Since August, eastern Iowa banker Douglas Kratz had been snapping up shares in StateFed Financial Corp., the parent of State Federal Bank, spending roughly $1.2 million for a 9.9 percent stake in the company.     Last month, Kratz, who is chairman and chief executive of Bettendorf-based National Bancshares Inc., made his move, offering $16 million for control of StateFed.

The thrift, which operates three branches in Des Moines and is a third the size of Kratz’s bank, was a perfect vehicle for Kratz to expand his bank westward, Kratz said. National Bancshares has 6 branches in eastern Iowa and western Illinois.

Though the $12.50 per share offer represented a premium to StateFed’s share price at the time, Kratz was rebuffed at the 11th hour by StateFed’s energetic chief executive, Randy Bray, who has plans of his own for the bank. Bray said the price was too low and that the bid wasn’t in the best interest of shareholders.

Kratz may try again, and in an interview with the Business Record said he likely would be “working the phones fairly hard” to lobby shareholders to support his buyout offer. What bothers Kratz most, he said, is a stock option plan StateFed has proposed to shareholders that he claims will unjustly reward executives.

“Earnings performance hasn’t been there,” Kratz said.

StateFed’s net income has fallen sharply over the past three years. Total assets have declined. It continues to struggle with loans made to companies in the hospitality industry that have been hobbled by the post-Sept. 11 decline in travel.

It boosted its provision for loan losses to $566,000 in 2002 from just $36,000 in 1999, according to its annual report.   Prior to Kratz’s offer, StateFed’s stock price had dropped from about $15 a share in 1998 to about $9 when Kratz made his offer. It has since rebounded to about $12 a share.

Beneath that veneer, however, the 76-year-old thrift is undergoing radical change. It has put its old office in downtown Des Moines up for sale, replacing it with a swanky branch on the Skywalk system that looks more like a coffeehouse than a financial institution.

It is considering selling the building that houses its headquarters in Clive to reduce its investments in facilities amid an attempt to reduce costs. Bray said he is in negotiations to open new branches somewhere in the Des Moines area. He said he might have an announcement on that issue in the next three to six months.

StateFed has hired new managers to boost its residential mortgage lending skills and is expanding the types of products it offers. It has embarked on a new marketing campaign to woo younger customers and has doubled its income from checking accounts in the last five months, largely by increasing the number of accounts it handles. It has also developed a new logo.

It remains to be seen whether the changes will work, though Bray said he’s confident the difference will soon be reflected in StateFed’s balance sheet.

“We’ve made some excellent progress,” Bray said.

Under former Chairman and Chief Executive John Golden, who retired in 2001, StateFed had long specialized in making non-conforming loans.

In StateFed’s case, that meant loaning money mostly to families with lending needs that are outside normal ranges, either because those customers needed more money than average, were self-employed or because they had unusual credit histories. It offered few products other than certificates of deposit or basic mortgage-related services, Bray said

With Bray at the helm, the bank is trying to enter the mainstream. Under Bray, a former Norwest executive who first came to StateFed as a consultant in 2000, StateFed’s lending capacity has doubled, and it is now an approved lender for Fannie Mae and Federal Home Loan Bank, among others.

As for the company’s proposed stock option plan, Bray said it would be an invaluable tool to help attract more of the kind of smart, talented executives StateFed needs.

For the near term, Kratz could prove a thorn in Bray’s side by agitating shareholders at a time when Bray needs their support to focus on his modernization. Bray, who works as StateFed on a part-time basis, could likely do without distractions.

The issue is likely to come up on Nov. 11, when StateFed plans to hold its annual meeting. The meeting had been set for last month, but was adjourned moments after it was convened because StateFed executives were concerned that the company’s proxy statement didn’t offer shareholders enough information about its proposed stock option plan.

“I am not going away,” Kratz said. “All I say is look at the numbers. The numbers don’t support a turnaround; at least they don’t yet.”