<PAGE>








                                   EXHIBIT 13


                           REGISTRANT'S ANNUAL REPORT
                              TO SECURITY HOLDERS

<PAGE>

                                                  StateFed Financial Corporation
                                                              2002 Annual Report

                                      banking
                         the way it should be

                                    [GRAPHIC]

<PAGE>

DIRECTORS OF THE BOARD
--------------------------------------------------------------------------------

Randall C. Bray
Chairman of the Board, President
President, Greyhawk Partners, Inc.

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

Sidney M. Ramey
President, Peoples Abstract Company

Eugene M. McCormick
Retired Dentist

Andra K. Black
Executive Vice President, Secretary
and Chief Financial Officer

Kevin J. Kruse
Senior Vice President and Corporate Counsel
for Diversified Management Services, Inc.

Craig A. Wood
Executive Vice President and Assistant Secretary

William T. Nassif
Staff Attorney for Legal Services
Corporation of Iowa

STATEFED FINANCIAL CORPORATION
EXECUTIVE OFFICERS
--------------------------------------------------------------------------------

Randall C. Bray
Chairman of the Board, President

Craig A. Wood
Executive Vice President and Assistant Secretary

Andra K. Black
Executive Vice President, Secretary
and Chief Financial Officer

Steven J. Blazek
Senior Vice President

John Kallemyn
Senior Vice President

INDEPENDENT AUDITORS
--------------------------------------------------------------------------------

McGowen, Hurst, Clark & Smith, P.C.
1601 West Lakes Parkway
Suite 300
West Des Moines, Iowa 50266

SPECIAL COUNSEL
--------------------------------------------------------------------------------

Katten Muchin Zavis Rosenman
1025 Thomas Jefferson Street, N.W.
East Lobby, Suite 700
Washington, D.C. 20007-5201

[LOGO] STATE FEDERAL

COMPANY AND BANK ADDRESS

13523 University Avenue
Clive, Iowa  50325
Telephone: (515) 223-8484
Fax: (515) 223-7227

<PAGE>

TABLE OF CONTENTS

Corporate Information                                              Inside Cover

Chairman's Letter                                                             2

Selected Consolidated
 Financial Information                                                        6

Management Discussion
 & Analysis                                                                   8

Consolidated Financial
 Statements                                                                  17

Stockholder Information                                              Back Cover

<PAGE>

                                                             To our shareholders

[PHOTO]

                                      Randall C. Bray
Chairman of the Board, StateFed Financial Corporation

"Banking the way it should be"

is more than a slogan at StateFed Financial Corporation. It's a philosophy for
doing business - delivering value to our shareholders by responding to the needs
of our customers.

A year ago, we announced a new strategic plan for transforming StateFed from a
small traditional thrift into a full-service community-based bank with the
services and capabilities necessary to compete and thrive. We spent the past
year in the trenches, working to make our new strategy and action plan a
reality. This plan, initiated and approved by our board of directors, called for
us to:

o     Refocus our operations into customer-centered financial services that
      would reach beyond our long-standing core business of single-family
      portfolio lending, passbook savings and a one-size-fits-all checking
      account program.

o     Respond to the changing habits of our customers with convenient locations,
      new products and complementary services. Resist the notion of traditional
      retail banking and play to our strength of personal touch and service.

o     Get results for our shareholders with well-managed growth, product
      expansion and solid earnings fundamentals.

[PHOTO]

"Our downtown location has become a gathering place for skywalkers to check
their e-mail, catch the news, take a coffee break and yes, bank with us."

-Steven Blazek, senior vice president

Clearly, corporate evolution and revolution of this magnitude take tenacity and
commitment. We've asked employees to venture from their comfort zone of the
status quo and make major changes in the way they serve customers, use
technology and account for their performance. The process doesn't happen
overnight and doesn't occur without some challenge. In repositioning StateFed to


2                   StateFed Annual Report o September 2002

<PAGE>

compete in today's financial services market, every facet of the bank came under
scrutiny.

In relatively short order, we determined that StateFed lacked an adequate
foundation for aggressive growth and high performance. The bank needed to adopt
new technology and information systems as well as formulate and implement new
policies and procedures, particularly in the areas of lending, financial
management and marketing. This recognition effectively shifted our focus from
growing externally to positioning internally and recruiting the right mix of
management talent.

MAKING PROGRESS
--------------------------------------------------------------------------------

[PHOTO]

"'Banking the way it should be,' means the right product mix at the right time
in the right place."

-Randy Bray, president

Today, we have a management team that combines the tradition of StateFed with
additional strength and capacity in retail banking and investments, mortgage
lending and asset-liability management. Working as a team, the new management
group has already accomplished several key benchmarks:

o     Created a new retail strategy and identity for our offices that
      complements traditional banking with an inviting, comfortable space that
      offers other services, including Internet access, news, a coffee bar and a
      place to sit or chat or unwind.

o     Developed and launched a successful product family called Homeowner's
      Choice that bundles checking, savings, loans and investments into a
      cohesive package that delivers pricing advantages and service benefits.

o     Established new policies and procedures for lending as well as a financial
      management system that provides for early detection of problems.

o     Opened a new downtown office better positioned for reaching customers and
      increasing core deposits.

o     Increased core deposits and decreased StateFed's reliance on Federal Home
      Loan Bank advances for funding.

o     Achieved status of "approved" lender for Fannie Mae and the Federal Home
      Loan Bank as well as several other private-sector secondary markets.

o     Focused resources on core banking business and exited the property
      management business with the sale of two apartment complexes.

Accomplishments such as these underscore the intrinsic value of our strategic
actions and initiatives during fiscal year 2002. Each offers an enduring benefit
and allows us to better serve our current customers and more effectively reach
potential customers. In the short-term, however, our financial results do not
reflect the expected long-term benefits of our work.

While we're doing all of the right things, diluted earnings per share declined
from $0.44 a year ago to $0.41 this year. The decrease is primarily due to an
increase in operating expenses related


                    StateFed Annual Report o September 2002                    3

<PAGE>

to the implementation of our new strategy and a substantial increase in the
provision for loan losses resulting from a thorough review of our loan
portfolio, policies and procedures.

During the past year, our interest income from loans declined reflecting a
decrease in the loan portfolio and the lower interest rate climate. In response,
we added the origination expertise and systems capabilities and capacity to
accurately price and process a much wider range of lending products that appeal
to broader base of customers. The underwriting process was standardized and
response time improved. With the appropriate pieces in place by the end of the
fourth quarter, new loan applications began increasing.

As we changed our approach to lending, we also used our new retail and financial
expertise to increase core deposits, which allowed us to reduce our reliance on
FHLB advances and reduce interest expense. The result for fiscal year 2002 was
that net interest income before the provision of loan losses remained almost
unchanged. We believe this marks the first step in a positive enduring trend to
better balance funding sources with lending and investment opportunities.

THE RIGHT SERVICES, THE RIGHT PLACE, THE RIGHT TIME
--------------------------------------------------------------------------------

[PHOTO]

"We're now striking the right balance between tapping funding sources and
pursuing lending and investment opportunities."

-Andra Black, executive vice president

"Banking the way it should be," means the right product mix at the right time in
the right place. This constitutes more than a business change. It's a cultural
migration that demands we do more than offer personal care and service. We have
to be where our customers are when they want and need our services. We've
already seen the rewards of making such changes. When we moved our downtown
office from an inaccessible location off the beaten path to a high-traffic
skywalk location in the new gateway, we saw new checking account activity jump
258 percent.

The addition of other customer conveniences such as telephone banking,
convenient ATM placement in the community and an updated web site are designed
to appeal to customers who are becoming increasingly frustrated with the
impersonal service of the national mega banks. Although StateFed cannot be all
things to all people, we plan to capitalize on our ability to respond quickly
with personalized, convenient service. When we do this well, we can increase our
number of relationships per customer. More relationships result in increased
profitability and additional resources for StateFed to grow and improve.


4                    StateFed Annual Report o September 2002

<PAGE>

In the area of fee income, StateFed lags well behind its peers. As a result of
developing new products in checking, investments, insurance and lending, we
expect to see steady improvement in non-interest income in future quarters.

[PHOTO]

"Added origination expertise and systems capabilities have broadened our lending
mix."

-Craig Wood, executive vice president

For StateFed, fiscal 2002 will be remembered as a year of change on every
conceivable front. Since I wrote my first letter to you, our valued
shareholders, the world has become a much different place. Our nation was rocked
by the attacks on September 11, 2001. Yet, we emerged with resolve as we
witnessed the strength of those who survived and those who carry on. In the
corporate world, accounting scandals brought down some of the nation's largest
corporations. In the wake of the controversy, new measures were introduced
designed to protect stockholders and make executives more accountable.

The enormity of these events reverberated across the nation, and we all felt
them in one way or another in the way we live our lives and run our businesses.
Still, as a nation we continue to thrive by turning adversity into strength and
improvement.

This theme definitely resonates with StateFed. We did encounter obstacles and we
took swift action to overcome them and make improvements for the future. We
seized opportunities as they arose, and we are prepared to create new
opportunities going forward - banking the way it should be!

/s/ Randall C. Bray

Randall C. Bray
Chairman of the Board


                    StateFed Annual Report o September 2002                    5

<PAGE>

                  Selected Consolidated Financial Information

<TABLE>
<CAPTION>
                                                                       June 30,
                                                 ----------------------------------------------------
                                                   2002       2001       2000       1999       1998
                                                 ----------------------------------------------------
                                                                   (In Thousands)
<S>                                              <C>        <C>        <C>        <C>        <C>
Selected Financial Condition Data:
Total assets .................................   $ 96,405   $107,549   $100,685   $ 90,824   $ 89,802
Cash & cash equivalents ......................      3,115      7,729      2,477      8,481      9,445
Certificates of deposits in other institutions         99        297        496        884      1,479
Investment securities ........................      1,324      1,925      2,231      1,994      2,744
Loans receivable, net ........................     84,772     87,899     86,573     72,331     68,980
Deposits .....................................     66,901     62,987     53,648     54,713     53,672
FHLB advances ................................     14,000     29,185     29,284     18,877     18,965
Stockholders' equity .........................     14,196     14,088     16,650     16,123     16,084
</TABLE>

<TABLE>
<CAPTION>
                                                                       June 30,
                                                 ----------------------------------------------------
                                                   2002       2001       2000       1999       1998
                                                 ----------------------------------------------------
                                                                   (In Thousands)
<S>                                              <C>        <C>        <C>        <C>        <C>
Selected Operations Data:
Total interest income ........................   $  7,175   $  8,231   $  7,022   $  6,695   $  6,823
Total interest expense .......................      4,036      4,961      3,986      3,999      4,043
                                                 --------   --------   --------   --------   --------
Net interest income ..........................      3,139      3,270      3,036      2,696      2,780
Provision for loan losses ....................        566        151         36         36         52
                                                 --------   --------   --------   --------   --------

Net interest after provision for loan losses .      2,573      3,119      3,000      2,660      2,728
Non-interest income:
   Real estate operations ....................        247        519        525        566        441
   Gain (loss) on sale of real estate
      and investments ........................        748        (77)        52        106         42
   Other non-interest income .................        196        121        107        101        118
                                                 --------   --------   --------   --------   --------
Total non-interest income ....................      1,191        563        684        773        601
Total non-interest expense ...................      3,044      2,662      2,006      1,926      1,821
                                                 --------   --------   --------   --------   --------
Income before income taxes ...................        720      1,020      1,678      1,507      1,508
Income tax expense ...........................        189        357        537        489        491
                                                 --------   --------   --------   --------   --------

