EXHIBIT 13
<PAGE>
[** LOGO **]

WELLS
FINANCIAL
 CORP.

ANNUAL REPORT




<PAGE>

<TABLE>
<CAPTION>

WELLS FINANCIAL CORP.
ANNUAL REPORT

Wells Federal Bank,  fsb                                       TABLE OF CONTENTS

<S>                                                       <C>                                                        <C>
MAIN OFFICE:                                               Profile and Stock Market Information.......................  1-2

Wells                                                      Selected Consolidated Financial and Other Data.............    3
53 First Street SW
Wells, Minnesota 56097                                     Letter to Stockholders.....................................    4

BRANCH OFFICES:                                            Management's Discussion and Analysis of Financial
                                                             Condition and Results of Operations...................... 5-16
Blue Earth
303 South Main Street                                      Independent Auditor's Report...............................   17
Blue Earth, Minnesota 56013                                Consolidated Statements of Financial Condition.............   18
                                                           Consolidated Statements of Income..........................   19
Mankato - Madison East
Madison East Center                                        Consolidated Statements of Stockholders' Equity............20-21
1400 Madison Avenue
Mankato, Minnesota 56001                                   Consolidated Statements of Cash Flows..................... 22-24

North Mankato                                              Notes to Consolidated Financial Statements................ 25-47
1800 Commerce Drive
North Mankato, Minnesota  56003                            Office Location and Other Corporate Information...........    48

Fairmont
Five Lakes Centre
300 South State Street
Fairmont, Minnesota  56031

Albert Lea
Skyline Mall
1710 West Main Street
Albert Lea, Minnesota  56007

St. Peter
523 South Third Street
St. Peter, Minnesota  56082

Owatonna
496 North Street
Owatonna, Minnesota  55060

</TABLE>
<PAGE>

Wells Financial Corp.

Profile

         Wells  Financial  Corp.  (the  "Company")  is a  Minnesota  corporation
organized in December  1994 at the  direction of the Board of Directors of Wells
Federal Bank, fsb (the "Bank") to acquire all of the capital stock that the Bank
issued upon its conversion  from mutual to stock form of ownership.  The Company
is a unitary  savings and loan  holding  company  which,  under  existing  laws,
generally is not restricted in the types of business  activities in which it may
engage  provided  that the Bank  retains a  specified  amount  of its  assets in
housing-related  investments.  At the present time, because the Company does not
conduct any active  business,  the Company does not intend to employ any persons
other than  officers of the Bank but utilizes the support staff of the Bank from
time to time.

         The Bank is a federally  chartered stock savings bank  headquartered in
Wells, Minnesota.  The Bank has eight full service offices located in Faribault,
Martin, Blue Earth, Nicollet, Freeborn and Steele Counties,  Minnesota. The Bank
was founded in 1934 and its deposits have been federally  insured by the Savings
Association Insurance Fund ("SAIF") and its predecessor, the Federal Savings and
Loan Insurance  Corporation  ("FSLIC"),  since 1934. The Bank is a member of the
Federal  Home Loan  Bank  ("FHLB")  System.  The Bank is a  community  oriented,
full-service  retail savings  institution.  The Bank attracts  deposits from the
general public and uses such deposits primarily to invest in residential lending
on owner occupied properties,  home equity loans and other consumer loans. Other
lending activities  include  agricultural real estate,  agricultural  operating,
multi-family  residential  and commercial  real estate loans.  Cash in excess of
what is needed for lending operations is used to purchase investment  securities
and to  maintain  required  liquidity.  The Bank has two  subsidiaries,  Greater
Minnesota  Mortgage (GMM) and Wells Insurance Agency (WIA). GMM originates loans
through referrals from community  commercial banks and,  primarily,  sells these
loans to the secondary market. WIA is a full service insurance agency that sells
property,  casualty,  life,  health and investment  products,  including  mutual
funds.

Stock Market Information

         Since its issuance on April 11, 1995,  the  Company's  common stock has
been traded on the Nasdaq National Market under the symbol "WEFC." The following
table  reflects  high and low bid  information  during the  periods  shown.  The
quotations reflect inter-dealer  prices,  without retail mark-up,  markdown,  or
commission, and may not represent actual transactions.

                                                          HIGH            LOW
                                                       ------------   ----------

             January 1, 1998 - March 31, 1998            $19.75          $16.13
             April 1, 1998 - June 30, 1998               $21.94          $19.25
             July 1, 1998 - September 30, 1998           $21.50          $15.75
             October 1, 1998 - December 31, 1998         $18.00          $15.25
             January 1, 1999 - March 31, 1999            $16.25          $14.75
             April 1, 1999 - June 30, 1999               $16.06          $15.50
             July 1, 1999 - September 30, 1999           $15.94          $15.25
             October 1, 1999 - December 31, 1999         $15.63          $ 9.94

         The number of  stockholders  of record of common stock as of the record
date of March 3, 2000, was  approximately  547. This does not reflect the number
of persons or  entities  who held stock in  nominee  or  "street"  name  through
various  brokerage  firms.  At  March  3,  2000,  there  were  1,389,157  shares
outstanding.

                                       1
<PAGE>


         The Company  declared  quarterly  cash  dividends of $0.15 per share on
January 20,  1999,  April 21,  1999,  July 21, 1999 and  October 19,  1999.  The
Company declared quarterly cash dividends of $0.12 per share on January 21, 1998
and $0.15 per share on April 15, 1998,  July 15, 1998 and October 21, 1998.  The
Company  declared  quarterly  cash dividends of $0.12 per share on July 16, 1997
and October 15, 1997. No dividends were declared during 1995 or 1996.

         The Company's  ability to pay dividends to  stockholders  is subject to
the requirements of Minnesota law. No dividend may be paid by the Company unless
its board of directors determines that the Company will be able to pay its debts
in the ordinary  course of business after payment of the dividend.  In addition,
the Company's ability to pay dividends is dependent, in part, upon the dividends
it receives  from the Bank.  The Bank may not declare or pay a cash  dividend on
any of its stock if the effect thereof would cause the Bank's regulatory capital
to be  reduced  below  (1)  the  amount  required  for the  liquidation  account
established in connection with the Bank's  conversion from mutual to stock form,
or (2) the  regulatory  capital  requirements  imposed  by the  Office of Thrift
Supervision  ("OTS").  During  1999 and 1998 the  Bank  paid  $975,000  and $9.0
million in cash dividends, respectively, to the Company.



                                       2

<PAGE>

WELLS FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

(dollars in thousands, except per share amounts)

 Financial Condition
<TABLE>
<CAPTION>
------------------------------------------------------ ------------ ------------ ------------ ------------ -----------
 December 31,                                               1995         1996         1997         1998         1999
------------------------------------------------------ ------------ ------------ ------------ ------------ -----------

<S>                                                     <C>          <C>           <C>          <C>         <C>
Total assets                                             $ 195,158    $ 201,326     $201,436     $191,876    $199,836
Loans held for sale                                          1,944        1,791        2,012        6,097         521
Loans receivable, net                                      169,760      178,447      182,724      154,305     172,713
Mortgage-backed securities available for sale                  867          428           86            -           -
Securities available for sale                                6,753        7,100        2,640        2,968       2,551
Securities held to maturity                                  4,199        2,049        3,198        5,539      15,559
Certificates of deposit                                        800          200        1,850          500         400
Cash and cash equivalents                                    8,192        8,301        5,971       19,446       4,200
Deposits                                                   146,686      145,010      145,378      158,441     156,984
Borrowed funds                                              18,000       26,500       24,500        5,000      17,000
Equity                                                      28,852       28,202       29,641       25,892      23,457

Summary of Operations
------------------------------------------------------ ------------ ------------ ------------ ------------ -----------
Years Ended December 31,                                  1995         1996         1997         1998         1999
------------------------------------------------------ ------------ ------------ ------------ ------------ -----------

Interest income                                            $13,489      $14,669      $15,325      $14,890     $14,214
Interest expense                                             8,165        8,146        8,522        8,178       7,698
Net interest income                                          5,324        6,523        6,803        6,712       6,516
Provision for loan losses                                      166          180          180          120          27
Noninterest income                                             809        1,014        1,109        2,405       1,709
Noninterest expense (1)                                      3,855        5,245        3,987        4,769       5,054
Net income                                                   1,270        1,200        2,220        2,476       1,874

Other Selected Data
------------------------------------------------------ ------------ ------------ ------------ ------------ -----------
Years Ended December 31,                                  1995         1996         1997         1998         1999
------------------------------------------------------ ------------ ------------ ------------ ------------ -----------

Return on average assets                                     0.67%        0.61%        1.10%        1.26%       0.97%
Return on average equity                                     5.50%        4.24%        7.71%        8.85%       7.57%
Average equity to average assets                            12.11%       14.40%       14.24%       14.25%      12.77%
Equity to assets                                            14.78%       14.01%       14.71%       13.49%      11.74%
Net interest rate spread (2)                                 2.29%        2.72%        2.75%        2.81%       2.89%
Nonperforming assets to  total loans (3)                     0.17%        0.29%        0.26%        0.23%       0.10%
Allowance for loan losses to total loans                     0.30%        0.34%        0.41%        0.53%       0.49%
Allowance for loan losses to nonperforming loans (3)       171.24%      138.20%      172.62%      236.94%     702.46%
Basic earnings per share (4)                              $   0.50     $   0.61     $   1.18     $   1.42    $   1.26
Diluted earnings per share (4)                            $   0.50     $   0.61     $   1.16     $   1.38    $   1.23

</TABLE>

(1)  For 1996, includes a special SAIF recapitalization assessment of $1,085.
(2)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(3)  Nonperforming loans are loans over 90 days past due.  Nonperforming  assets
     include nonperforming loans and foreclosed real estate.
(4)  Does not include  earnings  prior to April 11, 1995, the date of conversion
     to stock form.

                                       3
<PAGE>





To Our Stockholders:


Our 1999  annual  report is enclosed  for your  review.  In looking  back at the
events of 1999, I would classify the year as a transition  year. The residential
mortgage  refinancing  activities  that began in 1998  continued  into the first
months of 1999. Due to the low rates on the mortgage loans that were  originated
during  1998 and the  first  quarter  of 1999 we sold  almost  all of the  loans
originated  during those time periods to the secondary  market.  Included in the
loans  originated  and  sold  to the  secondary  market  were  loans  that  were
refinanced from our loan portfolio. In order to utilize our staff and to provide
future  income,  loans  that were sold to the  secondary  market  were sold on a
service-retained basis.

As rates  increased  during  1999 to  levels we felt  were  acceptable  we began
retaining  residential  mortgage  loans  that  we  originated.  This  change  in
strategy,  along with the  origination  of other  types of loans,  allowed us to
rebuild our loan  portfolio to a higher level at December 31, 1999 than our loan
portfolio at December 31, 1998.

Preparation to assure that the Company's data processing  systems would function
properly on January 1, 2000  consumed a  considerable  amount of time and effort
during 1999.  These efforts were  successful  with all of the Company's  systems
functioning properly.

To  provide  our  customers  with  additional  financial  services  we opened an
investment  center  in  April of 1999.  We are now able to offer  mutual  funds,
variable  rate  annuities  and  other  investments  as  an  alternative  to  our
traditional FDIC insured products.

Despite  positive  performance by companies in the financial sector stock prices
of these companies generally declined during 1999. Wells Financial Corp.'s stock
price was no exception.  In an effort to enhance the value of your investment in
Wells Financial Corp., we approved stock buy-back  programs during 1999 in which
the Company can purchase up to 350,266  shares of its stock.  As of December 31,
1999, the Company had purchased 223,003 shares towards fulfilling these buy-back
programs. I am also pleased that we were able to continue our quarterly dividend
program in which we paid a $0.15 per share dividend in each of the four quarters
of 1999. The management of Wells  Financial  Corp. will continue to explore ways
in which to increase the value of your investment.

Thank you for your investment and support of Wells Financial Corp.


Best regards,


/s/Lawrence H. Kruse
--------------------

Lawrence H. Kruse
President and Chief Executive Officer
Chairman of the Board

                                       4
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands)

General

         The  Company's  business  activities  to date have been  limited to its
investment in and loan to the Bank and a loan made to the Bank's  Employee Stock
Ownership  Plan ("ESOP") to enable the ESOP to purchase  shares of the Company's
common stock and, to a lesser  degree,  investing in securities  and deposits in
other financial  institutions.  The Company's  investment  securities consist of
obligations  issued  by  agencies  of the U.S.  government.  As a result  of the
limited  operations of the Company,  this  discussion  primarily  relates to the
Bank.  The principal  business of the Bank consists of attracting  deposits from
the general public and using such deposits, together with borrowings,  primarily
to invest in  residential  lending on owner occupied  properties.  The Bank also
makes consumer  loans and  agricultural  related loans and purchases  investment
securities.  The Bank's  investment  securities  consist of U.S.  government and
agency  obligations,  mortgage-backed  securities,  equity  securities  and FHLB
stock.  The Bank's loans consist  primarily of loans secured by residential real
estate  located in its market area and, to a lesser  extent,  agricultural  real
estate loans, commercial real estate loans and consumer loans.

         The Bank's net  earnings  are  dependent  primarily on its net interest
income, which is the difference between interest income earned on its investment
and loan  portfolios  and interest  paid on  interest-bearing  liabilities.  Net
interest  income is determined by (i) the  difference  between  yields earned on
interest-earning assets and rates paid on interest-bearing liabilities (interest
rate  spread)  and (ii) the  relative  amounts  of  interest-earning  assets and
interest-bearing  liabilities.  The Bank's  interest  rate spread is affected by
regulatory,  economic,  and competitive  factors that influence  interest rates,
loan demand,  and deposit flows.  To a lesser  extent,  the level of noninterest
income, which primarily consists of service charges and other fees, also affects
the Bank's net  earnings.  In addition,  the level of  noninterest  (general and
administrative) expenses affects net earnings.

