SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended           December 31, 1997
--------------------------------------------------------------------------------
                                     - OR -

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                   to
                               -----------------    -------------------

Commission file number:   0-25342
                        ---------------

                              Wells Financial Corp.
--------------------------------------------------------------------------------
              (Exact name of small business issuer in its charter)

                Minnesota                                      48-1799504
--------------------------------------------           -------------------------
       (State or other jurisdiction of                      (I.R.S. employer
      of incorporation or organization)                   identification no.)

    53 First Street, S.W., Wells, Minnesota                    56097
---------------------------------------------          -------------------------
   (Address of principal executive offices)                  (Zip code)

Registrant's telephone number, including area code:              (507) 553-3151
                                                               -----------------
Securities registered pursuant to Section 12(b) of the Act:         None
                                                               -----------------
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of class)

         Indicate  by check mark  whether  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.     Yes    X      No
                                           -------       -------

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

         Registrant's  revenues for the year ended  December 31, 1997 were $16.4
million.

         Registrant's  voting stock trades on the Nasdaq  National  Market under
the symbol  "WEFC."  The  aggregate  market  value of the  voting  stock held by
non-affiliates  of registrant,  based upon the closing price of such stock as of
March 10, 1998 ($18.50 per share), was $36.2 million.

         As of March 10, 1998,  registrant had 1,959,360  shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.       Part II -- Portions of Registrant's  Annual Report to Stockholders  for
         the fiscal year ended December 31, 1997.

2.       Part III --  Portions  of  Registrant's  Proxy  Statement  for the 1998
         Annual Meeting of Stockholders.


<PAGE>



                                     PART I

         WELLS  FINANCIAL  CORP.  (THE  "COMPANY")  MAY FROM  TIME TO TIME  MAKE
WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS",  INCLUDING STATEMENTS CONTAINED IN
THE COMPANY'S  FILINGS WITH THE  SECURITIES AND EXCHANGE  COMMISSION  (INCLUDING
THIS ANNUAL REPORT ON FORM 10-KSB AND THE EXHIBITS  THERETO),  IN ITS REPORTS TO
STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE COMPANY,  WHICH ARE MADE IN GOOD
FAITH BY THE COMPANY  PURSUANT TO THE "SAFE  HARBOR"  PROVISIONS  OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

         THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,  SUCH
AS STATEMENTS OF THE COMPANY'S PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND
INTENTIONS,  THAT 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 THESE  PRODUCTS AND
SERVICES BY USERS,  INCLUDING  THE  FEATURES,  PRICING  AND QUALITY  COMPARED TO
COMPETITORS'  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 SAVING 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.

Item 1. Business
----------------

General

         Wells  Financial  Corp.  ("Registrant"  or the  "Company") is a unitary
savings and loan holding  company that was  incorporated  in December 1994 under
the laws of the State of  Minnesota  for the  purpose  of  acquiring  all of the
issued and  outstanding  common stock of Wells Federal  Bank,  fsb (the "Bank").
This  acquisition  occurred  in April  1995 at the time the Bank  simultaneously
converted from a mutual to a stock institution,  and sold all of its outstanding
capital stock to the Company and the

                                        1

<PAGE>



Company made its initial public offering of common stock (the "Conversion").  As
of December 31,  1997,  the Company had total  assets of $201.4  million,  total
deposits of $145.4 million,  and stockholders'  equity of $29.6 million or 14.7%
of total assets under generally accepted  accounting  principles  ("GAAP").  The
only subsidiary of the Company is the Bank.

         The primary  activity  of the Company is  directing  and  planning  the
activities of the Bank, the Company's  primary asset.  At December 31, 1997, the
remainder of the assets of the Company were  maintained in the form of a loan to
the  Bank,  a loan  to an  employee  stock  ownership  plan  ("ESOP")  that  was
established  for the  benefit  of the Bank's  employees,  deposits  in  interest
bearing accounts with other financial institutions and selected investments. The
Company engages in no other significant activities.  As a result,  references to
the  Company or  Registrant  generally  refer to the Bank,  unless  the  context
otherwise indicates. In the discussion of regulation,  except for the discussion
of the regulation of the Company,  all regulations apply to the Bank rather than
the Company.

         The Bank is a federally  chartered stock savings bank  headquartered in
Wells, Minnesota.  The Bank has eight full service offices located in Faribault,
Martin, Blue Earth, Nicollet, Freeborn and Steele Counties,  Minnesota. The Bank
was founded in 1934 and obtained its current name in 1991.  The Bank's  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,  and the Bank is a member of the Federal  Home Loan Bank
("FHLB") System. The Bank is a community  oriented,  full service retail savings
institution offering traditional mortgage loan products. It is the Bank's intent
to remain an independent  community savings bank serving the local banking needs
of  Faribault,  Martin,  Blue Earth,  Nicollet,  Steele and  Freeborn  Counties,
Minnesota.

         The Bank  attracts  deposits  from the  general  public  and uses  such
deposits   primarily  to  invest  in  residential   lending  on  owner  occupied
properties.   The  Bank  also  makes  consumer  loans,   commercial  loans,  and
agricultural   related  loans  and  purchases   mortgage-backed  and  investment
securities.

         The principal sources of funds for the Registrant's  lending activities
are  deposits,  advances  from the Federal Home Loan Bank and the  amortization,
repayment,  and maturity of loans,  mortgage-backed  securities,  and investment
securities.  Principal  sources  of  income  are  interest  and  fees on  loans,
mortgage-backed  securities,  investment securities,  and deposits held in other
financial  institutions.  The Registrant's principal expense is interest paid on
deposits.

Market Area

         The Company's primary market area consists of Faribault,  Martin,  Blue
Earth, Nicollet, Steele and Freeborn Counties,  Minnesota.  Located southwest of
Minneapolis,  this  area  is  primarily  rural  and  contains  approximately  50
communities  ranging in population size from 200 to 40,000.  The primary lending
concentration  is in  the  Mankato  and  North  Mankato  area,  an  area  with a
relatively large population base. The Company has two offices in the Mankato and
North Mankato area.  Historically,  the economy in the Company's market area has
been dependent on  agriculture  and  agriculture  related  industries.  Economic
growth in the Company's market area remains dependent upon the local economy. In
addition, the deposit and loan activity of the Company is significantly affected
by economic conditions in its market area including the agriculture industry.

         Lending Activities. The Company's loan portfolio predominantly consists
of mortgage  loans secured by one to  four-family  residences.  The Company also
makes consumer loans and commercial loans. For its mortgage loan portfolio,  the
Company originates and retains adjustable rate loans. Currently,  the Company is
selling substantially all of the conventional fixed rate mortgage loans that it

                                        2

<PAGE>



originates  into the secondary  market.  The Company's  consumer loan  portfolio
consists  primarily of home equity or improvement  loans secured by second liens
on real estate on which the Company has the first lien. To a lesser extent,  the
consumer loan portfolio includes loans secured by vehicles and savings accounts.
The Company also originates  commercial and multi-family  real estate loans, the
vast majority of which are secured by farm land. In addition to loans secured by
farm real estate,  the Company makes commercial  business loans, the majority of
which are secured by farm operating equipment, livestock, crops on hand, growing
crops and farm real estate.

         The consumer,  commercial,  and commercial business loan portfolios are
primarily composed of adjustable rate loans.

         The  Company's  adjustable  rate loans reprice based on a cost of funds
index that is a lagging market index. A lagging index does not adjust as rapidly
as market  interest  rates and may not adjust as rapidly as would other indices.
During periods of increasing  interest rates,  use of a lagging index results in
adjustable rate loans repricing upward at a slower rate than if a leading market
index had been used.  During  periods of  decreasing  interest  rates,  use of a
lagging index results in adjustable  rate loans  repricing  downward at a slower
rate than if a leading market index had been used.


