<TABLE>
<CAPTION>
<S>                               <C>
WELLS FINANCIAL CORP.
2002 ANNUAL REPORT

Wells Federal Bank,  fsb                    TABLE OF CONTENTS


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
Mankato
1601 Adams Street                       Consolidated Statements of Income....................19
Mankato, MN  56002-4068
                                        Consolidated Statements of Stockholders' Equity......20-21
North Mankato
1800 Commerce Drive                     Consolidated Statements of Cash Flows............... 22-24
North Mankato, Minnesota  56003
                                        Notes to Consolidated Financial Statements...........25-50
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
1618 South Minnesota Avenue
St. Peter, Minnesota  56082

Owatonna
496 North Street
Owatonna, Minnesota  55060

Farmington
115 Elm Street Suite I
Farmington, MN  55024

</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 and one
loan  origination  office in Dakota County,  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, 2001 - March 31, 2001          $18.50          $15.75
             April 1, 2001 - June 30, 2001             $17.60          $16.41
             July 1, 2001 - September 30, 2001         $18.74          $16.70
             October 1, 2001 - December 31, 2001       $19.50          $16.78
             January 1, 2002 - March 31, 2002          $21.38          $17.55
             April 1, 2002 - June 30, 2002             $23.04          $19.65
             July 1, 2002 - September 30, 2002         $22.75          $17.68
             October 1, 2002 - December 31, 2002       $20.64          $17.19


         The number of  stockholders  of record of common stock as of the record
date of March 3, 2003, was  approximately  500. 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,  2003,  there  were  1,128,277  shares
outstanding.

                                       1
<PAGE>

         The Company  declared  quarterly  cash  dividends of $0.18 per share on
January 22,  2002,  April 16,  2002,  July 23, 2002 and  October 22,  2002.  The
Company  declared  quarterly  cash  dividends  of $0.16 per share on January 16,
2001,  April 17, 2001, July 24, 2001 and October 16, 2001. The Company  declared
quarterly cash dividends of $0.15 per share on January 18, 2000,  April 19, 2000
and July 18, 2000.  The Company  declared a quarterly cash dividend of $0.16 per
share on October 17, 2000.

         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  2002,  2001 and 2000  the Bank  paid  $2,020,000,
$2,186,000 and $965,000 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)

<TABLE>
<CAPTION>
 Financial Condition
------------------------------------------------ ------------ ------------ ---------- ---------- ----------
 December 31,                                         2002         2001        2000       1999       1998
------------------------------------------------ ------------ ------------ ---------- ---------- ----------
<S>                                               <C>          <C>        <C>        <C>        <C>
Total assets                                        $220,616     $230,408   $221,848   $199,836   $191,876
Loans held for sale                                    9,695       10,155      1,955        521      6,097
Loans receivable, net                                145,586      160,513    191,137    172,713    154,305
Securities available for sale                         19,856       15,863     16,225      2,551      2,968
Securities held to maturity                                -            -          -     15,559      5,539
Certificates of deposit                                  200          200        200        400        500
Cash and cash equivalents                             36,571       38,070      7,606      4,200     19,446
Deposits                                             169,126      180,999    163,582    156,984    158,441
Borrowed funds                                        23,000       23,000     33,500     17,000      5,000
Equity                                                25,223       23,572     22,341     23,457     25,892

Summary of Operations
------------------------------------------------ ------------ ------------ ---------- ---------- ----------
Years Ended December 31,                              2002         2001        2000       1999       1998
------------------------------------------------ ------------ ------------ ---------- ---------- ----------

Interest income                                      $13,865      $16,376    $15,941    $14,214    $14,890
Interest expense                                       6,247        8,609      9,652      7,698      8,178
Net interest income                                    7,618        7,767      6,289      6,516      6,712
Provision for loan losses                                 23          180          -         27        120
Noninterest income                                     5,957        4,290      1,781      1,709      2,405
Noninterest expense                                    7,849        6,175      5,055      5,054      4,769
Net income                                             3,340        3,345      1,765      1,874      2,476

Other Selected Data
------------------------------------------------ ------------ ------------ ---------- ---------- ----------
Years Ended December 31,                              2002         2001        2000       1999       1998
------------------------------------------------ ------------ ------------ ---------- ---------- ----------

Return on average assets                                1.47%        1.51%      0.84%      0.97%      1.26%
Return on average equity                               13.31%       15.06%      7.92%      7.57%      8.85%
Average equity to average assets                       11.06%       10.03%     10.57%     12.77%     14.25%
Equity to assets                                       11.43%       10.23%     10.07%     11.74%     13.49%
Net interest rate spread (1)                            3.16%        3.22%      2.57%      2.89%      2.81%
Nonperforming assets to  total loans (2)                0.61%        0.55%      0.35%      0.10%      0.23%
Allowance for loan losses to total loans                0.62%        0.59%      0.43%      0.49%      0.53%
Allowance for loan losses to nonperforming            102.37%      107.90%     134.1%    702.46%    236.94%
loans (2)
Basic earnings per share                            $   2.84     $   2.91    $  1.41    $  1.26    $  1.42
Diluted earnings per share                          $   2.75     $   2.79    $  1.39    $  1.23    $  1.38

</TABLE>

(1)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(2)  Nonperforming loans are loans over 90 days past due.  Nonperforming  assets
     include nonperforming loans and foreclosed real estate.

                                       3
<PAGE>
<TABLE>
<CAPTION>
<S>                   <C>
[LOGO]  WELLS           =====================================================================
        Financial       53 FIRST ST. S.W., PO BOX 310 - WELLS, MN 56097-0310 - 507/553-3151
        CORP.
</TABLE>

To Our Stockholders:

         On behalf of the Board of  Directors  of Wells  Financial  Corp.,  I am
pleased to present our annual report for 2002. The Company's results for 2002 in
many respects  mirrored the financial data of 2001.  The current  business cycle
continued to show a decreasing  long-term  interest  rate  environment  that was
conducive for robust  mortgage  refinance  activity.  However,  the Company made
great  strides to diversify its base and prepare for the future in the financial
industry.

         Historically,  Wells  Financial  Corp. was primarily a lender on single
family mortgage  loans. As part of management's  strategic plan to diversify the
Company's  assets,  a commercial  loan  department was added during 2002.  While
retaining a strong  residential  loan  origination  program is  important to the
Company,  the commercial loan department and a renewed emphasis on consumer loan
originations  will help shift the Company's  dependence  away from single family
mortgage  loans.  Cross  selling  of  products  and  services  to  create a full
financial concept is also being emphasized.

         In addition to enhancing the Company's  products and services we opened
a loan origination office in Farmington,  Minnesota,  one of the fastest growing
areas in the State.  Also during 2002  construction  began on a new facility for
our Mankato office. This modern facility opened for business in February 2003.

         It was a pleasure to lead the Bank during 2002 with  continued  success
in  profitability  and  earnings.  It will be a continuing  challenge to develop
opportunities  and niches for 2003 and beyond as we expand  into a wider base in
the financial services network.

         The Board of Directors and the  management of the company  request your
continued support of their efforts to maximize the value of your company.  Thank
you for your  investment in Wells Financial  Corp.,  and we look forward to your
continued support.

Best Regards,

/s/Lonnie R. Trasamar

Lonnie R. Trasamar
President and CEO

                                       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.  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  to invest  in loans and  investment
securities.  Historically  the Bank primarily  invested in residential  loans on
owner occupied  properties and, to a lesser extent, in consumer and agricultural
related  loans.   Recently,  the  Bank  developed  commercial  real  estate  and
commercial  operating and term loan products and began marketing these products.
These loans, along with the consumer and agricultural  related loans,  typically
have adjustable interest rates and are for shorter terms than residential loans.
The  Bank's  investment   securities  consist  of  U.S.  government  and  agency
obligations, mortgage-backed securities, equity securities and FHLB stock.

         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.

                                       5
<PAGE>

(dollars in thousands)

         The Company may from time to time make written or oral "forward-looking
statements"   including  statements  contained  in  this  report  and  in  other
communications by the Company which are made in good faith pursuant to the "safe
harbor"  provisions  of the Private  Securities  Litigation  Reform Act of 1995.
These  forward-looking  statements,  such as statements of the Company's  plans,
objectives,  estimates and intentions,  involve risks and  uncertainties and are
subject to change based on various  important  factors (some of which are beyond
the Company's  control).  The following factors,  among others,  could cause the
Company's financial performance to differ materially from the plans, objectives,
expectations,   estimates  and  intentions  expressed  in  such  forward-looking
statements:  the  strength  of the United  States  economy  in  general  and the
strength of the local economies in which the Company  conducts  operations;  the
effects  of, and changes  in,  trade,  monetary  and fiscal  policies  and laws,
including  interest  rate  policies  of the Board of  Governors  of the  Federal
Reserve System, inflation, interest rate, market and monetary fluctuations;  the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of the products and services by users, including
the  features,  pricing  and  quality  compared  to  competitor's  products  and
services;  the  willingness  of users to  substitute  competitors'  products and
services for the Company's products and services;  the success of the Company in
gaining  regulatory  approval of its products and services,  when required;  the
impact of changes in financial  services' laws and  regulations  (including laws
concerning taxes,  banking,  securities and insurance);  technological  changes;
acquisitions;  changes in consumer spending and savings habits;  and the success
of the Company at managing the risks involved in the foregoing.

         The Company  cautions that the foregoing  list of important  factors is
not  exclusive.  The Company does not  undertake  to update any  forward-looking
statement,  whether written or oral, that may be made from time to time by or on
behalf of the Company.

Critical Accounting Estimates

         The consolidated financial statements include amounts that are based on
informed  judgments of management.  These estimates and judgments are the result
of  management's  need to  estimate  the effect of matters  that are  inherently
uncertain. Therefore, actual results could vary significantly from the estimates
used.  Management  considers the following  items to be the critical  accounting
estimates contained in the consolidated financial statements.