         The  operations  of  the  Bank  and  the  entire  thrift  industry  are
significantly affected by prevailing economic conditions,  competition,  and the
monetary  and  fiscal  policies  of  the  federal  government  and  governmental
agencies.  The demand for and supply of housing,  competition among lenders, the
level  of  interest  rates,  and the  availability  of funds  influence  lending
activities. Deposit flows and costs of funds are influenced by prevailing market
rates of interest,  primarily on competing investments,  account maturities, and
the levels of personal income and savings in the Bank's market area.

Asset/Liability Management

         Net interest income,  the primary component of the Bank's net earnings,
is derived from the difference or "spread" between the yield on interest-earning
assets  and the cost of  interest-bearing  liabilities.  The Bank has  sought to
reduce its  exposure to changes in interest  rates by matching  more closely the
effective maturities or repricing characteristics of its interest-earning assets
and  interest-bearing  liabilities.  The  matching  of  the  Bank's  assets  and
liabilities  may be  analyzed  by  examining  the extent to which its assets and
liabilities  are interest rate sensitive and by monitoring the expected  effects
of interest rate changes on its net portfolio value.

                                       5
<PAGE>


(dollars in thousands)

         An asset or liability is interest rate sensitive within a specific time
period if it will  mature or  reprice  within  that time  period.  If the Bank's
assets  mature  or  reprice  more  quickly  or  to a  greater  extent  than  its
liabilities,  the Bank's net portfolio  value and net interest income would tend
to increase  during periods of rising interest rates but decrease during periods
of falling interest rates. If the Bank's assets mature or reprice more slowly or
to a lesser extent than its liabilities,  the Bank's net portfolio value and net
interest  income would tend to decrease  during periods of rising interest rates
but increase  during periods of falling  interest  rates.  The Bank's policy has
been to mitigate  the  interest  rate risk  inherent in the  historical  savings
institution  business  of  originating  long-term  loans  funded  by  short-term
deposits by pursuing certain  strategies  designed to decrease the vulnerability
of its  earnings to material  and  prolonged  changes in interest  rates.  These
strategies  include  obtaining  longer term fixed rate  borrowings  at favorable
rates and, in periods of lower interest rates,  the sale of all newly originated
fixed rate mortgage loans to the secondary market.

         The  Bank's  lending   strategy  is  focused  on  the   origination  of
traditional one to four-family mortgage loans primarily secured by single family
residences in the Bank's primary market area.  During recent  periods,  the Bank
has utilized  borrowings as a way of accommodating loan demand,  consistent with
its goal of maintaining  asset  quality.  The Bank also invests a portion of its
assets in consumer,  agricultural real estate and agricultural  operating loans,
commercial  business and commercial real estate loans and investment  securities
as a  method  of  reducing  interest  rate  risk.  These  loans  typically  have
adjustable  interest  rates and are for  shorter  terms than  residential  first
mortgage loans. The Bank's entire commercial business loan portfolio and most of
the  commercial  real estate  portfolio  are secured by equipment or real estate
used for farming.  These loans typically have higher interest rates than one- to
four-family  loans but have not historically  resulted in greater losses for the
Bank.  Historically,  the Bank  sells  higher  loan to value  ratio  fixed  rate
mortgage  loans and mortgage  loans with original  maturities of twenty years or
less into the secondary  market and retains  adjustable  rate mortgage loans and
lower loan to value ratios  fixed rate loans with  original  maturities  greater
than twenty years. Due to the lower than normal interest rate environment during
1998 and the first  half of 1999 the Bank  elected to sell the  majority  of the
fixed rate loans it originated during those time periods, regardless of the loan
to value  ratio or the  contractual  maturity.  In  addition,  the Bank  retains
servicing on most of the loans that it sells, enabling it to generate additional
income and maintain certain economies of scale in loan processing.

         In order to improve the Bank's interest rate sensitivity, improve asset
quality,  and provide  diversification  in the asset mix,  the Bank  maintains a
percentage of its assets in investment securities,  which generally have shorter
terms to maturity.  The Bank's  purchase of  investment  securities  is designed
primarily for safety of principal and secondarily for rate of return.

         On a  weekly  basis,  the  Bank  monitors  the  interest  rates  of its
competitors  and sets its  interest  rates such that its rates are  neither  the
highest  or lowest in its  market  area.  The Bank  intends  for its rates to be
competitive  and  perhaps  slightly  above the  average  rates being paid in its
market area. The Bank has sought to remain competitive in its market by offering
a variety of products. The Bank attempts to manage the interest rates it pays on
deposits while  maintaining a stable deposit base and providing quality services
to its customers.

                                       6
<PAGE>


(dollars in thousands)

Net Portfolio Value

         To encourage  associations  to reduce their interest rate risk, the OTS
adopted a rule  incorporating  an interest rate risk ("IRR")  component into the
risk-based capital rules. This rule in not yet in effect. The IRR component is a
dollar  amount  that will be  deducted  from total  capital  for the  purpose of
calculating an institution's  risk-based capital  requirement and is measured in
terms of the  sensitivity  of its net  portfolio  value  ("NPV")  to  changes in
interest rates. NPV is the difference  between incoming and outgoing  discounted
cash flows  from  assets,  liabilities,  and  off-balance  sheet  contracts.  An
institution's  IRR  is  measured  as the  change  to its  NPV as a  result  of a
hypothetical 200 basis point change in market interest rates. A resulting change
in the NPV ratio of more than 2% (200 bp) will require the institution to deduct
from its capital 50% of the amount of change in NPV. The rule  provides that the
OTS will calculate the IRR component quarterly for each institution. The OTS has
informed the Bank, based on asset size and risk-based capital, that it is exempt
from this rule.  Nevertheless,  the following  table  presents the Bank's NPV at
December 31, 1999, as calculated by the OTS,  based on  information  provided to
the OTS by the Bank.

<TABLE>
<CAPTION>
                                                               Percent of                        Change in
     Change Interest        Estimated     Amount of            Estimated        NPV             NPV Ratio(4)
   Rates (basis points)        NPV        Change(1)              NPV(2)        Ratio(3)        (basis points)
   --------------------        ---        ---------              ------        --------        --------------
                                             (Dollars in thousands)

<S>          <C>           <C>          <C>                    <C>             <C>                <C>
              +300           $9,220       $(10,634)              (54)%           5.09%             -511 bp
              +200           12,970         (6,884)              (35)%           6.98%             -322 bp
              +100           16,604         (3,280)              (16)%           8.72%             -148 bp
                --           19,854                                             10.20%
              -100           22,258           2,405                12%          11.24%              104 bp
              -200           24,045           4,191                21%          11.96%              176 bp
              -300           25,940           6,086                31%          12.71%              251 bp

</TABLE>


(1)      Represents  the excess  (deficiency)  of the estimated NPV assuming the
         indicated  change in interest rates minus the estimated NPV assuming no
         change in interest rates.
(2)      Calculated  as the amount of change in the estimated NPV divided by the
         estimated NPV assuming no change in interest rates.
(3)      Calculated as the estimated NPV divided by average total assets.
(4)      Calculated  as the excess  (deficiency)  of the NPV ratio  assuming the
         indicated  change  in  interest  rates  over the  estimated  NPV  ratio
         assuming no change in interest rates.

                                        7




<PAGE>

(dollars in thousands)


                                                                   At
                                                              December 31,
                                                                  1999
                                                           -------------------

   *** Risk Measures: 200 bp rate shock ***
   Pre-Shock NPV Ratio: NPV as % of PV of Assets                 10.20%
   Exposure Measure: Post-Shock NPV Ratio                         6.98%
   Sensitivity Measure: Change in NPV Ratio                      322 bp




         Although  the OTS has  informed  the Bank that it is not subject to the
IRR component  discussed  above, the Bank is still subject to interest rate risk
and, as can be seen above,  rising interest rates will reduce the Bank's NPV. If
the Bank were  subject to the IRR  component  at December  31, 1999, a deduction
from capital would have been required.

         Also, during periods of increasing  interest rates, the Bank's interest
rate sensitive liabilities would reprice faster than its interest rate sensitive
assets  (repricing  periods on  adjustable-rate  loans  affect the  repricing of
interest rate  sensitive  assets,  with longer  repricing  periods  delaying the
repricing of such assets more than  shorter  repricing  periods  would delay the
repricing of such assets),  causing a decline in the Bank's interest rate spread
and  margin.  In times of  decreasing  interest  rates,  the value of fixed rate
assets  could  increase  in value  and the lag in  repricing  of  interest  rate
sensitive assets could be expected to have a positive effect on the Bank.


                                       8
<PAGE>
Average Balance Sheet (dollars in thousands)

         The  following  table sets forth  certain  information  relating to the
Bank's  average  balance  sheet and  reflects  the  average  yield on assets and
average cost of  liabilities  for the periods  indicated and the average  yields
earned and rates paid.  Such yields and costs are derived by dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods presented. The yields for the periods presented include loan origination
fees that are considered adjustments to yield. Average balances are derived from
month-end  balances.  Management  does not  believe  that  the use of  month-end
balances instead of daily average balances has caused any material difference in
the information presented.

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                              ---------------------------------------------------------------------------------------------------
                                            1997                                   1998                           1999
                              ---------------------------------------------------------------------------------------------------
                               Average                 Average      Average               Average     Average            Average
                               Balance    Interest     Yield/Cost   Balance      Interest Yield/Cost  Balance   Interest Yield/Cost
                              ---------- --------- ------------ ------------ ------------ --------- ---------- --------- --------
<S>                         <C>        <C>             <C>      <C>           <C>          <C>    <C>        <C>         <C>
Interest-earning assets:
   Loans receivable (1)       $ 183,591  $ 14,570        7.94%    $ 172,219     $ 13,888     8.06%  $ 161,444  $ 12,831    7.95%
   Mortgage-backed
     securities                     250        18         7.2%           12            1     8.33%          -         -        -
   Investments (2)               14,426       737        5.11%       20,167        1,001     4.96%     27,442     1,383    5.04%
                              ---------- ---------              ------------ ------------           ---------- ---------
    Total interest-
      earning assets            198,267    15,325        7.73%      192,398       14,890     7.74%    188,886    14,214    7.53%
                                         ---------                           ------------                      ---------

Noninterest earning assets        3,979                               4,049                             4,994
                              ----------                        ------------                        ----------
      Total assets            $ 202,246                           $ 196,447                         $ 193,880
                              ==========                        ============                        ==========

Interest bearing liabilities:
   Savings, NOW and money
      Market accounts            37,010       966        2.61%       40,300        1,046     2.60%     45,352     1,153    2.54%
   Certificates of deposit      107,394     6,014        5.60%      110,836        6,293     5.68%    113,337     6,160    5.44%
   Borrowed funds                26,808     1,542        5.75%       14,615          839     5.74%      7,462       385    5.16%
                              ---------- ---------              ------------ ------------           ---------- ---------
      Total interest
        bearing liabilities     171,212     8,522        4.98%      165,751        8,178     4.93%    166,151     7,698    4.64%
                                         ---------                           ------------                      ---------

Noninterest bearing
  liabilities                     2,232                               2,706                             2,975
                              ----------                        ------------                        ----------

      Total liabilities         173,444                             168,457                           169,126
Equity                           28,802                              27,990                            24,754
                              ----------                        ------------                        ----------
      Total liabilities
        and equity            $ 202,246                           $ 196,447                         $ 193,880
                              ==========                        ============                        ==========
Net interest income                         6,803                                  6,712                          6,516
                                         =========                           ============                      =========
Interest rate spread (3)                                 2.75%                               2.81%                         2.89%
Net yield on interest
  earning assets (4)                                     3.43%                               3.49%                         3.45%
Ratio of average interest
  earning assets
  to average interest
  bearing liabilities             1.16X                               1.16X                                       1.14X
                              ==========                        ============                                   =========
</TABLE>
(1)  Average balances include non-accrual loans and loans held for sale.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       9
<PAGE>


Rate/Volume Analysis  (dollars in thousands)

         The table below sets forth  certain  information  regarding  changes in
interest income and interest  expense of the Bank for the years  indicated.  For
each  category  of  interest-earning  assets and  interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes  in  average  volume  multiplied  by old rate);  (ii)  changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                     ---------------------------------------     ----------------------------------------
                                                 1998 vs. 1997                                1999 vs. 1998
                                     ---------------------------------------     ----------------------------------------
                                           Increase (Decrease) Due to                  Increase (Decrease) Due to
                                     ---------------------------------------     ----------------------------------------
                                                         Rate/                                        Rate/
                                      Volume    Rate     Volume      Net          Volume     Rate     Volume      Net
                                     --------- -------- --------- ----------     ---------- -------- --------- ----------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest Income:
  Loans receivable                  $  (903)   $   220    $     1    $  (682)   $  (869)   $  (201)   $    13    $(1,057)
  Mortgage-backed securities            (17)         3         (3)       (17)        (1)      --         --           (1)
  Investments                           293        (22)        (7)       264        361         15          6        382
                                    -------    -------    -------    -------    -------    -------    -------    -------
    Total interest-earning assets      (627)       201         (9)      (435)      (509)      (186)        19       (676)
                                    -------    -------    -------    -------    -------    -------    -------    -------

Interest expense:
  Deposit accounts                      279         82         (2)       359        273       (290)        (9)       (26)
  Borrowed funds                       (701)        (3)         1       (703)      (411)       (85)        42       (454)
                                    -------    -------    -------    -------    -------    -------    -------    -------
     Total interest-bearing
       liabilities                     (422)        79         (1)      (344)      (138)      (375)        33       (480)
                                    -------    -------    -------    -------    -------    -------    -------    -------

Change in net interest income       $  (205)   $   122    $    (8)   $   (91)   $  (371)   $   189    $   (14)   $  (196)
                                    =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

                                       10


<PAGE>

(dollars in thousands)

Financial Condition

         Total assets  increased by $7,960 from $191,876 at December 31, 1998 to
$199,836 at December  31,  1999  primarily  due to an increase of $12,832 in the
loan  portfolio  and a $10,020  increase in securities  held-to-maturity.  These
increases were partially  offset by a $15,246  decrease in cash. The increase in
the loan  portfolio  was  primarily  due to an increase in real estate  loans on
farmland and, to a lesser degree, on management's decision to retain residential
real  estate  loans  that  were  originated   during  the  last  half  of  1999.
Management's  decision to retain almost all of the residential real estate loans
that were  originated  during the last half of 1999 resulted from an increase in
the rates on these loans  during that period of time.  Cash was used to fund the
increase in the loan portfolio and to purchase  securities  that were classified
as held-to-maturity.