                                        3

<PAGE>



         Loan Portfolio Composition.  The following table sets forth information
concerning the composition of the Company's loan portfolio in dollar amounts and
in  percentages  of the total loan  portfolio  (before  deductions  for loans in
process,  deferred loan origination fees and costs and allowances for losses) as
of the dates indicated.
<TABLE>
<CAPTION>

                                                                           At December 31,
                                   -------------------------------------------------------------------------------------------------
                                           1993               1994              1995               1996                1997
                                   ------------------- -----------------  -----------------   ----------------   -------------------
                                      Amount   Percent   Amount  Percent    Amount  Percent    Amount  Percent    Amount   Percent
                                      ------   ------- --------  -------  --------  -------   -------- -------   --------  -------
                                                                        (Dollars in Thousands)
<S>                                 <C>        <C>     <C>       <C>      <C>       <C>     <C>        <C>     <C>         <C>
Real Estate Loans:
  One- to four-family.............. $118,294    82.08% $137,130   82.14%  $136,022   79.38%  $141,067   78.20%  $141,697    76.82%
  Multi-family.....................    1,015     0.70       951    0.57        880    0.51      1,355    0.75      1,167     0.63
  Commercial.......................    8,834     5.82     9,654    5.78     10,554    6.16     10,878    6.03     10,845     5.88
  Construction.....................    1,517     1.05     2,149    1.29      2,774    1.62      2,081    1.15      1,943     1.05
                                       -----     ----    ------  ------     ------  ------    -------   -----   --------   ------
      Total real estate loans......  129,210    89.65   149,884   89.78    150,230   87.67    155,381   86.13    155,652    84.38
                                     -------    -----   -------  ------    -------  ------    -------   -----   --------   ------

Other Loans:
 Consumer Loans:
  Savings account..................      531     0.37       471    0.28        436    0.25        443    0.25        349     0.19
  Vehicles.........................    2,308     2.60     2,573    1.54      3,353    1.96      4,619    2.56      4,988     2.70
  Home equity, home
   improvement and
   second mortgages................    8,135     5.65    10,392    6.23     12,875    7.51     15,197    8.42     18,781    10.18
  Other............................    2,973     2.06     2,811    1.68      3,279    1.91      3,588    1.99      3,411     1.85
                                       -----     ----    ------  ------     ------  ------     ------   -----    -------   ------
      Total consumer loans.........   13,947     9.68    16,247    9.73     19,943   11.63     23,847   13.22     27,529    14.92
Commercial business loans..........      957     0.67       810    0.49      1,191    0.70      1,171    0.65      1,299     0.70
                                    --------             ------  ------     ------  ------     ------   -----    -------   ------
      Total other loans............   14,904    10.35    17,057   10.22     21,134   12.33     25,018   13.87     28,828    15.62
                                     -------             ------  ------     ------  ------     ------  ------   --------  -------
      Total loans..................  144,114   100.00%  166,941  100.00%   171,364  100.00%   180,399  100.00%   184,480   100.00%
                                               =======           ======             ======             ======              ======

Less:
  Loans in process.................    1,190                685                493                623                351
  Deferred loan origination fees
   and costs.......................      544                695                689                714                642
  Allowance for loan losses........      398                376                512                615                763
                                      ------            -------            -------            -------           --------
      Total loans receivable, net.. $141,982           $165,185           $169,670           $178,447           $182,724
                                     =======            =======            =======            =======            =======
</TABLE>
                                       4
<PAGE>


         Origination, Purchase, and Repayment of Loans. The following table sets
forth the Company's loan originations,  sales, and principal  repayments for the
periods  indicated.  The Company originates loans for retention in its portfolio
and did not purchase loans during the years indicated.

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                     ----------------------------------------------------
                                       1993       1994       1995       1996       1997
                                     --------   --------   --------   --------   --------
                                                        (In Thousands)
<S>                                  <C>        <C>        <C>        <C>        <C>
Total gross loans receivable at
   beginning of year                 $122,583   $144,114   $166,941   $171,364   $180,399
                                     --------   --------   --------   --------   --------

Loans originated:
  One- to four-family residential      64,043     33,854     30,609     43,411     28,035
  Commercial and multi-family real
    estate                              1,042      1,623      1,366      1,759      2,286
  Construction loans                    3,627      5,114      5,522      6,776      5,182
  Consumer loans                        7,496      8,166     12,103     10,242     16,102
  Commercial business loans             1,257      1,760      1,567        610      1,983
                                     --------   --------   --------   --------   --------
Total loans originated                 77,465     50,517     51,167     62,798     53,588
                                     --------   --------   --------   --------   --------

Principal reductions:
  Loans sold                           24,552      2,971     13,584     19,209     14,735
  Loan principal repayments            31,382     24,719     33,160     34,554     34,772
                                     --------   --------   --------   --------   --------
Total principal reductions             55,934     27,690     46,744     53,763     49,507
                                     --------   --------   --------   --------   --------
Total gross loans receivable at
  end of year                        $144,114   $166,941   $171,364   $180,399   $184,480
                                     ========   ========   ========   ========   ========
</TABLE>


     Loan Sales.  During 1997,  the Company sold $14.7 million of mortgage loans
into the secondary market. The Company sells the FHA and Veterans Administration
("VA") loans that it originates to another  financial  institution.  The Company
does not retain  the  servicing  on the FHA/VA  loans.  The  Company  also sells
conforming  fixed-rate  conventional loans with  loan-to-value  ratios of 90% or
higher to the Federal  Home Loan  Mortgage  Corporation  ("FHLMC").  The Company
retains the  servicing  rights on these  loans.  All loans sold to FHLMC  ($14.3
million)  were sold without  recourse to the Company,  except for  documentation
deficiencies  that may require the Company to  repurchase  these loans  within a
limited time period following the sale to FHLMC. To a lesser extent, the Company
has sold loans with high loan to value ratios to maintain its loan quality.


                                        5

<PAGE>



     Loan Maturity  Tables.  The following  table sets forth the maturity of the
Company's  loan  portfolio  at  December  31,  1997.  The table does not include
prepayments, scheduled principal repayments or loans held for sale. All mortgage
loans are shown as maturing based on contractual maturities.

<TABLE>
<CAPTION>
                                       1- to 4-             Other
                                        Family           Residential                            Commercial
                                     Real Estate             and                               Business and
                                       Mortgage          Commercial         Construction         Consumer            Total
                                       --------          ----------         ------------         --------            -----
                                                                          (In Thousands)
Amounts Due:
<S>      <C>                          <C>                 <C>                 <C>               <C>               <C>
  Within 1 year.................         $ 376               $ 301             $1,943             $1,992           $  4,612
  1 to 3 years..................         1,203                 497                  -              3,897              5,597
  3 to 5 years..................         1,729               1,120                  -              5,414              8,263
  5 to 10 years.................         8,578               1,376                  -             15,412             25,366
  Over 10 years.................       129,811               8,718                  -              2,113            140,642
                                      --------              ------              -----             ------            -------
Total amount due................      $141,697             $12,012             $1,943            $28,828           $184,480
                                       =======              ======              =====             ======            -------

Less:
Allowance for loan losses....................................................................................          763
Loans in process.............................................................................................          351
Deferred loan fees...........................................................................................          642
                                                                                                                  --------
  Loans receivable, net......................................................................................     $182,724
                                                                                                                   =======
</TABLE>



     The  following  table sets  forth the dollar  amount of all loans due after
December  31,  1998  that have  pre-determined  interest  rates  and which  have
floating or adjustable  interest  rates.  This table does not include loans held
for sale.

<TABLE>
<CAPTION>
                                                                      Floating or
                                             Fixed Rates            Adjustable Rates         Total
                                             -----------            ----------------         -----
                                                                     (In Thousands)
<S>                                            <C>                     <C>                 <C>
One- to four-family........................    $49,356                  $91,965             $141,321
Commercial and multi-family real estate....      3,853                    7,858               11,711
Construction...............................         --                       --                   --
Commercial business and consumer...........     12,516                   14,320               26,836
                                                ------                   ------               ------
  Total....................................    $65,725                 $114,143             $179,868
                                                ======                  =======              =======

</TABLE>


     One- to  Four-Family  Residential  Loans.  The  Company's  primary  lending
activity consists of the origination of single family residential mortgage loans
secured by property  located in the Company's  primary  market area. The Company
generally  originates  one- to  four-family  residential  mortgage loans without
private  mortgage  insurance in amounts up to 80% of the lesser of the appraised
value or selling price of the mortgaged property. The Company will not originate
any loan which exceeds 95% of the lesser of the appraised value or selling price
and typically requires private mortgage insurance on any loans at 80% or more of
the value of the mortgaged  property.  The Company  originates  adjustable  rate
mortgage loans for retention in its portfolio with loan-to-value ratios of up to
95% and requires private mortgage insurance when the loan-to-value ratio exceeds
80%.


