs.

      The primary financing activity of the Company during the fiscal year ended
June 30, 1999 has been the increasing deposit base. The net increase in deposits
was $1.0 million during fiscal year 1999.

      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 is
invested generally in interest-bearing overnight deposits and other short-term
government and agency


                                       13
<PAGE>

obligations. If the Company requires additional funds beyond its internal
ability to generate, it has additional borrowing capacity with the FHLB of Des
Moines.

      The Company anticipates that it will have sufficient funds available to
meet current loan commitments. At June 30, 1999, the Company had outstanding
commitments to extend credit which amounted to $7.4 million. The Company is not
aware of any trends, events or uncertainties which will have or that are
reasonably likely to have a material effect on the Company's liquidity, capital
resources or operations.

      Certificates of deposit scheduled to mature in one year or less at June
30, 1999, totaled approximately $28.8 million. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Association. There can be no assurance, however, that the Association can
retain all such deposits. At June 30, 1999, the Association had $18.9 million in
advances from the FHLB of Des Moines outstanding.

      As a savings and loan holding company of a federal stock savings and loan
association, the Company's capital currently consists of stockholders' equity
including retained earnings. At June 30, 1999, the Company's stockholders'
equity totaled $16.1 million, or 17.75% of assets.

      At June 30, 1999, the Association had tangible and core capital of $7.7
million, or 9.0% of adjusted total assets, respectively, which was approximately
$6.5 million and $4.3 million above the minimum requirements of 1.5% and 4.0%
respectively, of the adjusted total assets in effect on that date. On June 30,
1999, the Association had risk-based capital of $8.0 million (including $7.7
million in core capital), or 15.13% of risk-weighted assets of $52.8 million.
This amount was $3.8 million above the 8% requirement in effect on that date.

Impact of Year 2000

      General. The year 2000 ("Y2K") issue confronting the Company and its
suppliers, customers, customers' suppliers and competitors centers on the
inability of computer systems to recognize the year 2000. Many existing computer
programs originally were programmed with six digit dates that provided only two
digits to identify the calendar year in the date field. With the impending new
millennium, these programs and computers will recognize "00" as the year 1900
rather than the year 2000.

      Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the responsibilities
of senior management and directors. The Federal Financial Institutions
Examination Council ("FFIEC") has issued several interagency statements on Y2K
Project Management Awareness. These statements require financial institutions
to, among other things, examine the Y2K implications of their reliance on
vendors and with respect to data exchange and the potential impact of the Y2K
issue on their customers, suppliers and borrowers. These statements also require
each federally regulated financial institution to survey its exposure, measure
risk and prepare a plan to address the Y2K issue. In addition, the federal
banking regulators have issued safety and soundness guidelines to be followed by
insured depository institutions, such as the Association, to assure resolution
of any Y2K problems. The federal banking agencies have asserted that Y2K testing
and certification is a key safety and soundness issue in conjunction with
regulatory examinations and, thus, that an institution's failure to address
appropriately the Y2K issue could result in supervisory action, including the
reduction of the institution's supervisory ratings, the denial of applications
for approval of mergers or acquisitions, or the imposition of civil money
penalties.

      Risk. Like most financial institution service providers, the Company and
its operations may be significantly affected by the Y2K issue due to its
dependence on technology and date-sensitive data. Computer software and hardware
and other equipment, both within and outside the Company's direct control and
third parties with whom the Company electronically or operationally interfaces
(including without limitation its customers and third party vendors) are likely
to be affected. If computer systems are not modified in order to be able to
identify the year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on date field
information, such as interest, payment or due dates and other operating
functions, could generate results which are


                                       14
<PAGE>

significantly misstated, and the Company could experience an inability to
process transactions, prepare statements or engage in similar normal business
activities. Likewise, under certain circumstances, a failure to adequately
address the Y2K issue could adversely affect the viability of the Company's
suppliers and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Y2K issue could result in a significant adverse impact
on the Company's operations and, in turn, its financial condition and results of
operations.

      State of Readiness. During November 1997, the Company formulated its plan
to address the Y2K issue. Since that time, the Bank has taken the following
steps:

      o     Established senior management advisory and review responsibilities;

      o     Completed a Company-wide inventory of applications and system
            software;

      o     Completed renovation and testing of the Company's mission-critical
            systems;

      o     Built an internal tracking database for application and vendor
            software;

      o     Developed compliance plans and schedules for all lines of business;

      o     Monitored vendor compliance verification;

      o     Provided awareness and education activities for employees through
            existing internal communication channels;

      o     Continued a process to respond to customer inquiries as well as help
            educate customers on the Y2K issue; and

      o     Completed a detailed contingency plan in the event of interruptions
            of service from our outside vendors and service providers.

      The following paragraphs summarize the phases of the Company's Y2K plan:

            Awareness Phase. The Company formally established a Y2K plan headed
      by a senior manager, and a project team was assembled for management of
      the Y2K project. The project team created a plan of action that includes
      milestones, budget estimates, strategies, and methodologies to track and
      report the status of the project. Members of the project team also
      attended conferences and information sharing sessions to getting more
      insight into the Y2K issue and potential strategies for addressing it.
      This phase is substantially complete.

            Assessment Phase. The Company's strategies were further developed
      with respect to how the objectives of the Y2K plan would be achieved, and
      a Y2K business risk assessment was made to quantify the extent of the
      Company's Y2K exposure. A corporate inventory (which is periodically
      updated as new technology is acquired and as systems progress through
      subsequent phases) was developed to identify and monitor Y2K readiness for
      information systems (security systems, facilities, etc.). Systems were
      prioritized based on business impact and available alternatives.
      Mission-critical systems supplied by vendors were researched to determine
      Y2K readiness. If Y2K-ready versions were not available, the Company began
      identifying functional replacements, which were either upgradable or
      currently Y2K-ready, and a formal plan was developed to repair, upgrade or
      replace all mission-critical systems. This phase is substantially
      complete.


                                       15
<PAGE>

            The Company also contacted its most significant borrowers informing
      them of the Y2K issue. Because the Company's loan portfolio is primarily
      real estate-based and is diversified with regard to individual borrowers
      and types of businesses, and the Company's primary market area is not
      significantly dependent on one employer or industry, the Company does not
      expect any significant or prolonged Y2K-related difficulties that will
      affect net earnings or cash flow. As part of the current credit approval
      process, all new and renewed loans are evaluated for Y2K risk.

            Renovation Phase. The Company's corporate inventory revealed that
      Y2K upgrades were available for all vendor-supplied mission-critical
      systems, and all these Y2K-ready versions have been delivered and placed
      into production and have entered the validation process.

            Validation Phase. The validation phase is designed to test the
      ability of hardware and software to accurately process date sensitive
      data. The Company currently is near completion of testing of each
      mission-critical system, with the degree of completion of such testing at
      97%. The Company's validation phase is expected to be completed by
      October, 1999 for all mission-critical systems. During the validation
      testing process to date, no significant Y2K problems have been identified
      relating to any modified or upgraded mission-critical system.

            Implementation Phase. The Company's plan calls for putting Y2K-ready
      code into production before having actually completed Y2K validation
      testing. Y2K-ready modified or upgraded versions have been installed and
      placed into production with respect to all mission-critical systems.

            Company Resources Invested. The Company's Y2K project team has been
      assigned the task of ensuring that all systems across the Company are
      identified, analyzed for Y2K compliance, corrected, if necessary, tested,
      and changes put into service by October 31, 1999. The Y2K project team
      members represent all functional areas of the Company, including branches,
      data processing, loan administration, accounting, item processing and
      operations, compliance, internal audit, human resources, and marketing.
      The team is headed by a vice president who reports directly to a member of
      the Company's senior management team. The Company's Board of Directors
      oversees the Y2K plan and provides guidance and resources to, and receives
      quarterly updates from, the Y2K project team.

            The Company expenses all costs associated with the required system
      changes as those costs are incurred, and such costs are being funded
      through operating cash flows. The Company does not anticipate incurring
      significant additional expense to implement additional corrective actions.

      Contingency Plans. During the assessment phase, the Company developed
backup contingency plans for each of its mission-critical systems. Virtually all
the Company's mission-critical systems are dependent upon third party vendors or
service providers. These vendors have been monitored throughout the 1998-1999
year and all have provided evidence of their efforts to comply with the Y2K
problem. All that we consider as our primary providers have appeared to have
resolved any Y2K problems that they may have had, with the exception of some of
the public utilities, which have issued statements periodically through the
local press. As a backup plan to the possibility of electrical service being
interrupted, the Company has made arrangements to have an electrical generator
on site large enough to totally power one of the branch offices. All other
vendors and suppliers that we consider part of our mission-critical systems have
provided statements of assurance and have shown due diligence as to their own
readiness. The Company has also put into place provisions to have additional
currency available and will have limitations on withdrawals in the event of
aggressive pressures on the Company's cash on hand.


                                       16
<PAGE>

Impact of Inflation and Changing Prices

      The Consolidated Financial Statements and Notes thereto 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. The impact of
inflation is reflected in the increased cost of the Company's operations. 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.

Impact of New Accounting Standards

      The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information" in June 1997. This Statement establishes
standards for the way the public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement supercedes SFAS No. 14, "Financial Reporting for
Segments of a Business." The Statement is effective for fiscal years beginning
after December 15, 1997. In the initial year of adoption, comparative
information for earlier years is to be restated. Management adopted SFAS No. 131
effective July 1, 1998, as required, without material impact on the Company's
financial statements.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be net to qualify for hedge
accounting.

      The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an interest
rate or foreign exchange rate, that is applied to a notional amount, such as an
amount of currency, to determine the settlement amount(s). It generally requires
no significant initial investment and can be settled net or by delivery of an
asset that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.