         In accordance with the Bank's internal classification of assets policy,
management  evaluates  the loan  portfolio on a quarterly  basis to identify and
determine the adequacy of the allowance for loan losses. As of December 31, 1999
and  December  31, 1998,  the balance in the  allowance  for loan losses and the
allowance  for loan losses as a percentage of total loans were $857 and $853 and
0.49% and 0.53%, respectively.

         Loans on which the accrual of interest had been  discontinued  amounted
to $111 and $260 at  December  31,  1999 and 1998,  respectively.  The effect of
nonaccrual  loans was not significant to the results of operations.  The Company
includes  all  loans  considered  impaired  under  FASB  Statement  No.  114  in
nonaccrual  loans. The amount of impaired loans was not material at December 31,
1999 and 1998.

         Deposits  decreased  by $1,457 from  $158,441  at December  31, 1998 to
$156,984 at December 31, 1999.  Borrowed funds  increased by $12,000 at year-end
1999 when  compared to year-end  1998.  Cash and the increase in borrowed  funds
were  used to fund  the  increases  in the  loan  portfolio  and the  securities
portfolio described above.

         Equity decreased by $2,435 from $25,892 at December 31, 1998 to $23,457
at December 31, 1999.  The  decrease in equity was  primarily  the result of net
income for 1999 of $1,874 being offset by the payment of $896 in cash  dividends
and by the  repurchase of 223,003  shares of treasury stock at a cost of $3,462.
Also affecting  equity was the  allocation of $255 of employee  stock  ownership
plan  shares,  the  amortization  of $40  of  unearned  compensation  and a $246
decrease in accumulated other comprehensive income.

Comparison of Operating Results for the Years Ended December 31, 1999 and 1998

         General.  Net income for the year ended  December 31, 1999 decreased by
$602, or 24.3%,  from $2,476 for the year ended  December 31, 1998 to $1,874 for
the year ended  December  31,  1999.  The  decrease  in net income for 1999 when
compared to 1998 was primarily due to a $696 decrease in noninterest income.

                                       11
<PAGE>


(dollars in thousands)

         Interest  Income.  Interest income  decreased by $676, or 4.5%, for the
year ended  December 31, 1999 when compared to the year ended December 31, 1998.
A $1,057  decrease in interest on loans was partially  offset by a $381 increase
in interest income from investments.  The decrease in interest income from loans
was the result of a decrease in the average amount of the loan portfolio  during
1999  when  compared  to  1998.  Due to  lower  interest  rates  on  residential
mortgages,  management  elected to sell the  majority of the  residential  loans
originated  during  1998 and the first  three  months  of 1999 to the  secondary
market. Included in the loans originated and sold during those time periods were
loans from the Company's  mortgage loan portfolio that were refinanced.  This is
the primary reason for the decrease in the average amount of the loan portfolio.
The increase in interest  income from  investments was the result of an increase
in the average amount of investments during 1999 when compared to 1998.

         Interest  Expense.  Interest  expense on deposits  remained  relatively
constant  for 1999 when  compared to 1998.  Interest  expense on borrowed  funds
decreased by $454 for the year ended December 31, 1999 when compared to the year
ended  December 31, 1998  primarily  due to a decrease in the average  amount of
borrowed funds during 1999 when compared to 1998.

         Net Interest Income. Net interest income decreased by $196, or 2.9% for
the year ended  December 31, 1999 when  compared to the year ended  December 31,
1998 due to the changes in interest income and interest expense described above.

         Provision for Loan Losses. The provision for loan loss decreased by $93
for the year ended  December 31, 1999 when  compared to the year ended  December
31, 1998.  Management  monitors the  allowance  for loan loss in relation to the
size and quality of the loan portfolio and adjusts the provision for loan losses
to  adequately  provide for loan  losses.  Based on the  decrease in the average
amount of the loan portfolio  during 1999 when compared to 1998 and management's
evaluation  of the  quality  of  the  loan  portfolio,  management  felt  that a
reduction  in the  provision  for loan losses was  warranted.  While the Company
maintains  its  allowance  for loan losses at a level that is  considered  to be
adequate to provide for potential losses, there can be no assurance that further
additions will not be made to the loss allowance and that losses will not exceed
estimated amounts.

         Noninterest Income. Noninterest income decreased by $696, or 28.9%, for
1999 when compared to 1998. The decrease in noninterest income was primarily due
to a decrease  of $670 for 1999 when  compared to 1998 in loan  origination  and
commitment  fees. The decrease in loan  origination  and commitment fees was the
result of fewer loan originations during 1999 when compared to 1998.

         Noninterest Expense.  Noninterest expense increased by $285, or 6%, for
the year ended  December 31, 1999 when  compared to the year ended  December 31,
1998 due to increases in data processing and in other noninterest expense. Other
noninterest  expense  increased by $173 for 1999 when compared to 1998 primarily
due to a $87 increase in the amortization of mortgage servicing rights.

         Income Tax Expense.  Income tax expense  decreased by $482 for the year
ended December 31, 1999 when compared to the year ended December 31, 1998.  This
decrease  was the result of a decrease in income  before  income  taxes for 1999
when compared to 1998.

                                       12
<PAGE>


(dollars in thousands)

Comparison of Operating Results for the Years Ended December 31, 1998 and 1997

         General. Net income for the year ended December 31, 1998 was $2,476; an
increase  of $256 when  compared to net income for the year ended  December  31,
1997.  The increase in net income for 1998 when  compared to 1997 was  primarily
the result of a $1,296 increase in noninterest  income being partially offset by
a $91  decrease  in  net  interest  income  and a  $782  and  $227  increase  in
noninterest expense and income tax expense, respectively.

         Interest  Income.  Interest income decreased by $435 for the year ended
December  31, 1998 when  compared to the year ended  December  31,  1997. A $682
decrease  in  interest  on loans  was  partially  offset by a $247  increase  in
interest income from investments. The decrease in interest income from loans was
the result of a decrease in the average amount of the loan portfolio during 1998
when compared to 1997. Due to lower  interest  rates on  residential  mortgages,
management  elected to sell the  majority of the  residential  loans  originated
during 1998 to the secondary  market.  Included in the loans originated and sold
during 1998 were loans from the  Company's  mortgage  loan  portfolio  that were
refinanced. This is the primary reason for the decrease in the average amount of
the loan  portfolio.  The increase in interest  income from  investments was the
result of an  increase  in the average  amount of  investments  during 1998 when
compared to 1997.

         Interest  Expense.  During 1998,  average  borrowed funds  decreased by
$12,193 when compared to average borrowed funds during 1997 and average deposits
increased by $3,290 during 1998 when compared to average  deposits  during 1997.
The decrease in the average  amount of borrowed  funds during 1998 when compared
to average  borrowed funds during 1997 is the primary reason for the decrease in
interest  expense for the year ended December 31, 1998 when compared to the year
ended December 31, 1997.

         Net Interest Income.  Net interest income decreased by $91 for the year
ended December 31, 1998 when compared to the year ended December 31, 1997 due to
the changes in interest income and interest expense described above.

         Provision for Loan Losses. The provision for loan loss decreased by $60
for the year ended  December 31, 1998 when  compared to the year ended  December
31, 1997.  Management  monitors the  allowance  for loan loss in relation to the
size and quality of the loan portfolio and adjusts the provision for loan losses
to adequately provide for loan losses. Based on the decrease in size of the loan
portfolio during 1998 when compared to 1997 and  management's  evaluation of the
quality of the loan portfolio, management felt that a reduction in the provision
for loan losses was  warranted.  While the Company  maintains  its allowance for
loan  losses  at a level  that is  considered  to be  adequate  to  provide  for
potential  losses,  there can be no assurance that further additions will not be
made to the loss allowance and that losses will not exceed estimated amounts.

         Noninterest  Income.  Noninterest  income  increased by $1,296 for 1998
when compared to 1997. The increase in  noninterest  income was primarily due to
increases in loan  origination  and commitment fees of $791 and the gain on sale
of loans of $353 for the year ended  December 31, 1998 when compared to the year
ended December 31, 1997. These increases resulted from a greater amount of loans
originated  and sold to the secondary  market during 1998 when compared to 1997.
Also affecting noninterest income were increases in fees and service charges and
loan servicing fees of $85 and $69, respectively.

                                       13
<PAGE>


(dollars in thousands)

         Noninterest Expense. Noninterest expense increased by $782 for the year
ended  December  31,  1998 when  compared  to the year ended  December  31, 1997
primarily due to increases in compensation and benefits, occupancy and equipment
and other noninterest  expense.  Late in the second quarter of 1997, the Company
converted its loan origination  office in Owatonna,  Minnesota to a full service
banking facility by employing  additional staff and moving to a larger facility.
The lease on the branch office at Riverfront Drive in Mankato expired during the
fourth  quarter of 1998.  The Company  relocated  this branch office to a larger
office with full drive-up facilities on Commerce Drive in North Mankato, an area
that  management  feels will provide  greater growth  potential for the Company.
These changes in facilities resulted in increased  compensation and benefits and
occupancy and equipment.  Also affecting  compensation  and benefits were annual
compensation  increases.  Other  noninterest  expense increased by $196 for 1998
when  compared to 1997,  primarily  due to an increase  in the  amortization  of
mortgage  servicing  rights of $95 for the year  ended  December  31,  1998 when
compared to the year ended December 31, 1997.

         Income Tax Expense.  Income tax expense  increased by $227 for the year
ended December 31, 1998 when compared to the year ended December 31, 1997.  This
increase  was the result of an increase in income  before  income taxes for 1998
when compared to 1997.

Liquidity and Capital Resources

         The Bank is required under applicable  federal  regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other  investments  having  maturities of five years or less.
Current OTS  regulations  require  that a savings  association  maintain  liquid
assets of not less than 5% of its  average  daily  balance  of net  withdrawable
deposit accounts and borrowings payable in one year or less, of which short-term
liquid assets must consist of not less than 1%. At December 31, 1999, the Bank's
liquidity,  as measured  for  regulatory  purposes,  was 7.5%.  The Bank adjusts
liquidity as appropriate to meet its asset/liability objectives.

         The Bank's  primary  sources of funds are  deposits,  amortization  and
prepayment of loans, maturities of investment securities and funds provided from
operations.  While scheduled loan repayments are a relatively predictable source
of funds,  deposit flows and loan  prepayments are  significantly  influenced by
general  interest rates,  economic  conditions and competition.  If needed,  the
Bank's primary source of funds can be  supplemented  by wholesale funds obtained
through  additional  advances  from the Federal Home Loan Bank system.  The Bank
invests excess funds in overnight  deposits,  which not only serve as liquidity,
but also earn  interest as income until funds are needed to meet  required  loan
funding.

         The Bank's most liquid asset is cash including  investments in interest
bearing accounts at the FHLB of Des Moines that have no withdrawal restrictions.
The levels of these assets are dependent on the Bank's operating,  financing and
investing activities during any given period. At December 31, 1999 and 1998, the
Bank's noninterest bearing cash was $1,880 and $923, respectively.

         Also  available  to  the  Bank  to  meet  liquidity   requirements  are
borrowings  from the Federal Home Loan Bank. At December 31, 1999,  the Bank had
$17,000 in  outstanding  advances  from the FHLB of Des Moines,  which have been
used to fund loan  originations.  At December 31, 1999, the Bank had the ability
to borrow approximately 4.85 times its then outstanding advances.

                                       14
<PAGE>

(dollars in thousands)

         In 1996 and 1998, the Company approved stock buy back programs in which
up to 535,340  shares of the common stock of the Company could be acquired.  The
Company bought 307,200 shares of its common stock during 1998,  which  completed
these  approved buy back programs.  During 1999, the Company  approved stock buy
back  programs in which up to 350,266  shares of the common stock of the Company
can be acquired.  The Company  bought  223,003 shares of its common stock during
1999 and 29,000 shares of its common stock during January and February of 2000.

         The Bank is  required  to maintain  specified  amounts of capital.  The
capital  standards  generally  require the  maintenance  of  regulatory  capital
sufficient to meet a tangible capital  requirement,  a core capital  requirement
and a risk-based capital requirement.  At December 31, 1999, the Bank's tangible
capital  totaled  $16,865,  or 8.70% of adjusted total assets,  and core capital
totaled $16,865, or 8.70% of adjusted total assets, which substantially exceeded
the respective 1.5% tangible capital and 4.0% core capital  requirements at that
date by $13,958 and $9,111,  respectively,  or 7.20% and 4.70% of adjusted total
assets, respectively.  The Bank's risk-based capital totaled $17,722 at December
31,  1999  or  13.96%  of  risk-weighted  assets,  which  exceeded  the  current
requirements of 8.0% of risk-weighted assets by $7,568 or 5.96% of risk-weighted
assets.