Net income ...................................   $    531   $    663   $  1,141   $  1,018   $  1,017
                                                 ========   ========   ========   ========   ========
</TABLE>


6                   StateFed Annual Report o September 2002

<PAGE>

<TABLE>
<CAPTION>
                                                                         June 30,
                                                   ----------------------------------------------------
                                                     2002       2001       2000       1999       1998
                                                   ----------------------------------------------------
<S>                                                <C>        <C>        <C>        <C>        <C>
Selected Financial Ratios and Other Data:
-----------------------------------------
Performance Ratios:
   Return on assets (ratio of net income
      to average total assets) ...............       0.53%      0.63%      1.22%      1.13%      1.15%
   Interest rate spread information:
      Average during year ....................       2.94       2.84       2.87       2.50       2.60
      End of year ............................       3.11       2.58       2.42       2.62       2.41
   Net interest margin (1) ...................       3.37       3.35       3.51       3.20       3.35
   Ratio of operating expense to average
      total assets ...........................       3.04       2.52       2.15       2.13       2.06
   Return on equity (ratio of net income
      to average equity) .....................       3.72       4.07       7.02       6.30       6.51

Quality Ratios:
   Non-performing assets to total assets
      at end of year .........................       2.06       3.21       2.30       1.84       1.50
   Allowance for loan losses to non-performing
      loans ..................................      46.76      17.92      26.54      27.36     127.44

Capital Ratios:
   Stockholders' Equity to total assets at
      end of year ............................      14.72      13.10      16.54      17.75      17.91
   Average Stockholders' Equity to average assets   14.28      15.44      17.39      17.81      17.71
   Ratio of average interest-earning assets
   to average interest-bearing liabilities ...     1.098x     1.101x     1.139x     1.147x     1.153x
   Number of full-service offices ............          3          3          2          2          2
</TABLE>

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


                     StateFed Annual Report o September 2002                   7

<PAGE>

                             MANAGEMENT'S DISCUSSION
                                  AND ANALYSIS
--------------------------------------------------------------------------------
                of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS
--------------------------------------------------------------------------------

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

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

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

GENERAL
--------------------------------------------------------------------------------

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

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

The operating results of the Company are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
policies of agencies that regulate financial institutions. StateFed Financial's
cost of funds is influenced by interest rates on competing investments and
general market rates of


8                   StateFed Annual Report o September 2002

<PAGE>

interest. Lending activities are influenced by the demand for real estate loans
and other types of loans, which is in turn affected by the interest rates at
which such loans are made, general economic conditions affecting loan demand and
the availability of funds for lending activities.

StateFed Financial's basic mission is to record earnings while serving its local
community. The Company wants to earn the complete trust and respect of its
clients by providing compassionate personal service and sound financial advice.
Specifically, it offers a range of customer services and products, including
deposit accounts and loans with a special emphasis on one-to-four family
mortgage lending and, to a lesser extent, multi-family and commercial real
estate lending. Yet smaller portions of the Company's loans receivable consists
of construction and consumer loans. Management has focused on fixed rate
mortgage loans with three to seven year balloons and/or calls in recent years,
achieving a loan portfolio consisting of 24.4 percent adjustable rate loans,
35.8 percent fixed rate loans, and 39.8 percent balloon and/or call loans.

FINANCIAL CONDITION
--------------------------------------------------------------------------------

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 2002 AND JUNE 30, 2001.

The Company's total assets decreased from $107.5 million at June 30, 2001 to
$96.4 million at June 30, 2002, a decrease of $11.1 million, or 10.3 percent.
The decrease was primarily due to decreases in cash and cash equivalents of $4.2
million, net loans receivable of $3.1 million, net real estate held for
investment of $2.1 million, property acquired in the settlement of loans of
$956,000, investment securities available-for-sale of $601,000, and investments
in certificates of deposit of $198,000.

Cash and cash equivalents decreased $4.2 million from $7.3 million at June 30,
2001 to $3.1 million at June 30, 2002. The decrease was the result of repayments
of Federal Home Loan Bank advances, partially offset by an increase in deposits
and the repayment of loans receivable.

Net loans receivable decreased $3.1 million from $87.9 million at June 30, 2001
to $84.8 million at June 30, 2002. Loans decreased primarily as a result of the
high level of loan refinancing activity, during 2002, in a lower interest rate
environment. Repayments of loan principal totaled $25.1 million during 2002,
while new loan originations and participation loans purchased totaled only $23.1
million during the same period.

At June 30, 2002, the allowance for loan losses totaled $927,000 or 1.06 percent
of loans, compared to $382,000 or 0.43 percent of loans at June 30, 2001. In
determining the amount of the loan loss allowance at any point in time,
management and the Board apply a systematic process focusing on the risk of loss
in the portfolio. First, delinquent residential and consumer, and all
multi-family and commercial loans are evaluated individually for potential
impairments in their carrying value. At June 30, 2002, the analysis and review
of $3.3 million of classified loans resulted in $465,000 of the allocation of
the allowance. In the previous year ending June 30, 2001, all allocations made
to the allowance were considered a general allocation, which totaled $382,000.

The second step in determining the allowance for loan losses entails the
application of historic loss experience to the individual loan types in the
portfolio. In addition to the historic loss percentage, management employs an
additional risk percentage tailored to the perception of the overall risk in the
economy. This segment of the loss analysis resulted in assigning $217,000 of the
allowance for loan losses at June 30, 2002.

The third step in determining the allowance for loan losses involves the review
and analysis of specific loans or industries that may be affected by or at risk
due to changes in the economy. As a result of this analysis, management reviewed
and analyzed its portfolio of hospitality industry loans, and identified $1.6
million of participation loans that may contain some weakness and pose a
possible loss to the Company. The Company allocated $245,000 of the allowance to
these specific loans.

Although management believes that its allowance for loan losses is adequate
based upon the available facts and circumstances, there can be no assurance that
additions to the allowance will not be necessary in future


                    StateFed Annual Report o September 2002                    9

<PAGE>

periods, which could adversely affect the Company's results of operations. To
the best of management's knowledge, all known losses as of June 30, 2002, have
been recorded.

Net real estate held for investment decreased $2.1 million from June 30, 2001 to
June 30, 2002, as a result of the Company's decision to exit residential
property management and ownership by selling its two apartment complexes to
focus on the Company's core financial services business.

Office property and equipment decreased $542,000 from June 30, 2001 to June 30,
2002, due to the relocation of the Company's downtown location, resulting in a
reclassification of its former downtown location to real estate held for sale.

Total deposits increased $3.9 million from $63.0 million at June 30, 2001 to
$66.9 million at June 30, 2002. During fiscal 2002, money market accounts
increased $8.0 million, checking accounts increased $587,000, certificates of
deposit decreased $4.6 million, and savings accounts decreased $138,000. The
changes in deposits were primarily due to the Company's new pricing strategy,
introduction of new accounts and increased marketing of its deposit products.

Advances from the Federal Home Loan Bank (FHLB) decreased from $29.2 million at
June 30, 2001 to $14.0 million at June 30, 2002. The decrease resulted from the
maturity of a $3.0 million long-term advance and the Company's decision to
reduce its outstanding daily FHLB advances.

Total stockholders' equity increased $108,000 from $14.1 million at June 30,
2001 to $14.2 million at June 30, 2002. The increase was primarily the result of
net income of $531,000, exercised stock options of $53,000, and allocations to
the Employee Stock Ownership Plan ("ESOP") totaling $120,000, partially offset
by dividends declared of $512,000 and $85,000 expended for the repurchase of
8,000 shares of the Company's common stock.

RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

Comparison of Fiscal Years Ended June 30, 2002 and June 30, 2001.

General. Net income for the year ended June 30, 2002 decreased $132,000 from
$663,000 at June 30, 2001 to $531,000 at June 30, 2002. The decrease was
primarily due to an increase in non-interest expense of $382,000, an increase in
the provision for loan losses of $415,000, and a decrease in net interest income
of $131,000. Partially offsetting the decrease was an increase in non-interest
income of $628,000 and a decrease in income tax expense of $167,200.

Net Interest Income. Net interest income decreased $131,000 or 4.0 percent, from
$3.27 million for the year ended June 30, 2001 to $3.14 million for the year
ended June 30, 2002. This decrease was due to decreases of $1.06 million in
interest income and $925,000 in interest expense.

Interest Income. Interest income decreased $1.06 million or 12.9 percent, from
$8.23 million for the year ended June 30, 2001 to $7.18 million for the year
ended June 30, 2002. This decrease was primarily due to a decrease of $5.0
million in average loans receivable balances and a decrease of 0.56 percent in
the average interest rate on loans compared to the prior year. Investment and
other interest income decreased to a lesser extent due to a lower interest rate
environment for interest bearing cash accounts.

Interest Expense. Interest expense decreased $925,000 from $4.96 million for the
year ended June 30, 2001 to $4.04 million for the year ended June 30, 2002. The
decrease was primarily due to a decrease in the average outstanding balance of
Federal Home Loan Bank ("FHLB") advances.

Provision for Loan Losses. The Company's provision for loan losses for the year
ended was $566,000 and $151,000 for the fiscal years ended June 30, 2002 and
2001, respectively. To the best of management's knowledge, all known losses as
of June 30, 2002 and 2001 have been recorded.

Non-Interest Income. Non-interest income increased from $563,000 at June 30,
2001 to $1.19 million for the year ended June 30, 2002. The increase of $628,000
is primarily the result of a net gain recognized on the sale of real estate
totaling $635,000. The gain arose from the sale of two apartment complexes owned
by the


10                  StateFed Annual Report o September 2002

<PAGE>

Company. In addition, there was a gain on the sale of investments available for
sale of $113,000 for the year ended June 30, 2002 compared to a loss on the sale
of investments available for sale of $96,000 for the year ended June 30, 2001.
To a lesser extent, there was an increase in other non-interest income of
$56,000, which can mainly be attributed to increases in fee income. The
increases in non-interest income were offset by a decrease of $272,000 in real
estate operations income that had been previously generated by the two apartment
complexes.

Non-Interest Expense. Non-interest expense increased from $2.66 million for the
year ended June 30, 2001 to $3.04 million for the year ended June 30, 2002. The
increase of $382,000 was primarily the result of increases in salaries and
employee benefit expense, occupancy expense, advertising expense and other
non-interest expenses of $82,000, $184,000, $57,000 and $82,000, respectively.
The increase was also the result of the establishment of an allowance for the
decline in value of real estate held for sale of $158,000 due to a change in the
classification of the Company's former home office to real estate held for sale
from office property. The increase in non-interest expense was offset by
decreases of $138,000 in real estate operations expense and $65,000 in legal
expenses.

Income Tax Expenses. Income tax expense decreased from $356,000 to $189,000 for
the fiscal years ended June 30, 2001 and 2002, respectively. The decrease of
$167,000 was primarily due to the decrease in taxable income.

Comparison of Fiscal Years Ended June 30, 2001 and June 30, 2000.

General. Net income for the year ended June 30, 2001 decreased $477,000 from
$1.14 million at June 30, 2000 to $663,300 at June 30, 2001. The decrease was
primarily due to increases in non-interest expense of $656,000, provision for
loan losses of $115,000, and a decrease in non-interest income of $121,000.
Partially offsetting the decrease was an increase in net interest income of
$234,000 and a decrease in income tax expense of $181,000.

Net Interest Income. Net interest income increased $234,000, or 7.7 percent,
from $3.04 million for the year ended June 30, 2000 to $3.27 million for the
year ended June 30, 2001. The increase was due primarily to an increase in the
volume of loans during fiscal 2001.

