<PAGE>



                                   EXHIBIT 13

                         ANNUAL REPORT TO SHAREHOLDERS
                                       36

<PAGE>





--------------------------------------------------------------------------------

1997 ANNUAL REPORT

--------------------------------------------------------------------------------














                         STATEFED FINANCIAL CORPORATION



<PAGE>



--------------------------------------------------------------------------------

TABLE OF CONTENTS

--------------------------------------------------------------------------------






     President's Message....................................................   3
     Selected Consolidated Financial Information............................   6
     Management's Discussion and Analysis of Financial
       Condition and Results of Operation...................................   8
     Consolidated Financial Statements......................................  18
     Stockholder Information................................................  43
     Corporate Information..................................................  44






<PAGE>


September 23, 1997


Dear Fellow Shareholders:

         We are once again pleased to have the opportunity to report to you on
the financial condition of your company for the fiscal year ended June 30, 1997.


         In all important aspects it was a very good year. Net income increased
from $882,854.00 in fiscal 1996 to a new record high of $921,325.00 for 1997.
The higher income was primarily the result of an increase in net interest income
of $190,100.00 and a gain in non-interest income of $199,600.00, partially
offset by an increase in non-interest expense of $311,800.00, of which
$291,300.00 was a one-time expense to recapitalize the FDIC Savings Association
Insurance Fund (SAIF). While that is a considerable amount of money, of course,
the payment enabled our cost of deposit insurance to drop from .23% to .063% of
insured savings accounts, which will continue to benefit our income stream in
the future.

         Because the SAIF is now fully capitalized, and also due to our strong
capital position, the amount State Federal Savings will pay to the FDIC is
specifically earmarked to cover the cost of interest payments on "FICO" bonds,
which were bonds issued during the problem years of the 1980's to cover losses
generated by the many failed financial institutions of that time. State Federal
was not a part of that problem, of course, because, as today, we remained safe
and strong in spite of the difficulties that beset all financials of that
period.

         Also during the past year, in the May issue of Worth Financial
Intelligence magazine, it was most gratifying to see StateFed Financial
Corporation stock listed by Mr. Peter Lynch as one of the top ten thrift stocks
in the nation that should be given consideration as a "buy" in the coming
year; and in the August 21st issue of the Des Moines Register was an article
from our regulatory agency, the Office of Thrift Supervision, that listed State
Federal Savings & Loan as one of the three most profitable thrifts in Iowa and
one of the top 102 in the nation. We, of course, are most pleased with the
positive reactions from these favorable articles regarding your companies.


         The Board and management of StateFed Financial Corporation are also
very aware of the attention stockholders give to the value and price of their
stock holdings. We are therefore pleased to note that the book value of your
shares has risen to $19.44 per share as of June 30, 1997 and the price of
StateFed Financial Corporation stock is currently listed on the NASDAQ Stock
Market at $24.00. Dividends have remained at $.40 per share during fiscal 1997.
Total stock-holders' equity increased to $15,233,007.00 from $14,928,305.00
during the past year.

         As in the past, the per share value does not include the appreciated
value of our real estate holdings, which, as in the case of the Pleasant Hill
sixty-unit apartment complex, is considerable.

                                       3
<PAGE>


         The new twenty-two unit apartment building adjacent to the branch
office on University is nearing completion. This project, which was announced in
last year's letter, will be ready for occupancy in mid-September.

         The second building project also mentioned in last year's report was a
planned branch site with additional rental space to be built in Clive, Iowa.
Clive is a western suburb of Des Moines that has had and continues to experience
phenomenal growth. To date our parcel of land has been brought to final grade,
the concrete entrance roadway has been poured, the utilities brought in and the
perimeter interlocking concrete block retaining wall has been completed. In
short, we could be ready to begin construction as early as next year, if
conditions and circumstances favor such a move at that time.

         Again, many shareholders have indicated their favorable opinion
regarding the repurchase of our stock by the holding company. The board of
directors approved the purchase of 5% of our outstanding shares and during 1996
we purchased a total of 41,000 shares of StateFed Financial Corporation stock.
The price per share varied from a low of $15.50 to a high of $16.75 per share.
This was obviously a wise decision given price per share today.

         The Board also has approved management's recommendation to do a
complete revamping of the company's computer system. This is an expensive but
necessary expenditure and we are fortunate to have the in-house expertise to
plan and complete the renovation at a minimal cost. This should satisfy our
computer requirements for the foreseeable future.

         One of the fastest growing mediums of communication in the country
today is the internet. State Federal is not behind-the-times, in recognizing
this fact. In June of 1996, State Federal made its presence known to the world
by presenting itself with a site on the world wide web. By accessing
http.//wwwstate-federal-savings.com, the user can not only discover what State
Federal Savings has to offer, but can also access directly to our stock
information by linking with the NASDAQ website. We have also included links to
other websites that may be of interest to those seeking financial information.
State Federal Savings and StateFed Financial Corporation can be contacted via
e-mail using the addresses statefed@ecity.net or sfslbr1@aol.com and
sfslbr2@aol.com. We recognize the beauty of e-mail communication in that not
only is it inexpensive, but also instantaneous. This makes State Federal Savings
and StateFed Financial Corporation more accessible to greater numbers in our
market and provides quicker responses to not only our present customer base, but
to an up-and-coming market of customers who prefer a fast, paper-reduced system.

         We see the future of banking incorporating a new market of fast paced
computer-literate customers, who will not only want to conduct business from any
location where they happen to be, but also to do so at the touch of a keyboard
or click of a mouse. At State Federal we are positioning ourselves to
accommodate this type of consumer. Electronic banking is inevitable and we plan
to be there, ready to deliver to customers the products they desire in a manner
that is not only efficient, but also cost effective to the company.

                                       4
<PAGE>


         While many problems have been answered during the past year, the
industry is faced with yet another situation that congress is attempting to
resolve at the present time. This is the question as to the type of charter and
the powers that the thrift industry will be empowered to retain and conduct as a
financial entity in the future. We, of course, do not wish to see a diminution
of the permitted activities under our existing savings and loan charter. There
are others, however, who do not agree with this position, and want congress to
seriously restrict our profitable activities and operate under one charter with
the commercial banking industry.

         The current action now being considered in Congress is under the
sponsorship of Iowa Congressman Jim Leach, and is entitled House Banking
Committee's HR-10 (Financial Modernization). Mr. Leach is chairman of this
committee. We urge you to make your views known to him and other members of the
committee; keep Savings & Loan powers intact!

         In any event, we feel confident that given the correct framework in a
new charter, we will continue to serve you and the community well as we have for
over 70 years.

         Thank you for your consideration and support during this past year. We
hope many of you will be able to attend the annual meeting in person on October
22, 1997.

                                 Sincerely,


                                 /s/ John F. Golden  
                                 --------------------------------------  
                                 John F. Golden
                                 President and Chairman of the Board





                                       5
<PAGE>



                   SELECTED CONSOLIDATED FINANCIAL INFORMATION


<TABLE>
<CAPTION>
                                                                               June 30,
                                                    --------------------------------------------------------------------
                                                           1997         1996          1995         1994          1993
                                                        -------      -------       -------       ------       -------
                                                                            (In Thousands)
<S>                                                       <C>           <C>            <C>           <C>         <C>
Selected Financial Condition Data:
----------------------------------
Total assets.......................................     $85,679      $76,705       $71,271       62,773       $58,657
Cash & cash equivalents............................       3,634        2,564         3,938        1,636         2,855
Certificates of deposits in
 other institutions................................       4,435        4,440         5,634        7,430         7,730
Investment securities..............................       3,477        2,347         1,114          793           ---
Loans receivable, net..............................      68,178       62,708        56,420       49,760        45,255
Deposits...........................................      50,346       45,732        45,596       42,776        47,408
FHLB advances......................................      19,000       15,000        10,000        5,000         4,000
Stockholders' equity...............................      15,233       14,928        14,533       14,010         6,329



                                                                            Year Ended June 30,
                                                    --------------------------------------------------------------------
                                                           1997         1996          1995         1994          1993
                                                         ------       ------        ------      -------       -------
                                                                            (In Thousands)

Selected Operations Data:
-------------------------
Total interest income..............................      $6,407       $5,785        $5,107      $ 4,620       $ 4,715
Total interest expense.............................       3,626        3,194         2,601        2,179         2,650
                                                         ------       ------        ------      -------       -------
   Net interest income.............................       2,781        2,591         2,506        2,441         2,065
Provision for loan losses..........................          36           24            24           24            99
   Net interest income after                             ------       ------        ------      -------       -------
    provision for loan losses......................       2,745        2,567         2,482        2,417         1,966
Non-interest income:
   Real estate operations..........................         404          395           386          347           340
   Gain on sale of real estate and investments.....         158           41             2           28            13
   Net realized loss on sale of available-for-sale
    securities.....................................         ---          (24)          ---          ---           ---
   Other non-interest income.......................         108           58            57           55            50
                                                         ------       ------        ------       ------       -------
Total non-interest income..........................         670          470           445          430           403
Total non-interest expense.........................       1,991        1,679         1,637        1,445         1,277
                                                         ------       ------        ------       ------       -------
   Income before income taxes......................       1,424        1,358         1,290        1,402         1,092
Income tax expense.................................         503          475           486          528           416
Net income before cumulative                             ------       ------        ------       ------       -------
  effect of change in accounting
  method...........................................      $  921          883           804          874       $   676
Cumulative effect of change in
  accounting for income taxes......................         ---          ---           ---          (59)          ---
                                                         ------       ------        ------      -------       -------
Net Income.........................................      $  921       $  883        $  804      $   815       $   676
                                                         ======       ======        ======      =======       =======
</TABLE>





                                       6
<PAGE>




<TABLE>
<CAPTION>

                                                                              Year Ended June 30,
                                                         ----------------------------------------------------------------
                                                         1997          1996         1995         1994         1993
                                                         ----          ----         ----         ----         ----
<S>                                                       <C>           <C>        <C>           <C>          <C>
Selected Financial Ratios and Other Data:
-----------------------------------------
Performance Ratios:
  Return on assets (ratio of net income to
   average total assets).............................    1.12          1.20         1.20         1.33         1.15
  Interest rate spread information:
   Average during year...............................    2.77          2.72         2.98         3.54         3.18
   End of year.......................................    2.65          2.80         2.52         3.28         3.31
  Net interest margin(1).............................    3.58          3.72         3.95         4.18         3.65
  Ratio of operating expense to average
   total assets......................................    2.42          2.29         2.44         2.37         2.17
  Return on retained earnings (ratio of net
   income to average equity).........................    6.19          6.00         5.62         7.84        11.28

Quality Ratios:
 Non-performing assets to total assets at
   end of year.......................................    1.55           .62          .20          .54          .32
 Allowance for loan losses to
   non-performing loans..............................   22.30         50.21       151.05        56.27        (2)

Capital Ratios:
 Stockholders' Equity to total assets at end
   of year...........................................   17.78         19.46        20.39        22.32        10.79
Average Stockholders' Equity to average
  assets.............................................   18.10         20.05        21.33        16.93        10.16
 Ratio of average interest-earning assets to
  average interest-bearing liabilities...............   1.173x        1.218x       1.235x       1.170x       1.099x
 Number of full-service offices......................   2             2            2            2            2
</TABLE>
----------------
(1) Net interest income divided by average interest-earning assets. (2) No
non-performing loans at year-end.