                                        6

<PAGE>



     The Company's  adjustable rate loans provide for annual 1%-2% interest rate
adjustments  with a maximum  adjustment  over the term of the loan of between 5%
and 6%. The Company also  permits  adjustable  rate loans to be  converted  into
fixed-rate loans.

     Loan originations are generally obtained from existing  customers,  members
of the local community, and referrals from realtors within the Company's lending
area. Mortgage loans originated and held by the Company in its portfolio include
due-on sale clauses which provide the Company with the contractual right to deem
the loan  immediately  due and payable in the event that the borrower  transfers
ownership of the property without the Company's consent.

     The Company  primarily  originates fixed and adjustable rate mortgage loans
with 15-30 year terms.  The Company offers various loan programs,  including low
documentation  loans for loans  with lower  loan-to-value  ratios and other loan
programs  using cost of funds or one-year U.S.  treasury  indices for adjustable
rate loan repricing.  Interest rates charged on mortgage loans are competitively
priced based on market  conditions and the Company's  cost of funds.  Throughout
the year,  origination fees for loans were generally 1% of the loan amount.  The
Company's standard underwriting  guideline for fixed-rate mortgage loans conform
to FHLMC guidelines and the loans may be sold in the secondary market to private
investors.  The Company customarily sells all Federal Housing Administration and
Veterans'  Administration  ("FHA/VA") loans as well as certain  conforming fixed
rate  mortgage  loans in the  secondary  market.  The  Company  also  originates
adjustable  rate  mortgages  ("ARMs") which adjust every year based upon various
indices.

     At December 31, 1997, the Company was servicing approximately $72.2 million
of loans  for  others,  primarily  long term  fixed  rate  loans  sold to FHLMC.
Generally, the Company retains all servicing on loans sold to FHLMC and does not
retain servicing on FHA/VA loans sold. Except for document deficiencies that may
occur during origination that may require a repurchase by the Company, loans are
sold without recourse.

     Consumer  Loans.  The  Company  offers  second  mortgage  loans  on one- to
four-family  residences  which are typically  offered as adjustable  rate loans.
Such loans are only made on  owner-occupied  one- to four-family  residences and
are  subject  to a 90%  combined  loan-to-value  ratio.  The  Company  holds the
majority of the  underlying  first  mortgages on these loans.  The  underwriting
standards  for second  mortgage  loans are  similar to the  Company's  standards
applicable to one- to four-family  residential  loans.  To a lesser extent,  the
Company  makes loans  secured by vehicles and by savings  accounts held with the
Company. Loans secured by vehicles totalled $4.99 million, or 2.70%, of the loan
portfolio at December 31, 1997.

     Federal  regulations permit federally chartered thrift institutions to make
secured and unsecured  consumer loans up to 35% of an institution's  assets.  In
addition,  a federal  thrift has lending  authority  above the 35%  category for
certain consumer loans, property improvement loans, and loans secured by savings
accounts. The Company originates consumer loans in order to provide a wide range
of  financial  services to its  customers  and  because  the  shorter  terms and
normally higher  interest rates on such loans help maintain a profitable  spread
between its average loan yield and its cost of funds.  Consumer loans,  however,
tend  to  have a  higher  risk  of  default  than  residential  mortgage  loans.
Typically,  based on the  Company's  experience,  a borrower  faced with  either
paying a mortgage loan to avoid foreclosure on the borrower's home or defaulting
on a consumer loan will continue paying the mortgage loan. At December 31, 1997,
the Company had  approximately  $22,000 in consumer loans that were more than 90
days delinquent.


                                        7

<PAGE>



     Commercial Real Estate Loans. In order to enhance yields on its assets, the
Company  originates  loans  secured by  commercial  real  estate.  Approximately
three-quarters  of this  portfolio is secured by farm real  estate.  Most of the
remainder of the  portfolio  is secured by church real  estate.  At December 31,
1997,  loans  secured by farm real estate were  originated  in amounts up to the
lesser of 65% of the  appraised  value of the  property  or $1,000 per  tillable
acre.  These  loans are  evaluated  on a cash flow basis in addition to an asset
value basis.  Loans  secured by church real estate are  generally  originated in
amounts up to 70% of the appraised value of the property.  At December 31, 1997,
the  Company's  largest  commercial  real  estate loan  consisted  of a $387,000
performing loan secured by a multi-family building in North Mankato,  Minnesota.
All commercial  real estate loans,  excluding those secured by farm real estate,
require  prior  approval  by the  Bank's  Board  of  Directors.  As  part of its
underwriting,  the Company requires that borrowers qualify for a commercial loan
at the fully indexed interest rate rather than at the origination interest rate.

     Loans secured by commercial real estate generally  involve a greater degree
of risk than  residential  mortgage loans and carry larger loan  balances.  This
increased   credit  risk  is  a  result  of  several   factors,   including  the
concentration  of  principal  in a limited  number of loans and  borrowers,  the
effects of general economic  conditions on income  producing  properties and the
increased  difficulty  of  evaluating  and  monitoring  these  types  of  loans.
Furthermore,  the  repayment  of loans  secured  by  commercial  real  estate is
typically  dependent  upon the  successful  operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. For loans secured by farm real estate, repayment
may be affected by weather  conditions  and  government  policies and  subsidies
concerning  farming.  For loans  secured by church  real  estate,  repayment  is
dependent upon the continuing financial support of the church's members.

     Commercial Business Loans. The Company's  commercial business loans consist
of agricultural operating loans secured primarily by farm equipment,  livestock,
crops, and farm real estate.  These loans are generally originated in amounts up
to 70% of the  appraised  value  of the  property.  These  loans  typically  are
adjustable rate loans with quarterly  adjustments.  Agricultural operating loans
generally involve a greater degree of risk than residential mortgage loans. This
increased credit risk is a result of several  factors,  including the effects of
general  economic  conditions  on income  producing  property and the  increased
difficulty of evaluating and monitoring these types of loans.  Furthermore,  the
repayment  of  agricultural  operating  loans is  typically  dependent  upon the
successful operation of the related property. If the cash flow from the property
is reduced, the borrower's ability to repay the loan may be impaired.

     Construction   Loans.   Construction   loans  are  made  on  single  family
residential  property to the  individuals  who are the owners and occupants upon
completion  of  construction.  These loans are made on a long term basis and are
classified as construction  permanent loans with no principal  payments required
during the first six months,  after which the payments are set at an amount that
will amortize over the term of the loan. The maximum  loan-to-value ratio is 80%
and is made at a variable or fixed interest rate.

     The Company  does not  originate  many  speculative  loans to builders  and
limits the loan-to-value  ratio to 70% with a maximum loan term of 18 months. In
underwriting  such loans,  the Company  takes into  consideration  the number of
units that the builder has on a speculative basis that remain unsold.

     Construction  lending is generally considered to involve a higher degree of
credit risk than long-term  financing of residential  properties.  The Company's
risk of loss on a  construction  loan is dependent  largely upon the accuracy of
the initial  estimate of the property's  value at completion of  construction or
development  and  the  estimated  cost  of  construction.  If  the  estimate  of
construction  cost and the  marketability of the property upon completion of the
project prove to be inaccurate, the Company may

                                        8

<PAGE>



be  compelled  to  advance   additional   funds  to  complete  the  development.
Furthermore,  if the estimate of value proves to be inaccurate,  the Company may
be confronted,  at or prior to the maturity of the loan,  with a property with a
value that is  insufficient  to assure full  repayment.  For the small number of
speculative  loans  originated  to builders,  the ability of the builder to sell
completed  dwelling units will depend,  among other things, on demand,  pricing,
and availability of comparable properties and economic conditions.