         Allowance  for Loan  Loss.  The  allowance  for  loan  loss is based on
management's  periodic review of the loan portfolio.  In evaluating the adequacy
of the allowance for loan loss, management considers factors including,  but not
limited to, specific loan impairment,  historical loss experience,  the size and
composition  of the loan  portfolio and current  economic  conditions.  Although
management  believes  that the  allowance  for  loan  loss is  maintained  at an
adequate level, there can be no assurance that further additions will not exceed
the estimated amounts.

         Mortgage  Servicing Rights.  Mortgage  servicing rights are capitalized
and then amortized  over the period of estimated  servicing  income.  Management
periodically evaluates its capitalized mortgage servicing rights for impairment.
The  valuation of mortgage  servicing  rights is based on  estimated  prepayment
speeds,  average  life,  estimated  ancillary  income,  estimated  costs and the
discount rate.  Changes in any of these factors from the estimates used may have
a material effect on the valuation of the mortgage  servicing  rights.  Although
management  believes  that the  assumptions  used to determine  the value of the
mortgage  servicing  rights are reasonable,  future material  adjustments may be
necessary if economic  conditions  vary from those used to estimate the value of
the mortgage servicing rights.

                                       6
<PAGE>

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.

         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 qualifying 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. 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  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 the first half of 1999, the last half of
2000 and all of 2001 and 2002 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 servicing.

         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.

                                       7
<PAGE>

(dollars in thousands)

Net Portfolio Value

         The Company measures its sensitivity to interest rate risk by using the
net portfolio  value (NPV) provided by the Office of Thrift  Supervision  (OTS).
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.  The following table presents the Bank's NPV at
December 31, 2002, 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>
       +300              $18,383       $(13,240)      (42)%       8.35%       -538 bp
       +200               23,216         (8,407)      (27)%      10.37%       -336 bp
       +100               27,790         (3,832)      (12)%      12.22%       -151 bp
         --               31,623                                 13.73%
       -100               34,158          2,535         8%       14.63%         90 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.

                                       8

<PAGE>

(dollars in thousands)


                                                                 At
                                                            December 31,
                                                                2002
                                                         -------------------

*** Risk Measures: 200 bp rate shock ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets                13.73%
Exposure Measure: Post-Shock NPV Ratio                       10.37%
Sensitivity Measure: Change in NPV Ratio                     336 bp


         The Bank is subject to  interest  rate risk and,  as can be seen above,
rising  interest rates will reduce the Bank's NPV.  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.

                                       9

<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,
                                ----------------------------------------------------------------------------------------------
                                                2002                            2001                         2000
                                ----------------------------------------------------------------------------------------------
                                                         Average                         Average                       Average
                                  Average                Yield/    Average               Yield/   Average              Yield/
                                  Balance     Interest    Cost     Balance    Interest    Cost    Balance   Interest    Cost
------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>           <C>         <C>    <C>        <C>           <C>    <C>        <C>         <C>
Interest-earning assets:
   Loans receivable (1)         $ 162,622     $ 12,339    7.59%  $ 186,772  $   15,239    8.16%  $ 184,773  $ 14,814    8.02%
   Investments (2)                 56,843        1,526    2.68%     28,524       1,137    3.99%     20,280     1,127    5.56%
                                ---------- ------------ -------- ---------- ----------- -------- ---------- --------- --------
      Total interest-earning
        assets                    219,465       13,865    6.32%    215,296      16,376    7.61%    205,053    15,941    7.77%

Noninterest earning assets          7,324                            6,217                           5,692
                                ----------                       ----------                      ----------
      Total assets              $ 226,789                        $ 221,513                       $ 210,745
                                ==========                       ==========                      ==========
Interest bearing liabilities:
   Savings, NOW and money
      Market accounts              57,183          783    1.37%     46,932       1,024    2.18%     45,037     1,136    2.52%
   Certificates of deposit        117,748        4,219    3.58%    123,809       6,234    5.04%    114,980     6,963    6.06%
   Borrowed funds                  23,000        1,245    5.41%     25,192       1,351    5.36%     25,538     1,553    6.08%
                                ---------- ------------ -------- ---------- ----------- -------- ---------- --------- --------
      Total interest bearing
        liabilities               197,931        6,247    3.16%    195,933       8,609    4.39%    185,555     9,652    5.20%


Noninterest bearing
  liabilities                       3,760                            3,373                           2,910
                                ----------                       ----------                      ----------
      Total liabilities           201,691                          199,306                         188,465
Equity                             25,098                           22,207                          22,280
                                ----------                       ----------                      ----------
      Total liabilities and
        equity                  $ 226,789                        $ 221,513                       $ 210,745
                                ==========                       ==========                      ==========
Net interest income                           $  7,618                       $   7,767                      $  6,289
                                           ============                     ===========                     =========
Interest rate spread (3)                                   3.16%                           3.22%                         2.57%
Net yield on interest
  earning assets (4)                                       3.47%                           3.61%                         3.07%
Ratio of average interest
  earning assets to average
  interest bearing liabilities       1.11X                           1.10X                           1.11X
                                ===========                      ==========                     ===========
</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.

                                       10
<PAGE>

(dollars in thousands)

Rate/Volume Analysis

         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,
                                    ------------------------------------------------------------------------------------
                                                  2002 vs. 2001                                2001 vs. 2000
                                    ----------------------------------------    ----------------------------------------
                                            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                  $(1,970)   $(1,068)   $   138    $(2,900)   $   160    $   262    $     3    $   425
  Investments                         1,129       (371)      (369)       389        458       (319)      (129)        10
                                    -------    -------    -------    -------    -------    -------    -------    -------
    Total interest-earning assets      (841)    (1,439)      (231)    (2,511)       618        (57)      (126)       435
                                    -------    -------    -------    -------    -------    -------    -------    -------

Interest expense:
  Deposit accounts                      (81)    (2,180)         5     (2,256)       583     (1,327)       (97)      (841)
  Borrowed funds                       (118)        13         (1)      (106)       (21)      (183)         2       (202)
                                    -------    -------    -------    -------    -------    -------    -------    -------
    Total interest-bearing
      liabilities                      (199)    (2,167)         4     (2,362)       562     (1,510)       (95)    (1,043)
                                    -------    -------    -------    -------    -------    -------    -------    -------

Change in net interest income       $  (642)   $   728    $  (235)   $  (149)   $    56    $ 1,453    $   (31)   $ 1,478
                                    =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

                                       11

<PAGE>

(dollars in thousands)

Financial Condition

         Total assets  decreased by $9,792 from $230,408 at December 31, 2001 to
$220,616  at  December  31,  2002.  Loans  receivable  and  loans  held for sale
decreased by $15,387 from  December 31, 2001 to December 31, 2002.  Due to lower
interest rates on residential mortgages, management elected to sell the majority
of the  residential  loans  originated  during  2002  to the  secondary  market.
Included in the loans that were  originated and sold during 2002 were loans from
the Company's  mortgage loan  portfolio  that were  refinanced  resulting in the
decrease in loans receivable.  Securities available for sale increased by $5,868
as the Company used some of the funds it received  from the  refinancing  of its
loan portfolio to purchase additional securities.

         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, 2002
and  December  31, 2001,  the balance in the  allowance  for loan losses and the
allowance  for loan losses as a percentage of total loans were $908 and $952 and
0.62% and 0.59%, respectively.

         Loans on which the accrual of interest had been  discontinued  amounted
to $428 and $408 at  December  31,  2002 and 2001,  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,
2002 and 2001.

         Liabilities decreased by $11,443, from $206,836 at December 31, 2001 to
$195,393 at December 31, 2002.  This  increase is primarily due to a decrease of
$11,873 in deposits.

         Stockholders'  equity  increased by $1,651 from $23,572 at December 31,
2001 to $25,223 at December 31, 2002. The increase in  stockholders'  equity was
primarily the result of net income for 2002 of $3,340 being partially  offset by
the payment of $845 in cash  dividends  and the  repurchase  of 88,860 shares of
treasury stock at a total cost of $1,771.  Also affecting  stockholders'  equity
was  the  allocation  of $297 of  employee  stock  ownership  plan  shares,  the
amortization  of $81 of unearned  compensation  and an increase of $396 from the
exercise of stock options.

Comparison of Operating Results for the Years Ended December 31, 2002 and 2001

         General. Net income decreased by $5, or 0.15% for 2002 when compared to
2001. The decrease in net income was due primarily to an in noninterest  expense
of  $1,674  for 2002 when  compared  to 2001  which was not fully  offset by the
$1,667 increase in noninterest income.

         Interest  Income.  Interest income  decreased by $2,511,  or 15.3%, for
2002 when  compared to 2001.  The decrease in interest  income  resulted  from a
$2,900  decrease in interest  income from the Company's loan portfolio which was
the result of a decrease in the average  balance of the Company's loan portfolio
during  2002 when  compared to 2001 and,  to a lesser  extent,  due to a general
decrease in the yield on the Company's loan portfolio.  Partially offsetting the
decrease in interest  income on the Company's loan portfolio was a $389 increase
in interest income on securities and interest bearing accounts.  The increase in
interest income from investment securities and interest-bearing accounts was the
result of an increase in the average  balance of the  Company's  securities  and
interest-bearing accounts during 2002 when compared to 2001.

                                       12
<PAGE>

(dollars in thousands)

         Interest Expense. Total interest expense decreased by $2,362, or 27.4%,
for the year ended  December 31, 2002 when  compared to the year ended  December
31, 2001.  Interest expense on deposits  decreased by $2,256,  or 31.1%,  during
2002 when  compared to 2001 due,  primarily,  to a decrease in the average  rate
paid on deposits and, to a lesser extent,  to a decrease in the average  balance
of deposits.  Interest expense on borrowed funds decreased by $106, or 7.8%, due
to a decrease in the average balance of borrowed funds during 2002 when compared
to 2001.