Interest Income. Interest income increased $1.21 million, or 17.2 percent, from
$7.02 million for the year ended June 30, 2000 to $8.23 million for the year
ended June 30, 2001. This increase was primarily due to an increase of $10.7
million in average loans receivable balances and an increase of 0.38 percent in
the average interest rate on loans over the prior year.

Interest Expense. Interest expense increased $975,000 from $3.99 million for the
year ended June 30, 2000 to $4.96 million for the year ended June 30, 2001. The
increase was primarily due to an increase in the average outstanding balance of
Federal Home Loan Bank ("FHLB") advances and to a lesser extent the average
rates paid on certificate of deposit accounts, the average outstanding balance
in certificate of deposit accounts, and the average interest rate paid on FHLB
advances.

Provision for Loan Losses. The provision for loan losses for the year ended June
30, 2001 was $151,000, an increase of $115,000 as compared to $36,000 for the
year ended June 30, 2000. The increase was related primarily to increases in the
level of non-performing loans. The amounts provided during the fiscal year were
based on management's quarterly analysis of the allowance for loan losses, based
on, among other things, the condition of the loan portfolio, analysis of
specific loans, and regulatory comments. Although the Company maintains its
allowance for loan losses at a level which it considers to be adequate to
provide for potential losses, there can be no assurance that future losses will
not exceed estimated amounts or that additional provisions for loan losses will
not be required in future periods. In addition, the Company's determination as
to the amount of the allowance for loan losses is subject to review by the
regulatory agencies, which can order the establishment of additional general or
specific allowances.

Non-Interest Income. Non-interest income decreased from $684,000 for the year
ended June 30, 2000 to $563,000 for the year ended June 30, 2001. The decrease
of $121,000 is primarily the result of a $96,000 loss on sale of investments and
to a lesser extent


                    StateFed Annual Report o September 2002                   11

<PAGE>

decreases in real estate operations income and other non-interest income of
$6,000 and $18,000, respectively.

Non-Interest Expense. Non-interest expense increased from $2.01 million for the
year ended June 30, 2000 to $2.66 million for the year ended June 30, 2001. The
increase of $656,000 was primarily the result of increases in salaries and
benefit expenses, occupancy expense, legal expense, and other non-operating
expenses of $254,000, $83,000, $123,000 and $152,000, respectively (a result of
the one-time expenses associated with the retirement of the long-time chief
executive officer, expenses incurred defending a proxy fight launched in 2000
and costs associated with the opening of a new branch office). The increase was
also the result of an increase in real estate operation expense of $10,000, an
increase in data processing expense of $21,000, and an increase in advertising
expense of $24,000. These increases were partially offset by a decrease in
federal deposit insurance premiums of $11,000.

Income Tax Expenses. Income tax expense decreased from $537,000 for the year
ended June 30, 2000 to $356,000 for the year ended June 30, 2001. The decrease
of $181,000 was primarily due to the decrease in taxable income.

ASSET/LIABILITY MANAGEMENT
--------------------------------------------------------------------------------

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

The Bank focuses lending efforts toward offering fixed-rate, adjustable-rate,
and balloon loan products. The Bank has not historically sold its loans, but it
may in the future to maintain asset quality and profitability.

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

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

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

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


12                   StateFed Annual Report o September 2002

<PAGE>

and capital level at June 30, 2002, the Company would qualify for an exemption
from this rule.

The following table (below) sets forth, at June 30, 2002, an analysis of the
Bank's interest rate risk as measured

  Change in                              Estimated Increase (Decrease) in
Interest Rates     Estimated                           NPV
(Basis Points)     NPV Amount              Amount               Percent
--------------     ----------              ------               -------
                        (Dollars in Thousands)

   +300bp           8,211                 (2,052)                 -20%
   +200bp           9,045                 (1,217)                 -12%
   +100bp           9,789                   (473)                  -5%
     +0bp          10,263
   -100bp          10,296                     34                    0%

by the estimated changes in NPV resulting from instantaneous and sustained
parallel shifts in the yield curve (+/-300 basis points, measured in 100 basis
point increments). Due to the abnormally low prevailing interest rate
environment, down 200 and 300 basis points NPV estimates are not presented.

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

AVERAGE BALANCES, INTEREST RATES AND YIELDS
--------------------------------------------------------------------------------

The following table presents, for the periods indicated,

<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                         ----------------------------------------------------------------------
                                                         2002                               2001
                                         ----------------------------------------------------------------------
                                           Average     Interest                Average    Interest
                                         Outstanding   Earned/               Outstanding   Earned/
                                           Balance      Paid     Yield/Rate    Balance      Paid     Yield/Rate
                                         ----------------------------------------------------------------------
                                                                  (Dollars in Thousands)
<S>                                       <C>         <C>           <C>       <C>         <C>           <C>
Interest-Earning Assets:
   Interest-earning bank accounts         $  4,416    $     65      1.47%     $  3,646    $    162      4.44%
   Certificates of deposit
      invested in other institutions           274          15      5.47           411          26      6.33
   Investments and other securities          1,763          98      5.56         2,047         102      4.98
   Loans receivable (1)                     84,915       6,937      8.17        89,869       7,842      8.73
   FHLB stock                                1,762          60      3.40         1,663          99      5.95
                                          ------------------------------------------------------------------
   Total interest-earning assets (1)        93,130       7,175      7.70        97,636       8,231      8.43
                                          ====================                ====================

Interest-Bearing Liabilities:
   Savings accounts                          3,392          63      1.86%        3,420          93      2.72%
   Checking accounts                         3,262          21      0.64         3,277          40      1.22
   Money market accounts                     8,649         238      2.75         4,750         173      3.64
   Certificates of deposit                  50,968       2,738      5.37        44,706       2,787      6.23
   FHLB advances                            18,541         977      5.27        32,543       1,928      5.92
   Effect of capitalized interest               --          --        --            --         (60)       --
                                          --------------------      ----      --------------------      ----
   Total interest-bearing liabilities       84,812       4,037      4.76%       88,696       4,961      5.59%
                                          --------------------      ----      --------------------      ----
Net interest income                                   $  3,138                            $  3,270
                                                      ========                            ========
Net interest rate spread                                            2.94%                               2.84%
                                                                    ====                                ====
Net earning assets                        $  8,318                            $  8,940
                                          ========                            ========
Net yield on average interest-earning
assets                                                              3.37%                               3.35%
                                                                    ====                                ====
Average interest-earning assets to
   average interest-bearing liabilities                  1.098x                              1.101x
                                                         =====                               =====

<CAPTION>
                                                 Year Ended June 30,
                                         -------------------------------------
                                                           2000
                                         -------------------------------------
                                           Average      Interest
                                         Outstanding    Earned/
                                           Balance       Paid       Yield/Rate
                                         -------------------------------------
<S>                                       <C>          <C>             <C>
Interest-Earning Assets:
   Interest-earning bank accounts         $  3,135     $    143        4.56%
   Certificates of deposit
      invested in other institutions           732           46        6.28
   Investments and other securities          2,338          146        6.24
   Loans receivable (1)                     79,105        6,608        8.35
   FHLB stock                                1,194           78        6.53
                                          ---------------------------------
   Total interest-earning assets (1)        86,504        7,021        8.12
                                          =====================

Interest-Bearing Liabilities:
   Savings accounts                          3,539           97        2.74%
   Checking accounts                         2,605           42        1.61
   Money market accounts                     4,819          174        3.61
   Certificates of deposit                  43,277        2,452        5.67
   FHLB advances                            21,716        1,269        5.84
   Effect of capitalized interest               --          (49)         --
                                          ---------------------        ----
   Total interest-bearing liabilities       75,956        3,985        5.25%
                                          ---------------------        ----
Net interest income                                    $  3,036
                                                       ========
Net interest rate spread                                               2.87%
                                                                       ====
Net earning assets                        $ 10,548
                                          ========
Net yield on average interest-earning
assets                                                                 3.51%
                                                                       ====
Average interest-earning assets to
   average interest-bearing liabilities                   1.139x
                                                          =====
</TABLE>

----------

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


                    StateFed Annual Report o September 2002                   13

<PAGE>

the total dollar amount of interest income from average interest earning assets
and the resultant yields, as well as the interest expense on average interest
bearing liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are monthly average balances.
Non-accruing loans have been included in the table as loans carrying a zero
yield.

RATE/VOLUME ANALYSIS
--------------------------------------------------------------------------------

The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase or decrease
due to changes in average outstanding balances and that due to the volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii)
changes in rate (i.e., changes in rate multiplied by old volume). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated have been allocated proportionately to the change due to volume and
the change due to rate.

INTEREST RATE SPREAD
--------------------------------------------------------------------------------

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

The following table on page 15 sets forth the weighted average effective
interest rate earned by the Company on its loan and investment portfolios, the
weighted average effective cost of the Company's deposits and borrowings, the
interest rate spread of the Company

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

RATE/VOLUME ANALYSIS

<TABLE>
<CAPTION>
                                                     Year Ended June 30,                        Year Ended June 30,
                                         -------------------------------------------------------------------------------------
                                                        2002 v. 2001                                2001 v. 2000
                                         -------------------------------------------------------------------------------------

                                                  Increase (Decrease) Due to                 Increase (Decrease) Due to

                                         -------------------------------------------------------------------------------------
                                                                     Total Increase                             Total Increase
                                            Volume          Rate      (Decrease)        Volume         Rate       (Decrease)
                                         -------------------------------------------------------------------------------------
                                                                         (Dollars in Thousands)
<S>                                         <C>           <C>           <C>              <C>           <C>        <C>
Interest-earning assets:
   Interest-earning bank accounts           $    29       $  (126)      $   (97)         $    23       $ (4)      $    19
   Certificates of deposit invested in
      other institutions                         (8)           (3)          (11)             (20)        --           (20)
   Investments and other securities             (15)           11            (4)             (17)       (27)          (44)
   Loans receivable                            (485)         (420)         (905)             929        305         1,234
   FHLB stock                                     6           (45)          (39)              28         (7)           21

                                         -------------------------------------------------------------------------------------
   Total interest-earning assets            $  (473)      $  (583)      $(1,056)         $   943       $267       $ 1,210
                                         =====================================================================================
Interest-bearing liabilities:
   Savings accounts                              (1)          (29)          (30)              (3)        (1)           (4)
   Checking accounts                             --           (19)          (19)               9        (11)           (2)
   Money market accounts                        115           (50)           65               (3)         2            (1)
   Certificates of deposit                      363          (412)          (49)              83        252           335
   FHLB advances                               (757)         (194)         (951)             641         18           659

                                         -------------------------------------------------------------------------------------
   Total interest-bearing liabilities       $  (280)      $  (704)      $  (984)         $   727       $260       $   987
                                         =====================================================================================
Net interest income, before effect of
capitalized interest                                                    $   (72)                                  $   223
Effect of capitalized interest                                              (60)                                       11
                                                                        -------                                   -------
Net interest income                                                     $  (132)                                  $   234
                                                                        =======                                   =======
</TABLE>

14                  StateFed Annual Report o September 2002

<PAGE>

and the net yield on weighted average interest-earning assets at year end.

