<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
           FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

           COMMISSION FILE NUMBER 0-22790

                         STATEFED FINANCIAL CORPORATION
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

            Delaware                                           42-1410788
------------------------------------                      ----------------------
   (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                           Identification No.)

   13523 University Avenue, Clive, Iowa                            50325
-----------------------------------------------           ----------------------
   (Address of principal executive offices)                     (Zip Code)

   Registrant's telephone number, including area code:         (515) 223-8484
                                                          ----------------------

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

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

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

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

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

      State the issuer's revenue for the most recent fiscal year: $8.4 million.

      The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the average of the bid and asked prices
of such stock on the NASDAQ System as of September 17, 2002, was $10.5 million.
(The exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant.)

      As of September 17, 2002, there were issued and outstanding 1,278,870
shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part II of Form 10-KSB - Annual Report to Stockholders for the fiscal year ended
June 30, 2002. Part III of Form 10-KSB - Proxy Statement for the Annual Meeting
of Stockholders to be held in October 2002.

Transitional Small Business Disclosure Format (check one):  Yes [  ]; No [X]

<PAGE>

                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

      THE COMPANY. StateFed Financial Corporation (the "Company" or the "Holding
Company"), a Delaware corporation, was formed in September, 1993 to act as the
holding company for State Federal Savings and Loan Association of Des Moines
("State Federal" or the "Bank") upon the completion of the Bank's conversion
from the mutual to the stock form (the "Conversion"). The Company received
approval from the Office of Thrift Supervision (the "OTS") to acquire all of the
common stock of the Bank to be outstanding upon completion of the Conversion.
The Conversion was completed on January 4, 1994. Unless the context otherwise
requires, all references to the Company include the Company and the Bank on a
consolidated basis.

      At June 30, 2002, the Company had $96.4 million of assets and
stockholders' equity of $14.2 million (or 14.72% of total assets).

      State Federal is a federally chartered savings and loan association
headquartered in Clive, Iowa. Its deposits are insured up to applicable limits
by the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC"), which is backed by the full faith and credit of the
United States.

      The principal business of the Bank consists of attracting retail deposits
from the general public and investing those funds primarily in one-to-four
family residential mortgage and commercial and multi-family real estate loans,
and, to a lesser extent, construction and consumer loans primarily in the Bank's
market area. The Bank also invests in U.S. Government and agency obligations and
other permissible investments. At June 30, 2002, most of the Bank's real estate
mortgage loans were secured by properties located in Iowa.

      The Bank's revenues are derived primarily from interest on mortgage loans
and investments, income from service charges and loan originations. The Bank
does not originate loans to fund leveraged buyouts and has no loans to foreign
corporations or governments.

      The Bank offers a variety of accounts having a wide range of interest
rates and terms. The Bank's deposits include savings accounts, money market
savings accounts, checking accounts and certificate accounts with terms of three
months to 60 months. Currently, the Bank only solicits deposits in its primary
market area and does not accept brokered deposits, although management may on
occasion accept brokered deposits in the future as market conditions may
dictate.

      The main office of the Bank is located at 13523 University Avenue, Clive,
Iowa 50325, which is located in Polk County. Its telephone number at that
address is (515) 223-8484. The Bank maintains two other offices in Des Moines,
Iowa. The Bank considers its primary market area to comprise parts of Polk,
Dallas and Warren Counties.

FORWARD-LOOKING STATEMENTS

      When used in this Form 10-KSB and in future filings by the Company with
the Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or shareholder communications, and in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including, among other things, changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Company's market area
and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could

                                       1

<PAGE>

cause the Company's actual results for future periods to differ materially from
any opinions or statements expressed with respect to future periods in any
current statements.

      The Company does not undertake -- and specifically declines any obligation
-- to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

LENDING ACTIVITIES

      GENERAL. Historically, the Bank has originated fixed-rate, one-to-four
family residential mortgage loans. In the early 1980's, the Bank began to focus
on the origination of adjustable-rate mortgage ("ARM") loans, in order to
increase the percentage of loans in its portfolio with more frequent repricing
than fixed-rate mortgage loans. While the Bank has continued to originate
fixed-rate mortgage loans in response to customer demand, it also continues to
offer ARMs. The Bank also, from time to time, purchases loans.

      While the Bank primarily focuses its lending activities on the origination
of loans secured by first mortgages on owner-occupied one-to-four family
residences, it also originates multi-family and commercial real estate and, to a
lesser extent, construction and consumer loans in its primary market area. At
June 30, 2002, the Bank's net loan portfolio totaled $84.8 million.

      The Loan Committee of the Bank, comprised of executive officers of the
Bank, has the immediate responsibility for the supervision of the Bank's loan
portfolio. Loans are originated and underwritten according to policies approved
by the Board. The Board of Directors has responsibility for the overall
supervision of the Bank's loan portfolio and in addition, reviews all
foreclosure actions or the taking of deeds-in-lieu of foreclosure.

      The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Banks." At June 30,
2002, the maximum amount which the Bank could have lent to any one borrower and
the borrower's related entities was approximately $1.3 million. At that date the
largest loan to one borrower or group of related borrowers consisted of one loan
to one borrower totaling $1.3 million. All of such loans were performing in
accordance with their terms. Currently, it is the Bank's policy to limit its
loans to one borrower to the maximum regulatory limit. The Bank reserves the
right to discontinue, adjust or create new lending programs to respond to its
needs and to competitive factors, and on occasion the Bank's holding company has
participated in loans with the Bank, which loans would have exceeded the limit
on loans to one borrower had such loans been made by the Bank.







                                       2
<PAGE>

      LOAN PORTFOLIO COMPOSITION. The following table presents the composition
of the Company's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and the allowances
for loan losses) of total loans as of the dates indicated.

<TABLE>
<CAPTION>

                                                                           June 30,
                                              ------------------------------------------------------------------
                                                     2002                    2001                  2000
                                              ------------------------------------------------------------------
                                               Amount    Percent      Amount     Percent     Amount     Percent
                                              ------------------------------------------------------------------
                                                                    (Dollars in Thousands)

<S>                                           <C>         <C>        <C>          <C>       <C>          <C>
       REAL ESTATE LOANS:
       ------------------
          One-to-four family                  $ 55,482    63.24 %    $ 55,179     61.77 %   $ 54,078     61.95 %
          Multi-family and Commercial           25,847    29.46        31,243     34.97       31,071     35.59
          Construction and development           4,331     4.94         1,309      1.46          719      0.83

                                              -------------------    --------------------   --------------------
              Total real estate loans         $ 85,660    97.64      $ 87,731     98.20     $ 85,868     98.37


       OTHER LOANS:
       ------------
          Consumer loans:
            Deposit account............             56     0.06           117      0.13          186      0.21
            Other......................          2,012     2.29         1,489      1.67        1,240      1.42

                                              -------------------    --------------------   --------------------
              Total consumer loans.....          2,068     2.36         1,606      1.80        1,426      1.63
                                              -------------------    --------------------   --------------------

              Total loans..............         87,728   100.00 %      89,337    100.00 %     87,294    100.00 %
                                                        ========                ========               ========

       LESS:
       -----
          Loans in process.............         (1,726)                  (717)                  (141)
          Deferred fees and discounts..           (303)                  (339)                  (321)
          Allowance for losses.........           (927)                  (382)                  (259)
                                              ---------              ---------              ---------

          Total loans receivable, net..       $ 84,772               $ 87,899               $ 86,573
                                              =========              =========              =========
</TABLE>


                                       3
<PAGE>

The following table shows the composition of the Company's loan portfolio by
fixed and adjustable rate at the dates indicated.