      SFAS No. 133 is effective for fiscal years beginning after June 15, 2000.
On adoption, entities are permitted to transfer held-to-maturity debt securities
to the available-for-sale or trading category without calling into question
their intent to hold other debt securities to maturity in the future. SFAS No.
133 is not expected to have a material impact on the Company's financial
statements.

      The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
July 1, 1998. The Statement establishes standards for reporting and presentation
of comprehensive income and its components in a full set of general- purpose
financial statements. It requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is presented with the same prominence as
other financial statements. SFAS No. 130 requires that companies (i) classify
items of other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital. Financial statements for
earlier periods have been restated for comparative purposes. Accumulated
comprehensive income consists solely of the change in unrealized gains or losses
on securities designated as available-for-sale in accordance with SFAS No. 115.


                                       17
<PAGE>

                         STATEFED FINANCIAL CORPORATION

                      CONSOLIDATED FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITOR'S REPORT

                                  JUNE 30, 1999

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors
StateFed Financial Corporation
Des Moines, Iowa

We have audited the accompanying consolidated balance sheets of StateFed
Financial Corporation and subsidiary as of June 30, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, comprehensive
income and cash flows for each of the three years in the period ended June 30,
1999. 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
StateFed Financial Corporation and its subsidiary as of June 30, 1999 and 1998
and the consolidated results of their operations and their cash flows for each
of the three years ended June 30, 1999, 1998 and 1997, in conformity with
generally accepted accounting principles.

McGowen, Hurst, Clark & Smith, P.C.

Des Moines, Iowa
August 6, 1999

<PAGE>

                         STATEFED FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                         ----------------------------
                                                                              1999            1998
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
ASSETS
     Cash and cash equivalents
         Non-interest bearing                                            $    268,876    $    338,612
         Interest bearing                                                   8,212,340       9,106,792
                                                                         ------------    ------------
                                                                            8,481,216       9,445,404
     Investments in certificates of deposit                                   884,300       1,478,514
     Investment securities available-for-sale                               1,944,374       2,743,518
     Loans receivable, net                                                 72,330,884      68,979,770
     Real estate acquired for development                                     236,602         231,870
     Real estate held for investment, net                                   2,645,245       2,262,060
     Property acquired in settlement of loans                               1,133,517       1,286,452
     Office property and equipment, net                                     1,188,247       1,564,077
     Federal Home Loan Bank stock, at cost                                  1,147,600         949,000
     Accrued interest receivable                                              536,028         542,246
     Other assets                                                             295,695         318,654
                                                                         ------------    ------------

             Total Assets                                                $ 90,823,708    $ 89,801,565
                                                                         ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
     Deposits                                                            $ 54,713,072    $ 53,671,860
     Advances from the Federal Home Loan Bank                              18,877,047      18,964,890
     Advances from borrowers for taxes and insurance                          337,371         340,686
     Accrued interest payable                                                 133,773         134,251
     Income taxes
         Current                                                              127,643          19,019
         Deferred                                                             197,000         213,000
     Accounts payable and other liabilities                                   200,123         295,278
     Dividends payable                                                        114,300          78,295
                                                                         ------------    ------------
             Total Liabilities                                             74,700,329      73,717,279

     Stockholders' equity
         Preferred stock, $.01 par value, 500,000 shares authorized,
           none issued
         Common stock, $.005 par value, 2,000,000 shares authorized
           1,780,972 shares issued with 1,519,004 (1999) and 1,565,892
           (1998) shares outstanding                                            8,905           8,905
         Additional paid-in capital                                         8,526,563       8,483,110
         Retained earnings - substantially restricted                      10,090,384       9,457,310
         Less treasury stock (261,968 and 215,080 shares, at cost)         (2,234,986)     (1,643,697)
         Less common stock acquired by employee stock
           ownership plan                                                    (271,290)       (341,270)
         Accumulated other comprehensive income--
          net unrealized gains on available-for-sale securities,
          net of related tax effects                                            3,803         119,928
                                                                         ------------    ------------
             Total Stockholders' Equity                                    16,123,379      16,084,286
                                                                         ------------    ------------

             Total Liabilities and Stockholders' Equity                  $ 90,823,708    $ 89,801,565
                                                                         ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       20
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                            Year ended June 30,
                                                  --------------------------------------
                                                     1999          1998          1997
                                                  ----------   -----------    ----------
<S>                                               <C>          <C>            <C>
INTEREST INCOME
     Loans receivable interest                    $5,950,625   $ 5,987,884    $5,752,351
     Investment securities and other interest        744,777       834,682       654,681
                                                  ----------   -----------    ----------
                                                   6,695,402     6,822,566     6,407,032
INTEREST EXPENSE
     Deposits                                      2,888,006     2,887,066     2,555,022
     Advances from the Federal Home Loan Bank      1,111,563     1,155,461     1,070,715
                                                  ----------   -----------    ----------
                                                   3,999,569     4,042,527     3,625,737
                                                  ----------   -----------    ----------

         NET INTEREST INCOME                       2,695,833     2,780,039     2,781,295

PROVISION FOR LOAN LOSSES                             36,000        52,000        36,000
                                                  ----------   -----------    ----------

         NET INTEREST INCOME AFTER
           PROVISION FOR LOAN LOSSES               2,659,833     2,728,039     2,745,295

NON-INTEREST INCOME
     Investment real estate operations               565,503       440,718       404,035
     Gain on sales of real estate                     53,835        44,017       158,154
     Net realized gains (losses) on sales of
       available-for-sale investment securities       52,602        (1,875)           --
     Other                                           101,211       117,977       107,717
                                                  ----------   -----------    ----------
                                                     773,151       600,837       669,906
NON-INTEREST EXPENSE
     Salaries and employee benefits                  916,692       930,892       835,207
     Investment real estate operations               328,904       267,824       244,224
     Occupancy expenses                              160,202       132,669       118,447
     Federal deposit insurance premiums               60,023        57,800        88,059
     SAIF special assessment                              --            --       291,331
     Data processing services                        111,459        99,239        83,739
     Advertising                                      33,639        33,327        52,715
     Other                                           314,875       299,386       277,336
                                                  ----------   -----------    ----------
                                                   1,925,794     1,821,137     1,991,058
                                                  ----------   -----------    ----------
         INCOME BEFORE PROVISION
           FOR INCOME TAXES                        1,507,190     1,507,739     1,424,143

PROVISION FOR INCOME TAXES                           488,900       490,460       502,818
                                                  ----------   -----------    ----------

         NET INCOME                               $1,018,290   $ 1,017,279    $  921,325
                                                  ==========   ===========    ==========

Basic earnings per share                          $     0.68   $      0.68    $     0.62
                                                  ==========   ===========    ==========
Diluted earnings per share                        $     0.67   $      0.66    $     0.60
                                                  ==========   ===========    ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       21
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                     Year ended June 30,
                                                        --------------------------------------------
                                                            1999             1998            1997
                                                        -----------      -----------      ----------

<S>                                                     <C>              <C>              <C>
     Net income                                         $ 1,018,290      $ 1,017,279      $  921,325

     Other comprehensive income, net of tax effects:

         Unrealized holding gains (losses) on securities
           arising during period                           (147,153)          64,341          79,713

         Reclassification adjustment - realized gains
           (losses) on securities during the period          31,028           (1,875)             --
                                                        -----------      -----------      ----------
             Net change in unrealized gains (losses)       (116,125)          62,466          79,713
                                                        -----------      -----------      ----------
     Comprehensive income                               $   902,165      $ 1,079,745      $1,001,038
                                                        ===========      ===========      ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       22
<PAGE>

                         STATEFED FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                           Years ended June 30, 1999, 1998, and 1997
                                                  ----------------------------------------------------------------------------------


                                                                                                                         Common
                                                                       Additional                                         Stock
                                                          Common        Paid-in         Retained        Treasury         Acquired
                                                           Stock        Capital         Earnings          Stock          By ESOP
                                                  ----------------------------------------------------------------------------------
<S>                                                       <C>         <C>             <C>             <C>               <C>
 Balance at June 30, 1996                                 $ 8,905     $ 8,376,924     $ 8,146,074     $ (1,049,358)     $ (490,211)

    Net income for the year                                                               921,325
    Dividends declared                                                                   (315,181)
    ESOP common stock released for
      allocation                                                           54,877                                           76,271
    Amortization of RRP contributions
    Treasury stock acquired - 37,400 shares                                                               (620,825)
    Treasury stock reissued to fund stock options
      eexercised--77,638 shares                                           (32,944)                         109,324
    Change in unrealized gains (losses)
      on available-for-sale securities, net of
      related tax effects
                                                  ----------------------------------------------------------------------------------

 Balance at June 30, 1997                                   8,905       8,398,857       8,752,218       (1,560,859)       (413,940)

    Net income for the year                                                             1,017,279
    Dividends declared                                                                   (312,187)
    ESOP common stock released for
      allocation                                                          118,559                                           72,670
    Amortization of RRP contributions
    Treasury stock acquired - 10,000 shares                                                               (184,375)
    Treasury stock reissued to fund stock options
      exercised - 13,446 shares                                           (34,306)                         101,537
    Change in unrealized gains (losses)
      on available-for-sale securities, net of
      related tax effects
                                                  ----------------------------------------------------------------------------------

 Balance at June 30, 1998                                   8,905       8,483,110       9,457,310       (1,643,697)       (341,270)

    Net income for the year                                                             1,018,290
    Dividends declared                                                                   (385,216)
    ESOP common stock released for
      allocation                                                           81,292                                           69,980
    Treasury stock acquired - 59,000 shares                                                               (689,688)
    Treasury stock reissued to fund stock options
      exercised - 12,112 shares                                           (37,839)                          98,399
    Change in unrealized gains (losses)
      on available-for-sale securities, net of
      related tax effects
                                                  ----------------------------------------------------------------------------------