                                                            At June 30,
                                                     --------------------------
                                                     2002       2001       2000
                                                     --------------------------
Weighted average yield on:
   Loans receivable                                  7.65%      8.47%      8.35%
   Interest-earning bank accounts:                   1.29       3.57       5.90
   Certificates of deposit invested
      in other institutions                          6.75       6.87       6.35
   Investments & other securities                    2.63       5.07       4.89
   FHLB stock                                        3.00       4.56       6.86
      Combined weighted average
         yield on interest-earning assets            7.27       7.99       8.17
Weighted average rate paid:
   Savings accounts                                  1.21       2.83       2.83
   Checking accounts                                 0.06       1.44       1.52
   Money market accounts                             2.47       3.29       3.30
   Certificates of deposit                           4.74       6.12       6.12
   FHLB advances                                     5.51       5.21       6.31
      Combined weighted average
         rate paid on interest-bearing
         liabilities                                 4.16       5.41       5.75
Spread                                               3.11       2.58       2.42

LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

The OTS requires the Bank to maintain a safe and sound level of liquid assets.
Such assets may include United States Treasury, federal agency, and other
investments having maturities of five years or less and are intended to provide
a source of relatively liquid funds upon which the Bank may rely, if necessary,
to fund deposit withdrawals and other short-term funding needs. The Bank's
regulatory liquidity at June 30, 2002 was 5.42 percent.

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

The primary financing activity of the Company during the fiscal year ended June
30, 2002 has been the increasing deposit base. The net increase in deposit
accounts was $3.9 million during fiscal year 2002.

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

The Company anticipates that it will have sufficient funds available to meet
current loan commitments. At June 30, 2002, the Company had outstanding
commitments to extend credit which amounted to approximately $4.0 million. The
Company is not aware of any trends, events or uncertainties which will have or
that are reasonably likely to have a material effect on the Company's liquidity,
capital resources or operations.

Certificates of deposit scheduled to mature in one year or less at June 30,
2002, totaled approximately $27.3 million. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Bank. There can be no assurance, however, that the Bank can retain all such
deposits. At June 30, 2002, the Bank had $14.0 million in advances from the FHLB
of Des Moines outstanding.

As a savings and loan holding company of a federal stock savings and loan
association, the Company's capital currently consists of stockholders' equity
including retained earnings. At June 30, 2002, the Company's stockholders'
equity totaled $14.2 million, or 14.72 percent of assets.

At June 30, 2002, the Bank had tangible and core capital of $7.2 million, or
7.89 percent of adjusted total assets, respectively, which was approximately
$5.8 million and $3.5 million above the minimum requirements of 1.5 percent and
4.0 percent respectively, of the adjusted total assets in effect on that date.
On June 30, 2002, the Bank had risk-based capital of $7.9 million (including
$7.2 million in core capital), or 13.06 percent of risk-weighted assets of $60.4
million. This amount was $3.1 million above the 8 percent requirement in effect
on that date. The Bank is considered "well-capitalized."


                    StateFed Annual Report o September 2002                   15

<PAGE>

IMPACT OF INFLATION
AND CHANGING PRICES
--------------------------------------------------------------------------------

The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with accounting principles generally accepted in the
United States of America which require the measurement of financial position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time because of inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, virtually all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.

IMPACT OF NEW ACCOUNTING
STANDARDS
--------------------------------------------------------------------------------

Accounting Standards Statement of Financial Accounting Standards. In September
2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities." SFAS No. 140 supercedes and
replaces the guidance in SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," and rescinds SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 140 provides accounting and reporting standards for
securitization transactions involving financial assets, sales of financial
assets such as receivables, loans and securities, factoring transactions,
washsales, servicing assets and liabilities, collateralized borrowing
arrangements, securities lending transactions, repurchase agreements, loan
participations, and extinguishment of liabilities. Management has adopted SFAS
No. 140 without material effect on consolidated financial position or results of
operation.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." These standards effectively
eliminate the use of pooling accounting for business combinations and eliminate
the amortization of goodwill created in connection with business combinations.
As the Company has no such intangible assets, the implementation of these
Statements did not have a material impact on its financial condition or results
of operations. Management will follow the provisions of SFAS No. 141 for any
acquisitions initiated after July 1, 2001.

In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible Assets,"
which prescribed accounting for all purchased goodwill and intangible assets.
Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is tested for
impairment at the reporting unit level annually and whenever an impairment
indicator arises. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 will have no current effect on financial
position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting of the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 carries over the recognition and
measurement provisions of SFAS No. 121. Accordingly, an entity should recognize
an impairment loss if the carrying value of a long-lived asset or asset group
(a) is not recoverable and (b) exceeds its fair value. Similar to SFAS 121, SFAS
No. 144 requires an entity to test an asset or asset group for impairment
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. SFAS No. 144 differs from SFAS No. 121 in that it
provides guidance on estimating future cash flows to test recoverability. An
entity may use either a probability-weighted approach or best-estimate approach
in developing estimates of cash flow to test recoverability. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. Management
adopted SFAS No. 144 effective July 1, 2002, without material effect on the
Company's financial condition or results of operations.


16                   StateFed Annual Report o September 2002

<PAGE>

                             CONSOLIDATED FINANCIAL
                                   STATEMENTS
--------------------------------------------------------------------------------
                          Independent Auditor's Report

Board of Directors
StateFed Financial Corporation
Clive, Iowa

We have audited the accompanying consolidated balance sheets of StateFed
Financial Corporation and subsidiary as of June 30, 2002 and 2001, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the three years ended June 30, 2002, 2001 and
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
StateFed Financial Corporation and its subsidiary as of June 30, 2002 and 2001
and the consolidated results of their operations and their cash flows for each
of the three years ended June 30, 2002, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.

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

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

West Des Moines, Iowa
August 20, 2002


                    StateFed Annual Report o September 2002                   17

<PAGE>

                         StateFed Financial Corporation
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                 --------------------------------
                                                                                      2002               2001
                                                                                 --------------------------------
<S>                                                                              <C>                <C>
ASSETS
   Cash and cash equivalents
      Non-interest bearing                                                       $     268,524      $     587,266
      Interest bearing                                                               2,846,158          6,691,285
                                                                                 --------------------------------
                                                                                     3,114,682          7,278,551
   Investments in certificates of deposit                                               99,000            297,272
   Investment securities available-for-sale                                          1,323,918          1,924,855
   Loans receivable, net                                                            84,771,507         87,898,936
   Real estate held for sale, net                                                      540,500                 --
   Real estate held for investment, net                                                     --          2,106,442
   Property acquired in settlement of loans                                            364,622          1,320,458
   Office property and equipment, net                                                3,405,720          3,947,620
   Federal Home Loan Bank stock, at cost                                             1,762,200          1,762,200
   Accrued interest receivable                                                         572,414            630,166
   Deferred income taxes                                                               142,046                 --
   Other assets                                                                        308,632            382,936
                                                                                 --------------------------------
         Total Assets                                                            $  96,405,241      $ 107,549,436
                                                                                 ================================

LIABILITIES AND STOCKHOLDERS' EQUITY
   Deposits                                                                      $  66,901,147      $  62,987,496
   Advances from the Federal Home Loan Bank                                         14,000,000         29,185,149
   Advances from borrowers for taxes and insurance                                     351,422            395,032
   Accrued interest payable                                                            174,921            170,864
   Income taxes
      Current                                                                          305,231             58,544
      Deferred                                                                              --            144,997
   Accounts payable and other liabilities                                              349,063            392,053
   Dividends payable                                                                   127,887            127,633
                                                                                 --------------------------------
         Total Liabilities                                                          82,209,671         93,461,768

Stockholders' equity
   Preferred stock, $.01 par value, 500,000 shares authorized,
      none issued                                                                           --                 --
   Common stock, $.01 par value, 2,000,000 shares authorized,
      1,780,972 shares issued with 1,278,870 (2002) and
      1,276,326 (2001) shares outstanding                                               17,810             17,810
   Additional paid-in capital                                                        8,527,873          8,522,356
   Retained earnings-substantially restricted                                       10,880,409         10,861,853
   Less treasury stock (502,102 & 504,646 shares, at cost)                          (5,172,468)        (5,195,834)
   Less common stock acquired by employee stock ownership
      plan                                                                             (85,575)          (143,866)
   Accumulated other comprehensive income--net unrealized
      gains on available-for-sale securities, net of related tax
      effect                                                                            27,521             25,349
                                                                                 --------------------------------
         Total Stockholders' Equity                                                 14,195,570         14,087,668
                                                                                 --------------------------------
         Total Liabilities and Stockholders' Equity                              $  96,405,241      $ 107,549,436
                                                                                 ================================
</TABLE>

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


18                  StateFed Annual Report o September 2002

<PAGE>

                         StateFed Financial Corporation
                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                                         Year Ended June 30,
                                                                           ------------------------------------------------
                                                                               2002              2001               2000

                                                                           ------------------------------------------------
INTEREST INCOME
<S>                                                                        <C>               <C>                <C>
   Loans receivable interest                                               $ 6,937,015       $ 7,842,292        $ 6,608,263
   Investment securities and other interest                                    238,175           388,767            413,313

                                                                           ------------------------------------------------
                                                                             7,175,190         8,231,059          7,021,576
INTEREST EXPENSE
   Deposits                                                                  3,059,883         3,055,787          2,731,412
   Advances from the Federal Home Loan Bank                                    976,759         1,905,468          1,254,358

                                                                           ------------------------------------------------
                                                                             4,036,642         4,961,255          3,985,770

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

      NET INTEREST INCOME                                                    3,138,548         3,269,804          3,035,806

PROVISION FOR LOAN LOSSES                                                      565,656           151,000             36,000
                                                                           ------------------------------------------------

      NET INTEREST INCOME AFTER
         PROVISION FOR LOAN LOSSES                                           2,572,892         3,118,804          2,999,806

NON-INTEREST INCOME
   Investment real estate operations                                           247,003           518,719            524,514
   Gain (loss) on sale of available-for-sale investments                       112,886           (95,880)             1,940
   Gain on sale of real estate, net                                            634,026            18,873             50,094
   Other                                                                       196,975           121,151            107,539
                                                                           ------------------------------------------------
                                                                             1,190,890           562,863            684,087
NON-INTEREST EXPENSE
   Salaries and employee benefits                                            1,369,299         1,287,057          1,032,790
   Investment real estate operations                                           183,736           321,672            312,090
   Occupancy expenses                                                          429,379           245,830            162,779
   Federal deposit insurance premiums                                           44,385            38,563             49,887
   Data processing services                                                    144,747           128,429            107,328
   Advertising                                                                 119,897            62,644             38,379
   Legal fees                                                                   91,525           156,477             33,898
   Provision for decline in value of real estate held for sale                 157,890                --                 --
   Other                                                                       502,802           421,213            269,131

                                                                           ------------------------------------------------
                                                                             3,043,660         2,661,885          2,006,282
                                                                           ------------------------------------------------
      INCOME BEFORE PROVISION
         FOR INCOME TAXES                                                      720,122         1,019,782          1,677,611

PROVISION FOR INCOME TAXES                                                     189,307           356,460            536,860
                                                                           ------------------------------------------------

      NET INCOME                                                           $   530,815       $   663,322        $ 1,140,751
                                                                           ================================================

Basic earnings per share                                                   $      0.42       $      0.45        $      0.78
                                                                           ================================================
Diluted earnings per share                                                 $      0.41       $      0.44        $      0.76
                                                                           ================================================
</TABLE>

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


                    StateFed Annual Report o September 2002                   19

<PAGE>

                         StateFed Financial Corporation
                Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>
                                                                   Year ended June 30,
                                                        ----------------------------------------
                                                            2002           2001          2000
                                                        ----------------------------------------
<S>                                                     <C>            <C>           <C>
Net income                                              $   530,815    $   663,322   $ 1,140,751
Other comprehensive income, net of tax effects:

   Unrealized holding gains (losses) on securities
      arising during the year                                78,934         90,003      (127,082)

   Reclassification adjustment-realized (gains)losses
      on securities during the year                         (76,762)        59,925        (1,300)
                                                        ----------------------------------------
         Net change in other comprehensive income             2,172        149,928      (128,382)
                                                        ----------------------------------------
Comprehensive income                                    $   532,987    $   813,250   $ 1,012,369
                                                        ========================================
</TABLE>