     Loan Approval  Authority and  Underwriting.  All loans,  other than smaller
dollar value consumer loans, must be approved by the Company's Loan Committee. A
minimum  of two  committee  members  may  approve  loans on one- to  four-family
residential units,  non-owner occupied residential properties that do not exceed
eight units, farm real estate loans of $200,000 or less, farm operating loans of
$100,000 and less, and all consumer loans.  All commercial real estate loans and
other loans that exceed the above  limitations must be submitted to the Board of
Directors for prior approval.

     For all loans  originated by the Company,  upon receipt of a completed loan
application from a prospective  borrower,  a credit report is generally ordered,
income and certain other  information is verified and, if necessary,  additional
financial  information is requested.  For real estate loans, an appraisal of the
real estate  intended to be used as security for the  proposed  loan is obtained
from an independent  appraiser designated and approved by the Board of Directors
of the Bank. In certain cases, an appropriate  valuation is completed by Company
staff as allowed by regulation. In addition, the relationship of the loan to the
value of the collateral is considered. The Company makes  construction/permanent
loans on individual properties. Funds advanced during the construction phase are
held in a  loan-in-process  account and disbursed  based upon various  stages of
completion  in  accordance  with the  results  of  inspection  reports  that are
obtained  through  physical  inspection of the  construction  by an  independent
contractor  hired by the  Company or in some cases by a loan  officer.  For real
estate  loans,  the Company  will  require  either  title  insurance  or a title
opinion.  Borrowers  must also obtain  hazard or flood  insurance  (for loans on
property  located in a flood zone,  flood  insurance is  required)  prior to the
closing of the loan.

     Loan  Commitments.   The  Company  issues  written  commitments  or  verbal
commitments  to  prospective  borrowers  on  all  real  estate  approved  loans.
Generally,  the  commitment  requires  acceptance  within 90 days of the date of
issuance.  Commitments  for consumer loans are given verbally and not in writing
and  generally  expire in a shorter  period of time.  At December 31, 1997,  the
Company had $12.5  million of  commitments  to cover  originations,  undisbursed
funds for loans in process and unused  lines of credit.  The  Company  estimates
that the majority of the Company's commitments are funded.

     Loans to One Borrower. Loans-to-one borrower are limited in an amount equal
to 15% of unimpaired  capital and  unimpaired  surplus and an additional  amount
equal to 10% of unimpaired capital and unimpaired surplus if the loan is secured
by readily marketable collateral  (generally,  financial  instruments,  not real
estate) or $500,000,  whichever is higher.  The  Company's  maximum  loan-to-one
borrower limit was approximately $3.4 million as of December 31, 1997.

     At December 31, 1997, the Company's largest amount of loans to one borrower
was $839,000,  consisting of performing loans secured by multi-family  buildings
and real  estate for  approximately  19  dwelling  units,  a  commercial  office
building,  and a personal  residence,  all of which are located in the Company's
market area.

     Loan Delinquencies. The Company's collection procedures provide that when a
mortgage loan is 15 days past due, a notice of nonpayment is sent. If payment is
still  delinquent  after 30 days  past due the  customer  will  receive a letter
and/or telephone call and may receive a visit from a representative of

                                        9

<PAGE>



the Company. If the delinquency  continues,  similar subsequent efforts are made
to eliminate the delinquency.  If the loan continues in a delinquent  status for
60 days past due and no repayment  plan is in effect,  a notice of right to cure
default is mailed to the customer giving 30 additional days to bring the account
current before  foreclosure is commenced.  The loan committee meets regularly to
determine when foreclosure  proceedings  should be initiated and the customer is
notified when foreclosure has been commenced.

     Loans  are  reviewed  on a  monthly  basis  and are  generally  placed on a
non-accrual status when a mortgage loan or a non-mortgage loan becomes 120 or 90
days delinquent, respectively, and, in the opinion of management, the collection
of additional  interest is doubtful.  Interest  accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  interest  payments,  if any, are either  applied to the  outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan.

     Non-accrual loans fluctuate over time due to a variety of factors.  For the
Company,  non-accrual loans may be affected by the payments on one large loan or
a delay in the  harvesting  of crops due to weather  conditions.  The  Company's
experience has been that these  fluctuations are normal and are not dependant on
any one factor over time.

                                       10

<PAGE>



     The following table sets forth  information  regarding  non-accrual  loans,
real estate owned, and certain other repossessed assets and loans. On January 1,
1995, the Company adopted Statement of Financial  Accounting  Standards ("SFAS")
No. 114,  as amended by SFAS No. 118.  The  adoption  of this  statement  had no
effect on the consolidated financial statements of the Company.

<TABLE>
<CAPTION>
                                                                                     At December 31,
                                                                   -------------------------------------------------
                                                                      1993           1994       1995    1996   1997
                                                                      ----           ----       ----    ----   ----
                                                                                 (Dollars in Thousands)
<S>                                                                <C>           <C>           <C>     <C>     <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  Permanent loans secured by 1- to 4-family
    residences                                                     $      614    $      556    $265    $164    $219
  All other mortgage loans                                                 75           168     --       59     --
Non-mortgage loans:
  Commercial                                                             --               5       7     --      --
  Consumer                                                                 71            88      26      75      18
                                                                   ----------    ----------    ----    ----    ----
Total                                                              $      760    $      817    $298    $298    $237
                                                                   ==========    ==========    ====    ====    ====

Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
  Construction loans                                               $     --      $     --      $--     $--     $--
  Permanent loans secured by 1- to 4-family
    residences                                                           --            --       --      147     201
  All other mortgage loans                                               --            --       --      --      --
Non-mortgage loans:
  Commercial                                                             --            --       --      --      --
  Consumer                                                               --            --         1     --        4
                                                                   ----------    ----------    ----    ----    ----
Total                                                              $     --      $     --      $  1    $147    $205
                                                                   ==========    ==========    ====    ====    ====
Total non-accrual and accruing loans
  past due 90 days or more                                         $      760    $      817    $299    $445    $442
                                                                   ==========    ==========    ====    ====    ====
Foreclosed real estate                                             $      160    $      151    $ 29    $ 78    $ 35
                                                                   ==========    ==========    ====    ====    ====
Other nonperforming assets                                         $     --      $     --      $--     $--     $--
                                                                   ==========    ==========    ====    ====    ====
Total nonperforming assets                                         $      920    $      968    $328    $523    $477
                                                                   ==========    ==========    ====    ====    ====
Total non-accrual and accruing loans past
  due 90 days or more to net loans                                       0.53%         0.50%   0.18%   0.25%   0.24%
                                                                   ==========    ==========    ====    ====    ====
Total non-accrual and accruing loans past
  due 90 days or more to total assets                                    0.46%         0.45%   0.15%   0.22%   0.22%
                                                                   ==========    ==========    ====    ====    ====
Total nonperforming assets to total assets                               0.56%         0.53%   0.17%   0.26%   0.24%
                                                                   ==========    ==========    ====    ====    ====
</TABLE>

     Interest  income that would have been recorded on loans  accounted for on a
non-accrual  basis under the original terms of such loans was immaterial for the
year ended December 31, 1997.  Amounts included in the Company's interest income
on  non-accrual  loans  for the year  ended  December  31,  1997  were  likewise
immaterial.

     Classified Assets. Office of Thrift Supervision ("OTS") regulations provide
for a  classification  system for problem assets of insured  institutions  which
covers all problem assets. Under this classification  system,  problem assets of
insured institutions are classified as "substandard,"  "doubtful," or "loss." An
asset is considered  substandard if it is inadequately  protected by the current
net worth and paying  capacity of the obligor or of the collateral  pledged,  if
any.   Substandard   assets  include  those   characterized   by  the  "distinct
possibility" that the insured institution will sustain "some loss" if the

                                       11

<PAGE>



deficiencies  are not corrected.  Assets  classified as doubtful have all of the
weaknesses   inherent   in  those   classified   substandard,   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts,  conditions and values, "highly
questionable  and  improbable."  Assets  classified as loss are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
may be designated  "special  mention" because of potential  weakness that do not
currently warrant classification in one of the aforementioned categories.