 Balance at June 30, 1999                                 $ 8,905     $ 8,526,563    $ 10,090,384     $ (2,234,986)     $ (271,290)
                                                  ==================================================================================

<CAPTION>
                                                      Years ended June 30, 1999, 1998, and 1997
                                                  ---------------------------------------------------
                                                                    Accumulated Other
                                                                      Comprehensive
                                                       Common       Income--Unrealized
                                                        Stock         Gains (Losses)        Total
                                                       Acquired           on AFS        Stockholders'
                                                        By RRP          Securities          Equity
                                                  ---------------------------------------------------
<S>                                                    <C>                 <C>          <C>
 Balance at June 30, 1996                              $ (41,778)          $ (22,251)   $ 14,928,305

    Net income for the year                                                                  921,325
    Dividends declared                                                                      (315,181)
    ESOP common stock released for
      allocation                                                                             131,148
    Amortization of RRP contributions                     32,142                              32,142
    Treasury stock acquired - 37,400 shares                                                 (620,825)
    Treasury stock reissued to fund stock options
      eexercised--77,638 shares                                                               76,380
    Change in unrealized gains (losses)
      on available-for-sale securities, net of
      related tax effects                                                     79,713          79,713
                                                  ---------------------------------------------------

 Balance at June 30, 1997                                 (9,636)             57,462      15,233,007

    Net income for the year                                                                1,017,279
    Dividends declared                                                                      (312,187)
    ESOP common stock released for
      allocation                                                                             191,229
    Amortization of RRP contributions                      9,636                               9,636
    Treasury stock acquired - 10,000 shares                                                 (184,375)
    Treasury stock reissued to fund stock options
      exercised - 13,446 shares                                                               67,231
    Change in unrealized gains (losses)
      on available-for-sale securities, net of
      related tax effects                                                     62,466          62,466
                                                  ---------------------------------------------------

 Balance at June 30, 1998                                     --             119,928      16,084,286

    Net income for the year                                                                1,018,290
    Dividends declared                                                                      (385,216)
    ESOP common stock released for
      allocation                                                                             151,272
    Treasury stock acquired - 59,000 shares                                                 (689,688)
    Treasury stock reissued to fund stock options
      exercised - 12,112 shares                                                               60,560
    Change in unrealized gains (losses)
      on available-for-sale securities, net of
      related tax effects                                                   (116,125)       (116,125)
                                                  ---------------------------------------------------

 Balance at June 30, 1999                              $      --             $ 3,803    $ 16,123,379
                                                  ===================================================
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       23
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              Year ended June 30,
                                                                          ------------------------------------------------------
                                                                                1999               1998               1997
                                                                          -----------------  ----------------   ----------------
<S>                                                                            <C>               <C>                  <C>
Cash flows from operating activities
    Net income                                                                 $ 1,018,290       $ 1,017,279          $ 921,325
    Adjustments to reconcile net income to
      net cash provided by operating activities:
        Depreciation                                                               160,449           102,612            111,940
        Gain on sale of real estate                                                (53,835)          (44,017)          (158,154)
        Amortization of ESOP and RRP contributions                                 151,271           200,865            163,291
        Realized (gains) losses on sale of available-for-sale securities           (52,602)            1,875                  -
        Deferred loan fees                                                          (9,635)          (32,165)            13,305
        Provision for losses on loans                                               36,000            52,000             36,000
        Deferred income taxes                                                       13,000            11,000             38,000
        Other                                                                       18,607           (45,143)                 -
        Change in:
            Accrued interest receivable                                              6,218            25,232            (33,772)
            Other assets                                                            22,959            (3,900)            47,740
            Accrued interest payable                                                  (478)            5,370               (952)
            Current income tax liability                                           108,624           (10,308)            24,072
            Accounts payable and other liabilities                                 (95,177)           89,575             12,677
                                                                          -----------------  ----------------   ----------------
            Net cash provided by operating activities                            1,323,691         1,370,275          1,175,472

Cash flows from investing activities
    Investment in certificates of deposits                                        (198,000)          (99,000)           (99,000)
    Maturity of investments in certificates of deposit                             792,046         3,052,000             99,000
    Proceeds from sale or maturity of available-for-sale
      investment securities                                                      1,124,853         1,650,000            200,000
    Purchase of available-for-sale investment securities                          (420,259)         (771,984)        (1,250,407)
    (Purchase) redemption of FHLB stock                                           (198,600)            1,000           (200,000)
    Net increase in loans outstanding                                           (3,199,516)       (1,435,034)        (5,669,007)
    Investment in real estate held for investment                                  (55,472)         (359,497)          (859,781)
    Investment in real estate held for development                                  (4,731)          (36,386)           (75,890)
    Proceeds from sale of real estate                                               13,000                 -             29,264
    Investment in property acquired in settlement of loans                            (840)          (55,321)                 -
    Purchases of property and equipment                                           (112,134)         (216,738)           (15,676)
                                                                          -----------------  ----------------   ----------------
            Net cash flows provided (used) by investing activities              (2,259,653)        1,729,040         (7,841,497)

Cash flows from financing activities
    Net increase in deposits                                                     1,041,271         3,325,888          4,614,144
    Advances from Federal Home Loan Bank                                         6,000,000        14,000,000         12,000,000
    Repayment of Federal Home Loan Bank advances                                (6,087,843)      (14,035,110)        (8,000,000)
    Net decrease in advances from borrowers                                         (3,315)         (149,367)           (15,696)
    Proceeds from stock options exercised                                           60,560            67,231             76,380
    Dividends paid                                                                (349,211)         (312,264)          (318,159)
    Treasury stock purchased                                                      (689,688)         (184,375)          (620,825)
                                                                          -----------------  ----------------   ----------------
            Net cash flows provided (used) by financing activities                 (28,226)        2,712,003          7,735,844
                                                                          -----------------  ----------------   ----------------

CHANGE IN CASH AND CASH EQUIVALENTS                                               (964,188)        5,811,318          1,069,819
                                                                          -----------------  ----------------   ----------------

CASH AND CASH EQUIVALENTS, beginning of year                                     9,445,404         3,634,086          2,564,267
                                                                          -----------------  ----------------   ----------------

    CASH AND CASH EQUIVALENTS, end of year                                     $ 8,481,216       $ 9,445,404        $ 3,634,086
                                                                          =================  ================   ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       24
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      BUSINESS - StateFed Financial Corporation (the Company), organized under
      the laws of the State of Delaware, is a thrift holding company. The
      Company owns 100% of the outstanding capital stock of State Federal
      Savings and Loan Association (the Association). Its primary business
      activity is the operation of the Association.

      The Association provides a full range of banking services to individual
      and corporate customers from its two offices located in Des Moines, Iowa.
      The Association's wholly-owned subsidiary, State Service Corporation, owns
      and operates residential apartment units.

      PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
      include the accounts of StateFed Financial Corporation, State Federal
      Savings and Loan Association and its wholly-owned subsidiary, State
      Service Corporation. All significant intercompany accounts and
      transactions have been eliminated in consolidation.

      USE OF ESTIMATES - The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ
      significantly from those estimates.

      Material estimates that are particularly susceptible to significant change
      in the near-term relate to the determination of the allowance for loan
      losses and the valuation of assets acquired in connection with
      foreclosures or in satisfaction of loans. In connection with the
      determination of the allowances for loan losses and the valuation of
      assets acquired by foreclosure, management obtains independent appraisals
      for significant properties.

      Management believes that the allowances for losses on loans and valuations
      of assets acquired by foreclosure are adequate and appropriate. While
      management uses available information to recognize losses on loans and
      assets acquired by foreclosure, future loss may be accruable based on
      changes in economic conditions, particularly the economic conditions of
      central Iowa. In addition, various regulatory agencies, as an integral
      part of their examination process, periodically review the Company's
      allowances for losses on loans and valuations of assets acquired by
      foreclosure. Such agencies may require the Company to recognize additional
      losses based on their judgment of information available to them at the
      time of their examination.

      INVESTMENTS IN CERTIFICATES OF DEPOSIT - The Company invests in
      certificates of deposit issued by other federally insured financial
      institutions located throughout the United States. The Company limits its
      investments in certificates to $100,000 per financial institution. The
      investments in certificates of deposit are carried at cost. Brokerage or
      other fees paid to acquire the certificates are capitalized and amortized
      against interest income, using the interest method, over the term of the
      certificate.


                                       25
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

      INVESTMENT AND OTHER SECURITIES - Investments in debt 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 amortized through interest income using
      the interest method over the period to maturity.

      Debt 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 and recorded
      at fair value. Equity securities are also carried at fair value.
      Unrealized holding gains and losses, net of tax, on securities available
      for sale are reported as a net amount as a separate component of
      stockholders' equity.

      The Association, as a member of the Federal Home Loan Bank System, is
      required to maintain an investment in capital stock of the Federal Home
      Loan Bank of Des Moines (FHLB). The stock is recorded at cost, which
      represents anticipated redemption value.

      Gains and losses on the sale of investment securities are determined using
      the specific identification method.

      LOANS RECEIVABLE - Loans receivable are stated at unpaid principal
      balances, less an allowance for loan losses, deferred loan origination
      fees, and discounts. The Company has both the intent and the ability to
      hold loans receivable to maturity.

      A valuation allowance is provided for estimated losses on loans when a
      probable and reasonably estimable loss or decline in value occurs. 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
      allowances are charged to earnings.

      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. The Company had non-accrual loans with
      balances aggregating $96,000 at June 30, 1998. The Company had no
      non-accrual loans at June 30, 1999.

      The Company accounts for impaired loans in accordance with Statement of
      Financial Accounting Standard (SFAS) No. 114, "Accounting by Creditors for
      Impairment of a Loan." This statement requires that impaired loans be
      measured based upon the present value of expected future cash flows
      discounted at the loan's effective interest rate or, as an alternative, at
      the loan's observable market price or fair value of the collateral.