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


20                   StateFed Annual Report o September 2002

<PAGE>

                         StateFed Financial Corporation
           Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                                      Years ended June 30, 2002, 2001, and 2000
                                                         ------------------------------------------------------------------
                                                                      Additional
                                                          Common     Paid-In     Retained     Treasury       Common Stock
                                                          Stock      Capital     Earnings      Stock       Acquired by ESOP

                                                         ------------------------------------------------------------------
<S>                                                      <C>        <C>         <C>          <C>               <C>
Balance at June 30, 1999                                 $17,810    $8,517,658  $10,090,384  $(2,234,986)      $ (271,290)

    Net income for the year                                                       1,140,751
    Dividends declared                                                             (452,317)
    ESOP common stock released for allocation                           60,240       65,529
    Treasury stock acquired -- 18,000 shares                                                    (202,313)
    Treasury stock reissued to fund stock options
        exercised -- 8,596 shares                                      (31,397)                   74,378
    Change in unrealized gains (losses) on available
        for-sale securities, net of related tax effects

                                                         ------------------------------------------------------------------
Balance at June 30, 2000                                  17,810     8,546,501   10,778,818   (2,362,921)        (205,761)
    Net income for the year                                                         663,322
    Dividends declared                                                             (580,287)
    ESOP common stock released for allocation                           62,575                                     61,895
    Treasury stock acquired -- 256,474 shares                                                 (3,035,632)
    Treasury stock reissued to fund stock options
        exercised -- 23,200 shares                                     (86,720)                  202,719
    Change in unrealized gains (losses) on available
        sale securities, net of related tax effects

                                                         ------------------------------------------------------------------
Balance at June 30, 2001                                  17,810     8,522,356   10,861,853   (5,195,834)        (143,866)
    Net income for the year                                                         530,815
    Dividends declared                                                             (512,259)
    ESOP common stock released for allocation                           61,363                                     58,291
    Treasury stock acquired -- 8,000 shares                                                      (85,200)

    Treasury stock reissued to fund stock options
        exercised -- 10,544 shares                                     (55,846)                  108,566

    Change in unrealized gains (losses) on available
        sale securities, net of related tax effects

                                                         ------------------------------------------------------------------
    Balance at June 30, 2002                             $17,810    $8,527,873  $10,880,409  $(5,172,468)      $ (85,575)
                                                         ==================================================================

<CAPTION>
                                                       Years ended June 30, 2002, 2001, and 2000
                                                         ------------------------------------
                                                         Accumulated Other
                                                            Comprehensive  Total Stockholders'
                                                            Income (Loss)         Equity
                                                         ------------------------------------
<S>                                                             <C>               <C>
Balance at June 30, 1999                                        $3,803            $16,123,379

    Net income for the year                                                         1,140,751
    Dividends declared                                                               (452,317)
    ESOP common stock released for allocation                                         125,769
    Treasury stock acquired -- 18,000 shares                                         (202,313)
    Treasury stock reissued to fund stock options
        exercised -- 8,596 shares                                                      42,981
    Change in unrealized gains (losses) on available
        for-sale securities, net of related tax effects       (128,382)              (128,382)
                                                         ------------------------------------
Balance at June 30, 2000                                      (124,579)            16,649,868
    Net income for the year                                                           663,322
    Dividends declared                                                               (580,287)
    ESOP common stock released for allocation                                         124,470
    Treasury stock acquired -- 256,474 shares                                      (3,035,632)
    Treasury stock reissued to fund stock options
        exercised -- 23,200 shares                                                    115,999
    Change in unrealized gains (losses) on available
        sale securities, net of related tax effects            149,928                149,928
                                                         ------------------------------------
Balance at June 30, 2001                                        25,349             14,087,668
    Net income for the year                                                           530,815
    Dividends declared                                                               (512,259)
    ESOP common stock released for allocation                                         119,654
    Treasury stock acquired -- 8,000 shares                                           (85,200)

    Treasury stock reissued to fund stock options
        exercised -- 10,544 shares                                                     52,720

    Change in unrealized gains (losses) on available
        sale securities, net of related tax effects              2,172                  2,172
                                                         ------------------------------------
    Balance at June 30, 2002                                   $27,521            $14,195,570
                                                         ====================================
</TABLE>

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


                    StateFed Annual Report o September 2002                   21

<PAGE>

                         StateFed Financial Corporation
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                     Year ended June 30,
                                                                          --------------------------------------------
                                                                              2002            2001            2000
                                                                          --------------------------------------------
<S>                                                                      <C>             <C>             <C>
Cash flows from operating activities
   Net income                                                            $    530,815    $    663,322    $   1,140,751
   Adjustments to reconcile net income to net cash provided by operating
      activities:
      Depreciation                                                            220,277         223,048          167,385
      Gain on sale of real estate                                            (634,026)        (18,873)         (50,094)
      Amortization of ESOP & RRP contributions                                119,654         124,470          125,770
      Realized (gains) losses on sale of available-for-sale securities       (112,886)         95,880           (1,940)
      Deferred loan fees                                                      (35,522)         17,530           35,970
      Provision for losses on loans                                           565,656         151,000           36,000
      Provision for decrease in value of real estate held for sale            157,890              --               --
      Deferred income taxes                                                  (317,846)        (43,962)         (21,293)
      Other                                                                        --              --           13,134
      Change in:
         Accrued interest receivable                                           57,752         (63,573)         (37,265)
         Other assets                                                          31,206          14,326           61,759
         Accrued interest payable                                               4,057          30,621            6,470
         Current income tax liability                                         246,687        (139,448)          70,349
         Accounts payable and other liabilities                               (42,990)        193,364            1,634
                                                                          --------------------------------------------
         Net cash provided by operating activities                            790,724       1,247,705        1,548,630

Cash flows from investing activities
   Investment in certificates of deposit                                           --              --          (99,000)
   Maturity of investments in certificates of deposit                         198,272         198,420          487,000
   Proceeds from sale or maturity of available-for-sale
      investment securities                                                 1,122,108         450,426          703,660
   Purchase of available-for-sale investment securities                      (375,310)             --       (1,194,123)
   Purchase of FHLB stock                                                          --        (297,600)        (317,000)
   Net (increase) decrease in loans outstanding                             3,617,240      (1,482,619)     (13,953,559)
   Investment in real estate held for investment                                   --          (1,922)         (36,555)
   Investment in real estate held for development                              43,174             (12)          79,987
   Proceeds from sales of real estate                                       2,658,077          24,000           65,500
   Investment in property acquired in settlement of loans                          --              --         (595,028)
   Purchases of equipment and construction of office property                (358,561)     (1,133,744)      (1,438,782)
                                                                          --------------------------------------------
     Net cash flows provided (used) by investing activities                 6,905,000      (2,243,051)     (16,297,900)

Cash flows from financing activities
   Net increase (decrease) in deposits                                      3,913,651       9,339,378       (1,064,954)
   Advances from Federal Home Loan Bank                                            --       6,000,000       10,500,000
   Repayment of Federal Home Loan Bank advances                           (15,185,149)     (6,098,757)         (93,141)
   Net increase (decrease) in advances from borrowers                         (43,610)         41,289           16,372
   Proceeds from stock options exercised                                       52,720         116,000           42,981
   Dividends paid                                                            (512,005)       (565,875)        (453,397)
   Treasury stock purchased                                                   (85,200)     (3,035,632)        (202,313)
                                                                          --------------------------------------------
     Net cash flows provided (used) by financing activities               (11,859,593)      5,796,403        8,745,548
                                                                          --------------------------------------------

CHANGE IN CASH AND CASH EQUIVALENTS                                        (4,163,869)      4,801,057       (6,003,722)

CASH AND CASH EQUIVALENTS, beginning of year                                7,278,551       2,477,494        8,481,216
                                                                          --------------------------------------------

   CASH AND CASH EQUIVALENTS, end of year                                $  3,114,682    $  7,278,551    $   2,477,494
                                                                          ============================================
</TABLE>

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


22                  StateFed Annual Report o September 2002

<PAGE>

NOTE A

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

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

The Bank provides a full range of banking services to individual and corporate
customers from its three offices located in Des Moines and Clive, Iowa. The
Bank's wholly-owned subsidiary, State Service Corporation, sells uninsured
investment products and services.

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

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

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

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

INVESTMENT AND OTHER SECURITIES--Investments in debt securities which management
has the intent and the Company has the ability to hold to maturity are carried
at cost, adjusted for purchase premiums or discounts. Purchase premiums or
discounts are amortized through interest income using the interest method over
the period to maturity.

Debt securities to be held for indefinite periods of time, including debt
securities that management intends to use as part of its asset/liability
strategy, or that may be sold in response to changes in interest rates, changes
in prepayment risk, the need to increase regulatory capital or other similar
factors, are classified as available-for-sale and recorded at fair value. Equity
securities are also carried at fair value. Unrealized holding gains and losses,
net of tax, on securities available for sale are reported as a net amount as a
separate component of stockholders' equity.

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

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

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


                    StateFed Annual Report o September 2002                   23

<PAGE>

A valuation allowance is provided for estimated losses on loans when a probable
and reasonably estimable loss or decline in value occurs. Loans are reviewed
periodically to determine potential problems at an early date. The Company's
experience has shown that foreclosures on loans can result in some loss.
Therefore, in addition to an allowance for specific loans, the Company makes a
provision for losses based in part on experience and part on prevailing market
conditions. Additions to allowances are charged to earnings.

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

The Company accounts for impaired loans by measuring impaired loans based upon
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as an alternative, at the loan's observable market
price or fair value of the collateral.

A loan is defined as impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement.

It is the Company's policy to charge off unsecured credits that are more than 90
days delinquent. Similarly, collateral dependent loans which are more than 90
days delinquent are considered to constitute more than a minimum delay in
repayment and are evaluated for impairment at that time.

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

PROPERTY ACQUIRED IN SETTLEMENT OF LOANS--Property acquired in the settlement of
loans is initially recorded at the lower of fair value (less estimated costs to
sell the real estate) at the date of foreclosure, or the loan balance. Costs
relating to improvement of the property are capitalized, whereas costs relating
to the holding of the property are expensed. Valuation allowances are
established and adjusted periodically by management if the carrying value of the
property exceeds its fair value, less estimated costs to sell the property.

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

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

ADVERTISING COSTS--Advertising costs are expensed as incurred.

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

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

EARNINGS PER SHARE--Basic earnings per common share is computed based upon the
weighted-average number of common shares outstanding during the period. Diluted
earnings per common share include the dilutive effect of additional potential
common shares issuable under the Company's stock option plan. The computation of
earnings per share are as follows:

                                                     Year Ended June 30,
                                           -------------------------------------
                                              2002          2001          2000
                                           -------------------------------------
Weighted-average common
   shares outstanding (basic)              1,258,083     1,468,121     1,462,969

Dilutive effect of assumed
   exercise of stock options                  27,426        29,491        30,257
                                           -------------------------------------
Weighted-average common
   shares outstanding (diluted)            1,285,509     1,497,612     1,493,226
                                           =====================================


24                  StateFed Annual Report o September 2002

<PAGE>

RECLASSIFICATIONS--Certain prior year amounts have been reclassified to conform
to the 2002 consolidated financial statement presentation.

NOTE B

STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with maturities of three months or less, when purchased,
to be cash equivalents. The Company had cash deposits of approximately
$2,300,000 at the Federal Home Loan Bank of Des Moines at June 30, 2002.