                                       7
<PAGE>




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

General

         StateFed Financial Corporation (the "Company") is a savings and loan
holding company the primary asset of which is State Federal Savings and Loan
Association of Des Moines (the "Association"). The Company was incorporated in
September, 1993 and sold 859,625 shares of Common Stock on January 4, 1994 for
the purpose of acquiring all of the capital stock of the Association in
connection with the Association's conversion from mutual to stock form of
ownership. All references to the Company prior to January 4, 1994, except where
otherwise indicated, are to the Association and its subsidiary on a consolidated
basis.

         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.
Non-interest 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 and commercial real
estate lending. Yet smaller portions of the Company's loans receivable consists
of construction and consumer loans. Management has focused on ARM loans in
recent years, achieving a loan portfolio consisting of 40.52% fixed rate loans
and 59.48% adjustable rate loans at June 30, 1997.

Financial Condition

         Comparison of Fiscal Years Ended June 30, 1997 and June 30, 1996.

         The Company's total assets increased from $76.7 million at June 30,
1996 to $85.7 million at June 30, 1997, an increase of $9.0 million, or 11.73%.
The increase was primarily due to the increase in loans receivable of $5.5
million, the increase in investments available-for-sale of $1.1 million, and the
increase in cash and cash equivalents of $1.1 million, funded primarily from a
$4.6 million increase in deposits and a $4.0 million increase in FHLB advances.

         Net loans increased $5.5 million, or 8.7%, from $62.7 million at June
30, 1996 to $68.2 million at June 30, 1997. The increase in the loan portfolio
was comprised primarily of mortgage loans originated.

         Total deposits increased $4.6 million from $45.7 million at June 30,
1996 to $50.3 million at June 30, 1997. During fiscal 1997, certificates of
deposit increased $4.8 million, money market accounts increased by $163,000
while passbook accounts decreased $180,000, and NOW accounts decreased $159,000.


                                       8
<PAGE>



         Total borrowed funds increased to $19.0 million at June 30, 1997 from
$15.0 million at June 30, 1996. The increase consisted of advances from the
Federal Home Loan Bank of Des Moines. The funds were used primarily to to fund
increases in loan demand.

         Total stockholders' equity increased $305,000 from $14.9 million at
June 30, 1996 to $15.2 million at June 30, 1997. The increase was primarily the
result of net income of $921,000, exercised stock options of $76,400,
amortization of recognition and retention plan ("RRP") awards and allocations to
the Employee Stock Ownership Plan ("ESOP") totaling $163,000, and the increase
in unrealized gains on available for sale securities of $80,000, offset by
$621,000 expended for the repurchase of 37,400 shares of Company common stock
and dividends declared totaling $315,000.

Results of Operations

         Comparison of Fiscal Years Ended June 30, 1997 and June 30, 1996

         General. Net Income for the year ended June 30, 1997 was $921,000, an
increase of $38,000 compared to net income for the year ended June 30, 1996 of
$883,000. The increase was primarily the result of an increase in net interest
income of $190,000, an increase in non-interest income of $200,000, partially
offset by an increase in non-interest expense of $312,000, an increase in income
taxes of $27,000 and an increase in the provision for loan losses of $12,000.

         Net Interest Income. Net interest income increased $190,000, or 7.34%
from $2.6 million for the year ended June 30, 1996 to $2.8 million for the year
ended June 30, 1997.

         Interest Income. Interest income increased $622,000 to $6.4 million for
fiscal 1997 compared to $5.8 million for the fiscal 1996 due primarily to an
increase in average loans receivable of $7.1 million.

         Interest Expense. Interest expense increased $431,000 from $3.2 million
in fiscal 1996 to $3.6 million in fiscal 1997. The increase was due to the
increase in the balance of advances from the FHLB and to an increase in the
balance of certificates of deposit.

         Provision for Loan Losses. The provision for loan losses for fiscal
1997 was $36,000, an increase of $12,000 compared to the year ended June 30,
1996 of $24,000. 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 of 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 $470,000 in
fiscal 1996 to $670,000 in fiscal 1997. The increase of $200,000 is primarily
the result of a $117,000 increase in gains on sales of real estate, an increase
of $9,000 in real estate operation income, an increase in net realized gains on
sales of available-for-sale securities of $24,000, and an increase in other
non-interest income of $49,000.

         Non-Interest Expense. Non-interest expense increased from $1.7 million
in fiscal 1996 to $2.0 million in fiscal 1997. The increase of $312,000, or
18.5%, is primarily the result of an increase in the Savings Association
Insurance Fund special assessment of $291,000, an increase in advertising of
$35,000, an increase in occupancy expense of $22,000 and an increase in other
non-interest expense of $27,000, partially offset by a decrease of $39,000 in
Federal Deposit Insurance premiums and a decrease of $22,000 in investment real
estate operations.

         Income Tax Expense. Income tax expense was $503,000 in fiscal 1997
compared to $475,000 in fiscal 1996, an increase of $28,000 or 5.9%. Income
taxes increased primarily due to the increase in net income.

         Comparison of Fiscal Years Ended June 30, 1996 and June 30, 1995

         General. Net Income for the year ended June 30, 1996 was $883,000, an
increase of $79,000 compared to net income for the year ended June 30, 1995 of
$804,000. The increase was primarily the result of an increase in net interest
income of $85,000, an increase in non-interest income of $25,000, and a decrease
in income taxes of $11,000, partially offset by an increase in non-interest
expense of $42,000.

                                       9
<PAGE>



         Net Interest Income. Net interest income increased $85,000, or 3.4%
from $2.5 million for the year ended June 30, 1995 to $2.6 million for the year
ended June 30, 1996.

         Interest Income. Interest income increased $677,900 to $5.8 million for
fiscal 1996 compared to $5.1 million for the fiscal 1995 due primarily to an
increase in average loans receivable of $6.2 million.

         Interest Expense. Interest expense increased $592,700 from $2.6 million
in fiscal 1995 to $3.2 million in fiscal 1996. The increase was due to the
increase in the balance of advances from the FHLB and to an increase in interest
rates paid on certificates of deposit.

         Provision for Loan Losses. The provision for loan losses for fiscal
1996 was $24,000, and did not change from the provision in fiscal 1995. 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 $445,000 in
fiscal 1995 to $470,000 in fiscal 1996. The increase of $25,000 is primarily the
result of a $39,000 increase in gains on sales of real estate, and an increase
of $9,000 in real estate operation income, partially offset by net realized
losses on sales of available-for-sale securities of $24,000.

         Non-Interest Expense. Non-interest expense increased from $1.6 million
in fiscal 1995 to $1.7 million in fiscal 1996. The increase of $42,000, or 2.6%,
is primarily the result of an increase in compensation and benefits of $33,000,
and an increase of $16,000 in real estate operation expense, partially offset by
a decrease of $14,000 in other non-interest expense.

         Income Tax Expense. Income tax expense was $475,000 in fiscal 1996
compared to $486,000 in fiscal 1995, a decrease of $11,000, or 2.3%. Income
taxes decreased primarily due to the utilization of tax credits as a result of
the Company's participation in a low-income housing project.

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 as an alternative to more traditional fixed-rate mortgage loans.
At June 30, 1997, the Company had $41.5 million of adjustable-rate loans which
comprised over 59% 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.

         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.

                                       10
<PAGE>



         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,
1997, the Company would qualify for an exemption from this rule.

         The following table sets forth, at June 30, 1997, 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)

         +400                $8,496             (4,253)         (33)%
         +300                 9,719             (3,030)         (24)%
         +200                10,896             (1,853)         (15)%
         +100                11,940               (810)          (6)%
          ---                12,749                ---           ---
         -100                13,282                532            4%
         -200                13,719                970            8%
         -300                14,321              1,571           12%
         -400                15,068              2,318           18%



         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.