                                       26
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

      A loan is defined under SFAS No. 114 as impaired when, based on current
      information and events, it is probable that a creditor will be unable to
      collect all amounts due according to the contractual terms of the loan
      agreement. In applying the provisions of SFAS No. 114, the Company
      considers investment in one-to-four family residential loans and consumer
      installment loans to be homogeneous and therefore excluded from separate
      identification for evaluation of impairment. With respect to the Company's
      investment in multi-family and nonresidential loans, and their evaluation
      of impairment thereof, such loans are collateral dependent and, as a
      result, are carried as a practical expedient at the lower of cost or fair
      value.

      It is the Company's policy to charge off unsecured credits that are more
      than ninety days delinquent. Similarly, collateral dependent loans which
      are more than ninety days delinquent are considered to constitute more
      than a minimum delay in repayment and are evaluated for impairment under
      SFAS No. 114 at that time.

      The Company's investment in impaired loans, as defined, totaled
      approximately $83,000 at June 30, 1998. No loans were considered impaired
      as of June 30, 1999.

      The Company defers loan fees (net of direct loan origination costs)
      received in the origination process, and recognizes those fees over the
      contractual life of the related loan as a yield adjustment.

      PROPERTY ACQUIRED IN SETTLEMENT OF LOANS - Property 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) at the date of foreclosure, 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.

      OFFICE PROPERTY AND EQUIPMENT AND REAL ESTATE HELD FOR INVESTMENT -
      Property and equipment acquired by the Company is recorded at cost.
      Depreciation is provided using straight-line or accelerated methods over
      the estimated useful lives of the related assets.

      FINANCIAL INSTRUMENTS - The Company does not participate in interest-rate
      exchange agreements, hedging or other similar financial instruments.

      ADVERTISING COSTS - Advertising costs are expensed as incurred.

      INCOME TAXES - The Company provides for deferred income taxes using an
      asset-and-liability method of accounting for income taxes. Under the
      asset-and-liability method, deferred income taxes are recognized for the
      tax consequences of "temporary differences" by applying enacted statutory
      tax rates to differences between financial statement carrying amounts and
      the tax bases of existing assets and liabilities.

      The Company and its subsidiary file a consolidated federal income tax
      return and separate state income tax returns.


                                       27
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

      EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS - The Financial Accounting
      Standards Board (FASB) issued Statement of Financial Accounting Standard
      (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
      Information" in June 1997. This Statement establishes standards for the
      way that public business enterprises report information about operating
      segments in annual financial statements and requires that those
      enterprises report selected information about operating segments in
      interim financial reports issued to shareholders. It also establishes
      standards for related disclosures about products and services, geographic
      areas, and major customers. This Statement supercedes SFAS No. 14,
      "Financial Reporting for Segments of a Business". The Statement is
      effective for fiscal years beginning after December 15, 1997. In the
      initial year of adoption, comparative information for earlier years is to
      be restated. Management adopted SFAS No. 131 effective July 1, 1998, as
      required, without material impact on the Company's financial statements.

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
      Instruments and Hedging Activities," which requires entities to recognize
      all derivatives in their financial statements as either assets or
      liabilities measured at fair value. SFAS No. 133 also specifies new
      methods of accounting for hedging transactions, prescribes the items and
      transactions that may be hedged, and specifies detailed criteria to be met
      to qualify for hedge accounting.

      The definition of a derivative financial instrument is complex, but in
      general, it is an instrument with one or more underlyings, such as an
      interest rate or foreign exchange rate, that is applied to a notional
      amount, such as an amount of currency, to determine the settlement
      amount(s). It generally requires no significant initial investment and can
      be settled net or by delivery of an asset that is readily convertible to
      cash. SFAS No. 133 applies to derivatives embedded in other contracts,
      unless the underlying of the embedded derivative is clearly and closely
      related to the host contract.

      SFAS No. 133 is effective for fiscal years beginning after June 15, 2000.
      On adoption, entities are permitted to transfer held-to-maturity debt
      securities to the available-for-sale or trading category without calling
      into question their intent to hold other debt securities to maturity in
      the future. SFAS No. 133 is not expected to have a material impact on the
      Company's financial statements.

      COMPREHENSIVE INCOME - The Company adopted SFAS No. 130, "Reporting
      Comprehensive Income," as of July 1, 1998. The Statement establishes
      standards for reporting and presentation of comprehensive income and its
      components in a full set of general-purpose financial statements. It
      requires that all items that are required to be recognized under
      accounting standards as components of comprehensive income be reported in
      a financial statement that is presented with the same prominence as other
      financial statements. SFAS No. 130 requires that companies (i) classify
      items of other comprehensive income by their nature in a financial
      statement and (ii) display the accumulated balance of other comprehensive
      income separately from retained earnings and additional paid-in capital.
      Financial statements for earlier periods have been restated for
      comparative purposes. Accumulated comprehensive income consists solely of
      the change in unrealized gains or losses on securities designated as
      available for sale in accordance with SFAS No. 115.


                                       28
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

      EARNINGS PER SHARE - Basic earnings per share is computed based upon the
      weighted-average shares outstanding during the period, less shares in the
      ESOP that are unallocated and not committed to be released.
      Weighted-average common shares outstanding totaled 1,488,072, 1,487,881
      and 1,489,648 for the years ended June 30, 1999, 1998 and 1997,
      respectively.

      Diluted earnings per share is computed by considering common shares
      outstanding and dilutive potential common shares to be issued under the
      Company's stock option plan. Weighted-average common shares deemed
      outstanding for the purpose of computing diluted earnings per share
      totaled 1,531,094, 1,545,208 and 1,532,881 for the years ended June 30,
      1999, 1998 and 1997, respectively.

      FINANCIAL STATEMENT PRESENTATION - Certain items in prior year financial
      statements have been reclassified to conform to the 1999 presentation.

NOTE B - STATEMENT OF CASH FLOWS

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with maturities of three months or less, when purchased,
to be cash equivalents. The Company had cash deposits of approximately
$8,190,000 at the Federal Home Loan Bank of Des Moines at June 30, 1999.

                                                 Year Ended June 30,
                                         ------------------------------------
                                            1999         1998         1997
                                         ------------------------------------
Supplemental Disclosures of Cash
  Flow Information

  Income taxes paid                     $  380,276   $  489,300   $  441,000
                                         ====================================
  Interest paid on deposits and
    FHLB advances (includes interest
    credited to deposit accounts)       $4,000,047   $4,046,000   $3,627,000
                                         ====================================

Noncash Investing and Financing Activities

Property acquired through foreclosure totaled $41,937, $1,150,000 and $449,000
during fiscal years 1999, 1998, and 1997, respectively. The Company also
financed $219,900, $730,000 and $299,000 of loans for borrowers to purchase real
estate owned by the Company during fiscal years 1999, 1998, and 1997,
respectively.


                                       29
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - INVESTMENTS IN CERTIFICATES OF DEPOSIT

      The Company invests in certificates of deposit issued by other financial
      institutions, up to a maximum of $100,000 per institution. Following is a
      summary of the future maturities of the certificates at June 30, 1999:

                                             Interest
                                               Rate                Amount
                                        ----------------------------------------
Mature during fiscal year:
   2000                                    5.25% - 7.00%             $  487,000
   2001                                    5.40% - 5.75%                198,000
   2003                                    6.85% - 7.00%                198,000
                                                               -----------------
                                                                        883,000
Unamortized broker fees                                                   1,300
                                                               -----------------
                                                                      $ 884,300
                                                               =================

      Following is a summary of certificates by interest rate range:

                                                         June 30,
                                        ---------------------------------------
                                              1999                    1998
                                        ---------------------------------------
Interest rates:
   5.00% - 5.99%                            $    297,000          $    792,000
   6.00% - 6.99%                                 297,000               396,000
   7.00% - 7.99%                                 289,000               289,000
                                        ---------------------------------------
                                                 883,000             1,477,000
   Unamortized broker fees                         1,300                 1,514
                                        ---------------------------------------
                                            $    884,300           $ 1,478,514
                                        =======================================

NOTE D - INVESTMENT SECURITIES

      Following is a summary of investment securities (all securities are
classified as available-for-sale):

<TABLE>
<CAPTION>
                                                 Gross          Gross
                                   Amortized   Unrealized     Unrealized        Fair
                                     Cost        Gains          Losses         Value
                                 ------------------------------------------------------
<S>                              <C>           <C>           <C>             <C>
June 30, 1999:
   U.S. government and agency
     debt securities             $  400,280    $   5,576     $         --    $  405,856
   Municipal bonds                  101,574           --           (1,582)       99,992
   Equity securities              1,436,757       31,250          (29,481)    1,438,526
                                 ------------------------------------------------------

                                 $1,938,611    $  36,826          (31,063)   $1,944,374
                                 ======================================================
June 30, 1998:
   U.S. government and agency
     debt securities             $1,361,292    $  81,622     $         --    $1,442,914
   Equity securities              1,185,529      115,075               --     1,300,604
                                 ------------------------------------------------------
                                 $2,546,821    $ 196,697     $         --    $2,743,518
                                 ======================================================
</TABLE>

NOTE D - INVESTMENT SECURITIES - Continued


                                       30
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The contractual maturities of debt securities are shown below. Actual maturities
are expected to differ from contractual maturities as borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
                                          Weighted                           Estimated
                                           Average         Amortized           Fair
                                            Yield            Cost              Value
                                        -----------------------------------------------
<S>                                         <C>           <C>              <C>
Due in one year or less                     8.35%         $   200,280      $   201,999
Due after one year through five years         -                     -                -
Due after five years through ten years      7.45%             200,000          203,856
Due after ten years                         5.00%             101,574           99,993
                                                        -------------------------------
                                                          $   501,854       $  505,848
                                                        ===============================
</TABLE>

The Company had realized gains (losses) on the sale of investment securities
totaling $52,602 and ($1,875) during fiscal years 1999 and 1998, respectively.
The Company had no realized gains or losses on the sale of investment securities
available-for-sale during fiscal year 1997. Proceeds from the sale of
available-for-sale equity securities totaled $113,643 for 1999 and $50,000
during 1998.