     When an insured institution classifies problem assets as either substandard
or doubtful,  it may establish  general  allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been  established  to recognize the inherent risk  associated  with lending
activities,  but which, unlike specific  allowances,  have not been allocated to
particular problem assets. When an insured institution classifies problem assets
as loss,  it is required  either to  establish a specific  allowance  for losses
equal to 100% of that portion of the asset so  classified  or to charge off such
amount.  An institution's  determination as to the  classification of its assets
and the  amount of its  valuation  allowances  is  subject to review by the OTS,
which may  order the  establishment  of  additional  general  or  specific  loss
allowances.  A portion of general loss allowances  established to cover possible
losses  related to assets  classified as substandard or doubtful may be included
in determining an institution's  regulatory  capital,  while specific  valuation
allowances for loan losses generally do not qualify as regulatory capital.

     The  following  table  provides  further  information  about the  Company's
problem assets as of December 31, 1997.

                                                         (In Thousands)
Special Mention.............................                   $196
Substandard.................................                    481
Doubtful assets.............................                     --
Loss assets.................................                      9

General loss allowance......................                   $763
                                                                ===


     Foreclosed Real Estate.  Real estate acquired by the Company as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until it is sold.  When  property is acquired it is recorded at the lower of the
loan balance or the fair value at the date of foreclosure  less estimated  costs
of  disposition.  There  may be  significant  other  expenses  incurred  such as
attorney and other  extraordinary  servicing  costs involved with  foreclosures.
Foreclosed real estate, net of allowance for losses, totaled $35,000 at December
31, 1997.

     Allowance for Loan and Real Estate  Losses.  It is  management's  policy to
provide for losses on  unidentified  loans in its loan  portfolio and foreclosed
real  estate.  A  provision  for loan losses is charged to  operations  based on
management's  evaluation  of the  potential  losses  that may be incurred in the
Company's loan portfolio. Such evaluation,  which includes a review of all loans
of which full  collectibility  of interest and  principal  may not be reasonably
assured,  considers the Company's past loan loss experience,  known and inherent
risks in the  portfolio,  adverse  situations  that may  affect  the  borrower's
ability to repay,  estimated  value of any  underlying  collateral  and  current
economic conditions.



                                       12

<PAGE>



     Management  will continue to review the entire loan  portfolio to determine
the extent,  if any, to which further  additional  loss provisions may be deemed
necessary.  There can be no  assurance  that the  allowance  for losses  will be
adequate  to cover  losses  which may in fact be realized in the future and that
additional provisions for losses will not be required.



                                       13

<PAGE>



     Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the  Company's  allowance for loan losses by loan category and the
percent  of loans in each  category  to total  loans  receivable,  at the  dates
indicated.  The  portion  of the loan  loss  allowance  allocated  to each  loan
category  does not  represent  the total  available  for future losses which may
occur  within  the loan  category  since the  total  loan  loss  allowance  is a
valuation reserve applicable to the entire loan portfolio. The allocation of the
allowance  for loan losses is based on  management's  evaluation of the loans in
the respective portfolios; the Company does not attempt to manage the percentage
of the allocation between loan categories.  As part of management's  evaluation,
for each loan category,  the allowance is determined after  examination of prior
period  experience  but is adjusted for various  factors such as  delinquencies,
expected  charge-offs,  recoveries,  amount  of  classified  assets,  amount  of
non-accrual  loans  and any  known  local  economic  trends.  As a  result,  the
allocation  of the  allowance  does not  reflect  relative  levels  of  historic
charge-offs between loan categories.

<TABLE>
<CAPTION>
                                    1993               1994                 1995                 1996                1997
                             -------------------- -------------------- -------------------- ------------------- --------------------
                                     Percent of            Percent of          Percent of          Percent of           Percent of
                                      Loans in              Loans in            Loans in            Loans in             Loans in
                                        Each                  Each                Each                Each                 Each
                                     Category to          Category to          Category to         Category to          Category to
                             Amount  Total Loans  Amount  Total Loans  Amount  Total Loans  Amount Total Loans  Amount  Total Loans
                             ------  -----------  ------  -----------  ------  -----------  ------ -----------  ------  -----------

<S>                          <C>       <C>        <C>        <C>       <C>      <C>          <C>    <C>         <C>       <C>
At end of year allocated to:
Mortgage..................... $272      89.65%     $251       89.78%    $394     87.67%       $484   86.13%      $617      84.38%
Consumer and non-mortgage....  126      10.35       125       10.22      118     12.33         131   13.87        146      15.62
                               ---      ------      ---       ------     ---     -----         ---  ------        ---      ------
Total allowance.............. $398     100.00%     $376      100.00%    $512    100.00%       $615  100.00%      $763     100.00%
                               ===     ======       ===      ======      ===    ======         ===  ======        ===     ======
</TABLE>




                                       14

<PAGE>



     Analysis of the Allowance for Loan Losses.  The following  table sets forth
information  with  respect to the  Company's  allowance  for loan losses for the
years indicated:

<TABLE>
<CAPTION>
                                                              At December 31,
                                         ---------------------------------------------------------
                                           1993        1994        1995        1996        1997
                                           ----        ----        ----        ----        ----


<S>                                      <C>         <C>         <C>         <C>         <C>
Total loans outstanding                  $144,114    $166,941    $171,364    $180,399    $184,480
                                         ========    ========    ========    ========    ========
Average loans outstanding                $130,026    $153,477    $170,395    $173,383    $183,591
                                         ========    ========    ========    ========    ========

Beginning allowance balances             $    479    $    398    $    376    $    512    $    615
Provision:
  One- to four-family                        --            32         166         180         180
  Commercial and multi-family
    real estate                              --          --          --          --          --
  Consumer                                   --            81        --          --          --
Charge-offs:
  One- to four-family                          61          53          23          21          12
  Commercial and multi-family
    real estate                              --          --          --          --          --
  Consumer                                     59          91          18          67          54
Recoveries:
  One- to four-family                          19        --          --          --          --
  Commercial and multi-family
    real estate                              --          --          --          --          --
  Consumer                                      4           9          11          11          34

Other                                          16        --          --          --          --
                                         --------    --------    --------    --------    --------

Ending allowance balance                 $    398    $    376    $    512    $    615    $    763
                                         ========    ========    ========    ========    ========

Allowance for loan losses as a percent
  of total loans outstanding                 0.28%       0.23%       0.30%       0.34%       0.41%
Net loans charged off as a percent of
  average loans outstanding                  0.07%       0.09%       0.02%       0.04%       0.02%

</TABLE>



                                       15

<PAGE>



     Analysis of the Allowance for Foreclosed  Real Estate.  The following table
sets forth  information  with respect to the  Company's  allowance for losses on
foreclosed real estate at the dates indicated.

<TABLE>
<CAPTION>
                                                                   At December 31,
                                                  -----------------------------------------
                                                    1993      1994      1995    1996    1997
                                                    ----      ----      ----    ----    ----
                                                              (Dollars in Thousands)
<S>                                               <C>       <C>      <C>       <C>       <C>
Total foreclosed real estate and real estate
  in judgment, net ............................   $   160   $  151   $    29   $  78     $35
                                                  =======   ======   =======   =====     ===
Allowance balances - beginning ................        16     --        --      --        --
Provision .....................................      --       --        --      --        --

Charge-offs ...................................      --       --        --      --        --
Recoveries ....................................      --       --        --      --        --
Other .........................................       (16)    --        --      --        --
                                                  -------   ------   -------   -----     ---
Allowance balances - ending ...................   $  --     $ --     $  --     $--       $--
                                                  =======   ======   =======   =====     ===
Allowance for losses on foreclosed real estate
  in judgment to net foreclosed real estate and
  real estate in judgment .....................      --  %    --  %     --  %   --  %     -- %
                                                  =======   ======   =======   =====     ===

</TABLE>

Mortgage-Backed Securities

     To  supplement  lending  activities,  the  Company  invests in  residential
mortgage-backed  securities.  Mortgage-backed securities can serve as collateral
for  borrowings  (although  the Company has not used them as such) and,  through
repayments, as a source of liquidity.