Impact of Inflation and Changing Prices

         The  consolidated  financial  statements  and notes  thereto  presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles,  which require the  measurement of financial  position and operating
results in terms of historical  dollars  without  considering  the change in the
relative purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased  cost of the Bank's  operations.  Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
monetary in nature.  As a result,  interest  rates have a greater  impact on the
Bank's performance than do the effects of general levels of inflation.  Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.

Impact of New Accounting Standards

         Effective  January 1, 1997, the Company adopted FASB Statement No. 125,
Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of Liabilities.  This Statement  establishes the basic principles that an entity
should recognize only assets it controls and liabilities it has incurred. Assets
should be "derecognized" only when they have been extinguished,  and recognition
of financial  assets and  liabilities  should not be affected by the sequence of
transactions  unless the effect of the  transactions  is to  maintain  effective
control over a transferred financial asset. Statement No. 125 also continues the
recognition of mortgage  servicing  rights on loans sold with  servicing  rights
retained.

         In accordance  with the  provisions of Statement No. and 125,  mortgage
servicing rights in the amounts of $281, $662 and $107 were  capitalized  during
the years ended  December 31,  1999,  1998 and 1997,  respectively.  The Company
recognized  amortization of the cost of mortgage servicing rights in the amounts
of $212,  $125 and $30 for the years ended  December  31,  1999,  1998 and 1997,
respectively.

                                       15
<PAGE>


(dollars in thousands)

         Effective  January 1, 1998, the Company  adopted  Financial  Accounting
Standards Board's Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive  Income  (Statement  No.  130),  which was  issued  in June  1997.
Statement  No.  130  establishes  new rules for the  reporting  and  display  of
comprehensive income and its components,  but has no effect on the Company's net
income or total  stockholders'  equity.  Statement  No. 130 requires  unrealized
gains and losses on the Company's available for sale securities,  which prior to
adoption were reported  separately in  stockholders'  equity,  to be included in
comprehensive  income. Prior year financial statements have been reclassified to
conform to the requirements of Statement No. 130.

         Effective  January 1, 1998, the Company  adopted  Financial  Accounting
Standards  Board's  Statement  of  Financial   Accounting   Standards  No.  131,
Disclosures about Segments of an Enterprise and Related  information  (Statement
No.  131).  Statement  No. 131  supersedes  FASB  Statement  No.  14,  Financial
Reporting for Segments of a Business  Enterprise.  Statement No. 131 establishes
standards for how public business enterprises report information about operating
segments in annual  financial  statements  and requires  that those  enterprises
report  selected  information  about  operating  segments  in interim  financial
reports.  Statement No. 131 also establishes  standards for related  disclosures
about products and services,  geographic areas, and major customers. The Company
has  determined  that,  for  purposes  of  Statement  No.  131,  it has only one
operating  segment and no  additional  disclosure  is required.  The adoption of
Statement No. 131 did not affect results of operations or financial position.

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement
No.  133) which was  required  to be adopted in years  beginning  after June 15,
1999.  The Statement  requires the Company to recognize all  derivatives  on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge,  changes in the fair value of  derivatives  will  either be offset
against  the  change in fair value of the hedged  assets,  liabilities,  or firm
commitments through earnings or recognized in other  comprehensive  income until
the  hedged  item is  recognized  in  earnings.  The  ineffective  portion  of a
derivative's change in fair value will be immediately recognized in earnings. In
June 1999, the Financial  Accounting  Standards Board issued  Statement No. 137,
Accounting for Derivative  Instruments and Hedging  Activities - Deferral of the
Effective  Date of FASB  Statement No. 133 (Statement No. 137) which delayed the
implementation  of Statement  No. 133 until  quarters  beginning  after June 15,
2000.  Because  the  Company  does  not use  derivatives,  management  does  not
anticipate that the adoption of the new Statement will have a significant effect
on the Company's earnings or financial position.

Year 2000 Update

         Rapid and  accurate  data  processing  is  essential  to the  Company's
operations.  Due to  this  dependence  on its  information  technology  systems,
management  spent a  considerable  amount of time and effort to assure  that the
Company's  information  technology systems would function properly when the year
changed to 2000. These efforts were successful with all of the Company's systems
functioning  properly on the first business day of the year 2000 and thereafter.
There were no  customer  inconveniences  noted.  The  Company  will  continue to
diligently  monitor its computer  systems and computer  generated data to ensure
the accuracy of all such data.

                                       16

<PAGE>






                          Independent Auditor's Report



To the Board of Directors and Stockholders
Wells Financial Corp. and Subsidiary
Wells, Minnesota

We have audited the accompanying  consolidated statements of financial condition
of Wells  Financial  Corp.  and Subsidiary as of December 31, 1999 and 1998, and
the related  consolidated  statements of income,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit 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 financial  position of Wells  Financial
Corp.  and Subsidiary as of December 31, 1999 and 1998, and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.





                                        /s/ McGladrey & Pullen, LLP
                                        ----------------------------------------



Rochester, Minnesota
February 10, 2000

                                       17
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS                                                                                   1999                1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>
Cash, including interest-bearing accounts
1999 $2,320; 1998 $18,523                                                             $  4,200            $ 19,446
Certificates of deposit (Note 2)                                                           400                 500
Securities available for sale (Notes 3 and 10)                                           2,551               2,968
Securities held to maturity (Note 4)                                                    15,559               5,539
Loans held for sale (Note 5)                                                               521               6,097
Loans receivable, net (Notes 5, 10, 16 and 17)                                         172,713             154,305
Accrued interest receivable                                                              1,350                 843
Income taxes receivable                                                                     16                   -
Premises and equipment (Note 8)                                                          1,558               1,249
Foreclosed real estate (Note 7)                                                             55                   -
Other assets (Note 6)                                                                      913                 929
                                                                           ----------------------------------------
Total assets                                                                          $199,836           $ 191,876
                                                                           ========================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 9)                                                                     $156,984           $ 158,441
Borrowed funds (Note 10)                                                                17,000               5,000
Advances from borrowers for taxes and insurance (Note 6)                                 1,262               1,220
Income taxes (Note 11):
Current                                                                                      -                 128
Deferred                                                                                   763                 885
Accrued interest payable                                                                   116                 100
Accrued expenses and other liabilities                                                     254                 210
                                                                           ----------------------------------------
Total liabilities                                                                      176,379             165,984
                                                                           ----------------------------------------

Commitments, contingencies and credit risk (Notes 8, 15, 16, and 17)

Stockholders' Equity (Notes 12 and 14)
Preferred stock, no par value; 500,000 shares authorized;
none outstanding                                                                             -                   -
Common stock, $.10 par value; 7,000,000 shares
authorized; 2,187,500 shares issued                                                        219                 219
Additional paid-in capital                                                              16,939              16,840
Retained earnings, substantially restricted                                             18,189              17,211
Accumulated other comprehensive income                                                     655                 901
Unearned Employee Stock Ownership Plan shares                                             (435)               (591)
Unearned compensation-restricted stock awards                                              (27)                (67)
Less cost of treasury stock, 1999 758,343 shares;
1998 535,340 shares                                                                    (12,083)             (8,621)
                                                                           ----------------------------------------
Total stockholders' equity                                                              23,457              25,892
                                                                           ----------------------------------------
Total liabilities and stockholders' equity                                            $199,836           $ 191,876
                                                                           ========================================
</TABLE>
See Notes to Consolidated Financial Statements


                                       18
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                     1999                1998               1997
------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>                <C>
Interest and Dividend Income
Loans receivable:
First mortgage loans                                               $ 10,112           $ 11,257           $ 12,112
Consumer and other loans                                              2,719              2,631              2,458
Investment securities and interest-
bearing deposits                                                      1,383              1,002                755
                                                        ----------------------------------------------------------
Total interest income                                                14,214             14,890             15,325
                                                        ----------------------------------------------------------
Interest Expense
Deposits                                                              7,313              7,339              6,980
Borrowed funds                                                          385                839              1,542
                                                        ----------------------------------------------------------
Total interest expense                                                7,698              8,178              8,522
                                                        ----------------------------------------------------------
Net interest income                                                   6,516              6,712              6,803
Provision for loan losses (Note 5)                                       27                120                180
                                                        ----------------------------------------------------------
Net interest income after
provision for loan losses                                             6,489              6,592              6,623
                                                        ----------------------------------------------------------
Noninterest Income
Gain on sale of loans                                                   188                434                 81
Loan origination and commitment fees                                    295                965                174
Loan servicing fees                                                     397                267                198
Insurance commissions                                                   346                334                313
Fees and service charges                                                450                381                296
Other                                                                    33                 24                 47
                                                        ----------------------------------------------------------
Total noninterest income                                              1,709              2,405              1,109
                                                        ----------------------------------------------------------
Noninterest Expenses
Compensation and benefits (Note 14)                                   2,493              2,521              2,037
Occupancy and equipment (Note 15)                                       788                735                681
Data processing                                                         340                281                245
Advertising                                                             214                190                175
Other                                                                 1,219              1,042                849
                                                        ----------------------------------------------------------
Total noninterest expenses                                            5,054              4,769              3,987
                                                        ----------------------------------------------------------
Income before income taxes                                            3,144              4,228              3,745
Income tax expense (Note 11)                                          1,270              1,752              1,525
                                                        ----------------------------------------------------------
Net income                                                          $ 1,874            $ 2,476            $ 2,220
                                                        ==========================================================

Earnings per share (Note 13):
Basic                                                                $ 1.26             $ 1.42             $ 1.18
                                                        ==========================================================
Diluted                                                              $ 1.23             $ 1.38             $ 1.16
                                                        ==========================================================

</TABLE>

See Notes to Consolidated Financial Statements.

                                       19
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
                                                                                       Unearned
                                                                                       Employee    Unearned
                                                                          Accumulated   Stock    Compensation -              Total
                                                   Additional              Other       Ownership   Restricted                Stock-
                           Comprehensive   Common    Paid-In   Retained  Comprehensive   Plan        Stock      Treasury    holders'
                               Income       Stock    Capital   Earnings    Income        Shares      Awards      Stock       Equity
------------------------------------------------------------------------------------------------------------------------------------

<S>                          <C>         <C>      <C>        <C>            <C>       <C>           <C>       <C>         <C>
Balances, December 31, 1996                $ 219    $ 16,588   $ 13,986       $ 348     $ (896)       $ (280)   $ (1,763)  $ 28,202
Comprehensive Income:
Net income                     $ 2,220         -           -      2,220           -          -             -           -      2,220
Other comprehensive
income, net of tax:
Unrealized gains on
securities, net of
related taxes                      236         -           -          -         236          -             -           -        236
                             ----------
Comprehensive income           $ 2,456
                             ==========
Treasury stock purchases,
64,500 shares (Note 12)                        -           -          -           -          -             -        (921)      (921)
Cash dividends declared
($.24 per share)                               -           -       (470)          -          -             -           -       (470)
Amortization of unearned
compensation                                   -           -          -           -          -           129           -        129
Allocated ESOP shares                          -         106          -           -        139             -           -        245
                                       ---------------------------------------------------------------------------------------------
Balances, December 31, 1997                  219      16,694     15,736         584       (757)         (151)     (2,684)    29,641
Comprehensive Income:
Net income                     $ 2,476         -           -      2,476           -          -             -           -      2,476
Other comprehensive
income, net of tax:
Unrealized gains on
securities, net of
related taxes                      317         -           -          -         317          -             -           -        317
                             ----------
Comprehensive income           $ 2,793
                             ==========
Treasury stock purchases,
307,200 shares (Note 12)                       -           -          -           -          -             -      (5,937)    (5,937)
Cash dividends declared
($.57 per share)                               -           -     (1,001)          -          -             -           -     (1,001)
Amortization of unearned
compensation                                   -           -          -           -          -            84           -         84
Allocated ESOP shares                          -         146          -           -        166             -           -        312
                                       ---------------------------------------------------------------------------------------------
Balances, December 31, 1998                  219      16,840     17,211         901       (591)          (67)     (8,621)    25,892
Comprehensive Income:
Net income                     $ 1,874         -           -      1,874           -          -             -           -      1,874
Other comprehensive
income, net of tax:
Unrealized losses on
securities, net of
related taxes                     (246)        -           -          -        (246)         -             -           -       (246)
                             ----------
Comprehensive income           $ 1,628
                             ==========
Treasury stock purchases,
223,003 shares (Note 12)                       -           -          -           -          -             -      (3,462)    (3,462)
Cash dividends declared
($.60 per share)                               -           -       (896)          -          -             -           -       (896)
Amortization of unearned
compensation                                   -           -          -           -          -            40           -         40
Allocated ESOP shares                          -          99          -           -        156             -           -        255
                                       ---------------------------------------------------------------------------------------------
Balances, December 31, 1999                $ 219    $ 16,939   $ 18,189       $ 655     $ (435)        $ (27)  $ (12,083)  $ 23,457
                                       =============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       20 - 21
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
                                                                               1999            1998           1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>             <C>
Cash Flows From Operating Activities
Net income                                                                   $ 1,874        $ 2,476         $2,220
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses                                                         27            120            180
Gain on sale of loans                                                           (188)          (434)           (81)
Amortization of mortgage servicing rights                                        212            125             30
Compensation on allocation of ESOP shares                                        255            312            218
Amortization of unearned compensation                                             40             84            129
Write-down of foreclosed real estate                                               -              -             12
(Gain) loss on sale of foreclosed real estate                                    (11)             2            (12)
Unrealized gain on loans held for sale                                             -            (14)           (16)
Gain on premises and equipment                                                     -            (28)             -
Deferred income taxes                                                             49            188            (48)
Depreciation and amortization on premises
and equipment                                                                    247            279            273
Amortization of deferred loan origination fees                                  (154)          (245)          (151)
Amortization of excess servicing fees                                             12             13             13
Amortization of securities premiums and discounts                                  -              9              -
Loans originated for sale                                                    (30,485)       (89,160)       (14,914)
Proceeds from the sale of loans                                               36,061         85,089         14,709
Changes in assets and liabilities:
Accrued interest receivable                                                     (507)           263            (46)
Other assets                                                                    (208)          (678)           (52)
Income taxes payable, current                                                   (144)            17            111
Accrued expenses and other liabilities                                            60             58             16
                                                                    -----------------------------------------------
Net cash provided by (used in)
operating activities                                                           7,140         (1,524)         2,591
                                                                    -----------------------------------------------
</TABLE>