         Net Interest  Income.  Net interest income  decreased by $149, or 1.9%,
for the year ended  December 31, 2002 when  compared to the year ended  December
31, 2001 due to the changes in interest  income and interest  expense  described
above.

         Provision for Loan Losses.  The  provision  for loan loss  decreased by
$157 for the year  ended  December  31,  2002 when  compared  to the year  ended
December  31,  2001  due,  primarily,  to the  decrease  in the  Company's  loan
portfolio.  The provision reflects management's  monitoring of the allowance for
loan  losses in  relation  to the size and  quality  of the loan  portfolio  and
adjusts the  provision  for loan losses to  adequately  provide for loan losses.
Management  determines  the  amounts  of the  allowance  for  loan  losses  in a
systematic  manner  that  includes  self-correcting  policies  that  adjust loss
estimation  methods  on a  periodic  basis.  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 $1,667, or 38.9%,
for 2002 when compared to 2001  primarily due to an increase in the gain on sale
of loans  originated  for sale and, to a lesser  extent,  loan  origination  and
commitment fees. Market conditions during 2002 when compared to 2001 allowed the
Company  to obtain a more  favorable  price on the loans  sold to the  secondary
market.  These  increased  prices and an increase in the volume of loans sold to
the  secondary  market are the primary  reasons for the  increase in the gain on
sale of loans originated for sale.

         Noninterest Expense. Noninterest expense increased by $1,674, or 27.1%,
for the year ended  December 31, 2002 when  compared to the year ended  December
31,  2001  primarily  due  to  increases  in  the   amortization  and  valuation
adjustments for mortgage  servicing rights and  compensation  and benefits.  The
amortization and valuation  adjustments for mortgage  servicing rights increased
by $1,070 primarily due to a $660 valuation adjustment that the Company realized
during 2002.  The increase in  compensation  and benefits  resulted  from annual
compensation  adjustments and increases in commissions paid to loan officers for
the origination of loans.

         Income Tax Expense. Income tax expense remained relatively constant for
2002 when compared to 2001.

Comparison of Operating Results for the Years Ended December 31, 2001 and 2000

         General.  Net  income  increased  by  $1,580,  or 89.5%  for 2001  when
compared to 2000. The increase in net income was primarily due to an increase of
$2,509 in  noninterest  income and an increase of $1,478 in net interest  income
for  2001  when  compared  to  2000.   Partially  offsetting  the  increases  in
noninterest  income and net interest  income were increases of $1,120 and $1,107
in noninterest expense and income tax expense, respectively.

                                       13

<PAGE>

(dollars in thousands)

         Interest  Income.  Interest income  increased by $435, or 2.7%, for the
year ended  December 31, 2001 when compared to the year ended  December 31, 2000
primarily due to an increase of $425 in interest  income from the Company's loan
portfolio.  The increase in interest  income from loans was primarily the result
of an  increase  in the  average  yield of the loan  portfolio  during 2001 when
compared to 2000. To a lesser  extent,  an increase in the average amount of the
loan portfolio also contributed to the increase in interest income from the loan
portfolio.  Also contributing to the increase in interest income was an increase
in interest income from investments  which was due to an increase in the average
amount of the investment portfolio during 2001 when compared to 2000.

         Interest Expense. Total interest expense decreased by $1,043, or 10.8%,
for the year ended  December 31, 2001 when  compared to the year ended  December
31, 2000.  Interest expense on deposits decreased by $841, or 10.4%, during 2001
when  compared to 2000  primarily  due to a decrease in the average rate paid on
deposits.  Interest expense on borrowed funds decreased by $202 during 2001 when
compared to 2000  primarily  due to a decrease  in the average  cost of borrowed
funds during 2001 when compared to 2000.

         Net Interest Income. Net interest income increased by $1,478, or 23.5%,
for the year ended  December 31, 2001 when  compared to the year ended  December
31, 2000 due to the changes in interest  income and interest  expense  described
above.

         Provision for Loan Losses. The provision for loan loss was increased by
$180  for the year  ended  December  31,  2001.  There  was no  increase  in the
provision for loan loss for the year ended  December 31, 2000. Net loans charged
off  were  $61  and  $24  in  the  years  ended  December  31,  2001  and  2000,
respectively,   primarily  from  the  Company's   installment   loan  portfolio.
Classified  loans were 1.08% and 0.67% of total loans at  December  31, 2001 and
2000, respectively. Nonaccrual loans were $408 and $363 at December 31, 2001 and
2000,  respectively.  The  provision  reflects  management's  monitoring  of the
allowance  for loan  losses  in  relation  to the size and  quality  of the loan
portfolio and adjusts the  provision  for loan losses to adequately  provide for
loan losses.  Management determines the amounts of the allowance for loan losses
in a systematic manner that includes  self-correcting  policies that adjust loss
estimation  methods  on a  periodic  basis.  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 $2,509, or 140.9%,
for 2001 when compared to 2000 primarily due to increases in the gain on sale of
loans  originated for sale and loan  origination and commitment fees. Due to low
interest  rates on  residential  mortgage loans during 2001, the Company sold to
the secondary market a larger volume of loans during 2001 when compared to 2000,
resulting in increases in the gain on sale of loans originated for sale and loan
origination and commitment fees recognized immediately in income.

         Noninterest Expense. Noninterest expense increased by $1,120, or 22.2%,
for the year ended  December 31, 2001 when  compared to the year ended  December
31, 2000  primarily  due to an increase in  compensation  and benefits and to an
increase in other noninterest expense. The increase in compensation and benefits
resulted from annual compensation  adjustments and increases in commissions paid
to loan officers for the origination of loans.  Also affecting  compensation and
benefits  was an increase in the  Employee  Stock  Ownership  Plan  expense that
resulted from the  appreciation  of the  Company's  stock and an increase in the
amortization  of  Management  Stock  Bonus Plan  awards.  The  increase in other
noninterest  expense resulted  primarily from an increase in the amortization of
mortgage servicing rights.

                                       14

<PAGE>

(dollars in thousands)

         Income Tax  Expense.  Income tax expense  increased  by $1,107 for 2001
when compared to 2000. This increase is  proportionate to the increase in income
before income taxes for 2001 when compared to 2000.

Liquidity and Capital Resources

         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  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, 2002 and 2001, the
Bank's noninterest bearing cash was $1,393 and $1,240, respectively.

         Also  available  to  the  Bank  to  meet  liquidity   requirements  are
borrowings  from the Federal Home Loan Bank. At December 31, 2002,  the Bank had
$23,000 in  outstanding  advances  from the FHLB of Des Moines,  which have been
used to fund loan  originations.  At December 31, 2002, the Bank had the ability
to borrow approximately 2.04 times its then outstanding advances.

         On December 21, 2000, the Company  approved a stock buy back program in
which up to 125,000 shares of the common stock of the Company could be acquired.
During  2001 and 2002 the  Company  bought  116,140  shares  and  8,860  shares,
respectively,  which  completed  this buy back program.  During 2002 the Company
approved  stock buy back  programs  in which up to 120,000  shares of the common
stock of the Company  could be acquired.  During 2002 the Company  bought 80,000
shares of its common stock under these buy back programs.

         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, 2002, the Bank's tangible
capital  totaled  $19,245,  or 8.92% of adjusted total assets,  and core capital
totaled $19,245, or 8.92% of adjusted total assets, which substantially exceeded
the respective 1.5% tangible capital and 4.0% core capital  requirements at that
date by $16,009 and $10,616,  respectively, or 7.42% and 4.92% of adjusted total
assets, respectively.  The Bank's risk-based capital totaled $20,153 at December
31,  2002  or  14.72%  of  risk-weighted  assets,  which  exceeded  the  current
requirements of 8.0% of risk-weighted assets by $9,197 or 6.72% 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  accounting  principles  generally
accepted in the United  States of America,  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 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.

                                       15
<PAGE>

(dollars in thousands)

Off Balance Sheet Arrangements and Contractual Obligations

         The Company has no off balance  sheet  arrangements  that have,  or are
reasonably likely to have, a current or future effect on the Company's financial
condition,  changes in financial  condition,  revenues or  expenses,  results of
operations,  liquidity,  capital  expenditures  or  capital  resources  that  is
material to investors.

Impact of New Accounting Standards

         In December 2002, the Financial  Accounting Standards Board issued SFAS
No. 148 "Accounting  for Stock-Based  Compensation - Transition and Disclosure -
an amendment  of FASB  Statement  No. 123".  SFAS 148 amends SASF 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based  compensation.  In addition, this statement
amends the disclosure  requirements of SFAS 123 to require prominent disclosures
in both annual and interim  financial  statements about the method of accounting
for  stock-based  compensation  and the  effect of the method  used on  reported
results.  The  transition  guidance  and  annual  disclosure   requirements  are
effective for fiscal years ending after December 15, 2002. The Company  accounts
for its stock-based compensation in accordance with the provisions of Accounting
Principles  Board Opinion No. 25 - "Accounting  for Stock Issued to  Employees".
Accordingly,  the adoption of SFAS 148 had no material  effect on the  Company's
financial position, results of operations, or cash flows.

                                       16
<PAGE>


McGladrey & Pullen
Certified Public Accountants




                          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, 2002 and 2001, and
the related  consolidated  statements of income,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 2002.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the 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, 2002 and 2001, and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.