Following is a summary of investment income:

                                                     Year Ended June 30,
                                              --------------------------------
                                                1999        1998        1997
                                              --------------------------------
U.S. government and agency securities         $ 69,179    $162,065    $109,834
Municipal bonds                                  4,596          --          --
Investments in certificates of deposit          78,061     147,984     262,253
FHLB stock dividends                            71,213      64,725      64,262
Interest-bearing cash accounts                 459,334     380,462     144,655
Equity securities dividends                     62,394      79,446      73,677
                                              --------------------------------
                                              $744,777    $834,682    $654,681
                                              ================================


                                       31
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - LOANS RECEIVABLE, NET

      Following is a summary of loans receivable:

                                                           June 30,
                                                 -----------------------------
                                                     1999             1998
                                                 -----------------------------
Real estate mortgage loans:
   Secured by one-to-four family residences      $ 46,177,819     $ 44,440,849
   Secured by commercial and multi-family
     real estate                                   24,340,169       23,114,638
   Construction loans                               2,025,300        1,535,363
                                                 -----------------------------
      Total real estate mortgage loans             72,543,288       69,090,850

Consumer and other loans                            1,280,244          996,850
                                                 -----------------------------
                                                   73,823,532       70,087,700
Less:
   Allowance for loan losses                         (242,129)        (206,129)
   Undisbursed portion of mortgage loans             (963,043)        (605,197)
   Unamortized balance on purchased loan
     discounts                                         (2,041)          (1,534)
   Deferred loan fees                                (285,435)        (295,070)
                                                 -----------------------------

      Loans receivable, net                      $ 72,330,884     $ 68,979,770
                                                 =============================

      A significant portion of loans receivable consist of first mortgage loans
      issued to finance purchases of real estate, principally one-to-four family
      residences. The real estate is located primarily in the greater Des Moines
      area. There is no significant concentration of credit risk to specific
      industries.

      Commercial and multi-family real estate loans include participating
      interests in loans purchased by the Company. Participation loans purchased
      totaled approximately $5,700,000 and $3,800,000 at June 30, 1999 and 1998,
      respectively. A significant portion of these participation loans are
      secured by real estate located outside of Iowa.

      The economic condition of the Company's market area can affect its
      borrowers' ability to repay their loans. The Company has no significant
      restructured troubled debt.

      The Company is a party to financial instruments with off-balance-sheet
      risk in the normal course of business to meet the financial needs of its
      customers and to reduce its own exposure to fluctuations in interest
      rates. These financial instruments primarily include commitments to extend
      credit. These instruments involve, to varying degrees, elements of credit
      and interest rate risk in excess of the amounts recognized in the
      financial statements.

      The Company's exposure to credit loss in the event of non-performance by
      the other party to the financial instrument for loan commitments is
      represented by the contractual amount of those instruments. The Company
      uses the same credit policies in making commitments as it does for
      on-balance sheet instruments.


                                       32
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - LOANS RECEIVABLE, NET - Continued

      At June 30, 1999, the Company had outstanding commitments to fund real
      estate loans of $7,390,779. The commitments were primarily for adjustable
      interest rate commercial real estate loans on real estate located across
      the Midwest.

      Loan commitments are agreements to lend to customers as long as there are
      no violations of any conditions established in the contracts. 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 do not
      necessarily represent future cash requirements. The Company evaluates each
      customer's creditworthiness 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 borrower.
      Collateral held is primarily residential and commercial real estate, but
      may include autos, consumer goods and other assets.

      Loan customers of the Company include certain executive officers,
      employees, members of the board of 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, 1999 and 1998
      amounted to $1,935,000 and $1,579,000, respectively. During the year ended
      June 30, 1999, there were new loans to this group totaling $629,000 and
      repayments totaling $273,000.

      The Company serviced participation loans with outstanding balances
      totaling $2,448,260 and $3,974,000 at June 30, 1999 and 1998 respectively.
      The Company's portion of these loans totaled $1,456,250 and $2,110,000 at
      June 30, 1999 and 1998, respectively.

      The Company did not sell any portion of its loan portfolio, or loans
      originated, during the years ended June 30, 1999 and 1998.

      Activity in the allowance for loan losses is summarized as follows:

                                                  Year Ended June 30,
                                          -------------------------------------
                                            1999          1998           1997
                                          -------------------------------------
Balance at beginning of year              $206,129     $ 221,355      $ 240,278
   Provision charged to income              36,000        52,000         36,000
   Charge-offs                                  --       (67,226)       (54,923)
                                          -------------------------------------

Balance at end of year                    $242,129     $ 206,129      $ 221,355
                                          =====================================

     There were no significant nonaccrual loans as of June 30, 1999, 1998 and
1997.


                                       33
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - LOANS RECEIVABLE, NET - Continued

      As of June 30, 1999, the Company had a net investment of $72,330,884 in
      loans receivable. These loans possess an inherent credit risk given the
      uncertainty regarding the borrower's compliance with the terms of the loan
      agreement. To reduce credit risk, the loans are secured by varying forms
      of collateral, including first mortgages on real estate, liens on personal
      property, savings accounts, etc. It is generally Company policy to file
      liens on titled property taken as collateral on loans, such as real estate
      and autos. In the event of default, the Company's policy is to foreclose
      or repossess collateral on which it has filed liens.

      In the event that any borrower completely failed to comply with the terms
      of the loan agreement and the related collateral proved worthless, the
      Company would incur a loss equal to the loan balance.

NOTE F - REAL ESTATE ACQUIRED FOR DEVELOPMENT

      Following is a summary of real estate acquired for development, which the
      Company records at the lower of cost or fair value:

                                                                 June 30,
                                                        ------------------------
                                                          1999            1998
                                                        ------------------------

Undeveloped residential building lot                    $ 43,109        $ 43,109
Townhouse construction project                           193,493         188,761
                                                        ------------------------

                                                        $236,602        $231,870
                                                        ========================

NOTE G - REAL ESTATE HELD FOR INVESTMENT

      The Company owns and operates a sixty-unit apartment complex in the Des
      Moines area. The units rent for $425 to $450 per month under rental
      agreements which do not exceed one year.

      The Company also owns and operates a twenty-two unit apartment complex
      located in Des Moines, Iowa. The Company completed construction and began
      renting units during the fiscal year ended June 30, 1998. The units rent
      for $525 to $595 per month under rental agreements which do not exceed one
      year.

      During 1999, the Company started construction of an office complex on land
      owned by the Company in Clive, Iowa (a suburb of Des Moines).
      Approximately 40% of the building will be used for a branch office, with
      the remaining space to be leased to commercial tenants. Construction is
      expected to be completed during the summer of 2000 at a total cost of
      approximately $2,400,000, including land.


                                       34
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G - REAL ESTATE HELD FOR INVESTMENT - Continued

     Following is a summary of the investment in these real estate projects:

                                                             June 30,
                                                    ----------------------------
                                                        1999            1998
                                                    ----------------------------
Rental real estate, at cost                         $ 2,713,535     $ 2,697,525
Less accumulated depreciation                          (503,508)       (435,465)
                                                    ----------------------------
   Net rental real estate held for investment         2,210,027       2,262,060

Commercial office space under development               435,218              --
                                                    ----------------------------

                                                    $ 2,645,245     $ 2,262,060
                                                    ===========================

NOTE H - PROPERTY ACQUIRED IN SETTLEMENT OF LOANS

      The Company held two properties acquired in the settlement of loans at
      June 30, 1999. The properties, which consist of a single family home and a
      commercial building, have a carrying value of $1,133,517. Management
      believes the carrying value of the properties does not exceed the fair
      value of the properties, net of anticipated selling costs.

      The commercial property is a firing range. During 1999, the County adopted
      a noise ordinance that may prevent the firing range from operating. The
      Company and the commercial property tenant operating the firing range have
      filed suit against the County to change the noise ordinance. The fair
      value of the commercial property ($788,000 at June 30, 1999) may decrease
      if the property cannot be used as a firing range.

      No gains or losses were recognized from adjusting the carrying value of
      property acquired in settlement of loans to fair value during 1999, 1998
      or 1997.

NOTE I - OFFICE PROPERTY AND EQUIPMENT

      Following is a summary of office property and equipment:

                                                            June 30,
                                                  ------------------------------
                                                      1999              1998
                                                  ------------------------------
Land                                              $   725,210       $ 1,067,217
Office building                                       471,615           471,178
Furniture, fixtures and equipment                     443,178           529,897
                                                  ------------------------------
                                                    1,640,003         2,068,292
Less accumulated depreciation                        (451,756)         (504,215)
                                                  ------------------------------

   Office property and equipment, net             $ 1,188,247       $ 1,564,077
                                                  =============================

      The Company leases a portion of one of its office buildings on a
      month-to-month basis. Aggregate monthly rental receipts total
      approximately $4,700. Land with a cost of $342,007, and acquired for a
      possible future office site, was reclassified to real estate held for
      investment during 1999.


                                       35
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - ACCRUED INTEREST RECEIVABLE

     Following is a summary of accrued interest receivable:

                                                               June 30,
                                                        ------------------------
                                                           1999           1998
                                                        ------------------------
Investments in certificates of deposit                  $  4,317        $  6,299
U.S. Government and agency securities                      2,500          14,631
Municipal bonds                                            1,472              --
Loans receivable                                         527,739         521,316
                                                        ------------------------

                                                        $536,028        $542,246
                                                        ========================

NOTE K - DEPOSITS

      Savings deposit customers are primarily greater Des Moines area
      individuals and businesses. Deposits with balances in excess of $100,000
      totaled $3,914,413 and $3,871,947 at June 30, 1999 and 1998, respectively.
      Non-interest bearing deposit accounts totaled approximately $1,120,400 and
      $881,500 at June 30, 1999 and 1998, respectively.