<TABLE>
<CAPTION>
                                                                                    June 30,
                                              ------------------------------------------------------------------
                                                     2002                    2001                  2000
                                              ------------------------------------------------------------------
                                               Amount    Percent      Amount     Percent     Amount     Percent
                                              ------------------------------------------------------------------
                                                                    (Dollars in Thousands)

<S>                                           <C>         <C>        <C>          <C>       <C>          <C>

       FIXED RATE LOANS:
       -----------------
         Real estate:
          One-to-four family...............   $ 47,701    54.37 %    $ 42,100     47.13 %   $ 37,398     42.84 %
          Multi-family and Commercial......     14,216    16.20        15,402     17.24       15,286     17.51
          Construction or development......      4,331     4.94         1,309      1.46          719      0.83
                                              -------------------    --------------------   --------------------

              Total real estate loans......     66,248    75.52        58,811     65.83       53,403     61.18
          Consumer.........................      1,859     2.12         1,606      1.80        1,426      1.63
                                              -------------------    --------------------   --------------------

              Total fixed-rate loans            68,107    77.63        60,417     67.63       54,829     62.81

       ADJUSTABLE RATE LOANS:
       ----------------------
         Real estate:
          One-to-four family...............      7,781     8.87        13,079     14.64       16,680     19.11
          Multi-family and Commercial......     11,631    13.26        15,841     17.73       15,785     18.08
                                              -------------------    --------------------   --------------------

              Total real estate loans......     19,412    22.13        28,920     32.37       32,465     37.19

          Consumer.........................        209     0.24             -                      -
                                              -------------------    --------------------   --------------------

              Total adjustable-rate loans..     19,621    22.37        28,920     32.37       32,465     37.19
                                              -------------------    --------------------   --------------------

              Total loans..................     87,728   100.00 %      89,337    100.00 %     87,294    100.00 %
                                                        ========                ========               ========

       LESS:
       -----
          Loans in process.................     (1,726)                  (717)                  (141)
          Deferred fees and discounts......       (303)                  (339)                  (321)
          Allowance for losses.............       (927)                  (382)                  (259)
                                              ---------              ---------              ---------

          Total loans receivable, net......   $ 84,772               $ 87,899               $ 86,573
                                              =========              =========              =========

</TABLE>

                                       4

<PAGE>

      The following schedule illustrates the interest rate sensitivity of the
Company's loan portfolio at June 30, 2002. Mortgages which have fixed,
adjustable or renegotiable interest rates are shown as maturing at the
contractual maturity date. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                                               Real Estate
                                      ----------------------------------------------------------------------------------------------
                                                           Multi-family and     Construction
                                      One-to-four family      Commercial       or Development       Consumer            Total
                                      ----------------------------------------------------------------------------------------------
                                                Weighted           Weighted            Weighted          Weighted           Weighted
                                                 Average           Average             Average           Average            Average
                                       Amount     Rate     Amount    Rate     Amount    Rate     Amount   Rate     Amount    Rate
                                      --------  --------  -------  --------  -------   --------  ------  -------- --------  --------
<C>                                   <C>         <C>     <C>       <C>      <C>       <C>       <C>      <C>     <C>        <C>
Due During Years Ending June 30, (1)
2003................................. $  3,497    8.14 %  $ 9,889   7.36 %   $ 4,331   7.45 %    $  421   7.83 %  $ 18,138   7.54 %
2004.................................    7,374    7.92      1,034   9.05           -      -         185   9.70       8,593   8.09
2005.................................   10,379    7.68      1,433   8.70           -      -         384   9.25      12,196   7.85
2006-2010............................    6,668    7.93      5,803   7.97           -      -       1,054   8.62      13,525   8.00
After 2010...........................   27,564    7.59 %    7,688   7.30 %         -      - %        24  10.00 %    35,276   7.53 %
</TABLE>

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

(1)   Includes construction loans which the Bank reclassifies as permanent loans
      once the construction phase is completed.

      The total amount of loans due after June 30, 2003 which have fixed
interest rates is $57.4 million, while the total amount of loans due after such
dates which have floating or adjustable interest rates is $12.2 million.






                                       5

<PAGE>

      ONE-TO-FOUR FAMILY RESIDENTIAL MORTGAGE LENDING. Loans of this type are
generated by the Company's marketing efforts, its present customers, walk-in
customers and referrals from real estate agents and builders. The Company
focuses its lending efforts primarily on the origination of loans secured by
first mortgages on owner-occupied, one-to-four family residences. At June 30,
2002, the Company's one-to-four family residential mortgage loans totaled $55.5
million, or approximately 63.2% of the Company's total gross loan portfolio.

      The Company currently offers ARM payment and fixed-rate mortgage loans.
During the year ended June 30, 2002, the Bank did not originate any
adjustable-rate real estate loans, which were secured by one-to-four family
residential real estate, due to the historically low interest rate environment.
During the same period, the Company originated $13.2 million of fixed-rate real
estate loans, secured by one-to-four family residential real estate. The
Company's one-to-four family residential mortgage originations are primarily in
its market and surrounding areas, and no such loans were sold during the three
year period ended June 30, 2002.

      The Company currently originates up to a maximum of 30-year, fixed-rate,
one-to-four family residential mortgage loans in amounts up to 90% of the
appraised value of the security property provided that private mortgage
insurance is obtained in an amount sufficient to reduce the Company's exposure
to at or below the 80% loan-to-value level. The Company may consider raising the
loan-to-value ratio in the future as regulations permit. Due to consumer demand,
the Company also has offered fixed-rate 10- through 15-year mortgage loans, most
of which conform to secondary market standards (i.e., Federal National Mortgage
Bank ("FNMA"), Government National Mortgage Bank ("GNMA"), and Federal Home Loan
Mortgage Corporation ("FHLMC") standards).

      Interest rates charged on these fixed-rate loans are priced according to
market conditions, although management does not currently anticipate offering
rates at the most competitive end of the market. Residential loans generally do
not include prepayment penalties. Although the Company has not historically sold
its fixed-rate loans, it may in the future to maintain asset quality and
profitability.

      The Company also currently offers thirty year amortization ARM loans with
interest rate adjustments occurring after one, and to a lesser extent, three,
five and seven year terms with an interest rate margin generally 300 basis
points over one year Treasury rates. These loans have a fixed-rate for the
stated period and, thereafter, such loans adjust periodically, pursuant to the
contractual term. These loans provide for up to a 100 basis point annual cap and
a lifetime cap of 600 basis points over the initial rate although the bulk of
the Bank's ARMs are estimated by management to have 500 basis point lifetime
caps. Under the current ARM program, a 500 basis point lifetime cap is being
utilized. Under the contractual terms, the majority of such loans do not adjust
below the initial rate. As a consequence of using an initial fixed-rate and
caps, the interest rates on these loans may not be as rate sensitive as is the
Bank's cost of funds. The Company's ARMs do not permit negative amortization of
principal. The Bank generally qualifies borrowers above the fully indexed rate.

      In underwriting one-to-four family residential real estate loans, State
Federal evaluates, among other things, both the borrower's ability to make
monthly payments and the value of the property securing the loan. Currently, all
properties securing real estate loans made by State Federal are appraised by
independent fee appraisers approved by the Board of Directors or by in-house
appraisers. State Federal generally requires borrowers to obtain an attorney's
title opinion, and fire and property insurance (including flood insurance, if
necessary) in an amount not less than the amount of the loan. State Federal now
requires title insurance. Real estate loans originated by the Bank generally
contain a "due on sale" clause allowing the Bank to declare the unpaid principal
balance due and payable upon the sale of the security property.

      MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Company has also
engaged in commercial and multi-family real estate lending in its market area
and surrounding areas and has purchased participation interests in such loans
from other financial institutions throughout Iowa. At June 30, 2002, the Company
had $25.8 million of commercial and multi-family real estate loans, which
represented 29.5% of the Company's gross loan portfolio. There were four
multi-family and commercial real estate loans 30-89 days delinquent and three
non-performing loans totaling $1.8 million and $906,000, respectively (four of
the loans were on properties located in the Des Moines area, one in Iowa City,
one in Cedar Rapids and one commercial property located in Minnesota). The
commercial property in the Des Moines for $1.4 million is paying as agreed and
is now current. The Company had multi-family and commercial real estate loans,
with an aggregate balance of $6.0 million at June 30, 2002, secured by real
estate located in Texas, Colorado, Nebraska, Minnesota, Nevada, California,
Illinois and Florida.

                                       6
<PAGE>

      Loans secured by commercial and multi-family real estate properties are
generally larger and involve a greater degree of credit risk than one-to-four
family residential mortgage loans. Because payments on loans secured by
commercial real estate properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. If the
cash flow from the project is reduced (for example, if leases are not obtained
or renewed), the borrower's ability to repay the loan may be impaired.

      The Company's commercial and multi-family real estate loan portfolio is
secured primarily by apartment buildings and office buildings and, to a lesser
extent, strip shopping centers, motels, nursing homes and churches. Multi-family
and commercial real estate loans generally have terms that do not exceed 30
years. The Company has a variety of rate adjustment features and other terms in
its commercial and multi-family real estate loan portfolio. Generally, the loans
are made in amounts up to 80% of the appraised value of the security property.
Multi-family and commercial real estate loans provide for a margin over a
designated index which is generally the one-year Treasury bill rate. The Company
currently analyzes the financial condition of the borrower, the borrower's
credit history, and the reliability and predictability of the cash flow
generated by the property securing the loan. The Company requires personal
guaranties of the borrowers. Appraisals on properties securing commercial real
estate loans originated by the Bank are performed by independent appraisers.

      The following table breaks out the Company's commercial loan portfolio by
type of loan at the dates indicated.

                                                   June 30,
                                  -----------------------------------------
                                    2002             2001            2000
                                  --------         --------        --------

        Multi-family               $ 7,472         $ 10,956         $ 9,388
        Nursing homes                1,983            2,030           1,653
        Churches                       465              525             598
        Motels                       4,835            6,037           5,097
        Shopping Centers                 -            1,305           2,056
        Commercial buildings        11,092           10,390          12,279
                                  --------         --------        --------
               Total              $ 25,847         $ 31,243        $ 31,071
                                  ========         ========        ========

      This portfolio decreased by $5.4 million from fiscal 2001 to fiscal 2002,
and the portfolio comprised 29.5 percent of total loans in fiscal 2002 compared
to 35.0 percent of total loans in fiscal 2001.

      CONSTRUCTION LENDING. The Company engages in limited amounts of
construction lending to individuals for the construction of their residences as
well as to builders for the construction of single family homes and commercial
properties in the Company's primary market area and surrounding areas. At June
30, 2002, the Company had $4.3 million of gross construction loans.

      Construction loans to individuals for their residences are structured to
be converted to permanent loans at the end of the construction phase, which
typically runs for twelve months. During the construction phase, the borrower
pays interest only. Residential construction loans are generally underwritten
pursuant to the same guidelines used for originating permanent residential
loans.


                                       7
<PAGE>

      All construction loans to builders require payment of interest only for up
to 12 months. At June 30, 2002, all of the Company's construction loans were
performing in accordance with their repayment terms.

      Because of the uncertainties inherent in estimating construction costs and
the market for the project upon completion, it is relatively difficult to
evaluate accurately the total loan funds required to complete a project, the
related loan-to-value ratios and the likelihood of ultimate success of the
project. Construction loans to borrowers other than owner-occupants also involve
many of the same risks discussed above regarding multi-family and commercial
real estate loans and tend to be more sensitive to general economic conditions
than many other types of loans. Also, the funding of loan fees and interest
during the construction phase makes the monitoring of the progress of the
project particularly important, as customary early warning signals of project
difficulties may not be present.

      CONSUMER LENDING. To a lesser extent, State Federal offers secured and
unsecured consumer loans, including auto loans, home equity loans, loans secured
by savings deposits and lines of credit. The Bank currently originates all of
its consumer loans in its primary market area. The Bank originates consumer
loans on a direct basis by extending credit directly to the borrower.

      Consumer loans may entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At June 30, 2002, four auto loans totaling $26,000 in the consumer
loan portfolio were non-performing. There can be no assurance as to the
delinquencies in the future.

      The largest component of State Federal's consumer loan portfolio consists
of auto loans. At June 30, 2002, such loans totaled $1.1 million or
approximately 1.3% of the Bank's gross loan portfolio. During the fiscal year
ended June 30, 2002, the Bank originated $560,000 in auto loans as compared to
$1.1 million originated in the same period ended June 30, 2001. At June 30,
2002, the Bank's consumer loan portfolio totaled $2.1 million or 2.4% of its
total gross loan portfolio.

      Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. Loans secured by
deposit accounts at the Bank are currently originated for up to 90% of the
account balance with a hold placed on the account restricting the withdrawal of
the account balance. The interest rate on such loans is typically equal to 200
basis points above the deposit contract rate.

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

ORIGINATIONS AND PURCHASES OF LOANS

      Real estate loans are generally originated by State Federal's staff of
salaried and commissioned loan officers. Loan applications are taken and
processed in the office and the branch of the Bank.

      While the Company originates both adjustable-rate and fixed-rate loans,
its ability to originate loans is dependent upon the relative customer demand
for loans in its market. Demand is affected by the interest rate environment.
The Company is primarily a portfolio lender, but may sell loans on the secondary
market in order to maintain asset quality and profitability.

                                       8
<PAGE>

      In fiscal 2002, the Company originated $22.1 million of loans, compared to
$18.2 million and $18.0 million in fiscal 2001 and 2000, respectively. Principal
repayments in fiscal 2002 increased by $6.4 million from $18.7 million in fiscal
2001.

      In periods of economic uncertainty, the ability of financial institutions,
including State Federal, to originate large dollar volumes of real estate loans
may be substantially reduced or restricted, with a resultant decrease in related
loan origination fees, other fee income and operating earnings.

      The following table shows the loan origination, purchase and repayment
activities of the Company for the periods indicated.