                                        /s/McGladrey & Pullen, LLP


Rochester, Minnesota
January 31, 2003


[Text Omitted]

                                       17
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2002 and 2001
(dollars in thousands)

<TABLE>
<CAPTION>
ASSETS                                                                         2002               2001
---------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                <C>
Cash, including interest-bearing accounts
  2002 $35,178; 2001 $36,830                                                 $ 36,571           $ 38,070
Certificates of deposit (Note 2)                                                  200                200
Securities available for sale (Note 3)                                         19,856             13,988
Federal Home Loan Bank Stock, at cost (Note 10)                                 1,875              1,875
Loans held for sale (Note 5)                                                    9,695             10,155
Loans receivable, net of allowance for loan losses of $908 in 2002
  and $952 in 2001 (Notes 5, 10, 16 and 17)                                   145,586            160,513
Accrued interest receivable                                                     1,387              1,529
Premises and equipment (Note 8)                                                 2,975              1,801
Foreclosed real estate (Note 7)                                                   209                252
Mortgage servicing rights, net (Note 6)                                         2,179              1,850
Other assets                                                                       83                175
                                                                            -----------------------------
    Total assets                                                            $ 220,616          $ 230,408
                                                                            =============================

LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------
Liabilities
  Deposits (Note 9)                                                         $ 169,126          $ 180,999
  Borrowed funds (Note 10)                                                     23,000             23,000
  Advances from borrowers for taxes and insurance (Note 6)                      1,347              1,371
  Deferred income taxes (Note 11)                                               1,376              1,224
  Accrued interest payable                                                         50                 75
  Accrued expenses and other liabilities                                          494                167
                                                                            -----------------------------
    Total liabilities                                                         195,393            206,836
                                                                            -----------------------------

Commitments, contingencies and credit risk (Notes 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                                                   16,985             16,932
  Retained earnings, substantially restricted                                  24,287             21,792
  Accumulated other comprehensive income                                          746                745
  Unearned Employee Stock Ownership Plan shares                                   (29)              (155)
  Unearned compensation-restricted stock awards                                  (138)              (128)
  Less cost of treasury stock, 2002 1,062,435 shares;
    2001 1,022,399 shares                                                     (16,847)           (15,833)
                                                                            -----------------------------
    Total stockholders' equity                                                 25,223             23,572
                                                                            -----------------------------
    Total liabilities and stockholders' equity                              $ 220,616          $ 230,408
                                                                            =============================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       18
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                           2002               2001               2000
-------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>                <C>
Interest and Dividend Income
  Loans receivable:
    First mortgage loans                                 $ 9,153           $ 11,658           $ 11,532
    Consumer and other loans                               3,186              3,581              3,282
    Investment securities and interest-
      bearing deposits                                     1,526              1,137              1,127
                                                         ----------------------------------------------
      Total interest income                               13,865             16,376             15,941
                                                         ----------------------------------------------
Interest Expense
  Deposits                                                 5,002              7,258              8,099
  Borrowed funds                                           1,245              1,351              1,553
                                                         ----------------------------------------------
      Total interest expense                               6,247              8,609              9,652
                                                         ----------------------------------------------
      Net interest income                                  7,618              7,767              6,289
Provision for loan losses (Note 5)                            23                180                  -
                                                         ----------------------------------------------
      Net interest income after
        provision for loan losses                          7,595              7,587              6,289
                                                         ----------------------------------------------
Noninterest Income
  Gain on sale of loans                                    2,229              1,150                166
  Loan origination and commitment fees                     1,696              1,457                211
  Loan servicing fees                                        661                464                401
  Insurance commissions                                      405                410                387
  Fees and service charges                                   892                774                442
  Gain on sale of securities, net (Note 3)                     -                  -                122
  Other                                                       74                 35                 52
                                                         ------------------------------------------------
      Total noninterest income                             5,957              4,290              1,781
                                                         ----------------------------------------------
Noninterest Expenses
  Compensation and benefits (Note 14)                      3,540              3,025              2,619
  Occupancy and equipment (Note 15)                          885                856                819
  Data processing                                            446                403                357
  Advertising                                                236                213                224
  Amortization and valuation adjustments for
    mortgage servicing rights (Note 6)                     1,453                383                152
  Other                                                    1,289              1,295                884
                                                         ----------------------------------------------
      Total noninterest expenses                           7,849              6,175              5,055
                                                         ----------------------------------------------
      Income before income taxes                           5,703              5,702              3,015
Income tax expense (Note 11)                               2,363              2,357              1,250
                                                         ----------------------------------------------
      Net income                                         $ 3,340            $ 3,345            $ 1,765
                                                         ==============================================

Earnings per share (Note 13):
  Basic                                                  $  2.84            $  2.91            $  1.41
                                                         ==============================================
  Diluted                                                $  2.75            $  2.79            $  1.39
                                                         ==============================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       19
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                 Accumu-  Unearned   Unearned
                                                                                 lated    Employee   Compen-
                                                                                 Other     Stock     sation                Total
                                            Compre-         Additional           Compre-  Ownership Restricted             Stock-
                                            hensive  Common  Paid-In   Retained  hensive   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, 1999                          $ 219   $ 16,939  $ 18,189    $ 655  $ (435)      $ (27)  $ (12,083) $ 23,457
  Comprehensive Income:
  Net income                                $ 1,765      -          -     1,765        -       -           -           -     1,765
    Other comprehensive income, net of tax:
      Unrealized gains on securities, net of
        related taxes                            43      -          -         -       43       -           -           -        43
                                            --------
    Comprehensive income                    $ 1,808
                                            ========
  Treasury stock purchases, 198,100 shares
    (Note 12)                                            -          -         -        -       -           -      (2,410)   (2,410)
  Cash dividends declared ($.61 per share)               -          -      (772)       -       -           -           -      (772)
  Amortization of unearned compensation                  -          -         -        -       -          39           -        39
  Options exercised, 700 options, (Note 14)              -         (3)        -        -       -           -          10         7
  Award of management stock bonus
    plan shares, 24,335 shares, (Note 14)                -          8         -        -       -        (249)        241         -
  Allocated ESOP shares                                  -         67         -        -     145           -           -       212
                                                     ------------------------------------------------------------------------------
Balances, December 31, 2000                            219     17,011    19,182      698    (290)       (237)    (14,242)   22,341
  Comprehensive Income:
  Net income                                 $ 3,345     -          -     3,345        -       -           -           -     3,345
    Other comprehensive income, net of tax:
      Unrealized gains on securities, net of
        related taxes                             47     -          -         -       47       -           -           -        47
                                            --------
    Comprehensive income                     $ 3,392
                                            ========
  Treasury stock purchases, 116,140 shares
    (Note 12)                                            -          -         -        -       -           -      (2,006)   (2,006)
  Cash dividends declared ($0.64 per share)              -          -      (735)       -       -           -           -      (735)
  Amortization of unearned compensation                  -          -         -        -       -         109           -       109
  Options exercised, 41,192 options (Note 14)            -       (211)        -        -       -           -         415       204
  Allocated ESOP shares                                  -        132         -        -     135           -           -       267
                                                     ------------------------------------------------------------------------------
Balances, December 31, 2001                          $ 219   $ 16,932  $ 21,792    $ 745  $ (155)     $ (128)  $ (15,833) $ 23,572
  Comprehensive Income:
  Net income                                 $ 3,340     -          -     3,340        -       -           -           -     3,340
    Other comprehensive income, net of tax:
      Unrealized gains on securities, net of
        related taxes                              1     -          -         -        1       -           -           -         1
                                            --------
    Comprehensive income                     $ 3,341
                                            ========
  Treasury stock purchases, 88,860 shares
    (Note 12)                                            -          -         -        -       -           -      (1,771)   (1,771)
  Cash dividends declared ($0.72 per share)              -          -      (845)       -       -           -           -      (845)
  Amortization of unearned compensation                  -          -         -        -       -          81           -        81
  Options exercised, 54,364 options (Note 14)            -       (293)        -        -       -           -         689       396
  Award of management stock bonus
    plan shares, 4,375 shares (Note 14)                  -         23         -        -       -         (91)         68         -
  Tax benefit related to exercised options               -        152         -        -       -           -           -       152
  Allocated ESOP shares                                  -        171         -        -     126           -           -       297
                                                     ------------------------------------------------------------------------------
Balances, December 31, 2002                          $ 219   $ 16,985  $ 24,287    $ 746   $ (29)     $ (138)  $ (16,847) $ 25,223
                                                     ==============================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       20 - 21
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands)

<TABLE>
<CAPTION>
                                                             2002         2001         2000
--------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>          <C>
Cash Flows From Operating Activities
  Net income                                            $   3,340    $   3,345    $   1,765
  Adjustments to reconcile net income to net
    cash provided by (used in) operating activities:
    Provision for loan losses                                  23          180            -
    Gain on sale of loans                                  (2,229)      (1,150)        (166)
    Gain on sale of securities                                  -            -         (122)
    Amortization and valuation adjustments for
      mortgage servicing rights                             1,453          383          152
    Compensation on allocation of ESOP shares                 297          267          212
    Amortization of unearned compensation                      81          109           39
    Tax benefit from exercised options                        152            -            -
    Loss on sale of foreclosed real estate                      6            -            1
    Write-down of foreclosed real estate                       30            -            -
    Gain on premises and equipment                              -            -          (12)
    Deferred income taxes                                     151          338           62
    Depreciation and amortization on premises
      and equipment                                           244          237          278
    Amortization of deferred loan origination fees           (165)        (240)        (116)
    Amortization of excess servicing fees                      16            7           10
    Amortization of securities premiums and discounts          27            1            -
    Loans originated for sale                            (151,422)    (123,439)     (21,067)
    Proceeds from the sale of loans held for sale         152,329      114,978       19,573
    Changes in assets and liabilities:
      Accrued interest receivable                             142          381         (560)
      Other assets                                             76          (76)        (161)
      Accrued expenses and other liabilities                  302         (100)         (28)
                                                       ------------------------------------
    Net cash provided by (used in)
      operating activities                                  4,853       (4,779)        (140)
                                                       ------------------------------------
</TABLE>

                           (Continued)

                                       22

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands)