Supplemental Disclosures of Cash Flow Information

                                                   Year Ended June 30,
                                           -------------------------------------
                                             2002          2001          2000
                                           -------------------------------------
Income taxes paid                          $ 236,400     $ 539,869    $  487,804
                                           =====================================
Interest paid on deposits
and FHLB advances
(includes interest credited
to deposit accounts)                       $4,032,585    $4,990,324   $4,028,474
                                           =====================================

NONCASH INVESTING AND FINANCING ACTIVITIES--Property acquired through
foreclosure totaled $605,516, $197,343 and $74,087 during fiscal years 2002,
2001 and 2000, respectively. The Company also financed $1,625,461, $209,400 and
$424,000 of loans for borrowers to purchase real estate owned by the Company
during fiscal years 2002, 2001 and 2000, respectively.

NOTE C

INVESTMENTS IN CERTIFICATES OF DEPOSIT
--------------------------------------------------------------------------------

The Company invests in certificates of deposit issued by other financial
institutions, up to a maximum of $100,000 per institution. At June 30, 2002 the
Company had $99,000 invested in a 6.75% certificate of deposit that matures
during 2004.

NOTE D

INVESTMENT SECURITIES
--------------------------------------------------------------------------------

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

                                          Gross         Gross
                          Amortized    Unrealized     Unrealized        Fair
                             Cost         Gains         Losses          Value
                         -------------------------------------------------------
June 30, 2002:
U.S. government
   & agency debt
   securities            $   140,585   $       992    $        --    $   141,577
Municipal bonds              101,170            --           (408)       100,762
Equity securities          1,029,732        51,847             --      1,081,579
                         -------------------------------------------------------
                         $ 1,271,487   $    52,839    $      (408)   $ 1,323,918
                         =======================================================

June 30, 2001:

U.S. government
   & agency debt
   securities            $   200,000   $     4,472    $        --    $   204,472
Municipal bonds              101,305            --           (130)       101,175
Equity securities          1,582,991        37,237         (1,020)     1,619,208
                         -------------------------------------------------------
                         $ 1,884,296   $    41,709    $    (1,150)   $ 1,924,855
                         =======================================================

The contractual maturities of debt securities at June 30, 2002, are shown below.
Actual maturities are expected to differ from contractual maturities as
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
                                                       Weighted      Amortized
                                       Average Yield     Cost        Fair Value
                                       ----------------------------------------

Due in one year or less                     5.75%      $   8,236     $   8,255
Due after one year
   through five years                         --%             --            --
Due after five years
   through ten years                        4.99%        125,973       125,872

Due after ten years                         6.79%        107,546       108,212
                                                       -----------------------
                                                       $ 241,755     $ 242,339
                                                       =======================

The Company had realized gains (losses) on the sale of investment securities
totaling $112,886, ($95,880), and $1,940 during fiscal years 2002, 2001 and
2000, respectively. Proceeds from the sale of available-for-sale equity
securities totaled $900,871 for 2002, $99,790 for 2001, and $3,660 for 2000.


                    StateFed Annual Report o September 2002                   25

<PAGE>

Following is a summary of investment income:

                                                    Year Ended June 30,
                                           -------------------------------------
                                              2002          2001          2000
                                           -------------------------------------
U.S. government &
   agency securities                       $  12,375     $  19,733     $  46,452
Municipal bonds                                4,866         4,865         4,865
Certificates of deposit                       14,575        26,354        46,302
FHLB stock dividends                          59,806        98,939        78,156
Interest-bearing cash
   accounts                                   65,301       162,059       143,492
Equity securities dividends                   81,252        76,817        94,046
                                           -------------------------------------
                                           $ 238,175     $ 388,767     $ 413,313
                                           =====================================

NOTE E

LOANS RECEIVABLE, NET
--------------------------------------------------------------------------------

Following is a summary of loans receivable:

                                                            June 30,
                                                 ------------------------------
                                                     2002              2001
                                                 ------------------------------
Real estate mortgage loans:
   Secured by one-to-four family
      residences                                 $ 55,481,964      $ 55,178,876
   Secured by commercial &
      multi-family real estate                     25,846,350        31,243,376
   Construction loans                               4,331,204         1,308,950
                                                 ------------------------------
      Total real estate mortgage loans             85,659,518        87,731,202

Consumer & other loans                              2,068,374         1,606,121
                                                 ------------------------------
                                                   87,727,892        89,337,323
Less:
   Allowance for loan losses                         (927,311)         (382,325)
   Undisbursed portion of
      mortgage loans                               (1,725,745)         (717,387)
   Unamortized balance on
      purchased loan premiums                              83               260
   Deferred loan fees                                (303,412)         (338,935)
                                                 ------------------------------
      Loans receivable, net                      $ 84,771,507      $ 87,898,936
                                                 ==============================

A significant portion of loans receivable consist of first mortgage loans issued
to finance purchases of real estate, principally one-to-four family residences.
The real estate is located primarily in the greater Des Moines area. There is no
significant concentration of credit risk to specific industries. The economic
condition of the Company's market area can affect its borrowers' ability to
repay their loans.

Commercial and multi-family real estate loans include participating interests in
loans purchased by the Company. Participation loans purchased totaled
approximately $7,670,000 and $11,110,000 at June 30, 2002 and 2001,
respectively. A significant portion of these participation loans are secured by
real estate located outside of Iowa.

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

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

At June 30, 2002, the Company had outstanding commitments to fund loans of
approximately $4,000,000. The commitments were primarily for fixed interest rate
commercial and residential real estate loans on real estate located across the
Midwest. The Company also had outstanding commitments on unused portions of
available lines of credit totaling $320,000 at June 30, 2002.

Loan commitments are agreements to lend to customers as long as there are no
violations of any conditions established in the contracts. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the borrower. Collateral held is primarily residential and commercial real
estate, but may include autos, consumer goods and other assets.

26                  StateFed Annual Report o September 2002

<PAGE>

In the normal course of business, the Company has made loans to their directors,
officers and their related business interests. Regulations allow executive
officers and directors to receive the same loan terms through benefit or
compensation plans that are widely available to other employees, as long as the
director or executive officer is not given preferential treatment compared to
other participating employees. The table below details the activity for loans
outstanding to directors, officers and their related business interests:

                                                      2002              2001
                                                 ------------------------------
Balance, beginning of year                       $    949,151      $    934,099
Loans disbursed                                       140,524           117,445
Principal repayments                                 (141,656)         (102,393)
                                                 ------------------------------
Balance, end of year                             $    948,019      $    949,151
                                                 ==============================

The Company serviced participation loans with outstanding balances totaling
$2,318,065 and $2,390,890 at June 30, 2002 and 2001 respectively. The Company's
portion of these loans totaled $1,759,228 and $1,814,806 at June 30, 2002 and
2001, respectively.

The Company did not sell any portion of its loan portfolio, or loans originated,
during the years ended June 30, 2002 and 2001.

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

                                                    Year Ended June 30,
                                          -------------------------------------
                                            2002          2001          2000
                                          -------------------------------------
Balance at beginning of year              $ 382,325     $ 258,801     $ 242,129
   Provision for losses on loans            565,656       151,000        36,000
   Charge-offs on loans                     (76,751)      (27,476)      (19,328)
   Recoveries on charged-off loans           56,081            --            --
                                          -------------------------------------
Balance at end of year                    $ 927,311     $ 382,325     $ 258,801
                                          =====================================

Following is a summary of impaired loans:

                                                     2002              2001
                                                 ------------------------------
Impaired loans without a valuation allowance     $    534,404      $         --
Impaired loans with a valuation allowance           1,890,915      $         --
                                                 ------------------------------
   Total investment in impaired loans            $  2,425,319      $         --
                                                 ==============================
Valuation allowance allocated to impaired
   loans                                         $    426,889      $         --
Impaired loans on non-accrual status             $  1,430,370      $         --
Charge-off principal related to impaired loans   $         --      $         --
Recoveries of charged-off principal related to
   impaired loans                                $         --      $         --

During the time a loan is deemed impaired, the Company records interest income
using the cash method of accounting. There was no interest income recorded on
impaired loans during fiscal years 2002, 2001 and 2000.

Non-accrual loans totaled $1,982,829 and $1,265,893, at June 30, 2002 and 2001,
respectively. Loan interest income for the years ended June 30, 2002, 2001 and
2000 would have increased by $192,938, $68,133 and $34,300, respectively, if
interest income had been accrued on these past-due loans.

As of June 30, 2002, the Company had a net investment of $84,771,507 in loans
receivable. These loans possess an inherent credit risk given the uncertainty
regarding the borrower's compliance with the terms of the loan agreement. To
reduce credit risk, the loans are secured by varying forms of collateral,
including first mortgages on real estate, liens on personal property, savings
accounts, etc. It is generally Company policy to file liens on titled property
taken as collateral on loans, such as real estate and autos. In the event of
default, the Company's policy is to foreclose or repossess collateral on which
it has filed liens.

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

NOTE F

REAL ESTATE HELD FOR INVESTMENT
--------------------------------------------------------------------------------

Following is a summary of the Company's investment in real estate held for
investment:

                                                            June 30,
                                                 ------------------------------
                                                      2002              2001
                                                 ------------------------------
Rental real estate, at cost                      $         --      $  2,752,011
Less accumulated depreciation                              --          (645,569)
                                                 ------------------------------
                                                 $         --      $  2,106,442
                                                 ==============================

During 2002, the Company sold its 60-unit apartment complex and a 22-unit
apartment complex located in the Des Moines area and recognized a $634,656 gain
on the transaction.


                     StateFed Annual Report o September 2002                  27

<PAGE>

NOTE G

REAL ESTATE HELD FOR SALE
--------------------------------------------------------------------------------

During 2002, the Company relocated its downtown branch and listed the office
building it had previously occupied for sale or lease. The carrying value of the
land and building was written-down to its estimated fair value, less estimated
selling costs. A loss of $157,890 was recognized as a result of this valuation
adjustment.

NOTE H

PROPERTY ACQUIRED IN SETTLEMENT OF LOANS
--------------------------------------------------------------------------------

At June 30, 2002, the Company held three real estate properties acquired in the
settlement of loans. The one-to-four family properties have a carrying value of
$364,622. Management believes the carrying value of the properties do not exceed
fair value, net of anticipated selling costs.

No significant gains or losses were recognized from adjusting the carrying value
of property acquired in settlement of loans to fair value during 2002, 2001 or
2000.

NOTE I

OFFICE PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------

Following is a summary of office property and equipment:

                                                            June 30,
                                                 ------------------------------
                                                      2002              2001
                                                 ------------------------------
Land                                             $    305,000      $    975,000
Office building                                     2,941,316         2,903,501
Furniture, fixtures & equipment                       900,032           754,665
Leasehold improvements                                 52,425                --
                                                 ------------------------------
                                                    4,198,773         4,633,166
Less accumulated depreciation                        (793,053)         (685,546)
                                                 ------------------------------
Office property & equipment, net                 $  3,405,720      $  3,947,620
                                                 ==============================

NOTE J

ACCRUED INTEREST RECEIVABLE
--------------------------------------------------------------------------------

Following is a summary of accrued interest receivable:

                                                             June 30,
                                                 ------------------------------
                                                     2002              2001
                                                 ------------------------------
Investments in certificates of deposit           $        220      $        957
Investment securities                                   2,334             9,396
Loans receivable                                      569,860           619,813
                                                 ------------------------------
                                                 $    572,414      $    630,166
                                                 ==============================

NOTE K

DEPOSITS
--------------------------------------------------------------------------------

Savings deposit customers are primarily Greater Des Moines area individuals and
businesses. Deposits with balances in excess of $100,000 totaled $9,519,988 and
$6,074,082 at June 30, 2002 and 2001, respectively. Non-interest bearing deposit
accounts totaled approximately $1,920,000 and $1,435,000 at June 30, 2002 and
2001, respectively.