     At December 31, 1997, the mortgage-backed  securities  portfolio had a fair
value of $86,000 and an  amortized  cost of $86,000.  Because the  portfolio  is
classified as available for sale (the Company had no mortgage-backed  securities
held to maturity at December 31,  1997),  the  portfolio is recorded at $86,000.
The mortgage-backed  securities  portfolio at December 31, 1997 consisted solely
of real estate mortgage investment conduits ("REMICs"), a form of collateralized
mortgage obligations ("CMOs"). The Company receives monthly interest payments on
the securities in this portfolio based on fixed coupon rates.  These  securities
are  guaranteed  as to principal by the Federal  National  Mortgage  Association
("FNMA") and  management  does not believe that there is a material  credit risk
associated with the repayment of principal.

     To assess price volatility,  the Federal Financial Institutions Examination
Council ("FFIEC") and OTS have adopted a policy that requires an annual "stress"
test of mortgage  derivative  securities.  This policy  requires  the Company to
annually  test its CMOs  and  other  mortgage-related  securities  to  determine
whether they are high-risk or  non-high-risk  securities.  At December 31, 1997,
the Company's CMOs met the criteria  established by the policy for non-high-risk
securities.  If interest rates remain stable,  the weighted  average life of the
FNMA CMO is .2  years.  According  to stress  tests  mandated  by the  Company's
regulators,  a 300 basis point  upward  shift in interest  rates  increases  the
weighted  average life of this security to .31 years.  This same 300 basis point
upward shift would result in a 0.75%  decrease in price.  The carrying  value of
this security is adjusted on a quarterly basis to reflect current market value.


                                       16

<PAGE>



Investment Activities

     The Company is required  under  federal  regulations  to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and certain other investments.  The Company has maintained a liquidity portfolio
in excess of  regulatory  requirements.  Liquidity  levels may be  increased  or
decreased  depending  upon  the  yields  on  investment  alternatives  and  upon
management's  judgment as to the  attractiveness of the yields then available in
relation to other  opportunities  and its expectation of future yield levels, as
well as  management's  projections as to the  short-term  demand for funds to be
used in the Company's loan  origination  and other  activities.  At December 31,
1997,  the Company had an investment  portfolio of  approximately  $7.8 million,
consisting  primarily of U.S. Treasury securities and U.S. government  corporate
and agency  obligations.  To a lesser extent,  the portfolio also includes FHLMC
stock,  mortgage-backed  securities,  certificates of deposit and FHLB stock, as
permitted  by the OTS  regulations.  The  Company  classifies  its  investments,
including  debt and equity  securities,  as either held to maturity or available
for sale,  in  accordance  with SFAS 115. The Company will continue to seek high
quality investments. The primary and secondary goals of the investment portfolio
are safety of principal and rate of return, respectively.

     Investment Portfolio.  The following table sets forth the carrying value of
the Company's  investments,  including short-term  investments,  FHLB stock, and
mortgage-backed  securities,  at the dates indicated.  At December 31, 1997, the
Company's  securities  that  were  classified  as  available  for  sale  had  an
unrealized net gain of $983,000.  The Company's  securities that were classified
as held to maturity had a net unrealized gain of $3,000. This unrealized gain is
not  reflected  in the table  below  because  these  securities  are  carried at
amortized  cost in  accordance  with SFAS 115. At December 31, 1997,  the market
value for the interest bearing deposits shown below approximated their cost.

                                            At December 31,
                                        -------------------------
                                         1995      1996     1997
                                        ------    ------    -----
                                             (In Thousands)

Securities available for sale:
  Equity securities ................   $ 6,753   $ 7,100   $ 2,640
Securities held to maturity:
 U.S. government securities ........       800      --        --
 U.S. agency securities ............     3,399     2,049     3,198
                                       -------   -------   -------
   Total investment securities .....    10,952     9,149     5,838
Interest-bearing deposits ..........       800       200     1,850
Mortgage-backed securities available
   for sale ........................       867       428        86
                                       -------   -------   -------
   Total investments ...............   $12,619   $ 9,777   $ 7,774
                                       =======   =======   =======



                                       17

<PAGE>



     Investment  Portfolio  Maturities.  The following  table sets forth certain
information   regarding  the  carrying  values,   weighted  average  yields  and
maturities of the Company's investment securities portfolio.

<TABLE>
<CAPTION>
                                                                 December 31, 1997
                              ------------------------------------------------------------------------------------------------------
                               One Year or Less One to Five Years  Five to Ten Years More than Ten Years Total Investment Securities
                              Carrying  Average  Carrying Average  Carrying  Average Carrying Average   Carrying Average  Market
                                Value    Yield     Value   Yield     Value    Yield    Value   Yield     Value   Yield    Value
                               -------  -------   ------- -------   -------  -------  ------- -------   ------- -------  --------
                                                  (Dollars in Thousands)

<S>                              <C>      <C>     <C>       <C>      <C>     <C>       <C>     <C>      <C>     <C>       <C>
Mortgage-backed Securities....   $   86     7.0%   $   --     --%    $   --      --%   $   --     --%    $   86  7.00%    $   86
U. S. Agency Obligations......      800    5.34%    2,398   6.38%        --      --        --     --      3,198  6.14%     3,201
FHLB Stock....................       --      --        --     --         --      --        --     --      1,633    --      1,633
Equity Securities.............       --      --        --     --         --      --        --     --      1,007    --      1,007
Interest Bearing Deposits.....    1,850    5.68%       --     --%        --      --%       --     --%     1,850  5.68%     1,850
                                  -----             -----             -----             -----             -----            -----
  Total.......................   $2,736            $2,398            $   --            $   --            $7,774           $7,777
                                  =====             =====             =====             =====             =====            =====

</TABLE>



                                       18

<PAGE>



Sources of Funds

     General.  Deposits are the major external source of the Company's funds for
lending  and  other  investment   purposes.   The  Company  derives  funds  from
amortization and prepayment of loans and, to a much lesser extent, maturities of
investment  securities,  borrowings  and  operations.  Scheduled  loan principal
repayments are a relatively  stable source of funds,  while deposit  inflows and
outflows and loan prepayments are  significantly  influenced by general interest
rates and market  conditions.  The  Company may also borrow from the FHLB of Des
Moines as a source of funds.

     Deposits.  Consumer and commercial deposits are attracted  principally from
within the  Company's  primary  market  area  through  the  offering  of a broad
selection  of  deposit  instruments  including  regular  savings  accounts,  NOW
accounts,  and term certificate accounts.  The Company also offers IRA and KEOGH
accounts.  Deposit account terms vary according to the minimum balance required,
the time period the funds must remain on deposit and the  interest  rate,  among
other factors.

     Jumbo Certificate Accounts. The following table indicates,  at December 31,
1997, the amount of the Company's certificates of deposit of $100,000 or more by
time remaining until maturity.