<TABLE>
<CAPTION>
                                                              2002        2001        2000
------------------------------------------------------------------------------------------
<S>                                                     <C>         <C>         <C>
Cash Flows From Investing Activities
  Net (increase) decrease in loans                        $ 14,792    $ 30,492    $(18,175)
  Certificates of deposit:
    Maturities                                                 200       1,500         400
    Purchases                                                 (200)     (1,500)       (200)
  Purchase of securities available for sale                (18,286)     (8,944)     (7,177)
  Proceeds from sales, maturities and calls of
    securities available for sale                           12,393       9,383       8,118
  Securities held to maturity:
    Maturities and calls                                         -           -       1,139
  Purchase of premises and equipment                        (1,418)       (205)       (553)
  Proceeds from the disposal of premises and equipment           -           -          12
  Proceeds from the sale and redemption of
    foreclosed real estate                                     292           -          93
  Investment in foreclosed real estate                          (8)         (6)          -
                                                          --------------------------------
    Net cash provided by (used in) investing activities      7,765      30,720     (16,343)
                                                          --------------------------------

Cash Flows From Financing Activities
  Net increase (decrease) in deposits                      (11,873)     17,417       6,598
  Net increase (decrease) in advances from
    borrowers for taxes and insurance                          (24)        143         (34)
  Options exercised                                            396         204           7
  Proceeds from borrowed funds                                   -           -      46,600
  Repayments on borrowed funds                                   -     (10,500)    (30,100)
  Purchase of treasury stock                                (1,771)     (2,006)     (2,410)
  Dividends paid                                              (845)       (735)       (772)
                                                          --------------------------------
    Net cash provided by (used in) financing activities    (14,117)      4,523      19,889
                                                          --------------------------------
    Net increase (decrease) in cash                         (1,499)     30,464       3,406

Cash
  Beginning                                                 38,070       7,606       4,200
                                                          --------------------------------
  Ending                                                  $ 36,571    $ 38,070    $  7,606
                                                          ================================
</TABLE>
                           (Continued)

                                       23

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2002, 2001 and 2000
(dollars in thousands)

<TABLE>
<CAPTION>
                                                           2002      2001      2000
-----------------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>

Supplemental Disclosures of Cash Flow Information
  Cash payments for:
    Interest on deposits                                  $ 5,027   $ 7,281   $ 8,101
    Interest on borrowed funds                              1,245     1,382     1,538
    Income taxes                                            1,942     2,100     1,119
                                                          ===========================

Supplemental Schedule of Noncash Investing and
  Financing Activities:
  Other real estate acquired in settlement of loans       $   277   $   192   $    93
  Transfer of securities classified as held to maturity
    to available for sale                                       -         -    12,601
  Allocation of ESOP shares to participants                   126       135       145
  Net change in unrealized gains on securities
    available for sale                                          1        47        43
                                                          ===========================
</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


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.

Nature of operations:  Operations of Wells Financial Corp.  (Company)  primarily
consist of banking  services  through  Wells  Federal  Bank,  fsb (Bank).  Wells
Insurance Agency,  Inc., is a property and casualty  insurance  agency.  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.

Use of estimates: 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.  Two material estimates that are particularly
susceptible to significant  change in the near term relate to the  determination
of the allowance for loan losses and the valuation of mortgage servicing rights.

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.

Mortgage  servicing  rights are subject to change based  primarily on changes in
the mix of loans,  interest rates,  prepayment speeds, or default rates from the
estimates used in the valuation of the mortgage  servicing rights.  Such changes
may have a  material  effect  on the  amortization  and  valuation  of  mortgage
servicing  rights.  Although  management  believes that the assumptions  used to
evaluate the mortgage  servicing  rights for impairment are  reasonable,  future
adjustment may be necessary if future economic  conditions differ  substantially
from the  economic  assumptions  used to  determine  the  value of the  mortgage
servicing rights.

Comprehensive  income:  Comprehensive income is the total of reported net income
and all  other  revenues,  expenses,  gains and  losses  that  under  accounting
principles  generally  accepted in the United States of America bypass  reported
net income.  The Company  includes  unrealized  gains or losses,  net of tax, on
securities available for sale in other comprehensive income.

Segment disclosures: Operating segments are components of a business about which
separate financial  information is available and that are evaluated regularly by
the Company in deciding how to allocate  resources  and  assessing  performance.
Public  companies are required to report  certain  financial  information  about
operating  segments  in interim  and  annual  financial  statements.  Management
evaluates  the  operations of the Company as one  operating  segment,  community
banking,  due to the  materiality  of the  community  banking  operation  to the
Company's financial  condition and results of operations,  taken as a whole, and
as a result separate  segment  disclosures are not required.  The Company offers
the following products and services to customers:  deposits,  loans and mortgage
banking.  Revenues  for  each of  these  products  and  services  are  disclosed
separately in the Consolidated Statements of Income.

                                       25
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 1. Summary of Significant Accounting Policies (Continued)


Cash, cash  equivalents and cash flows: For the purpose of reporting cash flows,
cash includes cash on hand and amounts due from banks  (including  cash items in
process of clearing). Cash flows from loans and deposits are reported net.

Federal  Home Loan Bank stock:  The Bank,  as a member of the Federal  Home Loan
Bank (FHLB)  system,  is required to maintain an  investment in capital stock of
the FHLB in an amount equal to the greater of 1% of its  outstanding  home loans
or 5% of advances from the FHLB. No ready market exists for the FHLB stock,  and
it has no quoted market value.

Securities  available  for sale:  Securities  classified  as available  for sale
includes all equity securities, except for FHLB stock, and those debt 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
accumulated other comprehensive  income.  Amortization of premiums and accretion
of discounts,  computed by the interest method over their contractual lives, are
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  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 the  Company  has the
intent  to sell in the  foreseeable  future.  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 after  allocating  cost to
servicing rights retained. All sales are made without recourse.

Loans receivable:  The Company generally  originates  single-family  residential
loans within its primary  lending area of South Central  Minnesota.  These loans
are  secured  by the  underlying  properties.  The  Company  is also  active  in
originating  agricultural  real  estate,   commercial  real  estate,  commercial
operating  and secured  consumer  loans,  primarily  automobile  and home equity
loans.

Loans  receivable  that  management  has the intent and  ability to hold for the
foreseeable  future or until  maturity  or  pay-off  are stated at the amount of
unpaid  principal,  reduced by an  allowance  for loan  losses and net  deferred
origination fees. Interest is accrued daily on the outstanding balances.

Loan origination and commitment fees and certain direct loan  origination  costs
are deferred and the net amount amortized as an adjustment of the related loan's
yield.  The Company is generally  amortizing  these amounts over the contractual
life of the related  loans,  adjusted  for  estimated  prepayments  based on the
Company's historical prepayment experience.

                                       26
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 1. Summary of Significant Accounting Policies (Continued)


The Company  determines a loan to be delinquent when payments have not been made
according to contractual terms,  typically  evidenced by nonpayment of a monthly
installment by the due date. Accrual of interest is discontinued when management
believes,  after  considering  collection  efforts and other  factors,  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 has  demonstrated  the
ability to make all periodic interest and principal payments.


Allowance for loan losses: The allowance for loan losses is established  through
a provision for loan losses  charged to expense.  Loans are charged  against the
allowance for loan losses when management  believes that  collectibility  of the
principal  is  unlikely.  Subsequent  recoveries,  if any,  are  credited to the
allowance.

The allowance is an amount that  management  believes will be adequate to absorb
estimated losses relating to specifically  identified loans, as well as probable
credit  losses  inherent  in the  balance  of the  loan  portfolio,  based on an
evaluation of the  collectibility  of existing loans and prior loss  experience.
This  evaluation  also takes into  consideration  such factors as changes in the
nature and volume of the loan portfolio,  overall portfolio  quality,  review of
specific  problem loans,  and current  economic  conditions  that may affect the
borrower's  ability to pay.  This  evaluation  does not  include  the effects of
expected  losses on specific loans or groups of loans that are related to future
events or expected  changes in economic  conditions.  While  management uses the
best  information  available to make its evaluation,  future  adjustments to the
allowance  may be  necessary  if  there  are  significant  changes  in  economic
conditions.  In  addition,  regulatory  agencies,  as an integral  part of their
examination  process,  periodically  review the Bank's allowance for loan losses
and may  require  the Bank to make  additions  to the  allowance  based on their
judgment about information available to them at the time of their examinations.

The allowance  consists of specific,  general and  unallocated  components.  The
specific component relates to loans that are classified as doubtful, substandard
or special  mention.  For such loans that are also  classified  as impaired,  an
allowance is established  when the discounted cash flows (or collateral value or
observable  market price) of the impaired loan is lower than the carrying  value
of that loan. The general component covers  non-classified loans and is based on
historical loss  experience  adjusted for  qualitative  factors.  An unallocated
component is maintained to cover  uncertainties  that could affect  management's
estimate of probable losses. The unallocated component of the allowance reflects
the margin of  imprecision  inherent in the underlying  assumptions  used in the
methodologies for estimating specific and general losses in the portfolio.

A loan is impaired when it is probable, based on current information and events,
the Company  will be unable to collect all  contractual  principal  and interest
payments due in accordance with the terms of the loan agreement.  Impaired loans
are measured on an individual basis for commercial and construction  loans 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.  The amount of  impairment,  if any, and any  subsequent  changes are
included in the allowance for loan losses.

Large groups of smaller balance homogenous loans are collectively  evaluated for
impairment.  Accordingly,  the Company does not separately  identify  individual
consumer and residential loans for impairment disclosures.

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.

                                       27
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 1. Summary of Significant Accounting Policies (Continued)


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 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 exceeds 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  the  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 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, generally 7 to 10 years.

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  unless  the  effect is to reduce a loss or  increase
income per common share.