Deposit accounts held by members of the board of directors and executive
officers totaled $534,000 and $501,000 at June 30, 2002 and 2001, respectively.

Following is a summary of savings deposits as of June 30, 2002 and 2001 and
interest expense relating to those deposits for the years then ended:

<TABLE>
<CAPTION>
                                             2002                            2001
                                 -----------------------------------------------------------
                                  Outstanding      Interest       Outstanding     Interest
                                    Balance         Expense         Balance        Expense
                                 -----------------------------------------------------------
<S>                              <C>             <C>             <C>            <C>
Demand deposits                  $  3,606,185    $     21,039    $  3,018,793   $     40,473
Savings and money
   market deposits                 16,115,810         301,320       8,232,546        265,603
Certificates of deposits           47,179,152       2,743,029      51,736,157      2,793,127
                                 -----------------------------------------------------------
                                 $ 66,901,147       3,065,388    $ 62,987,496      3,099,203
                                 ============                    ============
Less penalties for early
   withdrawals                                         (5,505)                        (6,451)
Less allocation of
   captalized interest                                     --                        (36,965)
                                                 ------------                   ------------
                                                 $  3,059,883                   $  3,055,787
                                                 ============                   ============
</TABLE>

The scheduled maturities of certificates of deposit are as follows: Fiscal-year
ending June 30:

2003                  $27,289,817
2004                    8,724,064
2005                    4,811,499
2006                    2,070,776
2007                    4,282,996
                      -----------
                      $47,179,152
                      ===========


28                  StateFed Annual Report o September 2002

<PAGE>

NOTE L

ADVANCES FROM FEDERAL HOME LOAN BANK
--------------------------------------------------------------------------------

Advances from the Federal Home Loan Bank of Des Moines, which are secured by a
blanket pledge agreement, including all stock in the FHLB and qualifying first
mortgage loans, consisted of the following fixed rate advances, which are
subject to prepayment penalties, at June 30, 2002:

  Maturity Date                     Interest Rate                     Amount
-------------------------------------------------------------------------------
November 21, 2002                       6.14%                     $   5,000,000
June 30, 2008 (1)                       5.52%                         3,000,000
September 11, 2008                      4.99%                         6,000,000
                                                                  -------------
                                                                   $  14,000,000
                                                                  =============
(1) Callable in fiscal year 2003

Scheduled maturities of the advances are as follows:

                                            Amount        Interest Rates
                                         -------------------------------

Year ending June 30, 2003                $ 5,000,000               6.14%
Thereafter                                 9,000,000       4.99% - 5.52%
                                         -----------
                                         $14,000,000
                                         ===========

The weighted average interest rate for all advances was 5.51% and 5.21% at June
30, 2002 and 2001, respectively.

NOTE M

INCOME TAXES
--------------------------------------------------------------------------------

Prior to the year ended June 30, 1997, the savings and loan subsidiary was
allowed a special bad debt deduction based on a percentage of taxable income (8
percent), or on specified experience formulas, subject to certain limitations
based on aggregate loan balances at the end of the year. The special bad debt
deduction has been repealed for thrift institutions. Legislation also requires
thrifts to recapture, over a six-year period, bad debt reserves added since
January 1, 1988 (approximately $122,000 remains to be recaptured). Recapture of
pre-1988 reserves (approximately $1,353,000) is required only under limited
circumstances, such as if a thrift pays dividends in excess of its earnings and
profits or liquidates. The recapture is not expected to have a material effect
on results of operations as the Company has provided a deferred tax liability
for special bad debt deductions since January 1, 1988. The Company, in
accordance with SFAS No. 109, has not recorded a deferred tax liability of
approximately $510,000 relating to pre-1988 bad debt reserves.

Please see the chart below for a summary of taxes on income:

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

INCOME TAXES

<TABLE>
<CAPTION>
                                                           Year Ended June 30.

           -----------------------------------------------------------------------------------------------------------------
                            2002                                  2001                                   2000
           -----------------------------------------------------------------------------------------------------------------
            Federal        State        Total      Federal        State        Total      Federal        State        Total
           -----------------------------------------------------------------------------------------------------------------
<S>        <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Current    $ 409,828    $  75,175    $ 485,003    $ 338,357    $  62,065    $ 400,422    $ 471,639    $  86,514    $ 558,153
Deferred    (249,813)     (45,883)    (295,696)     (37,148)      (6,814)     (43,962)     (17,993)      (3,300)     (21,293)

           -----------------------------------------------------------------------------------------------------------------
Total      $ 160,015    $  29,292    $ 189,307    $ 301,209    $  55,251    $ 356,460    $ 453,646    $  83,214    $ 536,860
           =================================================================================================================
</TABLE>

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

                                                   Year Ended June 30,
                                          -------------------------------------
                                             2002          2001          2000
                                          -------------------------------------
Computed "expected" taxes
   on income                              $ 245,000     $ 348,000     $ 570,400
State taxes, net of federal benefit          34,000        37,500        64,700

Low income housing tax credits              (59,000)      (59,000)      (59,000)
Other adjustments                           (30,693)       29,960       (39,240)
                                          -------------------------------------
    Provision for income taxes            $ 189,307     $ 356,460     $ 536,860
                                          =====================================


                    StateFed Annual Report o September 2002                   29

<PAGE>

Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to the deferred tax (asset)
liability at June 30, 2002 and 2001 were as follows:

                                                            June 30,
                                                     2002              2001
Federal Home Loan Bank stock (income tax
   payable when shares received as stock
   dividends are sold)                           $     64,000      $     63,900

Real estate & equipment (depreciation
   method and carrying value differences)              62,000           143,000

Compensation agreements (deductible when
   paid for income tax reporting purposes)                 --           (15,700)
Loan fees deferred for financial reporting
   purposes                                           (18,000)          (18,900)
Allowance for loan losses                            (302,000)          (74,500)
Deferred installment sale gains                        32,000            33,000
Unrealized gains on investment
   securities                                          22,000            15,200

Other                                                  (2,046)           (1,003)

Net deferred income tax (asset) liability        $   (142,046)     $    144,997
                                                 ==============================

No valuation allowance was recorded against deferred tax assets at June 30, 2002
or 2001.

NOTE N

EMPLOYEE BENEFITS
--------------------------------------------------------------------------------

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--The Company has established an ESOP for
eligible employees. Employees with at least 1,000 hours of annual service with
the Company and who have attained an age of 21 are eligible to participate. The
ESOP borrowed $687,700 from the Company to purchase up to 8 percent of the
common stock or 137,540 shares. Collateral for the loan is the common stock
purchased by the ESOP. The loan is repaid principally from the Bank's
discretionary contributions to the ESOP over a period of 10 years (through
December 31, 2003). The interest rate for the loan is 7 percent. Shares
purchased by the ESOP are held in a suspense account for allocation among
participants as the loan is repaid. Expense of $119,654, $124,470, and $125,770
was recorded relative to the ESOP for the years ended June 30, 2002, 2001, and
2000, respectively.

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

As shares are released from collateral, the Company reports compensation expense
equal to the current market price of the shares. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are recorded as a reduction of debt and accrued
interest.

ESOP shares were as follows:

                                                             June 30,
                                                 ------------------------------
                                                      2002              2001
                                                 ------------------------------
Allocated shares, beginning of year                   100,468            88,851
Distribution of shares                                     --              (713)
Shares released for allocation                         11,614            12,330
                                                 ------------------------------
   Total allocated shares, end of year                112,082           100,468

Unreleased shares                                      16,079            27,693
                                                 ------------------------------
   Total ESOP shares                                  128,161           128,161
                                                 ==============================
Fair value of unreleased shares                  $    160,790      $    299,361
                                                 ==============================

STOCK OPTION PLAN--The Company authorized options for 171,924 shares of common
stock under the 1993 Stock Option and Incentive Plan (the "Plan"). Officers,
directors and employees of the Company and its subsidiaries are eligible to
participate in the Plan. The option exercise price must be at least 100 percent
of the market value (as defined in the Plan) of the common stock on the date of
the grant, and the option term cannot exceed 10 years. Stock options vest at a
rate of 20 percent per year. There are unexercised outstanding stock options for
49,050 shares at June 30, 2002. At June 30, 2002, the weighted average remaining
contractual life is 3.8 years and the weighted average option price is $7.08 for
the outstanding unexercised options.


30                  StateFed Annual Report o September 2002

<PAGE>

During February 2002, the Board of Directors approved the 2002 Omnibus Incentive
Plan to supplement the existing stock option plan, which has been depleted of
awards. The Board authorized options for 127,952 shares of common stock, with a
maximum award of shares to one person in any year of 63,976 shares. The plan is
subject to ratification by the shareholders at its annual meeting. The Board has
approved granting options for 60,506 shares of common stock should the Plan be
ratified by the shareholders.

As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities that elect to continue to account for stock options
using APB Opinion No. 25 are required to make pro-forma disclosure of net
earnings and earnings per share, as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied. Had the Company determined
compensation cost based on the fair value at the grant date for stock options
under SFAS 123, the Company's net income and net income per share would have
been as indicated below:

                                                    Year Ended June 30,
                                           -------------------------------------
                                              2002          2001          2000
                                           -------------------------------------
Net income-as reported                     $ 530,815     $ 663,322    $1,140,751
Net income-pro forma                         528,813       656,187     1,140,751
Basic income per share-as
   reported                                     0.42          0.45          0.78
Basic income per share--
   pro forma                                    0.42          0.45          0.78
Diluted income per share--
   as reported                                  0.41          0.44          0.76
Diluted income per share--
   pro forma                                    0.41          0.44          0.76

The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option valuation model with the following weighted average
assumption used for grants during fiscal 2001: risk-free interest rate of 6.50
percent, dividend yield of 4.00 percent, expected volatility of 34.53 percent,
and expected lives of five years. The weighted average fair value of the options
granted in fiscal 2001 was $0.86 per share. The effects of applying SFAS 123 may
not be representative of the effects on reported net earnings for future years.
No options were granted by the Company during the fiscal years ended June 30,
2002 and 2000.

A summary of the status of the Company's stock option plan as of June 30, 2002
and 2001, and the changes during the years ended on those dates is presented
below:

                                                          Year ended June 30,
                                                      -------------------------
                                                        2002              2001
                                                      -------------------------
Unexercised options, beginning
   of year                                             59,594            61,306
Stock options granted                                      --            21,488
Stock options exercised                               (10,544)          (23,200)
                                                      -------------------------
Unexercised options, end of year                       49,050            59,594
                                                      =========================

SIMPLIFIED EMPLOYEE PENSION PLAN--The Company provides a simplified employee
pension plan (SEP) to its employees. The plan allows employees over the age of
18 to make tax-deferred contributions to the SEP. The Company is also allowed to
make discretionary contributions to the SEP. No Company discretionary
contributions were made to the SEP during fiscal years 2002, 2001, and 2000.

EMPLOYMENT AGREEMENTS--The Company has entered into certain employment
agreements with key officers. Under the terms of the agreements, the employees
are entitled to additional compensation in the event of a change in control of
the Company and the employees are involuntarily terminated within 12 months of
the change in control. A change in control is generally triggered by the
acquisition or control of 10 percent or more of the Company's common stock.