<TABLE>
<CAPTION>

                                                                   Year ended June 30,
                                                           ----------------------------------
                                                             2002         2001         2000
                                                           --------     --------     --------
                                                                     (In Thousands)
<S>                                                        <C>          <C>          <C>
         Originations by type:
         ---------------------
         Adjustable rate:
            Real estate  - one-to-four family              $      -     $    896     $  1,585
                         - multi-family and commercial            -        1,416            -
            Non-real estate - consumer                          447            -            -
                                                           --------     --------     --------
                   Total adjustable-rate                        447        2,312        1,585


         Fixed rate:
            Real estate  - one-to-four family                13,209       12,069       12,873
                         - multi-family and commercial        6,097        2,486        2,236
            Non-real estate - consumer                        2,337        1,314        1,317

                   Total fixed-rate                          21,643       15,869       16,426
                                                           --------     --------     --------
                   Total loans originated                    22,090       18,181       18,011


         Purchases:
         ----------
            Real estate  - one-to-four family              $      -     $      -     $      -
                         - commercial                         1,000        2,472        5,238
            Non-real estate - consumer                            -            -            -
                                                           --------     --------     --------

                   Total loans                                1,000        2,472        5,238
            Mortgage-backed securities                            -            -            -

                                                           --------     --------     --------
                   Total purchases                            1,000        2,472        5,238

         Repayments:
         -----------
            Principal repayments                           $ 25,086     $ 18,713     $  8,232
                                                           --------     --------     --------
                   Total reductions                          25,086       18,713        8,232

         Increase (decrease) in other items, net             (1,131)        (614)        (775)
                                                           --------     --------     --------
                   Net increase (decrease)                 $ (3,127)    $  1,326     $ 14,242
                                                           ========     ========     ========
</TABLE>

NON-PERFORMING ASSETS AND CLASSIFIED ASSETS

      When a borrower fails to make a required payment on real estate secured
loans and consumer loans at fifteen days a late charge is automatically assessed
and a notice is sent. At 30 days after the payment is due, the Company generally
institutes collection procedures by mailing a delinquency notice and/or by
telephone. The customer is contacted again, by notice and/or telephone, when the
payment is 60 days past due. In most cases, delinquencies are cured promptly;
however, if a loan secured by real estate or other collateral has been
delinquent for more than 90 days, satisfactory payment arrangements must be
adhered to or the Company will initiate foreclosure or repossession.

                                        9
<PAGE>

      Generally, when a loan becomes delinquent 90 days or more or when the
collection of principal or interest becomes doubtful, the Company will place the
loan on a non-accrual status and, as a result, previously accrued interest
income on the loan is taken out of current income. The loan will remain on a
non-accrual status as long as the loan is 90 days delinquent.

      The following table sets forth information concerning delinquent mortgage
and other loans at June 30, 2002. The amounts presented represent the total
remaining principal balances of the related loans, rather than the actual
payment amounts which are overdue.

<TABLE>
<CAPTION>
                                                                  Real Estate
                                    -----------------------------------------------------------------------------
                                                                                     Commercial and
                                             One-to-four family                        Multi-family
                                    ------------------------------------    -------------------------------------
                                      Number       Amount     Percent         Number       Amount      Percent
                                    ----------   ---------   -----------    ----------   ---------   ------------
                                                               (Dollars in Thousands)
       <S>                                  <C>  <C>              <C>                 <C> <C>              <C>
       Loans delinquent for:
         30-59 days................         21   $   1,158        2.09 %              4   $   1,545        5.98 %
         60-89 days................          8         594        1.07                -           -           -
         90 days and over..........         16       1,257        2.27                3         906        3.51
                                    ----------   ---------   ---------       ----------   ---------   ---------
           Total delinquent loans           45   $   3,009        5.42 %              7   $   2,451        9.48 %
                                    ==========   =========   =========       ==========   =========   =========
</TABLE>

      At June 30, 2002 there were 5 delinquent consumer loans totaling $27,000
the ratio of delinquent consumer loans to total loans (net) was .03% at June 30,
2002.

      The table below sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio at the dates indicated. Loans are generally
placed on non-accrual status when the collection of principal and/or interest
become doubtful or when the loan is in excess of 90 days delinquent. Foreclosed
assets include assets acquired in settlement of loans.

<TABLE>
<CAPTION>

                                                                      June 30,
                                                         ----------------------------------
                                                           2002         2001         2000
                                                         --------     --------     --------
                                                                (Dollars in Thousands)
<S>                                                      <C>          <C>          <C>
        Non-accruing loans:
             One-to-four family                          $  1,077     $  1,218     $    717
             Multi-family and commercial real estate          906           48            -
             Consumer                                          27           53           14
                                                         --------     --------     --------
                  Total                                     2,010        1,319          731

        Accruing loans delinquent more than 90 days:
             One-to-four family                               180          362          244
             Multi-family and commercial real estate            -          469            -
                                                         --------     --------     --------
                  Total                                       180          831          244

        Foreclosed assets:
             One-to-four family                               365            -            -
             Multi-family and commercial real estate            -        1,320        1,338
                                                         --------     --------     --------
                  Total                                       365        1,320        1,338

        Total non-performing assets                      $  2,555     $  3,470     $  2,313
                                                         ========     ========     ========

        Total as a percentage of total assets                2.65 %       3.23 %       2.30 %
                                                         ========     ========     ========
</TABLE>

      NON-PERFORMING ASSETS. Included in total non-performing assets are 19
mortgage loans secured by one-to-four family dwellings totaling $1.4 million,
three multi-family and commercial loans totaling $906,000 and five

                                       10

<PAGE>

consumer loans for $27,000. One loan with a carrying balance totaling $105,000
secured by a one-to-four family dwelling was paid off in July 2002.

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

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

      In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
the loans in its portfolio to determine whether any loans require classification
in accordance with applicable regulations. On the basis of management's review
of its assets, at June 30, 2002, the Bank had classified a total of $836,000 of
its assets as substandard, $1.9 million were classified as doubtful, and none
were classified as loss.

      At June 30, 2002, total classified assets comprised $2.7 million or 19.0%
of the Bank's capital, or 2.8% of the Bank's total assets.

      At June 30, 2002 the Bank had a total of $365,000 in property acquired in
settlement of loans, which consisted of 3 one-to-four family real estate
properties. One property with a carrying value of $261,000 was sold in July
2002.

      ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established by
management and the Board of Directors through a provision for loan losses on a
systematic evaluation process focusing on the risk of loss in the loan portfolio
and changes in the nature and volume of its loan activity. Such evaluation,
which includes a review of delinquent residential and consumer, and all
multi-family and commercial loans, considers among other matters the estimated
fair value of the underlying collateral, economic conditions, specific
industries, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan allowance.

      Real estate properties acquired through foreclosure are recorded at fair
value. If fair value at the date of foreclosure is lower than the balance of the
related loan, the difference will be charged-off to the allowance at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations.

      Although management believes that it uses the best information available
to determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances will be the result
of periodic loan, property and collateral reviews and thus cannot be predicted
in advance. At June 30, 2002, the Company had a total allowance for loan losses
of $927,000 or 1.09% of loans receivable, net. See Notes A and E of the Notes to
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report to
Stockholders attached hereto as Exhibit 13.

                                       11

<PAGE>

      The following table sets forth an analysis of the Bank's allowance for
loan losses.

<TABLE>
<CAPTION>

                                                                      Year Ended June 30,
                                                             ----------------------------------
                                                                2002         2001         2000
                                                             --------     --------     --------
                                                                   (Dollars in Thousands)

<S>                                                          <C>           <C>          <C>
      Balance at beginning of period                         $     382     $    259     $    242

      Charge-offs                                                  (77)         (28)         (19)
      Recoveries                                                    56            -            -
                                                              --------     --------     --------

      Net charge-offs                                              (21)         (28)         (19)
      Additions charged to operations                              566          151           36
                                                              --------     --------     --------

      Balance at end of period                                $    927     $    382     $    259
                                                              ========     ========     ========

      Ratio of net charge-offs during the period
        to average loans outstanding during the
        period                                                    0.02 %       0.03 %       0.02 %
                                                              ========     ========     ========

      Ratio of net charge-offs during the period
        to average non-performing assets                          0.79 %       0.96 %       1.04 %
                                                              ========     ========     ========
</TABLE>

      The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:

<TABLE>
<CAPTION>
                                                                     June 30,
                                             2002                     2001                   2000
                                     ---------------------    --------------------   ---------------------
                                                   Percent                Percent                 Percent
                                                  of Loans                of Loans                of Loans
                                                   in Each                 in Each                 in Each
                                                  Category                Category                Category
                                                  to Total                to Total                to Total
                                      Amount       Loans       Amount      Loans      Amount       Loans
                                     -------     ---------    -------    ---------   -------     ---------
                                                            (Dollars in Thousands)

<S>                                  <C>           <C>        <C>          <C>       <C>           <C>
      One-to-four family...........  $   292       63.24 %    $   165      61.77 %   $    99       61.95 %
      Multi-family and commercial
        real estate................      594       29.46          198      34.97         144       35.59
      Construction.................        -        4.94            -       1.46           -        0.83
      Consumer and unsecured.......       41        2.36           19       1.80          16        1.63
      Unallocated..................        -           -            -          -           -           -
                                     -------     --------     -------    --------    -------     --------
                Total                $   927      100.00 %    $   382     100.00 %   $   259      100.00 %
                                     =======     ========     =======    ========    =======     ========
</TABLE>



                                       12

<PAGE>

INVESTMENT ACTIVITIES

     State Federal must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Bank has generally
maintained its liquid assets above the minimum requirements imposed by the OTS
regulations and at a level believed adequate to meet requirements of normal
daily activities, repayment of maturing debt and potential deposit outflows. The
Bank's investment policy objective in this regard sets the Bank's desired
liquidity between 6% and 12%. As of June 30, 2002, the Bank's liquidity ratio
(liquid assets as a percentage of net withdrawable savings deposits and current
borrowings) was 5.42%. See "Regulation - Liquidity."

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

     Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank'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 Bank's
asset/liability management policies.

     CASH AND INVESTMENTS IN CERTIFICATES OF DEPOSIT AND OTHER INVESTMENTS. At
June 30, 2002, the Company's cash and interest-bearing deposits in other
financial institutions totaled $3.1 million, or 3.2% of its total assets.
Certificates of deposits invested in other institutions totaled $99,000 or .1%
of its total assets. The Bank has a $1.8 million investment in the common stock
of the FHLB of Des Moines in order to satisfy the requirement for membership in
such institution. The Company has $1.1 million or 1.1% of its total assets
invested in corporate securities, which includes preferred common stocks. The
Company has $242,000 or .25% of its assets invested in federal agency securities
and municipal bonds. See Note D of Notes to Consolidated Financial Statements in
the Annual Report to Stockholders attached hereto as Exhibit 13.

     OTS regulations restrict investments in corporate debt and most equity
securities by the Bank. These restrictions include prohibitions against
investments in the federal agency debt securities of any one issuer in excess of
15% of the Bank's unimpaired capital and unimpaired surplus as defined by
federal regulations, plus an additional 10% if the investments are fully secured
by readily marketable collateral. See "Regulation - Federal Regulation of
Savings Banks" for a discussion of additional restrictions on the Bank's
investment activities.





                                       13

<PAGE>

     The following table sets forth the composition of the Company's investment
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                               2002                   2001                    2000
                                                        -------------------    -------------------    --------------------
                                                          Book      % of        Book       % of         Book       % of
                                                          Value     Value       Value      Value        Value      Value
                                                        -------------------    -------------------    --------------------
                                                                              (Dollars in Thousands)

<S>                                                     <C>         <C>        <C>         <C>        <C>          <C>
         Investment Securities:
             Corporate equity securities............... $  1,082    35.06 %    $  1,619    43.92 %    $  1,685     45.59 %
             Federal agency debt securities............      141     4.57           204     5.54           446     12.07
             Municipal bonds...........................      101     3.27           101     2.74           100      2.70
         FHLB Stock....................................    1,762    57.10         1,762    47.80         1,465     39.64
                                                        -------------------    -------------------    --------------------

             Total investment securities and FHLB
              stock.................................... $  3,086   100.00 %    $  3,686   100.00 %    $  3,696    100.00 %
                                                        ===================    ===================    ====================

         Other Interest-Earning Assets:
             Interest-bearing deposits with banks...... $  2,846    96.64 %    $  6,691    95.75 %    $  2,196     81.58 %
             Certificates of deposit invested
               in other institutions...................       99     3.36           297     4.25           496     18.42
                                                        -------------------    -------------------    --------------------

             Total..................................... $  2,945   100.00 %    $  6,988   100.00 %    $  2,692    100.00 %
                                                        ===================    ===================    ====================

         Average remaining life or term to repricing of
             certificates of deposit................... 2 years                1-1/2 years            2 years

</TABLE>

Contractual maturities of federal agency debt securities and municipal bonds are
shown below:

                                                           June 30, 2002
                                                      -----------------------
                                                                   Weighted
                                                         Book       Average
                                                        Value        Yield
                                                      -----------------------
                                                       (Dollars in Thousands)
             Due in one year or less                        8         5.75 %
             Due after one year through five years          -            -
             Due after five years through ten years       126         4.99
             Due after ten years                          108         6.79
                                                      -------
                                                       $  242
                                                      =======


                                       14

<PAGE>

SOURCES OF FUNDS

      GENERAL. The Company's primary sources of funds are deposits, borrowings,
repayment of loan principal, sales of loan participations, maturing investments
in certificates of deposit, proceeds from investment securities and funds
provided from operations.

      Borrowings, consisting of FHLB advances, may be used at times to
compensate for seasonal reductions in deposits or deposit inflows at less than
projected levels, and may be used on a longer-term basis to support expanded
lending activities.

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

      The flow of deposits is influenced significantly by general economic
conditions, changes in prevailing interest rates, and competition.

      The variety of deposit accounts offered by the Bank has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. The
ability of the Bank to attract and maintain certificate of deposit accounts and
the rates paid on these deposits has been and will continue to be significantly
affected by market conditions.

      The following table sets forth the savings flows at the Bank during the
periods indicated.

<TABLE>
<CAPTION>
                                                    Year Ended June 30,
                                        ------------------------------------------
                                            2002            2001            2000
                                        ------------------------------------------
                                                 (Dollars in Thousands)
<S>                                      <C>             <C>             <C>
      Opening balance..................  $  62,987       $  53,648       $  54,713
      Deposits.........................    100,655          80,230          66,932
      Withdrawals......................    (99,801)        (73,984)        (70,762)
      Interest credited................      3,060           3,093           2,765
                                        ----------      ----------      ----------

      Ending balance...................  $  66,901       $  62,987       $  53,648
                                        ==========      ==========      ==========

      Net increase (decrease)..........  $   3,914       $   9,339       $  (1,065)
                                        ==========      ==========      ==========

      Percent increase (decrease)......        6.2 %          17.4 %         (1.95)%
                                        ==========      ==========      ==========
</TABLE>



                                       15

<PAGE>

      The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of June 30, 2002.

<TABLE>
<CAPTION>
                                                                         Maturity
                                                  -------------------------------------------------------
                                                                Over       Over
                                                   3 Months    3 to 6     6 to 12      Over
                                                   or less     Months     Months     12 Months    Total
                                                  --------    -------    --------    --------    --------
                                                                   (Dollars in Thousands)
<S>                                               <C>         <C>        <C>         <C>         <C>
      Certificates of deposits less
         than $100,000..........................  $  7,883    $ 4,797    $  9,833    $ 15,618    $ 38,131
      Certificates of deposit $100,000 or more..     1,705        600       2,472       4,271       9,048
                                                  --------    -------    --------    --------    --------

      Total certificates of deposit               $  9,588    $ 5,397    $ 12,305    $ 19,889    $ 47,179
                                                  ========    =======    ========    ========    ========
</TABLE>

      BORROWINGS. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings when they are a less costly source
of funds, can be invested at a positive interest rate spread or when the Bank
desires additional capacity to fund loan demand.