Employee Stock Plans:  At December 31, 2002,  the Company has three  stock-based
compensation  plans,  which are  described  more fully in Note 14.  The  Company
accounts for those plans under the recognition and measurement principles of APB
Opinion  No.  25,  Accounting  for  Stock  Issued  to  Employees,   and  related
interpretations. Accordingly, no stock-based employee compensation cost has been
recognized, as all options granted under those plans had an exercise price equal
to the market value of the  underlying  common  stock on the date of grant.  The
following table  illustrates the effect on net income and earnings per share had
compensation cost for all of the stock-based  compensation plans been determined
based on the grant date fair  values of awards  (the  method  described  in FASB
Statement No. 123, Accounting for Stock-Based Compensation):

                                       28
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 1. Summary of Significant Accounting Policies (Continued)


                                                     Years Ended December 31,
                                                    ---------------------------
                                                     2002      2001      2000
-------------------------------------------------------------------------------
Net income:
  As reported                                        $3,340   $ 3,345   $ 1,765
  Deduct total stock-based employee compensation
    expense determined under fair value based
    method for all awards, net of related tax effects   (28)      (42)      (23)
                                                     --------------------------
  Pro forma                                          $3,312   $ 3,303   $ 1,742
                                                     ==========================

Basic earnings per share:
  As reported                                        $ 2.84   $  2.91   $  1.41
  Pro forma                                            2.81      2.87      1.39

Diluted earnings per share:
  As reported                                        $ 2.75   $  2.79   $  1.39
  Pro forma                                            2.74      2.78      1.38


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.

     Federal Home Loan Bank stock:  The carrying amount approximates fair value.

     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 and conditions.

                                       29
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 1. Summary of Significant Accounting Policies (Continued)


     Deposits  and other  liabilities:  The fair  values  disclosed  for  demand
     deposits and savings  accounts are, by definition,  equal to 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.

     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.

     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 $200 at December 31, 2002 and
2001,  had  weighted  average  yields  of  1.6%  and  3.3%,  respectively,   and
contractual maturities of less than one year.



                                       30
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 3.  Securities Available for Sale

<TABLE>
<CAPTION>
                                                                     December 31, 2002
                                                 ----------------------------------------------------------
                                                                  Gross            Gross
                                                 Amortized      Unrealized       Unrealized
                                                   Cost           Gains            Losses        Fair Value
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>                 <C>           <C>
U.S. Government corporations and
  agencies                                       $ 18,188       $   289             $ (4)         $ 18,473
Obligations of states and political
  subdivisions                                        393            45                -               438
FHLMC stock                                            16           929                -               945
                                                 ----------------------------------------------------------
                                                 $ 18,597       $ 1,263             $ (4)         $ 19,856
                                                 ==========================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                     December 31, 2001
                                                 ----------------------------------------------------------
                                                                  Gross            Gross
                                                 Amortized      Unrealized       Unrealized
                                                   Cost           Gains            Losses        Fair Value
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>                 <C>           <C>
U.S. Government corporations and
  agencies                                       $ 12,295       $   265            $(57)         $ 12,503
Obligations of states and political
  subdivisions                                        421            17               -               438
FHLMC stock                                            16         1,031               -             1,047
                                                 ----------------------------------------------------------
                                                 $ 12,732       $ 1,313            $(57)         $ 13,988
                                                 ==========================================================
</TABLE>

                                       31
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 3. Securities Available for Sale (Continued)


Contractual  maturities:  The scheduled  maturities of securities  available for
sale at December 31, 2002 were as follows:

                                                   Amortized
                                                      Cost           Fair Value
--------------------------------------------------------------------------------
Due in one year or less                            $     24           $     20
Due in one to five years                             18,557             18,891
                                                   ----------------------------
                                                     18,581             18,911
Equity securities                                        16                945
                                                   ----------------------------
                                                   $ 18,597           $ 19,856
                                                   ============================

Equity securities do not have contractual maturities.

Realized gains and losses:  Sales of securities  available for sale for the year
ended December 31, 2000 of $8,118  resulted in $262 of gross realized losses and
$384 of gross realized gains. There were no sales of securities during the years
ended December 31, 2002 and 2001.

Changes in other comprehensive income - unrealized gains on securities available
for sale:


                                                      Years Ended December 31,
                                                   -----------------------------
                                                    2002       2001        2000
--------------------------------------------------------------------------------
Balance, beginning                                 $ 745      $ 698       $ 655
  Unrealized gains during the year                     2         78         194
  Reclassification adjustment for net (gain)
    realized in net income                             -          -        (122)
  Deferred tax effect relating to unrealized
    appreciation                                      (1)       (31)        (29)
                                                   -----------------------------
Balance, ending                                    $ 746      $ 745       $ 698
                                                   =============================

Securities  with a carrying  value of $2,016 and $1,998 at December 31, 2002 and
2001,  respectively,  were  pledged  to  secure  public  deposits  and for other
purposes as required or permitted by law.



                                       32
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 4. Securities Held to Maturity


On August 17, 2000, the Company transferred all securities classified as held to
maturity to available for sale.  The securities  were  transferred to allow more
flexibility in managing the Company's assets.  The carrying value and fair value
of the securities on the date of transfer was $12,601 and $12,193  respectively.
Immediately following the transfer,  securities with a fair value of $7,989 were
sold at a loss of $262.

Note 5. Loans Receivable and Loans Held for Sale


Composition of loans receivable:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                    -----------------------------
                                                                         2002               2001
-------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>
First mortgage loans (principally conventional):
  Secured primarily by one-to-four family residences                 $  50,765          $  77,919
  Secured by other properties, primarily agricultural real estate       52,397             41,994
  Construction                                                           4,830              2,185
                                                                     ----------------------------
    Total first mortgage loans                                         107,992            122,098
                                                                     ----------------------------
  Consumer and other loans:
  Home equity, home improvement and second mortgages                    22,826             26,228
  Agricultural and commercial operating loans                            5,917              3,591
  Vehicle loans                                                          5,687              4,914
  Other                                                                  4,292              4,949
                                                                     ----------------------------
    Total consumer and other loans                                      38,722             39,682
                                                                     ----------------------------
    Total loans                                                        146,714            161,780
Less:
  Net deferred loan origination fees                                      (220)              (315)
  Allowance for loan losses                                               (908)              (952)
                                                                     ----------------------------
    Loan receivable, net                                             $ 145,586          $ 160,513
                                                                     ============================
</TABLE>


                                       33



<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 5. Loans Receivable and Loans Held for Sale (Continued)


Allowance for loan losses:

                                                  Years Ended December 31,
                                              --------------------------------
                                               2002         2001         2000
------------------------------------------------------------------------------
Balance, beginning                            $ 952        $ 833        $ 857
  Provision for loan losses                      23          180            -
  Loans charged off                             (86)         (89)         (49)
  Recoveries                                     19           28           25
                                              --------------------------------
Balance, ending                               $ 908        $ 952        $ 833
                                              ================================

Nonaccrual and impaired  loans:  Loans on which the accrual of interest has been
discontinued  totaled $428,  $408, and $363 at December 31, 2002, 2001 and 2000,
respectively.  The effect of nonaccrual loans was not significant to the results
of operations.  The amount of impaired  loans was not material  during the years
ended December 31, 2002, 2001 and 2000.

Past due  loans:  The  amount of loans  past due  ninety  days or more and still
accruing  interest  amounted  to $250 and $224 at  December  31,  2002 and 2001,
respectively.

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, 2002 and 2001 were $367 and $428,  respectively.  During 2002,  new
loans to such related parties were $113 and repayments were $174.

Loans held for sale: As of December 31, 2002 and 2001, the Company's  loans held
for sale were $9,695 and $10,155,  respectively,  and  consisted of  one-to-four
family residential real estate loans.  Outstanding  commitments to sell loans at
December 31, 2002 were $9,695.

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,  2002 and 2001  were  $307,324  and  $229,870,
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
$1,054 and $943 at December 31, 2002 and 2001, respectively.

                                       34
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 6.  Loan Servicing (Continued)

Mortgage  servicing  rights,  net of  valuation  allowance,  are  summarized  as
follows:

                                                    2002               2001
----------------------------------------------------------------------------
Balance at beginning of year, net                $ 1,850              $ 822
  Mortgage servicing rights capitalized            1,782              1,411
  Amortization expense                              (793)              (383)
  Valuation allowance                               (660)                 -
                                                 ---------------------------
Balance at end of year, net                      $ 2,179            $ 1,850
                                                 ===========================

The fair values of capitalized  mortgage servicing rights were $2,179 and $1,868
at December 31, 2002 and 2001,  respectively.  The key economic assumptions used
in determining the fair value of mortgage  servicing rights at December 31, 2002
are as follows:

Prepayment speed (annual CPR)                                         19.6%
Weighted average life (years)                                          4.6
Discount rate                                                          8.0%
                                                                    ======

Note 7. Foreclosed Real Estate


The Company had  investments  in real estate  acquired  through  foreclosure  or
deeded to the Company in lieu of foreclosure of $209 and $252 as of December 31,
2002 and 2001, respectively.  No allowances for losses on foreclosed real estate
were required at these dates.

Note 8.  Premises and Equipment


Premises and equipment are summarized as follows:

                                                               December 31,
                                                       -----------------------
                                                          2002            2001
------------------------------------------------------------------------------
Land                                                   $   244         $  $ 79
Buildings and improvements                               2,868           1,918
Leasehold improvements                                     111             107
Furniture, fixtures and equipment                        1,671           1,443
                                                       -----------------------
                                                         4,894           3,547
Less accumulated depreciation and amortization           1,919           1,746
                                                       -----------------------
                                                       $ 2,975         $ 1,801
                                                       =======================

                                       35

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 9.  Deposits


Composition of deposits:

                                                         December 31,
                                                -----------------------------
                                                     2002               2001
-----------------------------------------------------------------------------
Demand deposits, noninterest bearing            $   4,319          $   3,889
NOW and money market accounts                      34,744             28,984
Savings accounts                                   22,355             20,237
Certificates of deposit                           107,708            127,889
                                                -----------------------------
                                                $ 169,126          $ 180,999
                                                =============================

The aggregate amount of certificates of deposit over $100 was $9,564 and $12,788
at December 31, 2002 and 2001, respectively.