      Deposit accounts held by members of the board of directors and executive
      officers totaled $760,524 and $563,000 at June 30, 1999 and 1998,
      respectively.

      Following is a summary of savings deposits as of June 30, 1999 and 1998
      and interest expense relating to those deposits for the years then ended:

<TABLE>
<CAPTION>
                                                      1999                         1998
                                         ----------------------------------------------------------
                                         Outstanding       Interest      Outstanding      Interest
                                           Balance         Expense         Balance        Expense
                                         ----------------------------------------------------------
<S>                                      <C>            <C>              <C>            <C>
Demand deposits                          $ 2,691,500    $     34,312     $ 2,051,363    $    24,874
Savings and money market deposits          7,795,011         257,215       7,299,665        238,476
Certificates of deposits                  44,226,561       2,598,898      44,320,832      2,632,121
                                         ----------------------------------------------------------
                                         $54,713,072       2,890,425     $53,671,860      2,895,471
                                         ===========                     ===========
Less penalties for early withdrawals                          (2,419)                        (8,405)
                                                           ---------                    -----------
                                         $ 2,888,006                                    $ 2,887,066
                                         ===========                                    ===========
</TABLE>


                                       36
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - DEPOSITS - Continued

      The scheduled maturities of certificates of deposits are as follows:

Fiscal year ending June 30:
   2000                                                         $28,796,031
   2001                                                           8,403,282
   2002                                                           2,858,809
   2003                                                           1,862,509
   2004                                                           1,966,362
   Thereafter                                                       339,568
                                                               ------------

                                                               $ 44,226,561
                                                               ============

NOTE L - ADVANCES FROM FEDERAL HOME LOAN BANK

      Advances from the Federal Home Loan Bank of Des Moines, which are secured
      by a blanket pledge agreement, including all stock in the FHLB and
      qualifying first mortgage loans, consisted of the following at June 30,
      1999:

            -     Fixed rate advance due in monthly principal and interest
                  payments of $16,737 through January 31, 2013. The advance,
                  which bears interest at 5.87%, cannot be prepaid before
                  January 12, 2001. The outstanding balance of the advance was
                  $1,877,047 at June 30, 1999.

            -     The following fixed rate advances, which are subject to
                  prepayment penalties:

          Maturity Date                  Interest Rate              Amount
-----------------------------------------------------------------------------
November 2, 2001                             6.46%                  3,000,000
November 21, 2002                            6.14%                  5,000,000
June 30, 2008 (1)                            5.52%                  3,000,000
September 11, 2008 (2)                       4.99%                  6,000,000
                                                                 ------------
                                                                 $ 17,000,000
                                                                 ============

 (1) Callable in 2003
 (2) Callable in 2001


                                       37
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L - ADVANCES FROM FEDERAL HOME LOAN BANK - Continued

      Scheduled maturities of the advances are as follows:

                                                                    Interest
Year ending June 30,                            Amount               Rates
                                        --------------------------------------
   2000                                        $  93,141                 5.87%
   2001                                        3,098,757         5.87% - 6.46%
   2002                                          104,713                 5.87%
   2003                                        5,111,028         5.87% - 6.14%
   2004                                          117,723                 5.87%
   Thereafter                                 10,351,685         4.99% - 5.87%
                                            ------------
                                            $ 18,877,047
                                            ============

      The weighted average interest rate for all advances was 5.70% and 5.98% at
      June 30, 1999 and 1998, respectively.

NOTE M - INCOME TAXES

      Prior to the year ended June 30, 1997, the savings and loan subsidiary was
      allowed a special bad debt deduction based on a percentage of taxable
      income (8%), or on specified experience formulas, subject to certain
      limitations based on aggregate loan balances at the end of the year. The
      special bad debt deduction has been repealed for thrift institutions.
      Legislation also requires thrifts to recapture, over a six-year period,
      bad debt reserves added since January 1, 1988 (approximately $340,000).
      Recapture of pre-1988 reserves (approximately $1,353,000) is required only
      under limited circumstances, such as if a thrift pays dividends in excess
      of its earnings and profits or liquidates. The recapture is not expected
      to have a material effect on results of operations as the Company has
      provided a deferred tax liability for special bad debt deductions since
      January 1, 1988. The Company, in accordance with SFAS No. 109, has not
      recorded a deferred tax liability of approximately $520,000 relating to
      pre-1988 bad debt reserves.

     Taxes on income consist of:
<TABLE>
<CAPTION>
                                                   Year Ended June 30,
            --------------------------------------------------------------------------------------------------------------
                        1999                               1998                              1997
            --------------------------------------------------------------------------------------------------------------
             Federal       State       Total        Federal      State       Total       Federal       State       Total
            --------------------------------------------------------------------------------------------------------------
<S>          <C>          <C>         <C>          <C>          <C>         <C>          <C>          <C>         <C>
Current      $402,135     $73,765     $475,900     $405,460     $74,000     $479,460     $393,818     $71,000     $464,818
Deferred       10,985       2,015       13,000        9,000       2,000       11,000       32,100       5,900       38,000
            --------------------------------------------------------------------------------------------------------------
   Total     $413,120     $75,780     $488,900     $414,460     $76,000     $490,460     $425,918     $76,900     $502,818
            ==============================================================================================================
</TABLE>


                                       38
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - INCOME TAXES - Continued

      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:

                                                 Year Ended June 30,
                                        ----------------------------------------
                                           1999           1998            1997
                                        ----------------------------------------
Computed "expected" taxes on income     $ 512,400      $ 512,600      $ 484,200
State taxes, net of federal benefit        58,200         58,200         55,000
Low income housing tax credits            (59,000)       (59,000)       (57,500)
Other adjustments                         (22,700)       (21,340)        21,118
                                        ----------------------------------------

   Provision for income taxes           $ 488,900      $ 490,460      $ 502,818
                                        ========================================

      Temporary differences between the financial statement carrying amounts and
      tax bases of assets and liabilities that give rise to the deferred tax
      liability at June 30, 1999 and 1998 were as follows:

                                                           Year Ended June 30,
                                                       ------------------------
                                                          1999           1998
                                                       -------------------------
Federal Home Loan Bank stock (income tax
  payable when shares received as stock dividends
  are sold)                                            $  63,900      $  63,900
Real estate and equipment (depreciation method
  differences)                                           119,200        105,300
Compensation agreements (deductible when paid
  for income tax reporting purposes)                     (15,700)       (24,400)
Loan fees deferred for financial reporting purposes      (23,400)       (29,800)
Allowance for loan losses                                 15,800         31,100
Deferred installment sale gains                           35,000         36,000
Unrealized gains on investment securities                  2,100         60,000
Other                                                        100        (29,100)
                                                       -------------------------

   Net deferred income tax liability                   $ 197,000      $ 213,000
                                                       =========================

      No valuation allowance was recorded against deferred tax assets at June
30, 1999 or 1998.

NOTE N - EMPLOYEE BENEFITS

      RECOGNITION AND RETENTION PLAN (RRP) - The Company had a Recognition and
      Retention Plan that provided 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
      directors, officers and other key employees of the Company earned (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. As of June 30,
      1998, all of the 68,770 shares reserved for issuance under the RRP had
      been awarded to directors, officers and other key employees. Expense of
      approximately $9,600 and $32,100 was recorded for the RRP for the years
      ended June 30, 1998 and 1997, respectively. There was no expense related
      to the RRP during the year ended June 30, 1999.

NOTE N - EMPLOYEE BENEFITS - Continued


                                       39
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - The Company has established an ESOP
      for eligible employees. Employees with at least 1,000 hours of annual
      service with the Company and who have attained an age of 21 are eligible
      to participate. The ESOP borrowed $687,700 from the Company to purchase up
      to 8% of the common stock or 137,540 shares. Collateral for the loan is
      the common stock purchased by the ESOP. The loan is repaid principally
      from the Association's discretionary contributions to the ESOP over a
      period of ten years (through December 31, 2003). The interest rate for the
      loan is 7%. Shares purchased by the ESOP are held in a suspense account
      for allocation among participants as the loan is repaid. Expense of
      $151,300, $191,200 and $131,100 was recorded relative to the ESOP for the
      years ended June 30, 1999, 1998 and 1997, respectively.

      Contributions to the ESOP and shares released from the suspense account in
      an amount proportional to the repayment of the ESOP loan are 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 are
      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.

      As shares are released from collateral, the Company reports compensation
      expense equal to the current market price of the shares. Dividends on
      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 were as follows:

                                                                June 30,
                                                       -------------------------
                                                          1999             1998
                                                       -------------------------
Allocated shares                                         69,209           54,730
Shares released for allocation                           13,762           14,479
Unreleased shares                                        53,077           66,839
                                                       -------------------------
   Total ESOP shares                                    136,048          136,048
                                                       =========================

Fair value of unreleased shares                        $583,847         $935,746
                                                       =========================

      STOCK OPTION PLAN - The Company authorized options for 171,924 shares of
      common stock under the 1993 Stock Option and Incentive Plan (the "Plan").
      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. During 1994, the Company's Compensation Committee granted options
      for 137,540 shares to certain officers, directors and employees, at an
      exercise price of $5 per share. No additional options have been granted
      since 1994. Stock options vest at a rate of 20% per year.