                            (Continued)

                                       22
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
                                                                               1999            1998           1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>            <C>
Cash Flows From Investing Activities
Net (increase) decrease in loans                                           $ (18,238)      $ 28,945       $ (4,252)
Certificates of deposit:
Maturities                                                                       500          6,650            200
Purchases                                                                       (400)        (5,300)        (1,850)
Purchase of securities available for sale                                          -              -           (171)
Proceeds from sales of securities available for sale                               -            212          5,033
Securities held to maturity:
Maturities and calls                                                           1,210          4,491          3,649
Purchases                                                                    (11,230)        (6,841)        (4,798)
Proceeds from principal repayments of
mortgage-backed securities available for sale                                      -             86            340
Proceeds from the disposal of leasehold improvements                               -             75              -
Purchase of premises and equipment                                              (556)          (150)          (179)
Proceeds from the sale and redemption of
foreclosed real estate                                                           108             69            102
Investment in foreclosed real estate                                              (7)            (3)           (32)
                                                                    -----------------------------------------------
Net cash provided by (used in) investing activities                          (28,613)        28,234         (1,958)
                                                                    -----------------------------------------------

Cash Flows From Financing Activities
Net increase (decrease) in deposits                                           (1,457)        13,063            368
Net increase from advances from
borrowers for taxes and insurance                                                 42            140             60
Proceeds from borrowed funds                                                  15,000          5,000         13,500
Repayments on borrowed funds                                                  (3,000)       (24,500)       (15,500)
Purchase of treasury stock                                                    (3,462)        (5,937)          (921)
Dividends paid                                                                  (896)        (1,001)          (470)
                                                                    -----------------------------------------------
Net cash provided by (used in)
financing activities                                                           6,227        (13,235)        (2,963)
                                                                    -----------------------------------------------
Net increase (decrease) in cash                                              (15,246)        13,475         (2,330)

Cash
Beginning                                                                     19,446          5,971          8,301
                                                                    -----------------------------------------------
Ending                                                                       $ 4,200       $ 19,446         $5,971
                                                                    ===============================================
</TABLE>
                            (Continued)

                                       23
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>

                                                                               1999            1998           1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>             <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest on deposits                                                         $ 7,313        $ 7,348         $6,982
Interest on borrowed funds                                                       369            869          1,527
Income taxes                                                                   1,365          1,547          1,450
                                                                    ===============================================

Supplemental Schedule of Noncash Investing and
Financing Activities:
Other real estate acquired in settlement of loans                              $ 145           $ 33           $ 27
Allocation of ESOP shares to participants                                        156            166            139
Net change in unrealized gains (losses) on securities
available for sale                                                              (246)           317            236
                                                                    ===============================================
</TABLE>


See Notes to Consolidated Financial Statements.

                                       24

<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 1.  Summary of Significant Accounting Policies


Nature of operations:  Operations of Wells Financial Corp.  (Company)  primarily
consist of banking  services  through its  subsidiary,  Wells Federal Bank,  fsb
(Bank).  One of the Bank's  subsidiaries,  Wells  Insurance  Agency,  Inc., is a
property  and  casualty  insurance  agency.  The other  subsidiary  of the Bank,
Greater Minnesota Mortgage,  Inc., is a mortgage banking company that originates
loans through  referrals from commercial banks. The Company serves its customers
through the Bank's eight locations in South Central Minnesota.

Basis of financial statement presentation: The consolidated financial statements
have been prepared in conformity with generally accepted accounting  principles.
In preparing the consolidated  financial  statements,  management is required to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities as of the date of the statements of financial condition and revenues
and expenses for the reporting  period.  Actual  results could differ from those
estimates.  A material estimate that is particularly  susceptible to significant
change in the near term relates to the  determination  of the allowance for loan
losses.

Management believes that the allowances for losses on loans are adequate.  While
management  uses  available  information  to recognize  losses on loans,  future
additions  to the  allowances  may be  necessary  based on changes  in  economic
conditions.

In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination process,  periodically review the Company's allowances for losses on
loans.  Such  agencies  may require the Company to  recognize  additions  to the
allowances based on their judgments about  information  available to them at the
time of their examination.

Effective  January 1, 1998, the Company adopted Financial  Accounting  Standards
Board's  Statement  of  Financial   Accounting   Standards  No.  130,  Reporting
Comprehensive  Income  (Statement  No.  130),  which was  issued  in June  1997.
Statement  No.  130  establishes  new rules for the  reporting  and  display  of
comprehensive income and its components,  but has no effect on the Company's net
income or total  stockholders'  equity.  Statement  No. 130 requires  unrealized
gains and losses on the Company's available for sale securities,  which prior to
adoption were reported  separately in  stockholders'  equity,  to be included in
comprehensive  income. Prior year financial statements have been reclassified to
conform to the requirements of Statement No. 130.

Effective  January 1, 1998, the Company adopted Financial  Accounting  Standards
Board's Statement of Financial  Accounting  Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement No. 131). Statement
No. 131 supersedes FASB Statement No. 14, Financial  Reporting for Segments of a
Business  Enterprise.  Statement  No. 131  establishes  standards for how public
business  enterprises  report  information  about  operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information about operating segments in interim financial reports. Statement No.
131 also  establishes  standards  for related  disclosures  about  products  and
services,  geographic  areas,  and major  customers.  The Company has determined
that,  for purposes of Statement No. 131, it has only one operating  segment and
no additional disclosure is required.  The adoption of Statement No. 131 did not
affect results of operations or financial position.


                                       25
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 1.       Summary of Significant Accounting Policies (Continued)


Principles of consolidation:  The accompanying consolidated financial statements
include the accounts of Wells  Financial  Corp.,  its wholly  owned  subsidiary,
Wells  Federal  Bank,  fsb,  and the Bank's  wholly  owned  subsidiaries,  Wells
Insurance  Agency,  Inc. and Greater  Minnesota  Mortgage,  Inc. All significant
intercompany transactions and balances are eliminated in consolidation.

Securities held to maturity:  Debt securities for which the Company has both the
positive  intent  and  ability to hold to  maturity  are  classified  as held to
maturity and reported at amortized cost.  Amortization of premiums and accretion
of discounts,  computed by the interest method over their contractual  lives, is
included in interest income.

Securities available for sale:  Securities  classified as available for sale are
those  securities that the Company  intends to hold for an indefinite  period of
time,  but  not  necessarily  to  maturity.  Any  decision  to  sell a  security
classified  as available for sale would be based on various  factors,  including
significant  movements  in interest  rates,  changes in the  maturity mix of the
Company's  assets  and  liabilities,   liquidity   needs,   regulatory   capital
considerations, and other similar factors.

Securities  available  for sale are carried at fair value.  Unrealized  gains or
losses,  net of the related deferred tax effect, are reported as a net amount in
other comprehensive income. Amortization of premiums and accretion of discounts,
computed by the interest method over their  contractual  lives, is recognized in
interest income.

Realized  gains or  losses,  determined  on the  basis  of the cost of  specific
securities sold, are included in earnings.

Declines in the fair value of individual securities classified as either held to
maturity or available for sale below their amortized cost that are determined to
be other than temporary  result in  write-downs of the individual  securities to
their fair value with the resulting  write-downs included in current earnings as
realized losses.

Loans held for sale:  Loans held for sale are those  loans that the  Company may
sell or  intends  to sell prior to  maturity.  They are  carried at the lower of
aggregate  cost or  market  value.  Gains  and  losses  on sales  of  loans  are
recognized at settlement dates and are determined by the difference  between the
sales proceeds and the carrying  value of the loans.  All sales are made without
recourse.

Loans receivable: Loans receivable that management has the intent and ability to
hold for the  foreseeable  future or until  maturity or payoff are stated at the
amount of unpaid  principal,  reduced by an  allowance  for loan  losses and net
deferred loan origination fees.

A loan is impaired  when it is probable the  creditor  will be unable to collect
all principal and interest payments due in accordance with the terms of the loan
agreement.  Impaired  loans are measured  based on the present value of expected
future cash flows  discounted  at the loan's  effective  interest  rate or, as a
practical expedient,  at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent.

                                       26
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 1.       Summary of Significant Accounting Policies (Continued)


Interest on loans is  recognized  over the terms of the loans and is  calculated
using the simple-interest  method on principal amounts  outstanding.  Accrual of
interest is discontinued when management believes,  after considering economics,
business  conditions,  and collection  efforts,  that the  borrower's  financial
condition is such that  collection  of interest is  doubtful.  Interest on these
loans is  recognized  only when  actually  paid by the borrower if collection of
principal is likely to occur.  Accrual of interest is generally resumed when, in
management's  judgment,  the  borrower's  ability to make periodic  interest and
principal payments is back to normal.

The allowance  for loan losses is increased by provisions  charged to income and
reduced by charge-offs (net of recoveries).  Management's periodic evaluation of
the  adequacy  of the  allowance  is  based  on the  Company's  past  loan  loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the borrower's  ability to repay,  estimated  value of any underlying
collateral,  and current  economic  conditions.  While  management uses its best
information available to make its evaluation, it is possible that adjustments to
the  allowance  may be  necessary if there are  significant  changes in economic
conditions.

Loan  origination  fees and related  costs:  Loan fees and  certain  direct loan
origination  costs are  deferred,  and the net fee or cost is  recognized  as an
adjustment  to interest  income using the interest  method over the  contractual
life of the loans,  adjusted for  estimated  prepayments  based on the Company's
historical prepayment experience.

Loan  servicing:  The Company  generally  retains the right to service  mortgage
loans  sold to others.  The cost  allocated  to the  mortgage  servicing  rights
retained  has been  recognized  as a separate  asset and is being  amortized  in
proportion to and over the period of estimated net  servicing  income.  Mortgage
servicing  rights are  periodically  evaluated for impairment  based on the fair
value of those rights.  Fair values are estimated  using  discounted  cash flows
based on current market rates of interest. For purposes of measuring impairment,
the rights must be stratified by one or more predominant risk characteristics of
the underlying loans. The Company stratifies its capitalized  mortgage servicing
rights based on the interest rate and term of the underlying  loans.  The amount
of impairment  recognized is the amount,  if any, by which the amortized cost of
the rights for each stratum exceed their fair value.

Foreclosed real estate:  Real estate properties acquired through, or in lieu of,
loan foreclosure are initially  recorded at the lower of cost or fair value less
estimated costs to sell at date of foreclosure. Costs relating to improvement of
property are capitalized,  whereas costs relating to the holding of property are
expensed. Valuations are periodically performed by management and charge-offs to
operations  are made if the carrying  value of a property  exceeds its estimated
fair value less estimated costs to sell.

Premises  and  equipment:  Land is carried  at cost.  Bank  premises,  leasehold
improvements,  and furniture,  fixtures, and equipment are carried at cost, less
accumulated   depreciation  and  amortization.   Bank  premises  and  furniture,
fixtures,  and equipment are depreciated using the straight-line method over the
estimated  useful  lives of the  assets  ranging  from 10 to 40  years  for bank
premises,  7 to  10  years  for  leasehold  improvements  and 3 to 7  years  for
furniture,  fixtures and equipment.  The cost of leasehold improvements is being
amortized using the straight-line method over the terms of the related leases.


                                       27
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 1.       Summary of Significant Accounting Policies (Continued)


Income  taxes:  Deferred  taxes are  provided on an asset and  liability  method
whereby deferred tax assets are recognized for deductible temporary  differences
and operating loss or tax credit carry forwards and deferred tax liabilities are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences  between the amounts of assets and  liabilities  recorded for income
tax and  financial  reporting  purposes.  Deferred  tax assets are  reduced by a
valuation  allowance when management  determines that it is more likely than not
that some  portion  or all of the  deferred  tax  assets  will not be  realized.
Deferred tax assets and  liabilities  are adjusted for the effects of changes in
tax laws and rates on the date of enactment.

Earnings per share:  Earnings per basic common share are computed based upon the
weighted average number of common shares outstanding during each year.  Dilutive
per share  amounts  assume  conversion,  exercise or  issuance of all  potential
common  stock  instruments  (stock  options as  discussed in Note 13) unless the
effect is to reduce a loss or increase income per common share.

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

     Cash: The carrying amounts reported for cash and interest-bearing  accounts
     approximate their fair values.

     Certificates of deposit:  The carrying  amounts reported for certificate of
     deposits approximate their fair values.

     Securities:  Fair values for  securities  available for sale and securities
     held to maturity are based on quoted market  prices,  where  available.  If
     quoted  market  prices are not  available,  fair values are based on quoted
     market  prices of comparable  instruments,  except for stock in the Federal
     Home Loan Bank for which fair value is assumed to be equal to cost.

     Loans  held for sale:  Fair  values  are based on quoted  market  prices of
     similar loans sold on the secondary market.