                                       11
<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,
                                ----------------------------------------------------------------------------------------------------
                                                1997                             1996                              1995
                                -------------------------------   ------------------------------   ---------------------------------

                                   Average     Interest              Average    Interest             Average     Interest
                                Outstanding    Earned/   Yield/    Outstanding  Earned/   Yield/   Outstanding    Earned/    Yield/
                                  Balance       Paid     Rate       Balance      Paid      Rate      Balance       Paid       Rate
                                -----------    --------  ------    -----------  --------  ------   -----------   --------    ------
                                                                      (Dollars in Thousands)
<S>                                  <C>       <C>        <C>        <C>         <C>        <C>        <C>         <C>        <C>
Interest-Earning Assets:
 Interest-earning bank accounts. $3,255       $ 145     4.45%     $ 2,791      $  125      4.48%     $ 2,310     $   104       4.50%
 Certificates of deposit in-
   vested in other institutions.  4,445         262     5.89        4,918         285      5.80        6,486         353       5.44
 Investment and other                                               1,790         121      6.76          930          68       7.31
   securities...................  2,483         184     7.41
 Loans receivable(1)............ 66,558       5,752     8.64       59,480       5,210      8.76       53,274       4,545       8.53
 FHLB stock.....................    912          64     7.02          615          44      7.15          494          38       7.69
                                -------       -----     ----      -------      ------      ----      -------       -----       ----
  Total interest-earning
    assets(1)...................$77,653       6,407     8.25%     $69,594      $5,785      8.31%     $63,494       5,108       8.04%
                                =======       =====     ====      =======      ======      ====      =======       =====       ====


Interest-Bearing Liabilities:
  Passbook accounts............. $4,094      $  113     2.76%    $  4,499      $  123      2.73%     $ 5,329     $   146       2.74%
  NOW accounts..................  1,867          23     1.23        1,848          42      2.27        1,859          45       2.42
  Money market accounts.........  3,283         117     3.56        3,174         113      3.56        3,828         129       3.37
  Certificates of deposit....... 38,745       2,302     5.94       35,763       2,176      6.08       33,327       1,846       5.54
  FHLB advances................. 18,231       1,071     5.87       11,846         740      6.25        7,077         436       6.16
  Total interest-bearing
   liabilities..................$66,220       3,626     5.48      $57,130       3,194      5.59      $51,420       2,602       5.06
                                =======       -----     ----      =======      ------      ----      =======       -----       ----
Net interest income.............             $2,781                            $2,591                             $2,506
                                             ======                            ======                             ======
Net interest rate spread........                        2.77%                              2.72%                               2.98%
Net earning assets..............$11,433                           $12,464                            $12,074
                                =======                           =======                            =======
Net yield on average
 interest-earning assets........                        3.58%                              3.72%                               3.95%
                                                        ====                               ====                                ====
Average interest-earning
  assets to average interest-
  bearing liabilities...........             1.173x                             1.218x                              1.235x
                                             =====                              =====                               =====
</TABLE>
------------
     (1) Calculated net of deferred loan fees, loan discounts, loans in process
and loss reserves.

                                       12
<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,
                                                  -----------------------------------------------------------------------------
                                                            1997 v. 1996                                 1996 v. 1995
                                                  -----------------------------------------------------------------------------

                                                          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.......          $21        $ (1)         $ 20         $  22        $  (1)        $ 21
      Certificates of deposit invested in
       other institutions..................          (28)           5          (23)          (90)          22          (68)
      Investments and other securities.....           50           13           63            58           (5)          53
      Loans receivable.....................          613          (71)         542           541          124          665
      FHLB stock...........................           21           (1)          20             9           (3)           6
                                                    ----        -----         ----         -----         ----         ----
        Total interest-earning assets......         $677        $ (55)        $622          $540         $137         $677
                                                    ====        =====         ====         =====         ====         ====
     Interest-bearing liabilities:
      Passbook accounts....................          (11)           1          (10)          (23)          (1)         (24)
      NOW accounts.........................          (19)         ---          (19)          ---          (3)           (3)
      Money market accounts................            4          ---            4           (23)           7          (16)
      Certificates of deposit..............          178          (52)         126           141          190          331
      FHLB advances........................          377          (46)         331           298            6          304
        Total interest-bearing                      ----        -----         ----          ----         ----         ----
         liabilities.......................         $529        $ (97)        $432          $393         $199         $592
                                                    ====        =====         ====          ====         ====         ====
     Net interest income...................                                   $190                                    $ 85
                                                                              ====                                    ====
</TABLE>



                                       13
<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. <TABLE> <CAPTION>

                                                                           At June 30,
                                                        ----------------------------------------------
                                                             1997             1996             1995
                                                        ----------------------------------------------
<S>                                                          <C>              <C>                 <C>
Weighted average yield on:
 Loans receivable......................................      8.517%           8.548%           8.568%
 Interest-earning bank
   accounts............................................      5.50             5.15             5.672
 Certificates of deposit
  invested in other
  institutions.........................................      6.01             6.02             5.860
 Investments and other
  securities...........................................      7.33             6.30             8.261
 FHLB stock............................................      7.00             7.00             7.000
   Combined weighted average
    yield on interest-earning
    assets.............................................      8.181            8.227            8.163
Weighted average rate paid on
 Passbook accounts.....................................      2.827            2.827            2.827
 NOW accounts..........................................      1.070            2.504            2.529
 Money market accounts.................................      3.290            3.300            3.291
 Certificates of deposit...............................      5.830            5.938            6.152
 FHLB advances........................................       6.338            5.729            6.364
   Combined weighted average
    rate paid on interest-
    bearing liabilities................................      5.534            5.429            5.646

Spread.................................................      2.647            2.798            2.517
</TABLE>

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, 1997 was 7.41%. 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, 1997 was 7.41%.

         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. The Company maintains a higher ratio of loans to deposits in
comparison with other similarly sized savings institutions. Historically, this
has not had a material affect on the Company's liquidity as it has utilized
other potential sources of funds including borrowings from the FHLB of Des
Moines to maintain liquidity and to meet operating expenses. Management believes
that loan repayments and other sources of funds will be adequate to meet the
Company's foreseeable liquidity needs.


                                       14
<PAGE>



         The primary financing activity of the Company during the fiscal year
ended June 30, 1997 has been advances from the Federal Home Loan Bank. The
amount of FHLB advances net increase was $4 million, consisting of $12 million
in new borrowed funds, less $8 million of advances paid off.

         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 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, 1997, the Company had outstanding
commitments to extend credit which amounted to $731,500. 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, 1997, totaled approximately $22.2 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, 1997, the Association had $19 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, 1997, the Company's
stockholders' equity totaled $15.2 million, or 17.78% of assets.

         At June 30, 1997, the Association had tangible and core capital of $9.3
million, or 11.6% of adjusted total assets, respectively, which was
approximately $8.1 million and $6.9 million above the minimum requirements of
$1.5 and 3.0% respectively, of the adjusted total assets in effect on that date.
On June 30, 1997, the Association had risk-based capital of $9.6 million
(including $9.3 million in core capital), or 19.29% of risk-weighted assets of
$49.5 million. This amount was $5.6 million above the 8% requirement in effect
on that date. The Association is presently in compliance with the fully
phased-in capital requirements.

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

         During October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans and also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services for nonemployees. SFAS 123 defines a fair value based
method of accounting for an employee stock option or similar equity instruments
and encourages all entities to adopt that method of accounting. However, it also
allows an entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Pro forma disclosures required for entities that elect to continue to
measure compensation cost using APB 25 must include the effect of all awards
granted in fiscal years beginning with fiscal year 1996. The Company has elected


                                       15
<PAGE>


to continue to measure compensation cost using APB 25, therefore the adoption of
SFAS No. 123 did not impact the Company's financial condition or results of
operations. The Company did not grant any awards during fiscal 1997 or 1996.

         During June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers of financial assets that are secured
borrowings. SFAS 125 also requires that a liability can be derecognized if
either (a) the debtor pays the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released from the liability either
judicially or by the creditor. SFAS 125 is effective for transactions occurring
after December 31, 1996 and is to be applied prospectively. SFAS No. 127, issued
by the FASB in January 1997, amends FASB Statement No. 125 and postpones the
effective date of certain provisions of SFAS No. 125 until December 31, 1997.

         In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
This Statement establishes standards of computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. This Statement
requires restatement of all prior-period EPS data presented.

         The FASB issued SFAS No. 129, "Disclosure of Information about Capital
Structure" in February 1997. This Statement establishes standards for disclosing
information about an entity's capital structure and applies to all entities.
SFAS 129 codifies certain existing disclosures about an entity's capital
structure. This Statement is effective for financial statement periods ending
after December 15, 1997.

         The FASB issued SFAS No. 130, "Reporting Comprehensive Income," in June
1997. This Statement establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Statement requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The
Statement is effective for fiscal years beginning after December 15, 1997 and
requires reclassification of financial statements for earlier periods provided
for comparative purposes.

         During June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
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.

         The Company expects to adopt these statements when required. Management
believes adoption will not have a material effect on financial position and
results of operations, nor will adoption require additional capital resources.


                                       16
<PAGE>


          [LETTERHEAD OF VROMAN, MCGOWEN, HURST, CLARK & SMITH, P.C.]





                          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, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1997.

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, 1997 and 1996
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.