      State Federal's borrowings historically have consisted of advances from
the FHLB of Des Moines upon the security of a blanket collateral agreement of a
percentage of unencumbered loans. Such advances can be made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. At June 30, 2002, the Bank had $14.0 million in FHLB advances.

      At June 30, 2002, the Bank had no repurchase agreements or other
borrowings not mentioned above outstanding.

      The following table sets forth certain information including the maximum
month-end balance and average balance of FHLB advances at the dates indicated.

<TABLE>
<CAPTION>
                                                                    Year Ended June 30,
                                                        ---------------------------------------------
                                                           2002             2001              2000
                                                        ---------------------------------------------
                                                                   (Dollars in Thousands)
<S>                                                     <C>              <C>              <C>
      Maximum Balance:
      ----------------
         FHLB advances                                  $  29,185        $  35,235        $  29,284
                                                        =========        =========        =========

      Average Balance:
      ----------------
         FHLB advances                                  $  18,541        $  32,543        $  21,716
                                                        =========        =========        =========

      Weighted average interest rate of FHLB advances        5.51 %           5.21 %           6.31 %
                                                        =========        =========        =========
</TABLE>



                                       16

<PAGE>

SERVICE CORPORATION ACTIVITIES

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

      State Federal has one subsidiary which is a service corporation, State
Service Corporation, located in Des Moines, Iowa. State Service Corporation was
organized by State Federal in 1976. State Service Corporation sold its 60-unit
apartment complex during the second quarter of fiscal 2002 and currently sells
noninsured investment products.

      During the fiscal year ended June 30, 2002, State Service Corporation
recognized a gain of $810,000 from the sale of its apartment complex. State
Service Corporation generated $37,000 in gross revenue from the sale of
noninsured investment products and $17,000 of interest income on real estate
contracts. Income tax expense totaled $338,000 for fiscal 2002.

                                   REGULATION

GENERAL

      State Federal is a federally chartered savings and loan association, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government up to applicable limits set by the FDIC. State
Federal is subject to broad federal regulation and oversight extending to all
its operations principally by its primary regulator, the OTS. The Bank is a
member of the FHLB of Des Moines and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan holding company of State Federal, the Holding Company
also is subject to federal regulation and oversight principally by the OTS. The
purpose of the regulation of the Holding Company and other holding companies is
to protect subsidiary savings associations. The Bank is a member of the Savings
Association Insurance Fund ("SAIF"), which together with the Bank Insurance Fund
(the "BIF") are the two deposit insurance funds administered by the FDIC. As a
result, the FDIC has certain regulatory and examination authority over State
Federal.

      Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

FEDERAL REGULATION OF SAVINGS BANKS

      The OTS has extensive authority over the operations of savings banks, such
as State Federal. As part of this authority, State Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular examination of State Federal was as of June 30,
2002. When these examinations are conducted by the OTS and the FDIC, the
examiners may require the Bank to provide for higher general or specific loan
loss reserves. All savings institutions are subject to a semi-annual assessment,
based upon the savings institution's total assets, to fund the operations of the
OTS. The Bank's OTS assessment for the fiscal year ended June 30, 2002 was
approximately $33,000.

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

                                       17

<PAGE>

      In addition, the investment, lending and branching authority of the Bank
is prescribed by federal law and it is prohibited from engaging in any
activities not permitted by such laws. For example, the permissible level of
investment by federal associations, subject to safety and soundness
restrictions, (1) in loans secured by non-residential real property may not
exceed 400% of total capital, (2) in commercial loans may not exceed 20% of
assets, provided that amounts in excess of 10% of assets may only be small
business loans, (3) related to leasing of tangible personal property may not
exceed 10% of assets, and (4) in loans for personal, family and household
purposes, when combined with commercial paper and corporate debt securities, may
not exceed 35% of assets. Federal savings institutions are also generally
authorized to branch nationwide. State Federal is in compliance with the noted
restrictions.

      The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 2002, the Bank's lending limit under this restriction was approximately
$1.3 million.

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

INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC

      State Federal is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the SAIF or the BIF.
The FDIC also has the authority to initiate enforcement actions against savings
institutions, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.

      The FDIC's deposit insurance premiums are assessed through a risk-based
system, under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period. As
of June 30, 2002, the Bank met the requirements of a well-capitalized
institution.

      The premium schedule for BIF and SAIF insured institutions ranged from 0
to 27 basis points. However, SAIF insured institutions and BIF insured
institutions are required to pay a Financing Corporation assessment in order to
fund the interest on bonds issued to resolve thrift failures in the 1980s. This
amount is currently equal to about 1.88 points for each $100 in domestic
deposits for BIF and SAIF insured institutions. These assessments, which may be
revised based upon the level of BIF and SAIF deposits, will continue until the
bonds mature in 2017 through 2019.

REGULATORY CAPITAL REQUIREMENTS

      Federally insured savings institutions, such as the Bank, are required to
maintain a minimum level of regulatory capital. The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings banks. These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The

                                       18

<PAGE>

OTS is also authorized to impose capital requirements in excess of these
standards on individual banks on a case-by-case basis.

      The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement.

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

      At June 30, 2002 the Bank had tangible capital of $7.2 million, or 7.9% of
adjusted total assets, which is approximately $5.8 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date.

      The capital standards also require core capital equal to at least 3% to 4%
of adjusted total assets depending on an institution's rating. Core capital
generally consists of tangible capital plus certain intangible assets, including
a limited amount of purchased credit card relationships. As a result of the
prompt corrective action provisions discussed below, however, a savings
institution must maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such to allow it to
maintain a 3% ratio.

      At June 30, 2002, the Bank had core capital equal to $7.2 million, or 7.9%
of adjusted total assets, which is $3.5 million above the minimum leverage ratio
requirement of 4% as in effect on that date.

      The OTS risk-based requirement requires savings institutions to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings institution to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At June 30, 2002, State Federal had
no capital instruments that qualify as supplementary capital but had $731,000 of
general loss reserves, which was less than 1.21% of risk-weighted assets.

      Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. State Federal had no such
exclusions from capital and assets at June 30, 2002.

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

      OTS regulations also require that every savings institution with more than
normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings bank, greater than 2% of the present value of its assets,
based upon a hypothetical 200 basis point increase or decrease in interest rates
(whichever results in a greater decline). Net portfolio value is the present
value of expected cash flows from assets, liabilities and off-balance sheet
contracts. The rule will not become effective until the OTS evaluates the
process by which savings

                                       19
<PAGE>

institutions may appeal an interest rate risk deduction determination. It is
uncertain when this evaluation may be completed. Any savings institution with
less than $300 million in assets and a total capital ratio in excess of 12% is
exempt from this requirement unless the OTS determines otherwise.

      On June 30, 2002, the Bank had total risk-based capital of $7.9 million
(including $7.2 million in core capital and $731,000 in qualifying supplementary
capital) and risk-weighted assets of $60.4 million or total risk-based capital
of 13.1% of risk-weighted assets. This amount was $3.1 million above the 8%
requirement in effect on that date.

      The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings institutions that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized institution" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risk-based
capital ratio or an 8% risk-based capital ratio). Any such institution must
submit a capital restoration plan and until such plan is approved by the OTS may
not increase its assets, acquire another institution, establish a branch or
engage in any new activities, and generally may not make capital distributions.
The OTS is authorized to impose the additional restrictions that are applicable
to significantly undercapitalized institutions.