     Loans and accrued interest receivable: For variable-rate loans that reprice
     frequently and that have experienced no significant  change in credit risk,
     fair values are based on carrying  values.  Fair values for all other loans
     are  estimated  based  on  discounted  cash  flows,  using  interest  rates
     currently  being  offered for loans with similar  terms to  borrowers  with
     similar credit quality.  The carrying amount of accrued interest receivable
     approximates its fair value.

     Mortgage servicing rights:  Fair values are estimated using discounted cash
     flows based on current market rates of interest.

     Deposits  and other  liabilities:  The fair values of demand  deposits  and
     savings accounts equal their carrying amounts,  which represent the amounts
     payable on demand.  Fair values for fixed-rate  certificates of deposit 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 on those certificates.  The carrying amounts of
     advances by borrowers for taxes and insurance and accrued  interest payable
     approximate their fair values.

                                       28
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 1.           Summary of Significant Accounting Policies (Continued)


     Borrowed  funds:  The fair value of long term fixed rate borrowed  funds is
     estimated  by using a  discounted  cash  flow  analysis  based  on  current
     incremental  borrowing  rates for similar types of borrowing  arrangements.
     The fair value of the variable rate borrowed  funds  approximates  carrying
     value as these borrowings reprice monthly.

     Off-statement of financial condition instruments: Since the majority of the
     Company's  off-statement of financial condition  instruments consist of non
     fee-producing,  variable rate commitments,  the Company has determined they
     do not have a distinguishable fair value.

Note 2.  Certificates of Deposit


Certificates  of deposit with a carrying  value of $400 and $500 at December 31,
1999 and 1998,  respectively,  had weighted  average  yields of 5.19% and 5.81%,
respectively, and contractual maturities of less than one year.

Note 3.  Securities Available for Sale
<TABLE>
<CAPTION>
                                                                          December 31, 1999
                                               --------------------------------------------------------------------
                                                                         Gross            Gross
                                                      Amortized       Unrealized       Unrealized
                                                        Cost             Gains           Losses         Fair Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                   <C>             <C>           <C>
Stock in Federal Home Loan Bank                        $ 1,421               $ -             $ -           $ 1,421
FHLMC stock                                                 24             1,106               -             1,130
                                               --------------------------------------------------------------------
                                                       $ 1,445           $ 1,106             $ -           $ 2,551
                                               ====================================================================
</TABLE>
<TABLE>
<CAPTION>

                                                                          December 31, 1998
                                               --------------------------------------------------------------------
                                                                         Gross            Gross
                                                      Amortized       Unrealized       Unrealized
                                                        Cost             Gains           Losses         Fair Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                   <C>             <C>           <C>
Stock in Federal Home Loan Bank                        $ 1,421               $ -             $ -           $ 1,421
FHLMC stock                                                 24             1,523               -             1,547
                                               --------------------------------------------------------------------
                                                       $ 1,445           $ 1,523             $ -           $ 2,968
                                               ====================================================================
</TABLE>

Equity securities do not have contractual maturities.  The Company's subsidiary,
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 in an amount equal to
1% of its outstanding  home loans. No ready market exists for the bank stock and
it has no quoted market value. For disclosure purposes, such stock is assumed to
have a market value equal to cost.

                                       29
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 3.     Securities Available for Sale (Continued)


Changes in other comprehensive  income unrealized gains on securities  available
for sale:
<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                  -------------------------------------------------
                                                                            1999            1998             1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>              <C>
Balance, beginning                                                          $ 901           $ 584            $ 348
Unrealized gains (losses) during the year                                    (417)            540              399
Deferred tax effect relating to unrealized
appreciation                                                                  171            (223)            (163)
                                                                  -------------------------------------------------
Balance, ending                                                             $ 655           $ 901            $ 584
                                                                  =================================================
</TABLE>
Note 4.   Securities Held to Maturity
<TABLE>
<CAPTION>
                                                                                December 31, 1999
                                                           -----------------------------------------------------------
                                                                                  Gross          Gross
                                                                Amortized      Unrealized    Unrealized
                                                                    Cost          Gains         Losses      Fair Value
----------------------------------------------------------------------------------------------------------------------
Debt securities:
<S>                                                             <C>               <C>            <C>        <C>
U.S. Government corporations and agencies                         $15,559           $  -           $469       $15,090
                                                           ===========================================================
</TABLE>
<TABLE>
<CAPTION>
                                                                                December 31, 1998
                                                           -----------------------------------------------------------
                                                                                  Gross          Gross
                                                                Amortized      Unrealized    Unrealized
                                                                    Cost          Gains         Losses      Fair Value
----------------------------------------------------------------------------------------------------------------------
Debt securities:
<S>                                                             <C>               <C>            <C>        <C>
U.S. Government corporations and agencies                         $ 5,539           $ 10           $ 7        $ 5,542
                                                           ===========================================================
</TABLE>

Contractual maturities:  The scheduled maturities of securities held to maturity
at December 31, 1999 were as follows:

<TABLE>
<CAPTION>

                                                                               Amortized Cost       Fair Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                <C>
Due in one year or less                                                             $     -            $     -
Due from one to five years                                                           15,559             15,090
                                                                             ----------------------------------
                                                                                    $15,559            $15,090
                                                                             ==================================
</TABLE>

Securities  with a carrying  value of $1,100 and $700 at  December  31, 1999 and
1998,  respectively,  were  pledged  to  secure  public  deposits  and for other
purposes as required or permitted by law.

                                       30
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 5.  Loans Receivable and Loans Held for Sale
<TABLE>
<CAPTION>

Composition of loans receivable:                                                             December 31,
                                                                             --------------------------------------
                                                                                         1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>
First mortgage loans (principally conventional):
Secured primarily by one-to-four family residences                                    $ 105,570          $ 104,433
Secured by other properties, primarily agricultural real estate                          32,582             21,018
Construction                                                                              2,957              1,279
                                                                             --------------------------------------
Total first mortgage loans                                                              141,109            126,730
                                                                             --------------------------------------
Consumer and other loans:
Home equity, home improvement and second mortgages                                       21,315             18,475
Agricultural operating loans                                                              2,988              2,394
Vehicle loans                                                                             4,914              4,644
Other                                                                                     3,722              3,365
                                                                             --------------------------------------
Total consumer and other loans                                                           32,939             28,878
                                                                             --------------------------------------
Total loans                                                                             174,048            155,608
Less:
Net deferred loan origination fees                                                         (478)              (450)
Net allowance for loan losses                                                              (857)              (853)
                                                                             --------------------------------------
Loan receivable, net                                                                  $ 172,713          $ 154,305
                                                                             ======================================
</TABLE>

Allowance for loan losses:
<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                  -------------------------------------------------
                                                                             1999            1998             1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>              <C>
Balance, beginning                                                          $ 853           $ 763            $ 615
Provision for loan losses                                                      27             120              180
Loans charged off                                                             (43)            (46)             (66)
Recoveries                                                                     20              16               34
                                                                  -------------------------------------------------
Balance, ending                                                             $ 857           $ 853            $ 763
                                                                  =================================================
</TABLE>

Nonaccrual  loans:  Loans on which the accrual of interest has been discontinued
totaled $111, $260, and $237 at December 31, 1999, 1998 and 1997,  respectively.
The effect of nonaccrual loans was not significant to the results of operations.

The Company  includes all loans  considered  impaired in nonaccrual  loans.  The
amount of impaired loans was not material at December 31, 1999 and 1998.

Related  party  loans:  The  Company  has  entered  into  transactions  with its
executive officers,  directors,  significant shareholders,  and their affiliates
(related  parties).  The aggregate  amounts of loans to such related  parties at
December 31, 1999 and 1998 were $321 and $294,  respectively.  During 1999,  new
loans to such related parties were $43 and repayments were $16.

                                       31
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 5.       Loans Receivable and Loans Held for Sale (Continued)


Loans held for sale: As of December 31, 1999 and 1998, the Company's  loans held
for sale were $521 and $6,097, respectively, and consisted of one to four family
residential real estate loans. Outstanding commitments to sell loans at December
31, 1999 were $521.

Note 6.  Loan Servicing


Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated statements of financial condition. The unpaid principal balances of
these  loans as of  December  31,  1999 and 1998  were  $155,157  and  $136,336,
respectively,  and consist of one-to-four  family residential real estate loans.
These  loans  are  serviced   primarily  for  the  Federal  Home  Loan  Mortgage
Corporation.

Custodial  escrow  balances  maintained  in connection  with the foregoing  loan
servicing, and included in advances from borrowers for taxes and insurance, were
$708 and $636 at December 31, 1999 and 1998, respectively.

Effective  January  1,  1997,  the  Company  adopted  FASB  Statement  No.  125,
Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of Liabilities.  This Statement  establishes the basic principles that an entity
should recognize only assets it controls and liabilities it has incurred. Assets
should be  "derecognized"  only when control has been  surrendered,  liabilities
should be "derecognized" only when they have been extinguished,  and recognition
of financial  assets and  liabilities  should not be affected by the sequence of
transactions  unless the effect of the  transactions  is to  maintain  effective
control over a transferred financial asset. Statement No. 125 also continues the
recognition of mortgage servicing rights on loans sold and supersedes  Statement
No. 122 for transactions after January 1, 1997.

Mortgage  servicing  rights in the  amounts  of $281 and $662  were  capitalized
during the years ended December 31, 1999 and 1998, respectively. The fair values
of capitalized mortgage servicing rights were $815 and $722 at December 31, 1999
and 1998,  respectively.  The fair values of the mortgage  servicing rights were
estimated  as the  present  value of the  expected  future  cash  flows  using a
discount  rate  of 12%.  The  Company  recognized  amortization  of the  cost of
mortgage  servicing  rights in the  amounts of $212,  $125 and $30 for the years
ended  December 31, 1999,  1998 and 1997,  respectively.  The effect of adopting
Statements  No. 122 and 125 was to increase net income by $77 for the year ended
December 31, 1997.

No valuation  allowances were provided for mortgage servicing rights capitalized
during the years ended December 31, 1999 and 1998.

Note 7.  Foreclosed Real Estate


The Company had investment in real estate acquired through foreclosure or deeded
to the Company in lieu of  foreclosure  of $55 and $-0- as of December  31, 1999
and 1998, respectively.  No allowances for losses on foreclosed real estate were
required at these dates.


                                       32

<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 8.  Premises and Equipment


Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                             --------------------------------------
                                                                                           1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                <C>
Cost:
Land                                                                                    $    79            $    71
Buildings and improvements                                                                1,461              1,075
Leasehold improvements                                                                      365                330
Furniture, fixtures and equipment                                                         2,132              2,005
                                                                             --------------------------------------
                                                                                          4,037              3,481
Less accumulated depreciation and amortization                                            2,479              2,232
                                                                             --------------------------------------
                                                                                        $ 1,558            $ 1,249
                                                                             ======================================
</TABLE>


As of December  31,  1999,  the Company  was in the process of  constructing  an
addition to its main office in Wells, Minnesota. The total estimated cost of the
project is $636.  As of December 31, 1999,  costs of $328 had been  incurred and
capitalized as premises and equipment.

Note 9.  Deposits

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                             --------------------------------------
                                                                                          1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>
Demand and NOW accounts                                                               $  25,445          $  24,781
Savings accounts                                                                         19,050             18,377
Certificates of deposit                                                                 112,489            115,283
                                                                             --------------------------------------
                                                                                      $ 156,984          $ 158,441
                                                                             ======================================
</TABLE>


The aggregate amount of certificates of deposit over $100 was $8,326 and $10,524
at December 31, 1999 and 1998, respectively.

A summary of scheduled maturities of certificates of deposits is as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                                       <C>
2000                                                                                                      $ 75,991
2001                                                                                                        22,175
2002                                                                                                        12,521
2003                                                                                                         1,802
                                                                                                -------------------
                                                                                                         $ 112,489
                                                                                                ===================
</TABLE>
                                       33
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 10. Borrowed Funds


Borrowed  funds  consisted of advances  from  Federal Home Loan Bank (FHLB),  as
follows:
<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                             --------------------------------------
                                                                                          1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
Fixed rate advance, 5.83%, due January 10, 2000.                                        $ 1,000           $      -
Fixed rate advance, 5.93%, due January 10, 2000.                                          2,000                  -
Adjustable rate advance (currently 5.92%), due
October 13, 2000.                                                                         3,000                  -
Adjustable rate advance (currently 5.92%), due
October 30, 2000.                                                                         1,000                  -
Fixed rate advance, 5.34%, due January 16, 2008,
callable beginning January 16, 2003.                                                      5,000              5,000
Fixed rate advance, 5.30%, due September 21, 2009,
callable beginning September 21, 2000.                                                    3,000                  -
Fixed rate advance, 5.45%, due December 1, 2009,
callable beginning December 1, 2000.                                                      2,000                  -
                                                                             --------------------------------------
                                                                                       $ 17,000           $  5,000
                                                                             ======================================
</TABLE>


All advances are subject to various prepayment provisions.

The  advances are  collateralized  by FHLB stock and first  mortgage  loans with
balances exceeding 125% of the amount of the advances.

The scheduled maturities of borrowed funds at December 31, 1999 were as follows:


                                               Fixed-Rate       Adjustable Rate
                                                Advances           Advances
-------------------------------------------------------------------------------
Due in one year or less                            $ 3,000             $ 4,000
Due from one to five years                               -                   -
Due from five to ten years                          10,000                   -
                                            -----------------------------------
                                                  $ 13,000             $ 4,000
                                            ===================================

                                       34
<PAGE>

Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 11. Income Tax Matters


The Company and its subsidiary file consolidated federal income tax returns. The
Company is allowed bad debt deductions based on actual charge-offs.