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


Des Moines, Iowa
July 31, 1997




                                       17
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    June 30,
                                                                      --------------------------------------
                                                                           1997                  1996
                                                                      --------------      ------------------
<S>                                                                   <C>                  <C>
ASSETS
    Cash and cash equivalents
       Non-interest bearing                                            $    180,607            $    151,599
       Interest bearing                                                   3,453,479               2,412,668
                                                                       -------------           -------------
                                                                          3,634,086               2,564,267
    Investments in certificates of deposit                                4,435,425               4,439,567
    Investment securities available-for-sale                              3,477,168               2,347,048
    Loans receivable, net                                                68,177,746              62,708,487
    Real estate acquired for development                                    435,484                 359,594
    Real estate held for investment, net                                  1,933,532               1,175,872
    Property acquired in settlement of loans                                333,939                      --
    Office property and equipment, net                                    1,418,982               1,464,796
    Federal Home Loan Bank stock, at cost                                   950,000                 750,000
    Accrued interest receivable                                             567,478                 533,706
    Other assets                                                            314,754                 361,287
                                                                       -------------           -------------

          Total Assets                                                 $ 85,678,594            $ 76,704,624
                                                                       =============           =============


LIABILITIES AND STOCKHOLDERS' EQUITY
    Deposits                                                           $ 50,345,972            $ 45,731,828
    Advances from Federal Home Loan Bank                                 19,000,000              15,000,000
    Advances from borrowers for taxes and insurance                         490,053                 505,749
    Accrued interest payable                                                128,881                 129,833
    Income taxes
       Current                                                               29,327                   5,255
       Deferred                                                             171,000                 133,000
    Accounts payable and other liabilities                                  201,982                 189,305
    Dividends payable                                                        78,372                  81,349
                                                                       -------------           -------------
          Total Liabilities                                              70,445,587              61,776,319

    Stockholders' equity
       Preferred stock, $.01 par value, 500,000 shares authorized,
         none issued                                                                                     --
       Common stock, $.01 par value, 2,000,000 shares authorized
         890,486 shares issued with 783,723 (1997) and 813,485
         (1996) shares outstanding                                            8,905                   8,905
       Additional paid-in capital                                         8,398,857               8,376,924
       Retained earnings - substantially restricted                       8,752,218               8,146,074
       Less treasury stock (106,763 and 77,001 shares, at cost)          (1,560,859)             (1,049,358)
       Less common stock acquired by:
          Employee stock ownership plan                                    (413,940)               (490,211)
          Retention and recognition plan                                     (9,636)                (41,778)
       Net unrealized gains (losses) on available-for-sale securities        57,462                 (22,251)
                                                                       -------------           -------------
          Total Stockholders' Equity                                     15,233,007              14,928,305
                                                                       -------------           -------------

          Total Liabilities and Stockholders' Equity                   $ 85,678,594            $ 76,704,624
                                                                       =============           =============
</TABLE>
                                       18
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                               Year ended June 30,
                                                                       -----------------------------------------
                                                                           1997          1996           1995
                                                                       ------------   -----------    -----------
<S>                                                                    <C>             <C>            <C>
INTEREST INCOME
      Loans receivable interest                                        $ 5,752,351    $ 5,210,354    $ 4,544,928
      Investment securities and other interest                             654,681        575,072        562,560
                                                                       ------------   ------------   ------------
                                                                         6,407,032      5,785,426      5,107,488
INTEREST EXPENSE
      Deposits                                                           2,555,022      2,454,135      2,165,564
      Advances from Federal Home Loan Bank                               1,070,715        740,109        435,960
                                                                       ------------   ------------   ------------
                                                                         3,625,737      3,194,244      2,601,524
                                                                       ------------   ------------   ------------

          NET INTEREST INCOME                                            2,781,295      2,591,182      2,505,964

PROVISION FOR LOAN LOSSES                                                   36,000         24,000         24,000
                                                                       ------------   ------------   ------------

          NET INTEREST INCOME AFTER
            PROVISION FOR LOAN LOSSES                                    2,745,295      2,567,182      2,481,964

NON-INTEREST INCOME
      Investment real estate operations                                    404,035        394,519        385,529
      Gain on sale of real estate                                          158,154         41,269          1,555
      Net realized loss on sales of available-for-sale securities               --        (23,787)            --
      Other                                                                107,717         58,297         58,441
                                                                       ------------   ------------   ------------
                                                                           669,906        470,298        445,525
NON-INTEREST EXPENSE
      Salaries and employee benefits                                       835,207        846,725        813,615
      Investment real estate operations                                    214,055        235,710        219,632
      Occupancy expenses                                                   148,616        126,463        125,312
      Federal deposit insurance premiums                                    88,059        127,257        124,531
      SAIF special assessment                                              291,331             --             --
      Data processing services                                              83,739         74,635         71,517
      Advertising                                                           52,715         17,977         27,193
      Other                                                                277,336        250,459        255,351
                                                                       ------------   ------------   ------------
                                                                         1,991,058      1,679,226      1,637,151
                                                                       ------------   ------------   ------------
          INCOME BEFORE PROVISION
            FOR INCOME TAXES                                             1,424,143      1,358,254      1,290,338

PROVISION FOR INCOME TAXES                                                 502,818        475,400        486,498
                                                                       ------------   ------------   ------------

          NET INCOME                                                   $   921,325    $   882,854    $   803,840
                                                                       ============   ============   ============

Earnings per common share                                              $      1.20    $      1.11    $      1.00
                                                                       ============   ============   ============
Weighted average common shares outstanding                                 766,012        800,786        795,949
                                                                       ============   ============   ============
</TABLE>
                                       19
<PAGE>

                        STATEFED FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                             Years ended June 30, 1997, 1996, and 1995
                                               -----------------------------------------------------------------------

                                                               Additional                                       Stock
                                                  Common         Paid-in       Retained        Treasury       Acquired
                                                   Stock         Capital       Earnings         Stock          By ESOP
                                              ------------------------------------------------------------------------
<S>                                             <C>        <C>            <C>              <C>            <C>
 Balance at June 30, 1994                        $ 8,905    $ 8,332,763    $ 7,079,042      $ (514,275)    $ (653,315)

     Net income for the year                                                   803,840
     Dividends declared                                                       (291,816)
     ESOP common stock released
       for allocation                                            22,777                                        83,164
     Amortization of RRP contributions
     Treasury stock acquired - 21,000 shares,
        at cost                                                                               (286,000)
     Treasury stock reissued to fund stock
       options exercised - 7,500 shares                         (16,800)                        91,800
     Change in unrealized gains (losses)
       on available-for-sale securities
                                                 ---------------------------------------------------------------------

 Balance at June 30, 1995                          8,905      8,338,740      7,591,066        (708,475)      (570,151)

    Net income for the year                                                    882,854
    Dividends declared                                                        (327,846)
    ESOP common stock released for
      allocation                                                57,061                                        79,940
    Amortization of RRP contributions
    Treasury stock acquired - 25,000
      shares, at cost                                                                        (418,750)
    Treasury stock reissued to fund stock
      options exercised--5,899 shares                          (18,877)                        77,867
    Change in unrealized gains (losses)
      on available-for-sale securities
                                                 ---------------------------------------------------------------------

 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, at cost                                                                        (620,825)
    Treasury stock reissued to fund stock
      options exercised--7,638 shares                          (32,944)                       109,324
    Change in unrealized gains (losses)
      on available-for-sale securities
                                                 ---------------------------------------------------------------------

 Balance at June 30, 1997                        $ 8,905    $ 8,398,857    $ 8,752,218    $ (1,560,859)    $ (413,940)
                                                 =====================================================================
</TABLE>
                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                 Years ended June 30, 1997, 1996, and 1995
                                              ----------------------------------------------------
                                                      Common       Unrealized
                                                       Stock      Gains (Losses)        Total
                                                     Acquired        on AFS         Stockholders'
                                                      By RRP       Securities          Equity
                                              ----------------------------------------------------
<S>                                               <C>            <C>                <C>
 Balance at June 30, 1994                         $ (228,246)    $ (15,240)         $ 14,009,634

     Net income for the year                                                             803,840
     Dividends declared                                                                 (291,816)
     ESOP common stock released
       for allocation                                                                    105,941
     Amortization of RRP contributions               122,166                             122,166
     Treasury stock acquired - 21,000 shares,
        at cost                                                                         (286,000)
     Treasury stock reissued to fund stock
       options exercised - 7,500 shares                                                   75,000
     Change in unrealized gains (losses)
       on available-for-sale securities                             (6,010)               (6,010)
                                              ----------------------------------------------------

 Balance at June 30, 1995                           (106,080)      (21,250)           14,532,755

    Net income for the year                                                              882,854
    Dividends declared                                                                  (327,846)
    ESOP common stock released for
      allocation                                                                         137,001
    Amortization of RRP contributions                 64,302                              64,302
    Treasury stock acquired - 25,000
      shares, at cost                                                                   (418,750)
    Treasury stock reissued to fund stock
      options exercised--5,899 shares                                                     58,990
    Change in unrealized gains (losses)
      on available-for-sale securities                              (1,001)               (1,001)
                                              ----------------------------------------------------

 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, at cost                                                                   (620,825)
    Treasury stock reissued to fund stock
      options exercised--7,638 shares                                                     76,380
    Change in unrealized gains (losses)
      on available-for-sale securities                              79,713                79,713
                                              ----------------------------------------------------

 Balance at June 30, 1997                           $ (9,636)     $ 57,462          $ 15,233,007
                                              ====================================================
</TABLE>

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

                         STATEFED FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                            Year ended June 30,
                                                         ----------------------------------------------------
                                                               1997              1996              1995
                                                         ----------------  -----------------  ---------------
<S>                                                            <C>                <C>              <C>
Cash flows from operating activities
    Net income                                                 $ 921,325          $ 882,854        $ 803,840
    Adjustments to reconcile net income to
      net cash provided by operating activities:
        Depreciation                                             111,940            117,439          107,382
        Gain on sale of real estate                             (158,154)            41,269            1,555
        Amortization of ESOP and RRP contributions               163,291            201,303          228,106
        Realized loss on sale of available-for-sale securities         -             23,787                -
        Deferred loan fees                                        13,305             10,814           33,060
        Provision for losses on  loans                            36,000             24,000           24,000
        Deferred income taxes                                     38,000            (35,400)         (44,600)
        Change in:
           Accrued interest receivable                           (33,772)           (94,222)         (70,335)
           Other assets                                           47,740              1,022           93,500
           Accrued interest payable                                 (952)            12,471           28,895
           Current income tax liability                           24,072            (26,559)          21,729
           Accounts payable and other liabilities                 12,677            (59,720)          50,421
                                                               ----------       ------------      ----------
           Net cash provided by operating activities           1,751,472          1,099,058        1,277,553

Cash flows from investing activities
    Investment in certificates of deposits                       (99,000)                 -         (380,286)
    Maturity of investments in certificates of deposit            99,000          1,188,000        2,177,000
    Proceeds from sale or maturity of available-for-sale
      investment securities                                      200,000            453,420          531,699
    Purchase of held-to-maturity investment securities                 -                  -         (811,484)
    Purchase of available-for-sale investment securities      (1,250,407)        (1,711,059)         (56,008)
    Purchase of FHLB stock                                      (200,000)          (250,000)               -
    Net increase in loans outstanding                         (5,669,007)        (6,000,121)      (6,222,098)
    Investment in real estate held for investment               (859,781)            (3,450)          (4,328)
    Investment in real estate held for development               (75,890)          (432,540)        (327,536)
    Proceeds from sale of real estate                             29,264                  -                -
    Purchases of property and equipment                          (15,676)           (35,638)      (1,046,178)
    Increase in other assets                                           -           (100,000)        (250,000)
                                                               ----------       ------------      ----------
           Net cash flows used by investing activities        (7,841,497)        (6,891,388)      (6,389,219)