                                       40
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - EMPLOYEE BENEFITS - Continued

      During fiscal year 1998, the Company adopted SFAS No. 123, "Accounting for
      Stock-Based Compensation," SFAS No. 123 contains a fair-value based method
      for valuing stock-based compensation that entities may use. The fair-value
      based method measures compensation cost at the grant dated based on the
      fair value of the award. Compensation is then recognized over the service
      period, which is usually the vesting period. Alternatively, SFAS No. 123
      permits entities to continue to account for stock options and similar
      equity instruments under Accounting Principles Board ("APB") Opinion No.
      25, "Accounting for Stock Issued to Employees." Entities that continue to
      account for stock options using APB Opinion No. 25 are required to make
      pro-forma disclosure of net earnings and earnings per share, as if the
      fair value-based method of accounting defined in SFAS No. 123 had been
      applied. Management has determined that the Company will continue to
      account for stock based compensation using APB Opinion No. 25. The
      pro-forma disclosures required by SFAS No. 123 are not required as no
      options were granted by the Company during the fiscal years ended June 30,
      1999, 1998 and 1997.

      A summary of the status of the Company's stock option plan as of June 30,
      1999 and 1998, and the changes during the years ended on those dates is
      presented below:

                                                          Year ended June 30,
                                                       -------------------------
                                                         1999             1998
                                                       -------------------------
Unexercised options, beginning of year                   82,020          95,466
Stock options exercised                                 (12,112)        (13,446)
                                                       -------------------------

   Unexercised options, end of year                      69,908          82,020
                                                       =========================

      STOCK-BASED COMPENSATION COSTS - Compensation costs related to stock-based
      compensation plans (RRP plan and stock option plan) totaled approximately
      $9,600 and $32,100 for the years ended June 30, 1998 and 1997,
      respectively. There were no costs related to the RRP and stock option
      plans during the year ended June 30, 1999.

      SIMPLIFIED EMPLOYEE PENSION PLAN - During fiscal year 1997, the Company
      adopted a simplified employee pension plan (SEP). The plan allows
      employees, over the age of eighteen, to make tax-deferred contributions to
      the SEP. The Company is also allowed to make discretionary contributions
      to the SEP. No Company discretionary contributions were made to the SEP
      during fiscal years 1999, 1998 and 1997.

      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% or more of the
      common stock.


                                       41
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O - REGULATORY AND CAPITAL MATTERS

      The Association is subject to minimum regulatory capital standards
      promulgated by the Office of Thrift Supervision (the "OTS"). Failure to
      meet minimum capital requirements can initiate certain mandatory -- and
      possibly additional discretionary -- actions by regulators that, if
      undertaken, could have a direct material effect on its financial
      statements. Under capital adequacy guidelines and the regulatory framework
      for prompt corrective action, the Association must meet specific capital
      guidelines that involve quantitative measures of the Association's assets,
      liabilities, and certain off-balance-sheet items as calculated under
      regulatory accounting practices. The Association's capital amounts and
      classification are also subject to qualitative judgments by the regulators
      about components, risk weightings, and other factors.

      The minimum capital standards of the OTS generally require the maintenance
      of regulatory capital sufficient to meet each of four tests, hereinafter
      described as the tangible equity requirement, the core capital
      requirement, the risk-based capital requirement and the Tier I risk-based
      capital requirement. The tangible equity requirement provides for minimum
      tangible capital (defined as stockholders' equity less all intangible
      assets) equal to 1.5% of adjusted total assets. The core capital
      requirement provides for minimum core capital (tangible capital plus
      certain forms of supervisory goodwill and other qualifying intangible
      assets) equal to 4.0% of adjusted total assets. The risk-based capital
      requirement provides for the maintenance of core capital plus general loss
      allowances equal to 8.0% of risk-weighted assets, while the Tier I
      risk-based capital requirement is core capital equal to at least 4.0% of
      risk-weighed assets. In computing risk-weighted assets, the Association
      multiplies the value of each asset on its statement of financial condition
      by a defined risk-weighting factor, e.g., one-to-four family residential
      loans carry a risk-weighted factor of 50%.

      As of June 30, 1999 and 1998, management believes that the Association met
      all capital adequacy requirements to which it is subject.

      As of June 30, 1999:

<TABLE>
<CAPTION>
                                                                                      To be "well-capitalized"
                                                                For capital           under prompt corrective
                                                             adequacy purposes           action provisions
                                                         -----------------------------------------------------
                                       Actual            Greater than or equal to:   Greater than or equal to:
                             ---------------------------------------------------------------------------------
                                Capital        Ratio        Capital        Ratio        Capital        Ratio
                             ---------------------------------------------------------------------------------
<S>             <C>           <C>              <C>        <C>              <C>        <C>             <C>
Tangible equity (1)           $ 7,743,000      9.01%      $ 1,289,000      1.50%           NA           NA
Core capital (1)              $ 7,743,000      9.01%      $ 3,437,000      4.00%      $ 4,297,000      5.00%
Risk-based capital (2)        $ 7,985,000     15.13%      $ 4,221,000      8.00%      $ 5,276,000     10.00%
Tier I risk-based capital(2)  $ 7,743,000     14.68%      $ 2,110,000      4.00%      $ 3,166,000      6.00%
</TABLE>

(1)   - To adjusted total assets
(2)   - To risk-weighted assets


                                       42
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O - REGULATORY AND CAPITAL MATTERS - Continued

      The Association established a liquidation account when it converted from a
      federally chartered mutual savings bank to a federally chartered stock
      savings bank. The liquidation account is equal to the Association's net
      worth as of the date of the 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 Association 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 Association, the
      existence of the liquidation account will not restrict the use or
      application of retained earnings.

      The Company's management believes that, under the current regulatory
      capital regulations, the Association will continue to meet its minimum
      capital requirements in the foreseeable future. However, events beyond the
      control of the Association, such as increased interest rates or a downturn
      in the economy in the Associations' market area, could adversely affect
      future earnings and, consequently, the ability to meet future minimum
      regulatory capital requirements.

      Under current OTS regulations, a savings institution may make a capital
      distribution without notice to the OTS, unless it is a subsidiary of a
      holding company, provided that it has a regulatory rating in the two top
      categories, is not of supervisory concern, and would remain adequately
      capitalized, as defined in the OTS prompt corrective action regulations,
      following the proposed distribution. Savings institutions that would
      remain adequately capitalized following the proposed distribution but do
      not meet the other noted requirements must notify the OTS 30 days prior to
      declaring a capital distribution. The OTS stated it will generally regard
      as permissible that amount of capital distributions that do not exceed 50%
      of the institution's excess regulatory capital plus net earnings to date
      during the calendar year. A savings institution may not make a capital
      distribution without prior approval of the OTS and the FDIC if it is
      undercapitalized before, or as a result of, such a distribution. The OTS
      may object to a capital distribution if it would constitute an unsafe or
      unsound practice.

NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS

      SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
      requires disclosure of the fair value of financial instruments, both
      assets and liabilities whether or not recognized in the consolidated
      statements of financial condition, for which it is practicable to estimate
      that value. For financial instruments where quoted market prices are not
      available, fair values are based on estimates using present value and
      other valuation methods.

      The methods used are greatly affected by the assumptions applied,
      including the discount rate and estimates of future cash flows. Therefore,
      the fair values presented may not represent amounts that could be realized
      in exchange for certain financial instruments.


                                       43
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS - Continued

      The following methods and assumptions were used by the Company in
      estimating its fair value disclosures for financial instruments at June
      30, 1999 and 1998:

      Cash and Amounts Due From Depository Institutions - The carrying amounts
      of cash and amounts due from depository institutions approximate their
      fair value.

      Investments in Certificates of Deposits - The fair values disclosed for
      investments in certificates of deposit are estimated using a discounted
      cash flow calculation that applies interest rates currently available on
      certificates to a schedule of aggregated remaining maturities of the
      certificates.

      Investment Securities - Fair values for securities, excluding restricted
      equity securities, are based on quoted market prices. The carrying values
      of restricted equity securities (Federal Home Loan Bank stock) approximate
      fair values.

      Loans Receivable - For variable-rate loans that reprice frequently and
      have no significant change in credit risk, fair values are based on
      carrying values. Fair values for fixed-rate loans are estimated using
      discounted cash flow analyses, using interest rates currently being
      offered for loans with similar terms to borrowers of similar credit
      quality. Fair values for impaired loans are estimated using discounted
      cash flow analyses or underlying collateral values, where applicable.

      Deposit Liabilities - The fair values disclosed for NOW, money market and
      passbook savings accounts equal their carrying amounts. Fair values for
      certificates of deposits are estimated using a discounted cash flow
      calculation that applies interest rates currently being offered on
      certificates to a schedule of aggregated expected monthly maturities of
      the certificates.

      Advances from the Federal Home Loan Bank - The fair value of the Company's
      debt is estimated using discounted cash flow analyses based on the
      Company's current incremental borrowing rates for similar types of
      borrowing arrangements.

      The estimated fair values of the Company's financial instruments are as
      follows:

<TABLE>
<CAPTION>
                                                     June 30, 1999                  June 30, 1998
                                             --------------------------------------------------------------
                                               Carrying          Fair          Carrying          Fair
                                                Amount          Value           Amount          Value
                                             --------------------------------------------------------------
<S>                                             <C>             <C>             <C>             <C>
Financial assets
   Cash and cash equivalents                    $8,481,216      $8,481,216      $9,445,404      $9,445,404
   Investments in certificates of deposit          884,300         918,969       1,478,514       1,487,868
   Investment securities available-for-sale      1,944,374       1,944,374       2,743,518       2,743,518
   Loans receivable                             72,330,884      71,719,000      68,979,770      69,542,000
   Federal Home Loan Bank stock                  1,147,600       1,147,600         949,000         949,000
Financial liabilities
   Deposits                                     54,713,072      55,423,236      53,671,860      53,893,547
   Advances from Federal Home Loan Bank         18,877,047      18,266,615      18,964,890      18,857,039
</TABLE>


                                       44
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE Q - LEGISLATIVE MATTERS

      Deposits of the Association are insured by the Savings Association
      Insurance Fund (SAIF) as administered by the FDIC. The FDIC also maintains
      another insurance fund, the Bank Insurance Fund (BIF), which primarily
      insures commercial bank deposits. Effective September 30, 1996, federal
      law was revised to mandate a one-time special assessment of SAIF members,
      such as the Association, of deposits held on March 31, 1995. The
      Association has reflected a $291,331 pre-tax expense for this assessment
      for the year ended June 30, 1997.