      Any savings institution that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the institution. An institution that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized institutions. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings institution, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized institution is also
subject to the general enforcement authorities of the OTS or FDIC, including the
appointment of a conservator or a receiver.

      The OTS is also generally authorized to reclassify an institution into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.

      The imposition by the OTS or the FDIC of any of these measures on the Bank
may have a substantial adverse effect on the Bank's operations and
profitability. Holding Company shareholders do not have preemptive rights, and
therefore, if the Holding Company is directed by the OTS or the FDIC to issue
additional shares of Common Stock, such issuance may result in the dilution in
the percentage of ownership of the Holding Company.

LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS

      OTS regulations impose various restrictions or requirements on savings
institutions with respect to their ability to make distributions of capital,
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. OTS regulations permit a
federal savings institution to pay dividends in any calendar year equal to net
income for that year plus retained earnings for the preceding two years.

ACCOUNTING

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

      The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic

                                       20
<PAGE>

substance and inherent risk and that financial reports must incorporate any
other accounting regulations or orders prescribed by the OTS.

QUALIFIED THRIFT LENDER TEST

      All savings institutions, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings institution to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the Savings Institution may maintain 60% of its assets specified in
Section 770(a)(19) of the Internal Revenue Code. Under either test, such assets
primarily consist of residential housing related loans and investments. At June
30, 2002, the Bank met the test and has always met the test since its
effectiveness.

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

COMMUNITY REINVESTMENT ACT

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

      The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, the Bank may be required to devote additional funds for investment
and lending in its local community. The Bank was examined for CRA compliance in
March 2002 and received a rating of satisfactory.

TRANSACTIONS WITH AFFILIATES

      Generally, transactions between a savings institution or its subsidiaries
and its affiliates are required to be on terms as favorable to the Bank as
transactions with non-affiliates. In addition, certain of these transactions
such as loans to an affiliate, are restricted to a percentage of the bank's
capital. Affiliates of State Federal include the Holding Company and any company
which is under common control with the Bank. In addition, a savings institution
may not lend to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of most affiliates. The Bank's
subsidiaries are not deemed affiliates, however; the OTS has the discretion to
treat subsidiaries of savings banks as affiliates on a case by case basis.

                                       21
<PAGE>

      Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.

HOLDING COMPANY REGULATION

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

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

      If the Bank fails the QTL test, the Holding Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "--Qualified Thrift Lender Test."

      The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured institution. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings institutions in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings bank.

FEDERAL SECURITIES LAW

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

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

FEDERAL RESERVE SYSTEM

      The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking accounts). At June 30, 2002, the Bank was in
compliance with these reserve requirements. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "-- Liquidity."

      Savings institutions are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
institutions to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.

                                       22
<PAGE>

FEDERAL HOME LOAN BANK SYSTEM

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

      As a member, State Federal is required to purchase and maintain stock in
the FHLB of Des Moines. At June 30, 2002, State Federal had $1.8 million in FHLB
stock, which was in compliance with this requirement. In past years, the Bank
has received substantial dividends on its FHLB stock. Over the past five fiscal
years such dividends have averaged 5.88 % and were 3.52% for fiscal year 2002.

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

      For the fiscal year ended June 30, 2002, dividends paid by the FHLB of Des
Moines to State Federal totaled $62,000 which constitutes a $37,000 decrease
from the amount of dividends received in the fiscal year ended June 30, 2001.
The $13,000 dividend received for the period ended May 31, 2002 and paid June
14, 2002 reflects an annualized rate of 3.00%, which decreased 1.56% from the
same quarter ended June 30, 2001, which was a rate of 4.56%.

FEDERAL AND STATE TAXATION

      In addition to the regular income tax, corporations, including savings
institutions such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.

      A portion of the Bank's reserves for losses on loans may not, without
adverse tax consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of June 30, 2002, the portion of the Bank's reserves subject to this
treatment for tax purposes totaled approximately $1.4 million.

      State Federal and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. State
Federal and its subsidiaries have not been audited by the IRS within the last
ten years.

      IOWA TAXATION. The Holding Company and the Bank's subsidiaries file Iowa
corporation tax returns while the Bank files an Iowa franchise tax return.

      Iowa imposes a franchise tax on the taxable income for both mutual and
stock savings and loan banks. The tax rate is 5%, which may effectively be
increased, in individual cases, by application of a minimum tax provision.
Taxable income under the franchise tax is generally similar to taxable income
under the federal corporate income tax, except that, under the Iowa franchise
tax, no deduction is allowed for Iowa franchise tax and taxable income includes
interest on state and municipal obligations. Interest on U.S. obligations is
taxable under the Iowa franchise tax and under the federal corporate income tax.

                                       23
<PAGE>

      Taxable income under the Iowa corporate income tax is generally similar to
taxable income under the federal corporate income tax, except that, under the
Iowa tax, no deduction is allowed for Iowa income tax payments; interest from
state and municipal obligations is included in income; interest from U.S.
obligations is excluded from income; and 50% of federal corporate income tax is
excluded from income. The Iowa corporate income tax rates range from 6% to 12%
and may be effectively increased, in individual cases, by application of a
minimum tax provision.

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

COMPETITION

      State Federal faces strong competition, both in originating real estate
and other loans and in attracting deposits. Competition in originating real
estate loans comes primarily from other commercial banks, savings banks, credit
unions and mortgage bankers making loans secured by real estate located in the
Bank's market area. The Bank competes for real estate and other loans
principally on the basis of the quality of services it provides to borrowers,
and loan fees it charges, and the types of loans it originates.

      The Bank attracts all of its deposits through its retail banking offices,
primarily from the communities in which those retail banking offices are
located; therefore, competition for those deposits is principally from other
commercial banks, savings Banks and credit unions located in the same
communities. The Bank competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal privileges at each.

      The Bank's primary concentration is Des Moines, Iowa. There are over 30
commercial banks and approximately 30 credit unions in the Bank's market area.
The Bank estimates its share of the savings market in its primary market area to
be approximately 1.0%.

EMPLOYEES

      At June 30, 2002, the Company and its subsidiary had a total of 27
full-time employees. The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.

ITEM 2.  PROPERTIES

      The Bank conducts its business at its main office and two other locations
in its primary market area. The following table sets forth information relating
to each of the Bank's offices as of June 30, 2002.








                                       24
<PAGE>

      The Bank owns one branch office and its main office. The total net book
value of the Bank's premises and equipment (including land, building, furniture,
fixtures and equipment) at June 30, 2002 was $3.4 million. See Note I of Notes
to Consolidated Financial Statements in the Annual Report to Stockholders
attached hereto as Exhibit 13.

<TABLE>
<CAPTION>
                                                                    Total
                                                                 Approximate          Net Book
                                                 Year               Square            Value at
      Location                                 Acquired            Footage          June 30, 2002
      ----------------------------------------------------------------------------------------------
<S>                                           <C>                   <C>              <C>
      Main Office:
           13523 University Avenue               2001               12,000           $ 2,654,000
           Clive, Iowa

      Branch Offices:
           4018 University Avenue                1985               4,000            $   300,000
           Des Moines, Iowa

           700 Walnut Street, Suite 203        2002 (1)             2,077            $   204,000
           Des Moines, Iowa

      (1)   Lease expires in May 2007 with an option to renew for an additional 5 year
            term.
</TABLE>

      The Bank subleases approximately 250 square feet of its location on Walnut
Street, under a five year operating lease. The sublease began on April 29, 2002
and is cancelable at the option of the lessee through May 2003. The lease
agreement expires in May 2007.