Cash flows from financing activities
    Net increase in deposits                                   4,614,144            135,523        2,820,122
    Advances from Federal Home Loan Bank                      12,000,000         11,000,000       10,000,000
    Repayment of Federal Home Loan Bank advances              (8,000,000)        (6,000,000)      (5,000,000)
    Net increase (decrease) in advances from borrowers           (15,696)           (27,459)          78,077
    Proceeds from stock options exercised                         76,380             58,990           75,000
    Dividends paid                                              (318,159)          (329,756)        (273,677)
    Treasury stock purchased                                    (620,825)          (418,750)        (286,000)
                                                               ----------       ------------      ----------
           Net cash flows provided by financing activities     7,735,844          4,418,548        7,413,522
                                                               ----------       ------------      ----------

CHANGE IN CASH AND CASH EQUIVALENTS                            1,069,819         (1,373,782)       2,301,856
                                                               ----------       ------------      ----------

CASH AND CASH EQUIVALENTS, beginning of year                   2,564,267          3,938,049        1,636,193
                                                               ----------       ------------      ----------

    CASH AND CASH EQUIVALENTS, end of year                   $ 3,634,086        $ 2,564,267      $ 3,938,049
                                                             ============       ============     ============
</TABLE>
                                       21
<PAGE>


                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS - StateFed Financial Corporation (the Company) was formed in 1993,
     under the laws of the State of Delaware, for the purpose of becoming a
     thrift holding company. The Company owns 100% of the outstanding capital
     stock of State Federal Savings and Loan Association (the Association). The
     only significant assets of the Company are cash, investment securities,
     real estate held for investment, and the stock of the Association. Its
     business consists primarily of 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.

                                       22
<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 recognized in 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 are carried
     at the lower of cost or market value. A valuation allowance is established
     if the aggregate cost of debt securities held for sale exceeds their
     aggregate market value. Changes in the valuation allowance are reflected as
     a separate component of the Company's 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.

     All other equity securities are carried at the lower of cost or estimated
     market value in the aggregate. Net unrealized losses are recognized through
     a valuation allowance that is shown as a reduction in the carrying value of
     the related securities and as a corresponding reduction in stockholders'
     equity if the decline in market value is deemed to be temporary.

     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
     $810,000 and $311,000 at June 30, 1997 and 1996, respectively.

     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.

                                       23
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     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 - 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.

     EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS - During October 1995, the
     Financial Accounting Standards Board (FASB) issued Statement of Financial
     Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
     (SFAS 123). SFAS 123 establishes financial accounting and reporting
     standards for stock-based employee compensation plans and also applies to
     transactions in which an entity issues its equity instruments to acquire
     goods or services for nonemployees. SFAS 123 defines a fair value based
     method of accounting for an employee stock option or similar equity
     instruments and encourages all entities to adopt that method of accounting.
     However, it also allows an entity to continue to measure compensation cost
     for those plans using the intrinsic value based method of accounting
     prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
     Stock Issued to Employees" (APB 25). Pro forma disclosures required for
     entities that elect to continue to measure compensation cost using APB 25
     must include the effect of all awards granted in fiscal years beginning
     with fiscal year 1996. The Company has elected to continue to measure
     compensation cost using APB 25, therefore the adoption of SFAS No. 123 did
     not impact the Company's financial condition or results of operations. The
     Company did not grant any awards during fiscal 1997 or 1996.

                                       24
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     During June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
     and Servicing of Financial Assets and Extinguishments of Liabilities,"
     which provides consistent standards for distinguishing transfers of
     financial assets that are sales from transfers of financial assets that are
     secured borrowings. SFAS 125 also requires that a liability can be
     derecognized only if either (a) the debtor pays the creditor and is
     relieved of its obligation for the liability or (b) the debtor is legally
     released from the liability either judicially or by the creditor. SFAS 125
     is effective for transactions occurring after December 31, 1996 and is to
     be applied prospectively. SFAS No. 127, issued by the FASB in January 1997,
     amends FASB Statement No. 125 and postpones the effective date of certain
     provisions of SFAS No. 125 until December 31, 1997.

     In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
     Statement establishes standards of computing and presenting earnings per
     share (EPS) and applies to entities with publicly held common stock or
     potential common stock. This Statement simplifies the standards for
     computing earnings per share and makes them comparable to international EPS
     standards. It replaces the presentation of primary EPS with a presentation
     of basic EPS. It also requires dual presentation of basic and diluted EPS
     on the face of the income statement for all entities with complex capital
     structures and requires a reconciliation of the numerator and denominator
     of the basic EPS computation to the numerator and denominator of the
     diluted EPS computation. This Statement is effective for financial
     statements issued for periods ending after December 15, 1997, including
     interim periods; earlier application is not permitted. This Statement
     requires restatement of all prior-period EPS data presented.

     The FASB issued SFAS No. 129, "Disclosure of Information about Capital
     Structure," in February 1997. This Statement establishes standards for
     disclosing information about an entity's capital structure and applies to
     all entities. SFAS 129 codifies certain existing disclosures about an
     entity's capital structure. This Statement is effective for financial
     statement periods ending after December 15, 1997.

     The FASB issued SFAS No. 130, "Reporting Comprehensive Income", in June
     1997. This Statement establishes standards for the reporting and display of
     comprehensive income and its components (revenues, expenses, gains and
     losses) in a full set of general-purpose financial statements. The
     Statement requires that an enterprise (a) classify items of other
     comprehensive income by their nature in a financial statement and (b)
     display the accumulated balance of other comprehensive income separately
     from retained earnings and additional paid-in capital in the equity section
     of a statement of financial position. The Statement is effective for fiscal
     years beginning after December 15, 1997 and requires reclassification of
     financial statements for earlier periods provided for comparative purposes.

                                       25
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     During June 1997, the FASB also issued SFAS No. 131, "Disclosures about
     Segments of an Enterprise and Related Information". 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.

     The Company expects to adopt these statements when required. Management
     believes adoption will not have a material effect on financial position and
     results of operations, nor will adoption require additional capital
     resources.

     EARNINGS PER SHARE - Earnings per share have been computed on the basis of
     the weighted average number of shares outstanding during the period, plus
     the shares that would be issued assuming the exercise of dilutive stock
     options. The weighted average number of common and common stock equivalents
     include shares of restricted stock issued in accordance with the
     recognition and retention plan established by the Company. In addition,
     shares of common stock issued to the Employee Stock Ownership Plan (ESOP)
     trust for the benefit of the employees of the Company and its subsidiaries.
     Shares that have been committed to be released are considered outstanding
     and ESOP shares that have not been committed to be released are not
     considered outstanding.

     FINANCIAL STATEMENT PRESENTATION - Certain items in prior year financial
     statements have been reclassified to conform to the 1997 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.

<TABLE>
<CAPTION>
                              Years Ended June 30,
                                                                     ------------------------------------------------
                                                                          1997            1996             1995
                                                                     --------------- ---------------- ---------------
<S>                                                                  <C>              <C>              <C>
      Supplemental Disclosures of Cash Flow Information
         Income taxes paid                                             $    441,000      $   533,000     $   510,000
                                                                     =============== ================ ===============
         Interest paid on deposits and FHLB advances
           (includes interest credited to deposit accounts)            $  3,627,000      $ 3,182,000     $ 2,573,000
                                                                     =============== ================ ===============
</TABLE>

     Noncash Investing and Financing Activities

     During fiscal year 1997, property acquired through foreclosure totaled
     $449,000. The Company also financed $299,000 of loans for borrowers to
     purchase real estate owned by the Company.

     The Company had no significant noncash investing or financing activities
     during the years ended June 30, 1996 and 1995.

                                       26
<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, 1997:

<TABLE>
<CAPTION>
                                                     Interest
                                                       Rate               Amount
                                                -------------------- -----------------
<S>                                             <C>                   <C>
         Mature during fiscal year:
            1998                                   5.40% - 9.00%         $  3,250,000
            1999                                   5.25% - 5.90%              693,000
            2000                                   6.70% - 7.00%              289,000
            2001                                   6.85% - 7.00%              198,000
                                                                     -----------------
                                                                            4,430,000
         Unamortized broker fees                                                5,425
                                                                     -----------------
                                                                          $ 4,435,425
                                                                     =================
</TABLE>

     Following is a summary of certificates by interest rate range:

                                                         June 30,
                                            ----------------------------------
                                                  1997             1996
                                            ----------------- ----------------
         Interest rates:
            5.00% - 5.99%                        $ 1,971,000      $ 1,971,000
            6.00% - 6.99%                          2,071,000
                                                                    2,170,000
            7.00% - 7.99%                            289,000          190,000
            Over 8%                                   99,000           99,000
                                            ----------------- ----------------
                                                   4,430,000        4,430,000
            Unamortized broker fees                    5,425            9,567
                                            ----------------- ----------------
                                                 $ 4,435,425      $ 4,439,567
                                            ================= ================

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, 1997:
               U.S. government and agency
                 debt securities                      $2,250,000     $    20,055     $    13,428      $2,256,627
               Equity securities                       1,169,706          51,462             627       1,220,541
                                                  --------------- --------------- --------------- ---------------
                                                      $3,419,706     $    71,517     $    14,055      $3,477,168
                                                  =============== =============== =============== ===============
            June 30, 1996:
               U.S. government and agency
                 debt securities                      $1,650,649     $    11,087     $    37,806      $1,623,930
                Equity securities                        718,650           5,968           1,500         723,118
                                                  --------------- --------------- --------------- ---------------
                                                      $2,369,299     $    17,055     $    39,306      $2,347,048
                                                  =============== =============== =============== ===============
</TABLE>
                                       27
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D - INVESTMENT SECURITIES - Continued

     During fiscal year 1996, as allowed by the Financial Accounting Standards
     Board, management re-evaluated the classification of its security portfolio
     as trading, available-for-sale, or held-to-maturity. As a result of this
     re-evaluation, management elected to change the classification of debt
     securities previously classified as held-to-maturity to the
     available-for-sale category. Securities with a carrying value and fair
     value of approximately $1,500,000 were reclassified as available-for-sale.
     No transfers of securities between classifications were made during 1997 or
     1995.