NOTE O

REGULATORY AND CAPITAL MATTERS
--------------------------------------------------------------------------------

The Bank is subject to minimum regulatory capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the


                     StateFed Annual Report o September 2002                  32

<PAGE>

Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. The minimum capital standards of
the OTS generally require the maintenance of regulatory capital sufficient to
meet each of three tests, hereinafter described as the tangible equity
requirement, the core capital requirement and the risk-based capital
requirement. The tangible equity requirement provides for minimum tangible
capital (defined as stockholders' equity less all intangible assets) equal to
1.5 percent of adjusted total assets.

The core capital requirement provides for minimum core capital (tangible capital
plus certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 4.0 percent of adjusted total assets. The risk-based capital
requirement provides for the maintenance of core capital plus general loss
allowances equal to 8.0 percent of risk-weighted assets. In computing
risk-weighted assets, the Bank multiplies the value of each asset on its
statement of financial condition by a defined risk-weighting factor, e.g.,
one-to-four family residential loans carry a risk-weighted factor of 50 percent.

As of June 30, 2002 and 2001, management believes that the Bank met all capital
adequacy requirements to which they are subject.

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

A summary of the Bank's regulatory capital as of June 30, 2002 appears below.

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

The Bank is subject to regulations imposed by the OTS regarding the amount of
capital distributions payable to the Company. Generally, the Bank's payment of
dividends is limited, without prior OTS approval, to net earnings for the
current calendar year, plus the two

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

REGULATORY CAPITAL AS OF JUNE 30, 2002

<TABLE>
<CAPTION>
                                                                               To be "well-capitalized"
                                                         For capital           Under prompt corrective
                                                       adequacy purposes          action provisions
                                                    ---------------------------------------------------
                                  Actual            Greater than or equal to   Greater than or equal to
                         ------------------------------------------------------------------------------
                          Capital          Ratio     Capital           Ratio    Capital          Ratio
                         ------------------------------------------------------------------------------
<S>                      <C>               <C>      <C>                <C>     <C>               <C>
Tangible capital (1)     $7,163,000         7.89%   $1,362,000         1.50%   $4,540,000         5.00%
Core capital (1)         $7,163,000         7.89%   $3,632,000         4.00%   $5,448,000         6.00%
Risk-based capital (2)   $7,894,000        13.06%   $4,835,000         8.00%   $6,043,000        10.00%
</TABLE>

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


32                   StateFed Annual Report o September 2002

<PAGE>

preceding years, less capital distributions paid over the same time period.
Insured institutions are required to file an application with the OTS for
capital distributions in excess of the limitation.

NOTE P

LEASES
--------------------------------------------------------------------------------

The Company leases office space for a branch location. The lease term expires
May 31, 2007. Future minimum lease payments under the lease terms are as
follows:

2003                  $    41,540
2004                       41,540
2005                       41,540
2006                       41,540
2007                       38,078

The Company subleases a portion of this leased space. 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 annual sublease rent is
approximately $5,000.

NOTE Q

FAIR VALUES OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

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

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

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments at June 30, 2002 and 2001:

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

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

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

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

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

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


                    StateFed Annual Report o September 2002                   33

<PAGE>

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

<TABLE>
<CAPTION>
                                         June 30, 2002             June 30, 2001
                                 -----------------------------------------------------
                                   Carrying                   Carrying
                                    Amount      Fair Value     Amount       Fair Value
                                 -----------------------------------------------------
<S>                              <C>           <C>           <C>           <C>
Financial assets
   Cash & cash
      equivalents                $ 3,114,682   $ 3,114,682   $ 7,278,551   $ 7,278,551
   Investments in certificates
      of deposit                      99,000       107,000       297,272       300,000
   Investment securities
      available-for-sale           1,323,918     1,323,918     1,924,855     1,924,855
   Loans receivable               84,771,507    85,808,000    87,898,936    89,322,000
   FHLB stock                      1,762,200     1,762,200     1,762,200     1,762,200
Financial liabilities
   Deposits                       66,901,147    68,316,000    62,987,496    63,456,000
   Advances from FHLB             14,000,000    14,086,000    29,185,149    29,175,000
</TABLE>

NOTE R

ITEMS AFFECTING FOURTH QUARTER RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

An additional $180,000 provision to the allowance for loan losses was made by
management during the fourth quarter of fiscal year 2002. In addition, real
estate held for sale was written down during the fourth quarter by $157,890 to
its estimated fair value, net of selling costs. Certain other year-end
adjustments were also made at the end of the quarter. The aggregate effect of
these other adjustments was to reduce net income for the fourth quarter by
$40,996.


34                  StateFed Annual Report o September 2002

<PAGE>

NOTE S -- Parent Company Condensed Financial Statements

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

                             Condensed Balance Sheet

                                                              June 30
                                                   ----------------------------
                                                        2002            2001
                                                   ----------------------------
Assets
Cash and cash equivalents                          $  1,753,813    $  1,032,002
Investment in subsidiary                              7,725,032       7,199,434
Advances to subsidiary                                       --         952,374
Investment securities                                   444,515         365,228
Loans receivable                                      4,110,075       4,231,063
ESOP note receivable-subsidiary                         103,155         171,925
Real estate held for investment                              --       1,182,275
Other assets                                            317,570         366,707
                                                   ----------------------------
                                                   $ 14,454,160    $ 15,501,008
                                                   ============================
Liabilities
Dividends payable                                  $    127,887    $    127,633
Note payable to subsidiary                                   --       1,200,000
Other liabilities                                       130,703          85,707
                                                   ----------------------------
                                                        258,590       1,413,340
Stockholders' equity
Common stock                                             17,810          17,810
Additional paid-in capital                            8,527,873       8,522,356
Retained earnings                                    10,880,409      10,861,853
Treasury stock                                       (5,172,468)     (5,195,834)

Less common stock acquired by employee stock
   ownership plan                                       (85,575)       (143,866)
Accumulated other comprehensive income                   27,521          25,349
                                                   ----------------------------
                                                     14,195,570      14,087,668
                                                   ----------------------------
                                                   $ 14,454,160    $ 15,501,008
                                                   ============================

                          Condensed Statement of Income

<TABLE>
<CAPTION>
                                                             Year ended June 30,
                                                   --------------------------------------
                                                      2002          2001          2000
                                                   --------------------------------------
<S>                                                <C>           <C>           <C>
Operating income-interest & dividend income        $  583,151    $  464,855    $  411,161
Less:
   Loss on sale of real estate                        171,887            --            --
   Operating expenses                                 301,180       536,268       139,426
                                                   --------------------------------------
Income before undistributed income of subsidiary      110,084       (71,413)      271,735
Equity in undistributed income of subsidiary          387,034       688,428       914,200
                                                   --------------------------------------
Income before income tax                              497,118       617,015     1,185,935

Provision (credit) for income tax                     (33,697)      (46,307)       45,184
                                                   --------------------------------------
         Net income                                $  530,815    $  663,322    $1,140,751
                                                   ======================================
</TABLE>


                    StateFed Annual Report o September 2002                   35

<PAGE>

NOTE S -- Parent Company Condensed Financial Statements -- continued

                        Condensed Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                    Year ended June 30,
                                                         -----------------------------------------
                                                             2002           2001           2000
                                                         -----------------------------------------
<S>                                                      <C>            <C>            <C>
Cash flows from operating activities:
   Net income                                            $   530,815    $   663,322    $ 1,140,751
   Adjustments to reconcile net income to net cash
      from operating activities:
      Cash dividends received directly from subsidiary            --      3,000,000             --
      Deferred income taxes                                   27,412          9,001          7,184
      Depreciation and amortization                            9,689         38,756         38,757
      Loss (gain) on sale of investments                    (106,740)        95,880         (1,940)
      Loss on sale of real estate held for
      investment                                             171,811             --             --
      Equity in undistributed income of subsidiary          (387,034)      (688,428)      (914,200)
      Change in other assets                                   6,039        (15,685)        53,488
      Change in liabilities                                  (12,038)        48,835        (16,433)
                                                         -----------------------------------------
                                                             239,954      3,151,681        307,607

Cash flows from investing activities::
   Purchase of investment securities                        (375,310)            --        (88,123)
   Proceeds from sale or maturity of investment
      securities                                             416,962         99,789          3,660
   Proceeds from maturing certificates of deposit                 --             --         94,392
   Proceeds from sales of real estate                      1,042,563             --             --
   Investment in real estate for development                      --             --         75,735
   Changes in investment in and advances
      to subsidiary                                          952,371       (374,340)        67,325
   (Decrease) increase in loans receivable                   120,986         44,965     (3,021,484)
   Payment received on ESOP debt                              68,770         68,770         68,770
                                                         -----------------------------------------
                                                           2,226,342       (160,816)    (2,799,725)

Cash flows from financing activities:
   Treasury stock purchased                                  (85,200)    (3,035,632)      (202,313)
   Proceeds from options exercised                            52,720        116,000         42,981
   Proceeds (repayment) of note payable                   (1,200,000)     1,200,000             --
   Dividends paid                                           (512,005)      (565,875)      (453,397)
                                                         -----------------------------------------
                                                          (1,744,485)    (2,285,507)      (612,729)
                                                         -----------------------------------------

Net increase (decrease) in cash and cash equivalents         721,811        705,358     (3,104,847)

Cash and cash equivalents, beginning of year               1,032,002        326,644      3,431,491
                                                         -----------------------------------------

   Cash and cash equivalents, end of year                $ 1,753,813    $ 1,032,002    $   326,644
                                                         =========================================
</TABLE>


36                  StateFed Annual Report o September 2002

<PAGE>

STATEFED FINANCIAL CORPORATION
STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

Annual Meeting

The Annual Meeting of Stockholders will be held at 2:30 p.m. CST October 23,
2002 at the West Des Moines Marriott, 1250 74th Street, West Des Moines, Iowa
50266.

STOCK LISTING
--------------------------------------------------------------------------------

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

PRICE RANGE OF COMMON STOCK
--------------------------------------------------------------------------------

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

QUARTER ENDED                                 HIGH          LOW       DIVIDENDS
March 31, 2000                                9.000        7.750        0.075
June 30, 2000                                 9.313        7.875        0.075
September 30, 2000                           10.500        8.750        0.075
December 31, 2000                            11.000        9.500        0.125
March 31, 2001                               11.063        8.875        0.100
June 30, 2001                                11.260        8.500        0.100
September 30, 2001                           11.600        9.500        0.100
December 31, 2001                            10.500        7.850        0.100
March 31, 2002                               10.390        9.800        0.100
June 30, 2002                                11.500        9.900        0.100

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

The stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc. Automated Quotation System. The
average of the bid and asked prices of StateFed Financial Corporation's common
stock on September 6, 2002 was $9.29.

At September 6, 2002, there were 1,278,870 shares of StateFed Financial
Corporation common stock issued and outstanding and there were approximately 158
holders of record.

SHAREHOLDERS AND GENERAL
INQUIRIES TRANSFER AGENT
--------------------------------------------------------------------------------

Andra K. Black
Executive Vice President
and Chief Financial Officer
StateFed Financial Corporation
13523 University Avenue
Clive, Iowa 50325

First Bankers Trust Company, N.A.
1201 Broadway
Quincy, Illinois 92301
(217) 228-8000

ANNUAL AND OTHER REPORTS
--------------------------------------------------------------------------------

A copy of StateFed Financial Corporation's Annual Report on Form 10-KSB for the
year ended June 30, 2002 as filed with the Securities and Exchange Commission,
may be obtained without charge by contacting Andra K. Black, Executive Vice
President and Chief Financial Officer, StateFed Financial Corporation, 13523
University Avenue, Clive, Iowa, 50325.

<PAGE>

                                   [LOGO] STATE FEDERAL

                                   13523 University Avenue
                                   Clive, Iowa 50325
                                   Telephone: (515) 223-8484
                                   Fax: (515) 223-7227