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                          ---------------------------------------------------------
                                                                        1999               1998               1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>                <C>
Federal:
Current                                                                $ 940            $ 1,181            $ 1,186
Deferred (credit)                                                         37                143                (36)
                                                          ---------------------------------------------------------
                                                                         977              1,324              1,150
                                                          ---------------------------------------------------------
State:
Current                                                                  281                383                387
Deferred (credit)                                                         12                 45                (12)
                                                          ---------------------------------------------------------
                                                                         293                428                375
                                                          ---------------------------------------------------------
Total                                                                $ 1,270            $ 1,752            $ 1,525
                                                          =========================================================
</TABLE>

Total  income tax expense  differed  from the amounts  computed by applying  the
statutory  U.S.  Federal  income tax rates to income  before  income  taxes as a
result of the following:

<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,
                                                          ---------------------------------------------------------
                                                                       1999               1998               1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>                <C>
Computed "expected" tax expense                                      $ 1,100            $ 1,480            $ 1,311
State income taxes, net of federal benefit                               203                273                242
Effect of graduated rates                                                (31)               (42)               (37)
Other                                                                     (2)                41                  9
                                                          ---------------------------------------------------------
Income tax expense                                                   $ 1,270            $ 1,752            $ 1,525
                                                          =========================================================
</TABLE>

                                       35
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 11.      Income Tax Matters (Continued)


The net deferred  tax  liability  included in  liabilities  in the  accompanying
statements of financial condition includes the following amounts of deferred tax
assets and liabilities:
<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                             --------------------------------------
                                                                                           1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                <C>
Deferred tax assets:
Allowance for loan losses                                                                 $ 323              $ 310
Management stock bonus plan                                                                  36                 63
Accrued vacation                                                                             16                 39
Other                                                                                        28                 21
                                                                             --------------------------------------
                                                                                            403                433
Less valuation allowance                                                                      -                  -
                                                                             --------------------------------------
                                                                                            403                433
                                                                             --------------------------------------
Deferred tax liabilities:
Premises and equipment                                                                      141                155
Securities available for sale                                                               450                622
FHLB stock dividends                                                                        189                217
Mortgage servicing rights                                                                   313                284
Deferred loan origination fees                                                               64                 10
Other                                                                                         9                 30
                                                                             --------------------------------------
                                                                                          1,166              1,318
                                                                             --------------------------------------
                                                                                         $ (763)            $ (885)
                                                                             ======================================
</TABLE>
Retained  earnings at December  31, 1999 and 1998 include  approximately  $1,839
related to the pre-1987  allowance for loan losses for which no deferred federal
income tax liability has been recognized.  This amount  represents an allocation
of income to bad debt  deductions  for tax purposes  only. If the Bank no longer
qualifies as a bank or in the event of a liquidation  of the Bank,  income would
be created for tax  purposes  only,  which would be subject to the then  current
corporate  income tax rate. The unrecorded  deferred income tax liability on the
above amount for financial statement purposes was approximately $736 at December
31, 1999 and 1998.

Note 12. Stockholders' Equity, Regulatory Capital and Dividend Restrictions


The Company has  initiated  several  stock buy back  programs.  Shares  totaling
223,003,  307,200, and 64,500 were purchased during the years ended December 31,
1999, 1998 and 1997, respectively.

On January 18,  2000,  the Company  declared a dividend of $.15 per common share
payable on February 11, 2000 to  stockholders  of record as of January 31, 2000.
The scheduled dividend is approximately $213.

                                       36
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 12.  Stockholders'  Equity,  Regulatory  Capital and Dividend  Restrictions
          (Continued)


The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  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
Bank's  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 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.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and  ratios  (set forth in the
following  table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.

The most recent examination by the Office of Thrift Supervision, as of September
27,  1999,  categorized  the Bank as "well  capitalized"  under  the  regulatory
framework  for  Prompt  Corrective  Action.  To  be  categorized  as  adequately
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I  leverage  ratios.  There  are no  conditions  or events  since  that
notification that management believes have changed the Bank's category.

                                       37
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 12.      Stockholders' Equity, Regulatory Capital and Dividend Restrictions
             (Continued)


The following table summarizes the Bank's compliance with its regulatory capital
requirements:
<TABLE>
<CAPTION>
                                                                                                  To Be Well Capitalized
                                                                           For Capital            Under Prompt Corrective
                                           Actual                       Adequacy Purposes            Action Provisions
                                    -------------------------------------------------------------------------------------
As of December 31, 1999:                   Amount      Percent          Amount     Percent         Amount     Percent
                                    -------------------------------------------------------------------------------------
<S>                                     <C>           <C>            <C>         <C>            <C>          <C>
Tier 1  (core) capital (to
adjusted total assets)                     $16,865       8.70%          $7,754      4.00%          $9,693       5.00%
Risk-based capital (to risk-
weighted assets)                            17,722      13.96           10,154      8.00           12,693      10.00
Tangible (capital  to
tangible assets)                            16,865       8.70            2,907      1.50           N/A          N/A
Tier 1 (core) capital (to
risk-weighted assets)                       16,865      13.29            N/A        N/A             7,616       6.00


As of December 31, 1998:
Tier 1 (core) capital (to           `
adjusted total assets)                     $15,896       8.70%          $5,480      3.00%          $9,134       5.00%
Risk-based capital (to risk-
weighted assets)                            16,745      14.78            9,066      8.00           11,332      10.00
Tangible capital (to
tangible assets)                            15,896       8.70            2,740      1.50           N/A          N/A
Tier 1 (core) capital (to
risk-weighted assets)                       15,896      14.03            N/A         N/A            6,799       6.00

</TABLE>


Under  current  regulations,  the Bank is not  permitted to pay dividends on its
stock if its regulatory  capital would reduce below (i) the amount  required for
the liquidation  account  established to provide a limited priority claim to the
assets of the bank to certain qualifying depositors who had deposits at the Bank
and who continue to maintain those deposits after its conversion  from a Federal
mutual savings and loan  association to a Federal stock savings bank pursuant to
its Plan of  Conversion  (Plan)  adopted  October 19,  1994,  or (ii) the Bank's
regulatory capital requirements.  As a "Tier 1" institution (an institution with
capital  in excess of its  capital  requirements,  both  immediately  before the
proposed  capital  distribution  and after giving effect to such  distribution),
after a 30 day notice the Bank may make capital  distributions without the prior
consent of the  Office of Thrift  Supervision  in any  calendar  year.  However,
without consent,  capital  distributions  during a calendar year must not exceed
the net income of the Bank during the calendar year plus retained net income for
the  preceding  two  years.  The Bank paid  dividends  of $975 and $9,000 to the
Company during the years ended December 31, 1999 and 1998, respectively.


                                       38
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 13. Earnings Per Share (dollars in thousands, except per share data)


Earnings per share (EPS) are  calculated  and presented in accordance  with FASB
Statement No. 128,  Earnings per Share. The Statement  requires the presentation
of earnings per share by all entities that have common stock or potential common
stock, such as options,  warrants and convertible  securities,  outstanding that
trade in a public market. Those entities that have only common stock outstanding
are required to present basic earnings per share amounts. All other entities are
required to present basic and diluted  earnings per share  amounts.  Diluted per
share  amounts  assume the  conversion,  exercise or  issuance of all  potential
common stock  instruments  unless the effect is to reduce a loss or increase the
income per common share from continuing operations.

A  reconciliation  of the income  and common  stock  share  amounts  used in the
calculation of basic and diluted earnings per share follows:

<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31, 1999
                                                          ---------------------------------------------------------
                                                                                                    Per Share
                                                                      Income             Shares             Amount
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>                   <C>
Basic EPS
Net income                                                           $ 1,874          1,485,301             $ 1.26
                                                                                                ===================
Effect of Dilutive Securities
Stock options                                                                            33,165
                                                          --------------------------------------
Diluted EPS
Net income plus assumed conversions                                  $ 1,874          1,518,466             $ 1.23
                                                          =========================================================
</TABLE>
<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31, 1998
                                                          ---------------------------------------------------------
                                                                                                            Per Share
                                                                      Income             Shares             Amount
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>                   <C>
Basic EPS
Net income                                                           $ 2,476          1,747,325             $ 1.42
                                                                                                ===================
Effect of Dilutive Securities
Stock options                                                                            49,966
                                                          --------------------------------------
Diluted EPS
Net income plus assumed conversions                                  $ 2,476          1,797,291             $ 1.38
                                                          =========================================================
</TABLE>
<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31, 1997
                                                          ---------------------------------------------------------
                                                                                                            Per Share
                                                                      Income             Shares             Amount
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>                   <C>
Basic EPS
Net income                                                           $ 2,220          1,873,499             $ 1.18
                                                                                                ===================
Effect of Dilutive Securities
Stock options                                                                            37,016
                                                          --------------------------------------
Diluted EPS
Net income plus assumed conversions                                  $ 2,220          1,910,515             $ 1.16
                                                          =========================================================
</TABLE>
                                       39
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 14. Employee Benefit Plans


Defined  Contribution  401(k) Plan: The Bank provides a 401(k) plan which covers
substantially  all of the Bank's employees who are eligible as to age and length
of service. A participant may elect to make contributions of up to 15 percent of
the  participant's  annual  compensation.  At the  discretion  of the  Board  of
Directors,  the Bank may make matching  contributions of up to 4 percent of each
participant's contribution. No contributions were made by the Bank for the years
ended December 31, 1999, 1998 and 1997.


Employee  Stock  Ownership  Plan: An Employee  Stock  Ownership  Plan (ESOP) was
adopted on April 11, 1995  covering all  full-time  employees of the Company who
have attained age 21 and completed one year of service during which they work at
least 1,500 hours.

The  Company  makes  annual  contributions  to the ESOP equal to the ESOP's debt
service.  The ESOP's debt was incurred  when the Company  loaned the ESOP $1,120
which  was  used by the  ESOP to  purchase  common  stock  of the  Company.  All
dividends  received by the ESOP on unallocated shares are used to pay additional
principal on the debt. The ESOP shares  initially were pledged as collateral for
its debt.  As the debt is  repaid,  shares  are  released  from  collateral  and
allocated to employees based on the proportion of debt service paid in the year.
The shares  pledged as  collateral  are deducted  from  stockholders'  equity as
unearned ESOP shares in the accompanying  statement of financial  condition.  As
shares are released from collateral,  the Company reports  compensation  expense
equal  to the  current  market  price  of the  shares,  and  the  shares  become
outstanding  for earnings per share  computations.  Dividends on allocated  ESOP
shares  are  recorded  as  a  reduction  of  retained  earnings;   dividends  on
unallocated ESOP shares are recorded as compensation expense.

Compensation  expense  for the ESOP was $255,  $312 and $218 for the years ended
December 31, 1999, 1998 and 1997, respectively.

Shares of the  Company  held by the ESOP at  December  31,  1999 and 1998 are as
follows:

                                                        1999               1998
--------------------------------------------------------------------------------

Shares released for allocation                         81,833             62,991
Unreleased (unearned) shares                           54,355             73,897
                                                    ----------------------------
                                                      136,188            136,888
                                                    ============================

Fair value of unreleased (unearned) shares           $    629           $  1,164
                                                    ============================


Stock Option Plan:  The Company,  effective  November 15, 1995,  adopted a stock
option plan  (Plan).  Pursuant  to the Plan,  stock  options for 218,750  common
shares may be granted to  directors,  officers  and key  employees  of the Bank.
Options  granted under the Plan may be either  options that qualify as Incentive
Stock Options,  as defined in Section 422 of the Internal  Revenue Code of 1986,
as amended, or options that do not so qualify.

                                       40

<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 14.      Employee Benefit Plans (Continued)


The exercise  price under the awards was  established  at $11.00 per share which
was the fair market price on the date of adoption.  Under APB Opinion No. 25, no
expense has been  recorded  for these  options for the years ended  December 31,
1999, 1998 and 1997 as the option price is the quoted market price of the shares
at the date of the award.

Grants under the Plan are accounted for following APB Opinion No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized, as noted
above, for this Plan. Had  compensation  cost for the Plan been determined based
on the grant date fair values of awards (the method  described in FASB Statement
No. 123),  additional  compensation  cost charged to income would have been $34,
$61 and $100 for the years ended December 31, 1999, 1998 and 1997, respectively.
Reported net income and earnings per common share would have been reduced to the
pro forma amounts shown below:

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                           ------------------------------------------------------
                                                      1999               1998               1997
-------------------------------------------------------------------------------------------------
<S>                                              <C>                <C>                <C>
Net income:
As reported                                        $ 1,874            $ 2,476            $ 2,220
Pro forma                                            1,854              2,440              2,161

Basic earnings per share:
As reported                                         $ 1.26             $ 1.42             $ 1.18
Pro forma                                             1.25               1.40               1.15

Diluted earnings per share:
As reported                                         $ 1.23             $ 1.38             $ 1.16
Pro forma                                             1.22               1.36               1.14

</TABLE>

The Plan may grant  options to  purchase up to 218,750  shares of common  stock,
with a maximum term of 10 years,  at the market price on the date of grant.  The
options vest at the rate of 20% per year.

The fair value of the options  granted was estimated at the grant date using the
Black-Scholes option-pricing model using a dividend rate of 0%, price volatility
of 10%, a risk-free  interest rate of 5.65%,  and an estimated  life of 6 years.
The estimated fair value was $408 at November 15, 1995, the grant date.