                                       45
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE R - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

      Following are condensed financial statements of the parent company,
      StateFed Financial Corporation:

                             Condensed Balance Sheet
<TABLE>
<CAPTION>
                                                                    June 30
                                                        ------------------------------
   Assets                                                    1999              1998
                                                        ------------      ------------
<S>                                                     <C>               <C>
   Cash and cash equivalents                            $  3,431,491      $    694,836
   Investments in certificates of deposit                     95,000           689,458
   Investment in subsidiary                                7,932,532        10,569,296
   Advances to subsidiary                                    645,359           634,359
   Investment securities                                     407,776           256,104
   Loans receivable                                        1,254,544         1,168,312
   ESOP note receivable - subsidiary                         309,465           378,235
   Real estate acquired for development                      236,602           231,870
   Real estate held for investment                         1,690,146         1,290,265
   Other assets                                              283,815           298,785
                                                        ------------      ------------
                                                        $ 16,286,730      $ 16,211,520
                                                        ============      ============
   Liabilities
   Dividends payable                                    $    114,300      $     78,295
   Other liabilities                                          49,051            48,939
                                                        ------------      ------------
                                                             163,351           127,234
   Stockholders' equity
   Common stock                                                8,905             8,905
   Additional paid-in capital                              8,526,563         8,483,110
   Retained earnings                                      10,090,384         9,457,310
   Treasury stock                                         (2,234,986)       (1,643,697)
   Less common stock acquired by employee stock
     ownership plan                                         (271,290)         (341,270)
   Net realized gains on available-for-sale securities         3,803           119,928
                                                        ------------      ------------
                                                          16,123,379        16,084,286
                                                        ------------      ------------
                                                        $ 16,286,730      $ 16,211,520
                                                        ============      ============
</TABLE>

                          Condensed Statement of Income

<TABLE>
<CAPTION>
                                                     Year ended June 30,
                                          -----------------------------------------
                                              1999           1998            1997
                                          -----------------------------------------
<S>                                       <C>            <C>              <C>
Operating income - interest and dividend
  income                                  $  353,213     $   255,172      $ 194,709
Operating expenses                           147,525          93,391         49,932
                                          ----------     -----------      ---------
Income before undistributed income of
  subsidiary                                 205,688         161,781        144,777

Equity in undistributed income of
  subsidiary                                 834,113         854,374        770,240
                                          ----------     -----------      ---------
Income before income tax                   1,039,801       1,016,155        915,017

Provision (credit) for income tax             21,511          (1,124)        (6,308)
                                          ----------     -----------      ---------
  Net income                              $1,018,290     $ 1,017,279      $ 921,325
                                          ==========     ===========      =========
</TABLE>

NOTE R - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS - Continued


                                       46
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        Condensed Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                      Year ended June 30,
                                                        -------------------------------------------
                                                            1999            1998             1997
                                                        -------------------------------------------
<S>                                                     <C>             <C>             <C>
   Cash flows from operating activities:
     Net income                                         $ 1,018,290     $ 1,017,279     $   921,325
     Dividends received from subsidiary                   3,200,000       1,000,000       1,000,000
     Deferred income taxes                                  (11,000)         11,876           5,692
     Adjustments to reconcile net income
       to net cash from operating
       activities:
      Depreciation and amortization                          39,261              --              --
      Gain on sale of investments                           (46,311)             --              --
      Equity in undistributed income of
        subsidiary                                         (834,113)       (854,374)       (770,240)
      Other                                                  10,133           8,567          28,450
                                                        -----------     -----------     -----------
                                                          3,376,260       1,183,348       1,185,227

   Cash flows from investing activities:
     Purchase of investment securities                     (318,559)        (63,559)        (51,444)
     Proceeds from sale of investment
       securities                                           113,644          50,000              --
     Proceeds from maturing certificates
       of deposit                                           593,158              --              --
     Proceeds from sale of real estate
       for development                                           --         240,000              --
     Investment in real estate for development              (47,016)       (390,479)       (938,671)
     Investment in and advances to subsidiary                    --        (349,068)        519,411
     (Increase) decrease in loans receivable                (86,232)       (340,855)        (17,503)
     Payment received on ESOP debt                           68,770          68,770          68,770
     Decrease in other assets                                14,969          19,131              --
                                                        -----------     -----------     -----------
                                                            338,734        (766,060)       (419,437)

   Cash flows from financing activities:
     Treasury stock purchased                              (689,688)       (184,375)       (620,825)
     Proceeds from options exercised                         60,560          67,231          76,380
     Dividends paid                                        (349,211)       (312,264)       (318,159)
                                                        -----------     -----------     -----------
                                                           (978,339)       (429,408)       (862,604)
                                                        -----------     -----------     -----------

   Net increase in cash and cash
     equivalents                                          2,736,655         (12,120)        (96,814)
   Cash and cash equivalents, beginning
     of year                                                694,836         706,956         803,770
                                                        -----------     -----------     -----------

     Cash and cash equivalents, end
       of year                                          $ 3,431,491     $   694,836     $   706,956
                                                        ===========     ===========     ===========
</TABLE>


                                       47
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

      The Annual Meeting of Stockholders will be held at 2:00 p.m. Des Moines,
Iowa time on October 20, 1999 at 519 Sixth Avenue, Des Moines, Iowa.

STOCK LISTING

      StateFed Financial Corporation common stock is traded on the National
Association of Securities Dealers, Inc. Small-Cap System under the symbol
"SFFC."

PRICE RANGE OF COMMON STOCK

      The following table sets forth, for the periods shown, the high and low
prices of the common stock and cash dividends per share declared and adjusted
for the Company's stock split during fiscal 1998. The prices reflect
inter-dealer quotations without retail markup, markdown or commissions, and do
not necessarily represent actual transactions.

      Dividend restrictions are described in the notes to consolidated financial
statements included in this report.

   QUARTER ENDED                           HIGH             LOW        DIVIDENDS
   -------------                           ----             ---        ---------

March 31, 1997 ....................        9.375           8.250         .050
June 30, 1997 .....................        9.563           9.000         .050
September 30, 1997 ................       11.438           9.500         .050
December 31, 1997 .................       14.750          10.875         .050
March 31, 1998 ....................       15.250          12.500         .050
June 30, 1998 .....................       15.000          13.375         .050
September 30, 1998 ................       14.000           9.000         .050
December 31, 1998 .................       11.6875          9.500         .050
March 31, 1999 ....................       10.3750          9.6875        .075
June 30, 1999 .....................       12.500           9.000         .075

----------

The stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc. Automated Quotation System. The
average of the bid and asked prices of StateFed Financial Corporation's common
stock on September 22, 1999 was $11.50.

At September 22, 1999, there were 1,509,100 shares of StateFed Financial
Corporation common stock issued and outstanding and there were approximately 700
holders of record.

SHAREHOLDERS AND GENERAL INQUIRIES             TRANSFER AGENT

John F. Golden, President and Chief            First Bankers Trust Company, N.A.
Executive Officer                              1201 Broadway
StateFed Financial Corporation                 Quincy, IL 92301
519 Sixth Avenue                               (217) 228-8000
Des Moines, Iowa  50309

ANNUAL AND OTHER REPORTS

      A copy of StateFed Financial Corporation's Annual Report on Form 10-KSB
for the year ended June 30, 1999 as filed with the Securities and Exchange
Commission, may be obtained without charge by contacting John F. Golden,
President and Chief Executive Officer, StateFed Financial Corporation, 519 Sixth
Avenue, Des Moines, Iowa, 50309.


                                       48
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                              CORPORATE INFORMATION

COMPANY AND ASSOCIATION ADDRESS

         519 Sixth Avenue                      Telephone: (515) 282-0239
         Des Moines, IA  50309                 Fax:       (515) 282-1190

DIRECTORS OF THE BOARD

John F. Golden
         Chairman of the Board, President and Chief
         Executive Officer of StateFed Financial
         Corporation and State Federal Savings and
         Loan Association of Des Moines

Harry A. Winegar
         Retired Consultant and Appraiser for Real
         Estate Appraisal firm located in Des Moines,
         Iowa

Sidney M. Ramey
         President of Peoples Abstract Company

Eugene M. McCormick
         Retired Dentist

Andra K. Black
         Executive Vice President and Secretary of
         StateFed Financial Corporation and State
         Federal Savings and Loan Association of Des
         Moines

Kevin J. Kruse
         Senior Vice President and Corporate Counsel
         for the Iowa's Community Bankers/Diversified
         Management Services, Inc.

Craig Wood

         Senior Vice President and Assistant Secretary
         of State Federal Savings and Loan
         Association of Des Moines and StateFed
         Financial Corporation

STATEFED FINANCIAL CORPORATION EXECUTIVE OFFICERS

John F. Golden
         President and Chief Executive Officer
         Chairman of the Board

Craig Wood
         Senior Vice President and Assistant Secretary

Andra K. Black
         Executive Vice President and Secretary

INDEPENDENT AUDITORS                         SPECIAL COUNSEL

McGowen, Hurst, Clark & Smith, P.C.          Silver, Freedman & Taff, L.L.P.
317 Sixth Avenue                             1100 New York Avenue, N.W.
Suite 400                                    Seventh Floor
Des Moines, Iowa  50309                      Washington, D.C.  20005


                                       49