     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>
                                                                                Estimated
                                                              Amortized           Market
                                                                 Cost             Value
                                                           --------------- ----------------
<S>                                                        <C>               <C>
         Due in one year or less                              $                $
                                                                        -                -
         Due after one year through five years                    399,750          410,572
         Due after five years through ten years                   952,250          951,219
         Due after ten years                                      898,000          894,836
                                                           --------------- ----------------
                                                              $ 2,250,000      $ 2,256,627
                                                           =============== ================
</TABLE>

     The Company had no realized gains or losses on sale of investment
     securities available-for-sale during fiscal year 1997 and 1995. During
     fiscal year 1996, the Company had gross realized losses of $23,787 and no
     realized gains. Proceeds from the sale of available-for-sale equity
     securities during 1996 totaled $253,420.

     Following is a summary of investment income:

<TABLE>
<CAPTION>
                                                               Years Ended June 30,
                                                      -------------------------------------------
                                                        1997           1996            1995
                                                      ------------ -------------- ---------------
<S>                                                    <C>           <C>             <C>
         U.S. government and agency securities         $  109,834    $   106,087     $    11,098
         Investments in certificates of deposit           262,253        285,115         352,610
         FHLB stock dividends                              64,262         44,196          38,299
         Interest-bearing cash accounts                   144,655        124,866         102,890
         Equity securities dividends                       73,677         14,808          57,663
                                                      ------------ -------------- ---------------
                                                       $  654,681    $   575,072      $  562,560
                                                      ============ ============== ===============
</TABLE>

                                       28
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - LOANS RECEIVABLE, NET

     Following is a summary of loans receivable:

<TABLE>
<CAPTION>
                                                                                June 30,
                                                                    ----------------------------------
                                                                          1997             1996
                                                                    ----------------- ----------------
<S>                                                                 <C>                <C>
         Real estate mortgage loans:
            Secured by one-to-four family residences                    $44,581,692   $    42,842,841
            Secured by commercial and multi-family real estate           20,469,228        17,996,720
            Construction loans                                            3,543,880         3,126,300
                                                                    ----------------- ----------------
               Total real estate mortgage loans                          68,594,800        63,965,861

         Consumer and other loans                                         1,133,198           875,212
                                                                    ----------------- ----------------
                                                                         69,727,998        64,841,073
         Less:
            Allowance for loan losses                                      (221,355)         (240,278)
            Undisbursed portion of mortgage loans                          (993,492)       (1,567,451)
            Unamortized balance on purchased loan discounts                  (8,169)          (10,926)
            Deferred loan fees                                             (327,236)         (313,931)
                                                                    ----------------- ----------------

               Loans receivable, net                                $    68,177,746       $62,708,487
                                                                    ================= ================
</TABLE>

     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.

     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 amount recognized in the Statement of
     Financial Condition.

     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.

     At June 30, 1997, the Company had outstanding commitments to fund real
     estate loans of $731,500, including $231,500 for fixed rate loans.

                                       29
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - LOANS RECEIVABLE, NET - Continued

     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, 1997 and 1996
     amounted to $1,062,000 and $1,046,000, respectively. During the year ended
     June 30, 1997, there were new loans to this group totaling $205,600 and
     repayments totaling $189,600.

     The Company serviced participation loans with outstanding balances totaling
     $7,374,000 and $7,753,000 at June 30, 1997 and 1996 respectively. The
     Company's portion of these loans totaled $3,414,000 and $3,654,000 at June
     30, 1997 and 1996, respectively.

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

<TABLE>
<CAPTION>
                                                           Years Ended June 30,
                                                 --------------------------------------------
                                                    1997           1996            1995
                                                 ------------- -------------- ---------------
<S>                                               <C>            <C>             <C>
         Balance at beginning of year             $ 240,278      $   216,278     $ 193,773
            Provision charged to income              36,000           24,000        24,000
            Charge-offs                             (54,923)                        (1,495)
                                                                           -
                                                 ------------- -------------- ---------------

         Balance at end of year                   $ 221,355      $   240,278     $ 216,278
                                                 ============= ============== ===============
</TABLE>

     Impaired loans as of June 30, 1997 and 1996 totaled approximately $192,000
     and $387,000, respectively. The total allowance for loan losses
     specifically related to these loans was $5,100 and $3,500 on June 30, 1997
     and 1996, respectively. Interest income on impaired loans of $3,800 and
     none was recognized for cash payments received for the years ended June 30,
     1997 and 1996, respectively.


                                       30
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

<TABLE>
<CAPTION>
                                                                   June 30,
                                                         ------------------------------
                                                           1997             1996
                                                         ------------- ----------------
<S>                                                        <C>            <C>
         Undeveloped residential building lot              $   43,109     $     43,109
         Townhouse construction project                       392,375          316,485
                                                         ------------- ----------------

                                                           $  435,484     $    359,594
                                                         ============= ================
</TABLE>

     The Company has agreed to advance up to $450,000 for the development of a
     townhouse project located in Des Moines, Iowa. The Company is accounting
     for this venture as a real estate development project.

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 is also constructing a 22 unit apartment complex located in Des
     Moines, Iowa. Total construction costs are expected to be approximately
     $1,200,000. Following is a summary of the investment in these real estate
     projects:

<TABLE>
<CAPTION>
                                                                      June 30,
                                                           --------------------------------
                                                               1997             1996
                                                           --------------- ----------------
<S>                                                         <C>              <C>
         Construction in process - rental real estate       $  935,873       $    25,882
         Rental real estate, at cost                         1,402,155         1,714,913
         Less accumulated depreciation                        (404,496)         (564,923)
                                                           --------------- ----------------

            Net real estate held for investment             $1,933,532       $ 1,175,872
                                                           =============== ================
</TABLE>

     During 1997, the Company sold an eight-unit apartment building and realized
a gain of $131,048 from the sale.

NOTE H - PROPERTY ACQUIRED IN SETTLEMENT OF LOANS

     At June 30, 1997 the Company held two one-to-four family homes, with a
     carrying value of $333,939, which were acquired during 1997 in the
     settlement of loans. Management is actively marketing the properties and
     anticipates selling them in the near future. Management believes the
     carrying value of the properties does not exceed the fair value of the
     properties, less anticipated selling costs.

     No gains or losses were recognized from adjusting the carrying value of
     property acquired in settlements of loans to fair value during 1997, 1996
     or 1995.

                                       31
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - OFFICE PROPERTY AND EQUIPMENT

     Following is a summary of office property and equipment:

<TABLE>
<CAPTION>
                                                                  June 30,
                                                      --------------------------------
                                                          1997             1996
                                                      --------------- ----------------
<S>                                                    <C>              <C>
         Land                                          $1,012,609       $   996,934
         Office building                                  464,986           491,356
         Furniture, fixtures and equipment                373,958           373,958
                                                      --------------- ----------------
                                                        1,851,553         1,862,248
         Less accumulated depreciation                   (432,571)         (397,452)
                                                      --------------- ----------------

            Office property and equipment, net        $ 1,418,982      $  1,464,796
                                                      =============== ================
</TABLE>

     The office building has six tenants, primarily with month-to-month lease
     agreements, at June 30, 1997. Aggregate monthly rental receipts total
     approximately $4,500.

NOTE J - ACCRUED INTEREST RECEIVABLE

     Following is a summary of accrued interest receivable:

<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                          -----------------------------
                                                                           1997             1996
                                                                          ------------ ----------------
<S>                                                                       <C>              <C>
         Investments in certificates of deposit interest                  $    15,495      $    18,592
         U.S. Government and agency securities interest receivable             34,211           23,089
         Loans receivable interest                                            517,772          492,025
                                                                          ------------ ----------------

                                                                          $   567,478      $   533,706
                                                                          ============ ================
</TABLE>

NOTE K - DEPOSITS

     Savings deposit customers are primarily greater Des Moines area individuals
     and businesses. Deposits with balances in excess of $100,000 totaled
     $3,417,010 and $2,230,000 at June 30, 1997 and 1996, respectively.
     Non-interest bearing deposit accounts totaled approximately $1,091,000 and
     $22,000 at June 30, 1997 and 1996, respectively.

     Deposit accounts held by members of the board of director and executive
     officers totaled $524,000 and $932,000 at June 30, 1997 and 1996,
     respectively.

                                       32
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - DEPOSITS - Continued

     Following is a summary of savings deposits as of June 30, 1997 and 1996 and
     interest expense relating to those deposits for the years then ended:

<TABLE>
<CAPTION>
                                                              1997                            1996
                                                  ------------------------------ -------------------------------
                                                   Outstanding      Interest      Outstanding       Interest
                                                     Balance        Expense         Balance         Expense
                                                  -------------- --------------- --------------- ---------------
<S>                                                 <C>          <C>                <C>          <C>
       Demand deposits                              $ 1,708,260   $    22,689       $ 1,867,295   $    42,879
       Savings and money market deposits              7,525,309       230,329         7,541,974       237,215
       Certificates of deposits                      41,112,403     2,315,215        36,322,559     2,177,332
                                                    -----------   -------------    ------------   -------------
                                                    $50,345,972     2,568,233       $45,731,828     2,457,426
                                                    ===========                    ============
       Less penalties for early withdrawals                           (13,211)                         (3,291)
                                                                  --------------                  --------------

                                                                  $ 2,555,022                     $ 2,454,135
                                                                  ==============                  ==============
</TABLE>

     At June 30, 1997, the scheduled maturities of certificates of deposits are
as follows:

       Fiscal year ending June 30:
          1998                            $ 22,018,520
          1999                              12,730,346
          2000                               3,444,705
          2001                               1,495,440
          2002                               1,098,513
          Thereafter                           324,879
                                       ----------------

                                          $ 41,112,403
                                       ================

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,
     1997:

         -    A variable rate open line of credit of $7,000,000 which expires
              December 11, 1997. The line of credit may be prepaid without
              penalty. Outstanding advances may not exceed 15% of assets. The
              interest rate on outstanding advances was 6.90% at June 30, 1997.
              The outstanding balance under the line was $7,000,000 at June 30,
              1997.