A summary of scheduled maturities of certificates of deposit is as follows:

Years Ending December 31,
------------------------------------------------------------------------------
2003                                                                 $  79,472
2004                                                                    13,211
2005                                                                    10,241
2006                                                                     4,784
                                                                     ---------
                                                                     $ 107,708
                                                                     =========

Note 10. Borrowed Funds


Maturities of advances from the Federal Home Loan Bank (FHLB) at December 31 are
as follows:

                                                                2002      2001
--------------------------------------------------------------------------------
Fixed-rate advances (with rates ranging from 4.77% to 5.71%)
  Due from five to ten years                                  $ 23,000  $ 23,000
                                                            ====================

All advances are subject to various prepayment, call, and conversion provisions.

The  advances are  collateralized  by FHLB stock and first  mortgage  loans with
balances exceeding 120% of the amount of the advances.

                                       36
<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:

                                         Years Ended December 31,
                               ----------------------------------------------
                                 2002               2001               2000
-----------------------------------------------------------------------------
Federal:
  Current                      $ 1,659            $ 1,530              $ 886
  Deferred                         115                256                 47
                               ----------------------------------------------
                                 1,774              1,786                933
                               ----------------------------------------------
State:
  Current                          553                489                302
  Deferred                          36                 82                 15
                               ----------------------------------------------
                                   589                571                317
                               ----------------------------------------------
Total                          $ 2,363            $ 2,357            $ 1,250
                               ==============================================

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:

                                                   Years Ended December 31,
                                             -----------------------------------
                                                2002         2001          2000
--------------------------------------------------------------------------------
Computed "expected" tax expense              $ 1,996      $ 1,996       $ 1,055
State income taxes, net of federal benefit       369          368           195
Effect of graduated rates                        (57)         (57)          (30)
Other                                             55           50            30
                                             -----------------------------------
    Income tax expense                       $ 2,363      $ 2,357       $ 1,250
                                             ===================================

                                       37

<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:

                                                             December 31,
                                                      --------------------------
                                                          2002             2001
-------------------------------------------------------------------------------
Deferred tax assets:
  Allowance for loan losses                           $    367         $    385
  Management stock bonus plan                               46               35
  Accrued compensation                                      16               12
  Other                                                     23               34
                                                      -------------------------
                                                           452              466
  Less valuation allowance                                   -                -
                                                      -------------------------
    Total deferred tax assets                              452              466
                                                      -------------------------

Deferred tax liabilities:
  Premises and equipment                                   149              125
  Securities available for sale                            513              511
  FHLB stock dividends                                     189              189
  Mortgage servicing rights                                882              749
  Deferred loan origination fees                            49              102
  Other                                                     46               14
                                                      -------------------------
    Total deferred tax liabilities                       1,828            1,690
                                                      -------------------------
    Net deferred tax liability                        $ (1,376)        $ (1,224)
                                                      =========================

Retained  earnings at December  31, 2002 and 2001 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, 2002 and 2001.

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


The Company has  initiated  several  stock buy back  programs.  Shares  totaling
88,860,  116,140, and 198,100 were purchased during the years ended December 31,
2002, 2001 and 2000, respectively.

On January 28,  2003,  the Company  declared a dividend of $.20 per common share
payable on February 24, 2003 to  stockholders of record as of February 10, 2003.
The scheduled dividend is approximately $225.

                                       38
<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, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.

As of December 31, 2002, the most recent  notification from the Office of Thrift
Supervision  categorized  the Bank as "well  capitalized"  under the  regulatory
framework for Prompt  Corrective  Action. To be categorized as well 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.

                                       39
<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>

                                                                                                    Minimum
                                                                      Minimum                To Be Well Capitalized
                                                                     For Capital            Under Prompt Corrective
                                             Actual               Adequacy Purposes            Action Provisions
                                   ---------------------------------------------------------------------------------
                                        Amount     Percent        Amount      Percent        Amount       Percent
                                   ---------------------------------------------------------------------------------
<S>                                 <C>            <C>         <C>            <C>         <C>             <C>
As of December 31, 2002:
  Tier 1  (core) capital (to
    adjusted total assets)            $ 19,245       8.92%       $ 8,629        4.00%       $ 10,786        5.00%
  Risk-based capital (to risk-
    weighted assets)                    20,153      14.72         10,956        8.00          13,696       10.00
  Tangible (capital  to
    tangible assets)                    19,245       8.92          3,236        1.50             N/A         N/A
  Tier 1 (core) capital (to
    risk-weighted assets)               19,245      14.05            N/A         N/A           8,217        6.00


As of December 31, 2001:
  Tier 1 (core) capital (to
    adjusted total assets)            $ 18,474       8.16%       $ 9,052        4.00%       $ 11,316        5.00%
  Risk-based capital (to risk-
    weighted assets)                    19,425      13.63         11,403        8.00          14,254       10.00
  Tangible capital (to
    tangible assets)                    18,474       8.16          3,395        1.50             N/A         N/A
  Tier 1 (core) capital (to
    risk-weighted assets)               18,474      12.96            N/A         N/A           8,552        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 declared dividends of $2,020 and $2,186 to the
Company during the years ended December 31, 2002 and 2001, respectively.

                                       40

<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)


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, 2002
                                                                       ---------------------------------------------
                                                                                                           Per Share
                                                                        Income             Shares             Amount
--------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>               <C>
Basic EPS
  Net income                                                           $ 3,340          1,177,027             $ 2.84
                                                                                                       =============
Effect of Dilutive Securities
  Stock options                                                              -             36,099
                                                                       --------------------------
Diluted EPS
  Net income plus assumed conversions                                  $ 3,340          1,213,126             $ 2.75
                                                                       =============================================
</TABLE>

<TABLE>
<CAPTION>
                                                                            For the Year Ended December 31, 2001
                                                                       ---------------------------------------------
                                                                                                           Per Share
                                                                        Income             Shares             Amount
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>                   <C>

Basic EPS
  Net income                                                           $ 3,345          1,150,640             $ 2.91
                                                                                                       =============
Effect of Dilutive Securities
  Stock options                                                              -             47,766
                                                                       --------------------------
Diluted EPS
  Net income plus assumed conversions                                  $ 3,345          1,198,406             $ 2.79
                                                                       ============================================
</TABLE>

<TABLE>
<CAPTION>

                                                                             For the Year Ended December 31, 2000
                                                                       ---------------------------------------------
                                                                                                           Per Share
                                                                        Income             Shares             Amount
--------------------------------------------------------------------------------------------------------------------
Basic EPS
<S>                                                                  <C>              <C>                   <C>
  Net income                                                           $ 1,765          1,252,008             $ 1.41
                                                                                                       =============
Effect of Dilutive Securities
  Stock options                                                              -             18,058
                                                                        -------------------------
Diluted EPS
  Net income plus assumed conversions                                  $ 1,765          1,270,066             $ 1.39
                                                                       =============================================
</TABLE>

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 and other  contributions  to the plan. No
contributions  were made by the Bank for the years ended December 31, 2002, 2001
and 2000.

                                       41

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 14. Employee Benefit Plans (Continued)


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 $297,  $267 and $212 for the years ended
December 31, 2002, 2001 and 2000, respectively.

Shares of Company  stock held by the ESOP at  December  31, 2002 and 2001 are as
follows:

                                                      2002               2001
------------------------------------------------------------------------------
Shares released for allocation                     118,610            108,959
Unreleased (unearned) shares                         3,575             19,313
                                                   ---------------------------
                                                   122,185            128,272
                                                   ===========================

Fair value of unreleased (unearned) shares            $ 75              $ 362
                                                   ===========================

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. The
options have a maximum term of 10 years,  at the market price on the grant date.
The options vest at the rate of 20% per year. 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.

Stock  option  awards of  125,405  were  made to  directors,  officers,  and key
employees  at an  exercise  price of $11.00  per  share on  November  15,  1995.
Additional awards of 32,805,  12,780, and 10,935 were made on September 7, 2000,
September  19, 2000,  and July 23, 2002,  respectively.  The exercise  price for
awards made on September  7, 2000,  September  19, 2000,  and July 23, 2002 were
$12.88, $13.38, and $20.90, respectively. At each award date, the exercise price
is equal to the fair market price on the date of the award.

                                       42

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 14. Employee Benefit Plans (Continued)


Grants under the Plan are accounted for following APB Opinion No. 25 and related
interpretations.  Accordingly, no compensation cost has been recognized 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 $46, $69, and $38
for the years ended December 31, 2002, 2001 and 2000, respectively.

The fair  value of the  125,405  options,  granted on  November  15,  1995,  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.

The fair  value of the  32,805  options,  granted  on  September  7,  2000,  was
estimated at the grant date using the Black-Scholes option-pricing model using a
dividend rate of 4.97%,  price  volatility of 10%, a risk-free  interest rate of
5.58%,  and an estimated life of 10 years.  The estimated fair value was $134 at
September 7, 2000, the grant date.

The fair value of the  12,780  options,  granted  on  September  19,  2000,  was
estimated at the grant date using the Black-Scholes option-pricing model using a
dividend rate of 4.79%,  price  volatility of 10%, a risk-free  interest rate of
5.97%,  and an estimated  life of 10 years.  The estimated fair value was $40 at
September 19, 2000, the grant date.

The fair value of the 10,935 options, granted on July 23, 2002, was estimated at
the grant date using the  Black-Scholes  option-pricing  model  using a dividend
rate of 3.45%,  price volatility of 10%, a risk-free interest rate of 3.56%, and
an  estimated  life of 10 years.  The  estimated  fair value was $35 at July 23,
2002, the grant date.