Maturity Period
---------------
                                                                  (In Thousands)

Within three months...................................                  $4,604
Three through six months..............................                     594
Six through twelve months.............................                   1,230
Over twelve months....................................                   3,543
                                                                         -----
                                                                        $9,971
                                                                        ======

     Borrowings.  Deposits  are the  primary  source  of funds of the  Company's
lending and investment activities and for its general business purposes. Through
the  Bank,  the  Company  may  obtain  advances  from the FHLB of Des  Moines to
supplement  its supply of lendable  funds.  Advances from the FHLB of Des Moines
are typically  secured by a pledge of the Bank's stock in the FHLB of Des Moines
and a portion of the Company's  first  mortgage  loans and certain other assets.
The Bank, if the need arises,  may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.  At December 31, 1997,  the Company had $24.5  million in advances
outstanding  from the FHLB of Des Moines of which $13.5 million have fixed rates
and $11.0  million  have  variable  rates that  reprice  monthly.  Most of these
advances  provide  for a  prepayment  penalty.  See Note 10 of the  Notes to the
Company's Consolidated Financial Statements.  At December 31, 1997, the Bank had
$4.0  million  in  borrowings  (in the  form of a loan)  from the  Company.  The
interest rate on this loan adjusts  quarterly.  The Company expects that the use
of borrowings  will continue and may increase  after the Company uses  available
liquid assets to fund loan originations.  During recent periods, the Company has
found that  obtaining  wholesale  funds through FHLB advances is less  expensive
than increasing the interest rates on deposit accounts to increase the amount of
deposits. If, in the future,  increased deposits become less expensive than FHLB
advances,  the Company will likely rely more on increased  deposits than on FHLB
advances.

                                       19

<PAGE>



     The following  table sets forth certain  information as to FHLB advances at
the dates indicated.

                                      As of and for the Years Ended December 31,
                                      ------------------------------------------
                                             1995       1996       1997
                                             ----       ----       ----
                                              (Dollars in Thousands)
FHLB advances .................            $18,000    $26,500    $24,500
Weighted average interest rate
  of FHLB advances ............               5.72%      5.74%      5.92%
Maximum amount of advances ....            $23,650    $28,500    $29,500
Average amount of advances ....            $18,938    $19,269    $26,808

Weighted average interest rate
  of average amount of advances               6.14%      5.64%      5.75%


Subsidiary Activity

     The Company has one wholly  owned  subsidiary,  the Bank.  The Bank has two
wholly owned  subsidiaries,  known as Wells Insurance  Agency,  Inc. ("WIA") and
Greater Minnesota Mortgage, Inc. ("GMM").

     The Bank is permitted to invest up to 2% of its assets in the capital stock
of,  or  secured  or  unsecured  loans  to,  subsidiary  corporations,  with  an
additional  investment  of 1% of  assets  when  such  additional  investment  is
utilized primarily for community development purposes.  Under the 2% limitation,
as of December 31, 1997, the Bank was  authorized to invest up to  approximately
$4 million in the stock of, or loans to, service corporations.

     WIA was incorporated  under the laws of the State of Minnesota in 1976. WIA
offers life,  health,  casualty,  and business insurance on behalf of others and
also offers fixed-rate annuities. The Bank's investment in WIA totalled $524,000
at December 31, 1997.

     GMM was  incorporated  under the laws of Minnesota in 1997.  GMM originates
loans through referrals from community  commercial banks and,  primarily,  sells
these loans to the secondary market. At December 31, 1997, the Bank's investment
in GMM totalled $101,000.

Personnel

     As of  December  31,  1997,  the  Bank  had 57  full-time  and 6  part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Company,  with no employees of its own, utilizes those of
the Bank.

Competition

     The  competition for deposit  products  includes banks ranging in size from
larger,  Minneapolis- based regional banks with branches in the Company's market
area to local independent  community banks.  Deposit competition also includes a
number of insurance  products sold by local agents and investment  products sold
by local and regional sales people.

     Loan competition varies depending upon market conditions.  Loan competition
includes  branches  of large  Minneapolis-based  commercial  banks and  thrifts,
credit unions, mortgage bankers with local sales

                                       20

<PAGE>



staff and  local  banks.  The  Company  believes  that it is one of the few area
lenders that has consistently offered a variety of loans throughout all types of
economic conditions.

     The Company has traditionally  maintained a leadership position in mortgage
loan volume and market share  throughout its service area by virtue of its local
presence.  The Company believes that it has been able to effectively  market its
larger variety of loan and other  financial  products and services when compared
to  other  local-based  institutions  and its  superior  customer  service  when
compared to  branches  of larger  institutions  based  outside of the  Company's
market area.

Regulation

     Set forth below is a brief  description  of certain laws that relate to the
regulation of the Company and the Bank. The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.

Regulation of the Company

     General.  The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries,  should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit  activities  that are determined to
be a serious risk to the subsidiary  savings  association.  This  regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the benefit of stockholders of the Company.

     Qualified  Thrift  Lender  Test.  As a  unitary  savings  and loan  holding
company, the Company generally is not subject to activity restrictions, provided
the Bank  satisfies  the Qualified  Thrift  Lender  ("QTL") test. If the Company
acquires  control of another savings  association as a separate  subsidiary,  it
would become a multiple savings and loan holding company,  and the activities of
the  Company  and any of its  subsidiaries  (other  than the  Bank or any  other
SAIF-insured   savings   association)   would  become  subject  to  restrictions
applicable to bank holding  companies unless such other  associations  each also
qualify  as a QTL  and  were  acquired  in a  supervisory  acquisition.  See "--
Regulation of the Bank -- Qualified Thrift Lender Test."

Regulation of the Bank

     General. As a federally chartered,  SAIF-insured  savings association,  the
Bank is subject  to  extensive  regulation  by the OTS and the  Federal  Deposit
Insurance  Corporation  ("FDIC").  Lending activities and other investments must
comply with various federal statutory and regulatory  requirements.  The Bank is
also subject to certain reserve requirements  promulgated by the Federal Reserve
Board.

     The OTS, in  conjunction  with the FDIC,  regularly  examines  the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law,  especially in such matters as the ownership of savings  accounts
and the form and content of the Bank's mortgage documents.

     The  Bank  must  file  reports  with the OTS and the  FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes

                                       21

<PAGE>



a  comprehensive  framework of activities in which an institution can engage and
is  intended  primarily  for the  protection  of the  SAIF and  depositors.  The
regulatory structure also gives the regulatory  authorities extensive discretion
in connection with their supervisory and enforcement  activities and examination
policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such regulations,  whether by the OTS, the FDIC, or the Congress could
have a material adverse impact on the Company, the Bank, and their operations.

     Insurance of Deposit  Accounts.  The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation).  Insurance of deposits may be terminated by the FDIC upon a finding
that the institution has engaged in unsafe or unsound practices, is in an unsafe
or unsound condition to continue operations, or has violated any applicable law,
regulation,  rule, order or condition  imposed by the FDIC or the  institution's
primary regulator.  The FDIC may also prohibit an insured depository institution
from engaging in any activity the FDIC  determines  to pose a serious  threat to
the SAIF.

     The FDIC charges an annual  assessment  for the insurance of deposits based
on the risk a  particular  institution  poses  to its  deposit  insurance  fund,
depending upon the institution's risk  classification.  This risk classification
is based on an institution's  capital group and supervisory subgroup assignment.
In addition,  the FDIC is authorized to increase  deposit  insurance  rates on a
semi-annual  basis if it  determines  that such action is necessary to cause the
balance  in the  SAIF  to  reach  the  designated  reserve  ratio  of  1.25%  of
SAIF-insured  deposits  within a reasonable  period of time. The FDIC may impose
special  assessments  on SAIF members to repay  amounts  borrowed  from the U.S.
Treasury or for any other reason deemed necessary by the FDIC.

     On January 1, 1997,  deposit  insurance  assessments  for SAIF members were
reduced to  approximately  .064% of deposits on an annual  basis;  this rate may
continue through the end of 1999.  During this same period,  members of the Bank
Insurance  Fund  ("BIF"),  predominantly  commercial  banks,  are expected to be
annually assessed approximately .013% of deposits.  Thereafter,  assessments for
BIF and SAIF members  should be the same and the SAIF and BIF may be merged.  It
is expected that these continuing assessments for both SAIF and BIF members will
be used to repay outstanding Financing Corporation bond obligations. As a result
of these  changes,  beginning  January  1, 1997,  the rate of deposit  insurance
assessed the Bank substantially declined.

     Regulatory Capital  Requirements.  OTS capital  regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets,  (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based  capital  requirement equal to
8.0% of total risk-weighted assets. The Bank exceeded these minimum standards at
December 31,  1997.  The Bank's  capital  ratios are set forth in Note 12 to the
Company's Consolidated Financial Statements.