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

                     Maturity Date      Interest Rate          Amount
                --------------------- -------------------- --------------
                September 12, 1997          5.87%          $  2,000,000
                September 24, 1997          5.76%             2,000,000
                June 25, 1998               5.86%             3,000,000
                September 14, 1998          5.94%             2,000,000
                November 2, 2001            6.46%             3,000,000
                                                          ==============
                                                           $ 12,000,000
                                                          ==============

                                       33
<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:

                                                                  Weighted
         Year ending June 30,                    Amount         Average Rate
                                            ----------------- ----------------
            1998                                $ 14,000,000        6.35%
            1999                                   2,000,000        5.94%
            2000                                           -           -%
            2001                                           -           -%
            2002                                   3,000,000        6.46%
                                            -----------------
                                                $ 19,000,000
                                            =================

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. Under
     new legislation, the special bad debt deduction was repealed for thrift
     institutions. The 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 legislation is not expected to have a material effect on results of
     operations as the Association 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 are comprised of:

<TABLE>
<CAPTION>
                                                         Years Ended June 30,
                ------------------------------------------------------------------------------------------------------
                              1997                               1996                              1995
                ---------------------------------- --------------------------------- ---------------------------------
                 Federal      State      Total      Federal      State     Total      Federal     State       Total
                ----------- ---------- ----------- ----------- --------- ----------- ---------- ----------- ----------
<S>              <C>        <C>         <C>        <C>         <C>        <C>        <C>         <C>        <C>
      Current    $393,818   $ 71,000    $464,818   $435,000    $ 75,800   $510,800   $475,698    $ 74,000   $549,698
      Deferred     32,100      5,900      38,000
                                                    (30,100)     (5,300)   (35,400)   (53,100)    (10,100)   (63,200)
                ----------- ---------- ----------- ----------  --------- ----------- ---------- ----------- ----------
         Total   $425,918   $ 76,900    $502,818   $404,900    $ 70,500   $475,400   $422,598    $ 63,900   $486,498
                =========== ==========  ========== ==========  ========= =========== ========== =========== ==========
</TABLE>

     Taxes on income differ from the "expected" amounts computed by applying the
     federal income tax rate of 34 percent to income before taxes for the
     following reasons:

<TABLE>
<CAPTION>
                                                                   Years Ended June 30,
                                                         --------------------------------------------
                                                            1997           1996            1995
                                                         ------------- -------------- ---------------
<S>                                                        <C>            <C>             <C>
         Computed "expected" taxes on income               $484,200       $ 461,800       $ 448,800
         State taxes, net of federal benefit                 55,000          46,800          42,100
         Low income housing tax credits                     (57,500)        (30,500)            -
         Other adjustments                                   21,118          (2,700)         (4,402)
                                                         ------------- -------------- ---------------

            Provision for income taxes                     $502,818       $ 475,400       $ 486,498
                                                         ============= ============== ===============
</TABLE>

                                       34
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M - INCOME TAXES - Continued

     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, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                              Years Ended June 30,
                                                                              ----------------------------------
                                                                                    1997             1996
                                                                              ----------------- ----------------
<S>                                                                           <C>                <C>
         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)                 90,100           103,100
         Compensation agreements (deductible when paid for income
            tax reporting purposes)                                                 (22,800)          (12,700)
         Loan fees deferred for financial reporting purposes                        (41,600)          (60,500)
         Allowance for loan losses                                                   44,400            47,700
         Deferred installment sale gains                                             36,400                 -
         Other                                                                          600            (8,500)
                                                                              ----------------- ----------------

            Net deferred income tax liability                                     $ 171,000         $ 133,000
                                                                              ================= ================
</TABLE>

     No valuation allowance was recorded against deferred tax assets at June 30,
1997 or 1996.

NOTE N - EMPLOYEE BENEFITS

     EMPLOYEE PENSION PLAN - The Company has a defined contribution pension plan
     available to qualifying employees. Contributions are at the discretion of
     the Company. No contributions were made by the Company for the years ended
     June 30, 1997, 1996 and 1995.

     RECOGNITION AND RETENTION PLAN (RRP) - The Company has a Recognition and
     Retention Plan that provides 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 earn (i.e., become vested
     in) shares of common stock covered by the award at a rate of 25% per year
     starting one year from the date of the grant. Of the 34,385 shares reserved
     for issuance under the RRP, 30,861 shares had been awarded to directors,
     officers and other key employees as of June 30, 1997. Expense of
     approximately $32,100, $64,300 and $122,000 was recorded for the RRP for
     the years ended June 30, 1997, 1996 and 1995, respectively.

     EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - The Company has also 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 68,770 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
     seven years (through June 30, 2000). 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 $131,100, $137,000 and
     $105,940 was recorded relative to the ESOP for the years ended June 30,
     1997, 1996 and 1995, respectively.

                                       35
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - EMPLOYEE BENEFITS - Continued

     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. The Company's contributions to the ESOP are not
     fixed, so benefits payable under the ESOP cannot be estimated.

     As shares are released from collateral, the Company reports compensation
     expense equal to the current market price of the shares, and the shares
     become outstanding for earnings per share computations. 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,
                                                   ---------------------------
                                                       1997          1996
                                                   ------------ --------------
         Allocated shares                               19,767         12,348
         Shares released for allocation                  7,598          7,963
         Shares sold for distributions                       -           (544)
         Distributions of shares                             -              -
         Unreleased shares                              40,659         48,257
                                                   ------------ --------------
            Total ESOP shares                           68,024         68,024
                                                   ============ ==============

         Fair value of unreleased shares            $  772,521     $  800,679
                                                   ============ ==============

     STOCK OPTION PLAN - The Company authorized options for 85,962 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
     68,770 shares to certain officers, directors and employees, at an exercise
     price of $10 per share. No additional options have been granted since 1994.
     Stock options vest at a rate of 20% per year.

                                                        Year ended June 30,
                                                     --------------------------
                                                        1997          1996
                                                     ----------- --------------
         Unexercised options, beginning of year       55,371          61,270
         Stock options exercised                      (7,638)         (5,899)
                                                     ----------- --------------

            Unexercised options, end of year          47,733          55,371
                                                     =========== ==============

                                       36
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - EMPLOYEE BENEFITS - Continued

     STOCK-BASED COMPENSATION COSTS - Compensation costs related to stock-based
     compensation plans (RRP plan and stock option plan) totaled $32,142,
     $64,302 and $122,166 for the years ended June 30, 1997, 1996 and 1995,
     respectively.

     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 year 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.

NOTE O - REGULATORY AND CAPITAL MATTERS

     The Association is required to maintain prescribed levels of regulatory
     capital. The regulations require institutions to have minimum regulatory
     tangible capital equal to 1.5% of adjusted total assets, a minimum of 3%
     core capital ratio, and 8% risk-based capital. At June 30, 1997 and 1996,
     the Association's capital exceeded regulatory capital requirements. At June
     30, 1997, the Association's regulatory tangible capital and core capital
     ratios were 11.6%. The risk-adjusted capital ratio was 19.29%.

     Following is a reconciliation of capital under generally accepted
     accounting principles (GAAP) to regulatory capital:

<TABLE>
<CAPTION>
                                                                                June 30, 1997
                                                               --------------------------------------------------
                                                                  Tangible           Core          Risk-Based
                                                                   Capital          Capital          Capital
                                                               ---------------- ---------------- ----------------
<S>                                                             <C>               <C>               <C>
         GAAP capital of Association                            $10,521,000       $10,521,000       $10,521,000
         Add - Allowance for loan losses                                  -                 -           221,000
         Less:
            Unrealized gains on available-for-sale securities       (28,000)          (28,000)          (28,000)
            Non-includable investment in subsidiary              (1,156,000)       (1,156,000)       (1,156,000)
                                                               ---------------- ---------------- ----------------
         Regulatory capital - computed                            9,337,000         9,337,000         9,558,000
         Minimum capital requirement                              1,207,000         2,414,000         3,892,000
                                                               ---------------- ---------------- ----------------

            Regulatory capital - excess                         $ 8,130,000       $ 6,923,000       $ 5,666,000
                                                               ================ ================ ================
</TABLE>

                                       37
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O - REGULATORY AND CAPITAL MATTERS - Continued

     The Association may not declare or pay a cash dividend to the Company if
     the effect would cause the net worth of the Association to be reduced below
     either the amount required for the liquidation account or the net worth
     requirement imposed by the Office of Thrift Supervision (OTS), and if all
     capital requirements continue to be met, may not declare or pay a cash
     dividend in excess of the Association's net earnings for the fiscal year in
     which the dividend is declared plus one-half of the surplus over the
     capital requirements, without prior approval of the OTS. OTS approval is
     required for the Association to pay dividends in excess of these
     limitations.

     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.

     Under Federal regulations, the Association may not declare or pay a cash
     dividend on or repurchase any of its stock if the effect thereof would
     cause the Association's regulatory capital to be reduced below the amount
     required for the liquidation accounts or the regulatory capital
     requirements of the OTS. In addition, banks that before and after proposed
     dividend distributions meet or exceed their fully phased-in capital
     requirements, may make capital distributions, with prior notice to the OTS,
     during any calendar year up to 100% of net income for the year plus 50% of
     the amounts in excess of their fully phased-in capital requirements as of
     the beginning of the calendar year. However, the OTS may impose greater
     restrictions if an institution is deemed to be in need of more than normal
     supervision. The Association currently exceeds its fully-phased in capital
     requirements and has not been notified of a need for more than normal
     supervision.

NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS

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

     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.

                                       38
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE P - FAIR VALUES OF FINANCIAL INSTRUMENTS - Continued

     Available-for-Sale and Held-to-Maturity 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, 1997                   June 30, 1996
                                                      ------------------------------- -------------------------------
                                                         Carrying          Fair          Carrying          Fair
                                                          Amount          Value           Amount          Value
                                                      --------------- --------------- --------------- ---------------
<S>                                                   <C>               <C>             <C>            <C>
       Financial assets
          Cash and cash equivalents                       $3,634,086      $3,634,086      $2,564,267      $2,564,267
          Investments in certificates of deposit           4,435,425       4,430,000       4,439,567       4,424,600
          Investment securities available-for-sale         3,477,168       3,477,168       2,347,048       2,347,048
          Loans receivable                                68,177,746      68,380,000      62,708,487      62,875,000
          Federal Home Loan Bank stock                       950,000         950,000         750,000         750,000
       Financial liabilities
          Deposits                                        50,345,972      50,640,000      45,731,828      46,169,000
          Advances from Federal Home Loan Bank            19,000,000      18,957,000      15,000,000      14,961,000
</TABLE>

NOTE Q - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

     The Company had cash deposits of approximately $3,000,000 at the Federal
     Home Loan Bank of Des Moines at June 30, 1997.

     The Company grants mortgage, consumer and business loans primarily to
     customers within the state. The Company's net investment in loans is
     subject to a significant concentration of credit risk given that the
     investment is primarily within a specific geographic area.

                                       39
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE Q - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK

     As of June 30, 1997, the Company had a net investment of $68,177,746 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 R - RECENT DEVELOPMENTS

     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. Beginning January 1, 1997, deposit insurance assessments for
     SAIF members were reduced to approximately .064% of deposits and are
     expected to remain at that rate through the end of 1999. During this same
     period, BIF members are expected to be assessed approximately .013% of
     deposits. Thereafter, assessments for BIF and SAIF members should be the
     same and SAIF and BIF may be merged. It is expected that these continuing
     assessments for both SAIF and BIF members will be used to repay outstanding
     Financing Corporation bond obligations.


                                       40
<PAGE>
                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE S - 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                                                         1997              1996
                                                              -------------     --------------
<S>                                                              <C>                <C>
   Cash and cash equivalents                                  $    706,956       $    803,770
   Investments in certificates of deposits                         690,127            690,796
   Investment in subsidiary                                     10,464,204         10,580,885
   Advances to subsidiary                                          285,291            804,702
   Investment securities                                           199,680            123,618
   Contract notes receivable                                       827,457            809,954
   ESOP note receivable - subsidiary                               447,005            515,775
   Real estate acquired for development                            435,484            359,595
   Real estate held for investment                                 935,873             25,881
   Other assets                                                    317,044            352,259
                                                              -------------     --------------
                                                              $ 15,309,121       $ 15,067,235
                                                              =============     ==============
   Liabilities
   Dividends payable                                          $     78,372       $     81,349
   Other liabilities                                                26,118             30,862
                                                              -------------     --------------
                                                                   104,490            112,211
   Stockholders' equity
   Common stock                                                      8,905              8,905
   Additional paid-in capital                                    8,398,857          8,376,924
   Retained earnings                                             8,752,218          8,146,074
   Treasury stock                                               (1,560,859)        (1,049,358)
   Less common stock acquired by:
     Employee stock ownership plan                                (413,940)          (490,211)
     Retention and recognition plan                                 (9,636)           (41,778)
   Net realized gains on available-for-sale securities              29,086              4,468
                                                              -------------     --------------
                                                                15,204,631         14,955,024
                                                              -------------     --------------
                                                              $ 15,309,121       $ 15,067,235
                                                              =============     ==============
</TABLE>

                          Condensed Statement of Income

<TABLE>
<CAPTION>
                                                                 Year ended June 30,
                                                    -----------------------------------------------
                                                        1997           1996              1995
                                                    -------------  -------------     --------------
<S>                                                    <C>            <C>                <C>
   Operating income - interest and dividend income     $ 194,709      $ 167,429          $ 159,676
   Operating expenses                                     49,932         77,194             79,792
                                                    -------------  -------------     --------------

   Income before undistributed income of subsidiary      144,777         90,235             79,884

   Equity in undistributed income of subsidiary          770,240        827,699            730,556
                                                    -------------  -------------     --------------

   Income before income tax                              915,017        917,934            810,440

   Provision for income tax                               (6,302)        35,080              6,600
                                                    -------------  -------------     --------------

     Net income                                        $ 921,319      $ 882,854          $ 803,840
                                                    =============  =============     ==============
</TABLE>
                                       41
<PAGE>

                         STATEFED FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE S - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS - Continued

                        Condensed Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                   Year ended June 30,
                                                       -----------------------------------------------
                                                           1997           1996              1995
                                                       -------------  -------------     --------------
<S>                                                    <C>             <C>               <C>
   Cash flows from operating activities:
     Net income                                          $  921,325     $  882,854         $  803,840
     Dividends received from subsidiary                   1,000,000      1,000,000            975,000
     Deferred income taxes                                    5,692         (8,990)                 -
     Adjustments to reconcile net income to net cash from operating activities:
       Equity in undistributed income of subsidiary        (770,240)      (827,701)          (730,556)
       Other                                                 28,450         33,481             (1,515)
                                                       -------------  -------------     --------------
        Net cash from operating activities                1,185,227      1,079,644          1,046,769

   Cash flows from investing activities:
     Purchase of investment securities                      (51,444)       (64,587)           (56,008)
     Proceeds from sale of investment securities                  -        253,420            532,930
     Investments in certificates of deposits                      -              -            (93,571)
     Proceeds from maturing certificates of deposits              -              -            198,000
     Investment in real estate for development             (938,671)      (442,550)          (352,536)
     Investment in and advances to subsidiary               519,411       (224,304)          (425,900)
     (Increase) decrease in contract notes
       receivable                                           (17,503)         6,206                  -
     Payment received on ESOP debt                           68,770         68,770             68,770
     Increase in other assets                                     -        (88,557)          (111,166)
                                                       -------------  -------------     --------------
                                                           (419,437)      (491,602)          (239,481)

   Cash flows from financing activities:
     Treasury stock purchased                              (620,825)      (418,750)          (286,000)
     Proceeds from options exercised                         76,380         58,990             91,800
     Dividends paid                                        (318,159)      (329,756)          (273,677)
                                                       -------------  -------------     --------------
                                                           (862,604)      (689,516)          (467,877)
                                                       -------------  -------------     --------------

   Net increase in cash and cash equivalents                (96,814)      (101,474)           339,411

   Cash and cash equivalents, beginning of year             803,770        905,244            565,833
                                                       -------------  -------------     --------------

     Cash and cash equivalents, end of year                 706,956      $ 803,770          $ 905,244
                                                       =============  =============     ==============
</TABLE>
                                       42
<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 22, 1997 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. 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.
<TABLE>
<CAPTION>

   QUARTER ENDED                               HIGH          LOW      DIVIDENDS
---------------------------------------------  -----        -----     ---------
<S>                                            <C>            <C>        <C>
March 31, 1995...............................  14.25        11.25       .100
June 30, 1995................................  16.00        13.50       .100
September 30, 1995...........................  19.00        15.50       .100
December 31, 1995............................  19.75        17.75       .100
March 31, 1996...............................  17.75        16.25       .100
June 30, 1996................................  17.25        16.00       .100
September 30, 1996...........................  16.75        15.00       .100
December 31, 1996............................  17.25        16.25       .100
March 31, 1997...............................  18.75        16.50       .100
June 30, 1997................................  19.12(5)     18.00       .100
</TABLE>


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 5, 1997 was $21.975.

At September 8, 1997, there were 783,723 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 62301
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, 1997 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.

                                       43
<PAGE>


                         STATEFED FINANCIAL CORPORATION
                              CORPORATE INFORMATION


COMPANY AND ASSOCIATION ADDRESS

    519 Sixth Avenue              Telephone:    (515) 282-0236
    Des Moines, IA  50309         Fax:          (515) 282-1160



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
         Corporate Counsel for the Iowa League of
         Savings Institutions

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

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

                                       44
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                        STATEFED FINANCIAL CORPORATION


Date: September 29, 1997                By: /s/ John F. Golden
      ----------------------------          -----------------------------------
                                            John F. Golden
                                            (Duly Authorized Representative)

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


/s/ John F. Golden                      /s/ Craig Wood
----------------------------------      ---------------------------------------
JOHN F. GOLDEN                          CRAIG WOOD
Chairman of the Board                   Director and Senior Vice
President and Chief Executive           President
Officer

Date: September 29, 1997                Date: September 29, 1997
      ----------------------------            ---------------------------------




/s/ Harry A. Winegar                    /s/ Eugene M. McCormick
----------------------------------      ---------------------------------------
HARRY A. WINEGAR                        EUGENE M. MCCORMICK
Director                                Director

Date: September 29, 1997                Date: September 29, 1997
      ----------------------------            ---------------------------------




/s/ Sidney M. Ramey                     /s/ Kevin J. Kruse
----------------------------------      ---------------------------------------
SIDNEY M. RAMEY                         KEVIN J. KRUSE
Director                                Director

Date: September 29, 1997                Date: September 29, 1997
      ----------------------------            ---------------------------------




                                        /s/ Andra K. Black
                                        ---------------------------------------
                                        ANDRA K. BLACK
                                        Director, Executive Vice President,
                                        Secretary and Chief Financial and
                                        Accounting Officer

                                  Date: September 29, 1997
                                        ---------------------------------------