      The Bank conducts its data processing through a service bureau, FiServ.
The net book value of the data processing and computer equipment utilized by the
Bank at June 30, 2002 was $86,000. The net book value of other furniture and
equipment at June 30, 2002 was $299,000.

ITEM 3.  LEGAL PROCEEDINGS

      State Federal is involved from time to time as plaintiff or defendant in
various legal actions arising in the normal course of its business. Neither the
Company nor State Service Corporation, the Bank's wholly-owned subsidiary, is a
party to any legal action. While the ultimate outcome of these proceedings
cannot be predicted with certainty, it is the opinion of management, after
consultation with counsel representing State Federal in the proceedings, that
the resolution of these proceedings should not have a material effect on State
Federal's consolidated financial position or results of operations.

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

      No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30, 2002.




                                       25

<PAGE>

                                     PART II

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


      Page 37 of the attached 2002 Annual Report to Stockholders is herein
incorporated by reference. The dividend payout ratio for June 30, 2002 was
92.8%. Information concerning equity compensation plans is incorporated herein
by reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 2002, except for information contained under the
heading "Report of the Audit Committee," a copy of which will be filed no later
than 120 days after the close of the fiscal year.

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

      Pages 8 through 16 of the attached 2002 Annual Report to Stockholders are
herein incorporated by reference.

ITEM 7.  FINANCIAL STATEMENTS

      The following information appearing in the Company's Annual Report to
Stockholders for the year ended June 30, 2002 is incorporated by reference in
this Annual Report on Form 10-KSB as Exhibit 13.

<TABLE>
<CAPTION>
                                                                          PAGES IN
ANNUAL REPORT SECTION                                                   ANNUAL REPORT
-------------------------------------------------------------------

<S>                                                                     <C>
Independent Auditors' Report.......................................          17

Consolidated Balance Sheets as of June 30, 2002 and 2001...........          18

Consolidated Statements of Income for the Years Ended
    June 30, 2002, 2001 and 2000...................................          19

Consolidated Statements of Stockholders' Equity for Years Ended
    June 30, 2002, 2001 and 2000...................................          21

Consolidated Statements of Cash Flows for Years Ended
    June 30, 2002, 2001 and 2000...................................          22

Notes to Consolidated Financial Statements.........................    23 through 26
</TABLE>

      With the exception of the aforementioned information, the Company's Annual
Report to Stockholders for the year ended June 30, 2002 is not deemed filed as
part of this Annual Report on Form 10-KSB.

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

      There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting disagreements on
any matter of accounting principle or financial statement disclosure.

      On August 28, 2002, September 3, 2002 and September 12, 2002, the Company
disclosed on Forms 8-K a change of independent accounts to McGladrey & Pullen,
LLP for the fiscal year 2003.

                                       26

<PAGE>

      PART III

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

DIRECTORS

      Information concerning directors and executive officers of the Company is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 2002, except for information
contained under the heading "Report of the Audit Committee," a copy of which
will be filed not later than 120 days after the close of the fiscal year.

ITEM 10.  EXECUTIVE COMPENSATION

      Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 2002, except for information contained under the
heading "Report of the Audit Committee," a copy of which will be filed not later
than 120 days after the close of the fiscal year.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
          OWNERS AND MANAGEMENT

      Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 2002, except for
information contained under the heading "Report of the Audit Committee," a copy
of which will be filed not later than 120 days after the close of the fiscal
year.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 2002, except for information
contained under the heading "Report of the Audit Committee," a copy of which
will be filed not later than 120 days after the close of the fiscal year.







                                       27
<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 25, 2002                     By: /s/   Randall C. Bray
     -----------------------                      ------------------------------
                                               Randall C. Bray, President
                                               (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/ Randall C. Bray                        /s/ Craig Wood
------------------------------             -------------------------------------
RANDALL C. BRAY                            CRAIG WOOD
Chairman of the Board                      Director and Executive Vice President
  Officer

Date:    September 25 , 2002               Date:    September 25, 2002
     -------------------------                  --------------------------------

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

Date:    September 25, 2002                Date:    September 25, 2002
     -------------------------                  --------------------------------

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

Date:    September 25, 2002                Date:    September 25, 2002
     -------------------------                  --------------------------------

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

Date:    September 25, 2002                Date:    September 25, 2002
     -------------------------                  --------------------------------


                                       28
<PAGE>

                                  CERTIFICATION
  (PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED)

I, Randall C. Bray, certify that:

1. I have reviewed this annual report on Form 10-KSB of StateFed Financial
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

Date: 9/25/02                                        /S/ Randall C. Bray
                                                   ----------------------------
                                                   Randall C. Bray,
                                                   chief executive officer

<PAGE>

                                  CERTIFICATION
  (PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED)

I, Andra K. Black, certify that:

1. I have reviewed this annual report on Form 10-KSB of StateFed Financial
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

Date: 9/25/02                                          /s/ Andra K. Black
                                                     --------------------------
                                                     Andra K. Black
                                                     chief financial officer

<PAGE>


                                     PART IV

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

           (A)   EXHIBITS
<TABLE>
<CAPTION>
                                                                                 REFERENCE TO
                                                                               PRIOR FILING OR
                                                                                EXHIBIT NUMBER
EXHIBIT NUMBER   DOCUMENT                                                      ATTACHED HERETO
--------------   ----------------------------------------------------------    ---------------

<S>  <C>                                                                       <C>
     3(i)        Articles of Incorporation, including amendments thereto                  *

     3(ii)       By-Laws                                                                 **

     4           Instruments defining the rights of security holders,
                 including indentures                                                     *

     9           Voting Trust Agreement                                                 None

     10          Executive Compensation plans and Arrangements
                 (a)        Employment contract between:
                      (i)   Andra K. Black and the Bank                                   *
                      (ii)  Craig Wood and the Bank                                       *
                 (b)        1993 Stock Option and Incentive Plan                          *
                 (c)        1993 Management Recognition and Retention Plan                *

     11          Statement Regarding Computation of Per Share Earnings                  None

     13          Annual Report to Security Holders                                       13

     16          Letter Regarding Change in Certifying Accountant                       None

     18          Letter Regarding Change in Accounting Principles                       None

     21          Subsidiaries of Registrant                                              21

     22          Published Report Regarding Matters Submitted to
                     Vote of Security Holders                                           None

     23          Consents of Experts and Counsel                                         23

     24          Power of Attorney                                              Not Required

     99          Additional Exhibits
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002                                                           99.1
                  Certification Pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002                                                           99.2
</TABLE>

-----------------------
*     Filed as exhibits to the Company's Form S-1 registration statement filed
      on September 23, 1993 (File No. 33-69314) pursuant to Section 5 of the
      Securities Act of 1933. All of such previously filed documents are hereby
      incorporated herein by reference in accordance with Item 601 of Regulation
      S-K.
**    Filed as exhibits to the Company's Annual Report on Form 10-KSB for the
      fiscal year ended June 30, 1999.

           (A)   EXHIBITS

                                       29
<PAGE>

           The following  Reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ending June 30, 2002:

<TABLE>
<CAPTION>

                           Regarding Event
           Date Filed       Occurring on:       Nature of Event
           ----------     -----------------     ------------------------------------------------

<S>        <C>                <C>               <C>
           04/09/2002         04/03/2002        Announcement of Stock Repurchase

           04/30/2002         04/29/2002        Announcement of Registrant's Third Quarter
                                                Earnings

           06/10/2002         06/07/2002        Registrant Declares Cash Dividend and Announces
                                                Annual Meeting Date
</TABLE>










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