The status of the Company's  fixed stock option plan as of December 31, 2002 and
2001, and changes during the years ended on those dates are presented below:

<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                        ------------------------------------------------------
                                                2002                          2001
                                        ------------------------------------------------------
                                                   Weighted-Average           Weighted-Average
Fixed Options                            Shares     Exercise Price     Shares  Exercise Price
----------------------------------------------------------------------------------------------
<S>                                   <C>             <C>           <C>           <C>
Outstanding at beginning of year        128,258         $ 11.70       170,290       $ 11.54
Granted                                  10,935           20.90             -             -
Exercised                               (54,364)          11.31       (41,192)        11.00
Forfeited                                (3,710)          11.00          (840)        13.38
                                        ------------------------------------------------------
Outstanding at end of year               81,119         $ 13.18       128,258       $ 11.70
                                        ======================================================
</TABLE>

                                       43

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 14. Employee Benefit Plans (Continued)



The status of the 81,119  options  outstanding at December 31, 2001 is presented
below:

                                                      Contractual      Number
Date of award               Shares           Price       Life        Exercisable
--------------------------------------------------------------------------------
November 15, 1995           29,813          $ 11.00       2.9           29,813
September 7, 2000           28,431          $ 12.88       7.7           11,372
September 19, 2000          11,940          $ 13.38       7.7            4,776
July 23, 2002               10,935          $ 20.90       9.5                -


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, 2002 and 2001 and the changes  during the
years ended on those dates is presented below:

                                                  Years Ended December 31,
                                               -----------------------------
                                                    2002               2001
----------------------------------------------------------------------------
Outstanding at beginning of year                  18,815             24,312
Granted                                            4,375                  -
Vested                                            (4,740)            (4,862)
Forfeited                                              -               (635)
                                               -----------------------------
Outstanding at end of year                        18,450             18,815
                                               =============================

The Bank  recorded  expense of $81,  $109 and $39  relating to this Plan for the
years ended December 31, 2002, 2001 and 2000, 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 were recorded as treasury stock. In September 2000,  24,335 of the shares
held as treasury stock were granted.  In July 2002,  4,375 of the shares held as
treasury stock were granted. 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.

                                       44

<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, 2002 are as follows:

Years Ending
--------------------------------------------------------------------------------
2003                                                                      $ 225
2004                                                                        189
2005                                                                        145
2006                                                                        140
2007                                                                        132
                                                                          ------
                                                                          $ 831
                                                                          ======

Total rental expense related to operating  leases was  approximately  $229, $221
and $222 for the years ended December 31, 2002, 2001 and 2000, 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.

                                       45
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

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


Commitments to extend credit on loans totaled  approximately $53,717 and $43,447
at December  31, 2002 and 2001,  respectively.  The  portion of  commitments  to
extend  credit  that  related to fixed rate loans is $48,539  and  $39,594 as of
December 31, 2002 and 2001, 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.


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: The nature of the Company's business requires that
it maintain  amounts  due from  banks,  which,  at times,  may exceed  federally
insured limits.  The Company has not experienced any losses in such amounts.  As
of December 31, 2002 and 2001, the Company had $33,304 and $36,930  respectively
on deposit with the FHLB of Des Moines.

                                       46

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 17. Fair Values of Financial Instruments and Interest Rate Risk


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


                                                   December 31,
                                   -------------------------------------------
                                             2002                  2001
------------------------------------------------------------------------------
                                   Carrying      Fair      Carrying     Fair
                                    Amount       Value      Amount      Value
                                   -------------------------------------------
Financial assets
  Cash                             $ 36,571    $ 36,571    $ 38,070   $ 38,070
  Certificates of deposit               200         200         200        200
  Securities available for sale      19,856      19,856      13,988     13,988
  Federal Home Loan Bank stock        1,875       1,875       1,875      1,875
  Loans held for sale                 9,695       9,695      10,155     10,155
  Loans receivable, net             145,586     147,685     160,513    162,817
  Accrued interest receivable         1,387       1,387       1,529      1,529
  Mortgage servicing rights           2,179       2,179       1,850      1,868

Financial liabilities
  Deposits                          169,126     169,824     180,999    181,710
  Borrowed funds                     23,000      26,081      23,000     24,451
  Advances from borrowers for
    taxes and insurance               1,347       1,347       1,371      1,371
  Accrued interest payable               50          50          75         75
                                   ===========================================


Interest  rate  risk:  The  Company  assumes  interest  rate risk (the risk that
general interest rate levels will change) as a result of its normal  operations.
As a result, the fair values of the Company's financial  instruments will change
when interest  rate levels  change,  and that change may be either  favorable of
unfavorable to the Company.  Management  attempts to match  maturities of assets
and liabilities to the extent  believed  necessary to manage interest rate risk.
However,  borrowers with  fixed-rate  obligations are more likely to prepay in a
falling-rate environment and less likely to prepay in a rising-rate environment.
Conversely, depositors who are receiving fixed rates are more likely to withdraw
funds before maturity in a rising-rate environment and less likely to do so in a
falling-rate environment. Management monitors rates and maturities of assets and
liabilities  and attempts to minimize  interest rate risk by adjusting  terms of
new loans and deposits and by investing in  securities  with terms that mitigate
the Company's overall interest rate risk.

                                       47

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 18. Financial Information of Wells Financial Corp. (Parent Only)


The Company's  condensed  statements  of financial  condition as of December 31,
2002 and 2001 and related condensed statements of income and cash flows for each
of the years in the three year period ended December 31, 2002 are as follows:

Condensed Statements of Financial Condition               2002           2001
-------------------------------------------------------------------------------

Assets
  Cash, including deposits with Wells Federal
    Bank, fsb 2002 $6; 2001 $594                        $  1,980        $ 2,068
  Dividend receivable                                        630              -
  Investment in Wells Federal Bank, fsb                   22,202         21,223
  Accrued interest receivable and other assets               411            281
                                                   ----------------------------
      Total assets                                      $ 25,223       $ 23,572
                                                   ============================

Liabilities and Stockholders' Equity
  Liabilities                                           $      -       $      -
  Stockholders' equity                                    25,223         23,572
                                                   ----------------------------
      Total liabilities and stockholders' equity        $ 25,223       $ 23,572
                                                   ============================



Condensed Statements of Income             2002           2001           2000
------------------------------------------------------------------------------

Interest income                         $    47        $    85        $   202
Other expenses                              104            348            100
                                        --------------------------------------
    Income (loss) before income taxes       (57)          (263)           102
Income tax expense (benefit)                (23)          (107)            41
                                        --------------------------------------
    Net income (loss) before equity in
      net income of subsidiary              (34)          (156)            61
Equity in net income of subsidiary        3,374          3,501          1,704
                                        --------------------------------------
    Net income                          $ 3,340        $ 3,345        $ 1,765
                                        ======================================

                                       48
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

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


<TABLE>
<CAPTION>

Condensed Statements of Cash Flows                           2002       2001       2000
---------------------------------------------------------------------------------------
<S>                                                     <C>        <C>        <C>
Cash Flows From Operating Activities
  Net income                                              $ 3,340    $ 3,345    $ 1,765
  Adjustment to reconcile net income to net cash
    provided by operating activities:
    Equity in undistributed net income
      of subsidiary                                        (3,374)    (3,501)    (1,704)
    Dividends from subsidiary                               2,020      2,186        965
    Tax benefit from exercised options                        152          -          -
    (Increase) decrease in accrued interest
      receivable and other assets                            (132)      (218)       104
                                                          -----------------------------
    Net cash provided by
      operating activities                                  2,006      1,812      1,130
                                                          -----------------------------
Cash Flows From Investing Activities
  Proceeds from the maturities of
    certificates of deposit                                     -          -        200
  Proceeds from sales, maturities and calls
    of securities available for sale                            -      1,887      1,848
                                                          -----------------------------
    Net cash provided by
      investing activities                                      -      1,887      2,048
                                                          -----------------------------
Cash Flows From Financing Activities
  Payments relating to ESOP stock                             126        135        145
  Exercise of stock options                                   396        204          7
  Purchase of treasury stock                               (1,771)    (2,006)    (2,410)
  Dividends paid                                             (845)      (735)      (772)
                                                          -----------------------------
    Net cash (used in) financing activities                (2,094)    (2,402)    (3,030)
                                                          -----------------------------
    Net (decrease) increase in cash                           (88)     1,297        148
Cash:
  Beginning of year                                         2,068        771        623
                                                          -----------------------------
  End of year                                             $ 1,980    $ 2,068    $   771
                                                          =============================

Supplemental Schedule of Noncash Investing
  Activities:
  Transfer of securities classified as held to
    maturity to available for sale classification         $     -    $     -    $ 1,900
  Net change in unrealized loss in securities
    available for sale                                          -         47         43
                                                          =============================
</TABLE>
                                       49

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
--------------------------------------------------------------------------------

Note 19. Selected  Quarterly  Financial Data (Unaudited)  (dollars in thousands,
         except per share data)

                                        Year Ended December 31, 2002
                            ----------------------------------------------------
                              First          Second          Third        Fourth
                            ----------------------------------------------------
Interest income             $ 3,552         $ 3,523        $ 3,469       $ 3,321
Net interest income           1,856           1,923          1,944         1,895
Provision for loan losses        23               -              -             -
Net income                      853             684            846           957
Earnings per share
  Basic                        0.73            0.58           0.72          0.81
  Diluted                      0.71            0.56           0.70          0.78


                                        Year Ended December 31, 2001
                            ----------------------------------------------------
                              First          Second          Third        Fourth
                            ----------------------------------------------------
Interest income             $ 4,200         $ 4,095        $ 4,129       $ 3,952
Net interest income           1,751           1,899          2,022         2,095
Provision for loan losses        15              45             45            75
Net income                      529             715            959         1,142
Earnings per share
  Basic                        0.45            0.63           0.85          1.01
  Diluted                      0.43            0.60           0.81          0.97


                                       50