                                       41
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 14.      Employee Benefit Plans (Continued)


The status of the Company's  fixed stock option plan as of December 31, 1999 and
1998, and changes during the years ended on those dates are presented below:

<TABLE>
<CAPTION>

                                                                      Years Ended December 31,
                                               --------------------------------------------------------------------
                                                                  1999                            1998
                                               -------------------------------------------------------------------------
                                                                   Weighted-Average                  Weighted-Average
Fixed Options                                         Shares       Exercise Price       Shares       Exercise Price
------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>          <C>                  <C>
Outstanding at beginning of year                       125,405              $ 11         125,405              $ 11
Granted                                                      -                 -               -                 -
Exercised                                                    -                 -               -                 -
Forfeited                                                    -                 -               -                 -
                                               --------------------------------------------------------------------
Outstanding at end of year                             125,405              $ 11         125,405              $ 11
                                               ====================================================================
</TABLE>

As of December 31, 1999, there were 125,405 options outstanding, all options had
an exercise price of $11 per share, and their remaining contractual life was 5.8
years.   As  of  December  31,  1999  and  1998,   100,324  and  75,243  shares,
respectively, were exercisable.

Management  Stock Bonus Plan:  The Bank  adopted a  Management  Stock Bonus Plan
(Plan) which was approved by the  Company's  stockholders  on November 15, 1995.
Restricted  stock awards covering  shares  representing an aggregate of up to 4%
(87,500 shares) of the common stock issued by the Company in the mutual to stock
conversion  may be granted to directors and employees of the Bank.  These awards
vest at the rate of 20% per year of continuous service with the Bank. The status
of shares  awarded as of December  31, 1999 and 1998 and the changes  during the
years ended on those dates is presented below:

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                             -----------------------------
                                                                                 1999               1998
----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>
Outstanding at beginning of year                                                17,440             28,785
Granted                                                                              -                  -
Vested and distributed                                                          (8,720)           (11,345)
Forfeited                                                                            -                  -
                                                                             -----------------------------
Outstanding at end of year                                                       8,720             17,440
                                                                             =============================
</TABLE>

The Bank  recorded  expense of $40,  $84 and $129  relating to this Plan for the
years ended December 31, 1999, 1998 and 1997, respectively.

The Company contributed funds to the Plan's trust to allow the trust to purchase
all 87,500 shares on the open market.  The trust purchased these shares in 1996.
49,735 shares were  purchased for  outstanding  awards and the remaining  37,765
shares are recorded as treasury stock. Unearned compensation cost, recognized in
an amount  equal to the fair value of the awarded  shares at the award date,  is
recorded in stockholders' equity and amortized to operations as the shares vest.




                                       42

<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 15. Lease Commitments


The Company leases certain branch facilities under operating leases. Some leases
require the Company to pay related insurance,  maintenance and repairs, and real
estate taxes.  Future minimum rental  commitments  under operating  leases as of
December 31, 1999 are as follows:


Years Ending
--------------------------------------------------------------------------------
2000                                                                      $ 186
2001                                                                        129
2002                                                                        118
2003                                                                         80
2004                                                                         76
                                                                       ---------
                                                                          $ 589
                                                                       =========


Total rental expense related to operating  leases was  approximately  $213, $206
and $174 for the years ended December 31, 1999, 1998 and 1997, respectively.

Note 16. Financial Instruments with Off-Statement of Financial Condition Risk


The Company is a party to financial  instruments with off-statement of financial
condition  risk in the normal course of business to meet the financing  needs of
its customers.  These financial  instruments  include  primarily  commitments to
extend credit. Those instruments involve, to varying degrees, elements of credit
risk  and  interest-rate  risk  in  excess  of  the  amount  recognized  in  the
consolidated statement of financial condition.  The contract or notional amounts
of  those  instruments  reflect  the  extent  of the  Company's  involvement  in
particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other  party to the  financial  instrument  for  commitments  to extend  credit,
standby letters of credit,  and financial  guarantees  written is represented by
the contractual notional amount of those instruments.  The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-statement of financial condition instruments.

Commitments to extend credit on loans totaled  approximately $20,200 and $22,685
at December  31, 1999 and 1998,  respectively.  The  portion of  commitments  to
extend  credit  that  related  to fixed  rate  loans is $2,661  and $7,280 as of
December 31, 1999 and 1998, respectively.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  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
it is deemed  necessary  by the Company upon  extension  of credit,  is based on
management's  credit evaluation of the counterparty.  Collateral held varies but
normally includes real estate and personal property.


                                       43
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note 17. Concentrations


Concentration   by  geographic   location:   The  Company  makes   agricultural,
commercial,  residential  and  consumer  loans to  customers  primarily in south
central Minnesota.  Although the Company's loan portfolio is diversified,  there
is a  relationship  in this  region  between  the  agricultural  economy and the
economic performance of loans made to nonagricultural  customers.  The Company's
lending policies for agricultural and nonagricultural customers require loans to
be well-collateralized  and supported by cash flows. Collateral for agricultural
loans includes  equipment,  crops,  livestock and land. Credit losses from loans
related  to  the   agricultural   economy  are  consistent  with  credit  losses
experienced  in the  portfolio as a whole.  The  concentration  of credit in the
regional  agricultural  economy is taken into  consideration  by  management  in
determining the allowance for loan losses.


Concentration by institution:  As of December 31, 1999 the Company had $2,320 on
deposit with the FHLB of Des Moines.

Note 18. Fair Values of Financial Instruments


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

<TABLE>
<CAPTION>
                                                                              December 31,
                                               --------------------------------------------------------------------
                                                                 1999                              1998
-------------------------------------------------------------------------------------------------------------------
                                                      Carrying            Fair           Carrying           Fair
                                                      Amount              Value           Amount            Value
                                               --------------------------------------------------------------------
<S>                                                  <C>               <C>            <C>               <C>
Financial assets
Cash                                                  $  4,200          $  4,200        $ 19,446          $ 19,446
Certificates of deposit                                    400               400             500               500
Securities available for sale                            2,551             2,551           2,968             2,968
Securities held to maturity                             15,559            15,090           5,539             5,542
Loans receivable, net                                  172,713           172,198         154,305           155,650
Loans held for sale                                        521               521           6,097             6,097
Mortgage servicing rights                                  772               815             703               722
Accrued interest receivable                              1,350             1,350             843               843

Financial liabilities
Deposits                                               156,984           157,039         158,441           158,509
Borrowed funds                                          17,000            16,292           5,000             4,930
Advances from borrowers for
taxes and insurance                                      1,262             1,262           1,220             1,220
Accrued interest payable                                   116               116             100               100
                                               ====================================================================
</TABLE>

                                       44
<PAGE>

Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 19. Financial Information of Wells Financial Corp. (Parent Only)

The Company's  condensed  statements  of financial  condition as of December 31,
1999 and 1998 and related condensed statements of income and cash flows for each
of the years in the three year period ended December 31, 1999 are as follows:

<TABLE>
<CAPTION>
Condensed Statements of Financial Condition                                               1999               1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>
Assets
Cash, including deposits with Wells Federal
Bank, fsb 1999 $131; 1998 $195                                                         $    623           $  5,081
Certificates of deposit                                                                     200                200
Securities held to maturity                                                               3,747              2,499
Investment in Wells Federal Bank, fsb                                                    18,733             18,091
Accrued interest receivable and other assets                                                154                 21
                                                                             --------------------------------------
Total assets                                                                           $ 23,457           $ 25,892
                                                                             ======================================

Liabilities and Stockholders' Equity
Liabilities                                                                                 $ -                $ -
Stockholders' equity                                                                     23,457             25,892
                                                                             --------------------------------------
Total liabilities and stockholders' equity                                             $ 23,457           $ 25,892
                                                                             ======================================
</TABLE>

<TABLE>
<CAPTION>

Condensed Statements of Income                                               1999            1998             1997
-------------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>             <C>              <C>
Interest income                                                           $   392         $   261          $   402
Other expenses                                                                142             125               52
                                                                  -------------------------------------------------
Income before income taxes                                                    250             136              350
Income tax expense                                                            101              55               87
                                                                  -------------------------------------------------
Net income before equity in net
   income of subsidiary                                                       149              81              263
Equity in net income of subsidiary                                          1,725           2,395            1,957
                                                                  -------------------------------------------------
Net income                                                                $ 1,874         $ 2,476          $ 2,220
                                                                  =================================================
</TABLE>

                                       45
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------
Note  19.  Financial   Information  of  Wells  Financial  Corp.   (Parent  Only)
           (Continued)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Condensed Statements of Cash Flows                                          1999            1998             1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>              <C>
Cash Flows From Operating Activities
Net income                                                                $ 1,874         $ 2,476          $ 2,220
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary                           (1,725)         (2,395)          (1,957)
(Increase) decrease in accrued interest receivable                           (132)            (10)               3
Decrease in other liabilities                                                   -              (6)             (55)
                                                                  -------------------------------------------------
Net cash provided by
   operating activities                                                        17              65              211
                                                                  -------------------------------------------------
Cash Flows From Investing Activities
Purchase of certificates of deposit                                          (200)           (100)            (350)
Purchase of securities held to maturity                                    (3,747)         (2,499)          (1,750)
Proceeds from the maturities of
certificates of deposit                                                       200             250              200
Proceeds from maturity of securities
held to maturity                                                            2,499             750            1,499
Dividends from subsidiaries                                                   975           9,000                -
Decrease in loan to Wells Federal Bank, fsb                                     -           4,000                -
                                                                  -------------------------------------------------
Net cash provided by (used in)
   investing activities                                                      (273)         11,401             (401)
                                                                  -------------------------------------------------
Cash Flows From Financing Activities
Payments relating to ESOP stock                                               156             166              139
Purchase of treasury stock                                                 (3,462)         (5,937)            (921)
Dividends paid                                                               (896)         (1,001)            (470)
                                                                  -------------------------------------------------
Net cash (used in) financing activities                                    (4,202)         (6,772)          (1,252)
                                                                  -------------------------------------------------
Net (decrease) increase in cash                                            (4,458)          4,694           (1,442)
Cash:
Beginning of year                                                           5,081             387            1,829
                                                                  -------------------------------------------------
End of year                                                                 $ 623         $ 5,081            $ 387
                                                                  =================================================
</TABLE>


                                       46
<PAGE>
Wells Financial Corp. and Subsidiary

Notes to consolidated financial statements
(dollars in thousands)
--------------------------------------------------------------------------------

Note 20.   Selected Quarterly Financial Data (Unaudited) (dollars in thousands,
           except per share data)

<TABLE>
<CAPTION>

                                                                      Year Ended December 31, 1999
                                               --------------------------------------------------------------------
                                                         First           Second            Third           Fourth
                                               --------------------------------------------------------------------
<S>                                                  <C>               <C>             <C>               <C>
Interest income                                        $ 3,509           $ 3,489         $ 3,556           $ 3,660
Net interest income                                      1,611             1,604           1,650             1,651
Provision for loan losses                                   23                 4               -                 -
Net income                                                 541               473             444               416
Earnings per share
Basic                                                     0.34              0.31            0.31              0.30
Diluted                                                   0.34              0.30            0.30              0.29
</TABLE>


<TABLE>
<CAPTION>

                                                                Year Ended December 31, 1998
-------------------------------------------------------------------------------------------------------------------
                                                         First           Second            Third           Fourth
                                               --------------------------------------------------------------------
<S>                                                  <C>               <C>             <C>               <C>
Interest income                                        $ 3,942           $ 3,806         $ 3,592           $ 3,550
Net interest income                                      1,751             1,683           1,640             1,638
Provision for loan losses                                   30                30              30                30
Net income                                                 658               622             576               620
Earnings per share
Basic                                                     0.35              0.34            0.34              0.39
Diluted                                                   0.34              0.33            0.33              0.38

</TABLE>

                                       47

<PAGE>
48


                 OFFICE LOCATION AND OTHER CORPORATE INFORMATION

                                CORPORATE OFFICE
                              Wells Financial Corp.
                              53 First Street, S.W.
                             Wells, Minnesota 56097


                   Board of Directors of Wells Financial Corp.
<TABLE>
<CAPTION>
<S>                                                 <C>
Lawrence H. Kruse                                    David Buesing
President, Wells Federal Bank                        President, Wells Concrete Products, Inc.

Gerald D. Bastian                                    Randel I. Bichler
Branch Manager, Wells Federal Bank                   Attorney,  Bichler Law Office

Dale E. Stallkamp                                    Richard Mueller
Dale E. Stallkamp, CPA                               Pharmacist, Wells Drug, Co


                   Executive Officers of Wells Financial Corp.

Lawrence H. Kruse                                    James D. Moll, CPA
  President and Chief                                  Treasurer and Principal Financial
   Executive Officer                                     and Accounting Officer

Gerald D. Bastian                                    Richard Mueller
   Vice President                                      Secretary
                                [GRAPHIC OMITTED]

Corporate Counsel:                                   Independent Auditors:
Randel I. Bichler, Esq.                              McGladrey & Pullen, LLP
  28 South Broadway                                    Suite 400
  Wells, Minnesota  56097                              102 South Broadway
                                                       Rochester, Minnesota  55904

Special Counsel:                                     Transfer Agent and Registrar:
Malizia Spidi & Fisch, PC                            Registrar and Transfer Company
  One Franklin Square                                  10 Commerce Drive
  Suite 700 East                                       Cranford, New Jersey  07016
  1301 K Street, N.W.
  Washington, D.C.  20005
                                [GRAPHIC OMITTED]
</TABLE>

The Company's Annual Report for the Year Ended December 31, 1999, filed with the
Securities  and Exchange  Commission on Form 10-KSB is available  without charge
upon  written  request.  For a copy of the Form  10-KSB  or any  other  investor
information,  please  write  the  Secretary  of the  Company,  at the  Company's
corporate office in Wells, Minnesota. The annual meeting of stockholders will be
held on April 19, 2000 at 4:00 p.m. at the Corporate Office, Wells, Minnesota.





                                       48