     Savings  associations  with a greater than "normal"  level of interest rate
exposure may, in the future, be subject to a deduction for an interest rate risk
("IRR")  component  may be  from  capital  for  purposes  of  calculating  their
risk-based capital requirement.

     Dividend  and  Other   Capital   Distribution   Limitations.   Current  OTS
regulations  require  the Bank to give  the OTS 30 days  advance  notice  of any
proposed  declaration of dividends to the Company, and the OTS has the authority
under its  supervisory  powers to  prohibit  the  payment  of  dividends  to the
Company.  In  addition,  the Bank may not declare or pay a cash  dividend on its
capital stock if the effect

                                       22

<PAGE>



thereof would be to reduce the  regulatory  capital of the Bank below the amount
required  for  the  liquidation  account  established  in  connection  with  the
Conversion.

     Current OTS regulations impose  limitations upon all capital  distributions
by savings  institutions,  such as cash  dividends,  payments to  repurchase  or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements  before  and  after  a  proposed  capital   distribution  ("Tier  1
institution")  and has not  been  advised  by the OTS that it is in need of more
than the normal  supervision can, after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the  calendar  year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year,  or (ii) 75% of its net income over the most recent four  quarter  period.
Any additional  capital  distributions  require prior  regulatory  approval.  At
December 31, 1997,  the Bank was a Tier 1  institution.  In the event the Bank's
capital fell below its fully  phased-in  requirement or the OTS notified it that
it was in need of more than  normal  supervision,  the  Bank's  ability  to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed  capital  distribution  by any  institution,  which would  otherwise be
permitted by the regulation,  if the OTS determines that such distribution would
constitute an unsafe or unsound  practice.  Finally,  a savings  association  is
prohibited from making a capital distribution if, after making the distribution,
the  savings  association  would be  undercapitalized  (not  meet any one of its
minimum regulatory capital requirements).

     In January 1998,  the OTS proposed  amendments  to its current  regulations
with  respect  to  capital  distributions  by  savings  associations.  Under the
proposed regulation,  savings associations that would remain at least adequately
capitalized  following the capital  distribution,  and that meet other specified
requirements,  would not be required to file a notice or application for capital
distributions (such as cash dividends)  declared below specified amounts.  Under
the proposed  regulation,  savings associations which are eligible for expedited
treatment  under current OTS regulations are not required to file a notice or an
application  with the OTS if (i) the savings  association  would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
the  capital  distribution  does not  exceed  an  amount  equal  to the  savings
association's  net income for that year to date, plus the savings  association's
retained  net  income  for the  previous  two years.  Thus,  under the  proposed
regulation,  only  undistributed  net  income  for the  prior  two  years may be
distributed in addition to the current year's  undistributed  net income without
the filing of an application  with the OTS.  Savings  associations  which do not
qualify for expedited  treatment or which desire to make a capital  distribution
in excess of the specified amount, must file an application with, and obtain the
approval  of, the OTS prior to making the capital  distribution.  Under  certain
other circumstances, savings associations will be required to file a notice with
OTS prior to making the capital  distribution.  The OTS proposed  limitations on
capital  distributions  are similar to the  limitations  imposed  upon  national
banks.  The Bank is unable to predict  whether or when the  proposed  regulation
will become effective.

     During 1997,  the Company paid two $0.12 per share  quarterly  dividends to
its shareholders. The Company's dividend payout ratio for 1997 was 20.34%.

     Qualified Thrift Lender Test. Savings institutions must meet a QTL test. If
the  Bank  maintains  an  appropriate  level  of  Qualified  Thrift  Investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full  borrowing  privileges  from the FHLB of Des Moines.  The
required  percentage of QTIs is 65% of portfolio  assets  (defined as all assets
minus  intangible  assets,  property used by the  institution  in conducting its
business and liquid assets equal to 20% of total assets). Certain assets

                                       23

<PAGE>



are subject to a percentage  limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying  QTIs. As of December 31, 1997,  the Bank was in compliance  with its
QTL requirement with 93.84% of its assets invested in QTIs.

     Loans-to-One Borrower.  See "Business -- Loans-to-One Borrower."

     Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of Des
Moines,  which is one of 12 regional FHLBs that  administers  the home financing
credit  function  of  savings  associations.  Each FHLB  serves as a reserve  or
central bank for its members within its assigned region.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.

     As a member,  the Bank is required to purchase  and  maintain  stock in the
FHLB of Des  Moines in an amount  equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase contracts,  or similar obligations at
the beginning of each year.

     Federal Reserve  System.  The Federal Reserve Board requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW, and Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity requirements that are imposed by the OTS.

     Proposed   Legislation.   Bills  have  been  introduced  to   congressional
committees that would  consolidate the OTS with the Office of the Comptroller of
the  Currency  ("OCC").  The  resulting  agency  would  regulate  all  federally
chartered commercial banks and thrift institutions. In the event that the OTS is
consolidated  with the OCC,  it is  possible  that the thrift  charter  could be
eliminated  and thrifts  could be forced to convert to commercial  banks.  Under
current law and regulations, a unitary savings and loan holding company, such as
the  Company,  which  has only  one  thrift  subsidiary  such as the  Bank,  has
essentially unlimited investment  authority.  Legislation has also been proposed
which, if enacted, would limit the non-banking related activities of savings and
loan holding companies to those activities permitted for bank holding companies.

Item 2. Description of Properties

     The Company does not own any real  property but utilizes the offices of the
Bank. The Bank operates from its main office  located at 53 First Street,  S.W.,
Wells,  Minnesota  and eight  full  service  branch  offices.  The Bank owns the
offices in Wells and one branch facility, and leases the remaining locations. In
the opinion of the Bank's  management,  the  physical  condition  of each of the
offices is good and is adequate for the conduct of the Bank's business.

Item 3. Legal Proceedings

     There are various claims and lawsuits in which  Registrant is  periodically
involved,  such  as  claims  to  enforce  liens,   condemnation  proceedings  on
properties in which  Registrant holds security  interests,  claims involving the
making and  servicing  of real  property  loans,  and other  issues  incident to
Registrant's  business.  In the  opinion  of  management,  no  material  loss is
expected from any of such pending claims or lawsuits.


                                       24

<PAGE>



Item  4.  Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------

     Not Applicable.

                                     PART II

Item  5.  Market for Common Equity and Related Stockholder Matters
------------------------------------------------------------------

     The  information  contained  under  the  section  captioned  "Stock  Market
Information"  on  pages  1  and  2  of  the  Company's  1997  Annual  Report  to
Stockholders (the "Annual Report"), is incorporated herein by reference.

Item  6.  Management's Discussion and Analysis or Plan of Operation
-------------------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report is incorporated herein by reference.

Item  7.  Financial Statements
------------------------------

     The  following   financial   statements   and  the  report  of  independent
accountants of Registrant included in Registrant's Annual Report to Stockholders
are incorporated herein by reference.

     Independent Auditor's Report.

     Consolidated  Statements of Financial Condition as of December 31, 1997 and
1996.

     Consolidated  Statements  of Income for the Years Ended  December 31, 1997,
1996, and 1995.

     Consolidated  Statements  of  Stockholders'  Equity  for  the  Years  Ended
     December 31, 1997, 1996, and 1995.

     Consolidated  Statements  of Cash Flows for the Years  Ended  December  31,
1997, 1996 and 1995.

     Notes to Consolidated Financial Statements.

Item  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure
--------------------------------------------------------------------------------

     Not applicable.

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
      Compliance With Section 16(a) of the Exchange Act
----------------------------------------------------------------------

     The information  contained under the section  captioned  "Information  with
Respect to Nominees  for  Director and  Directors  Continuing  in Office" in the
Registrant's  definitive proxy statement for Registrant's 1998 Annual Meeting of
Stockholders (the "Proxy  Statement") is incorporated  herein by reference.  The
information  contained  under the section  captioned  "Section 16(a)  Beneficial
Ownership  Reporting  Compliance"  in the Proxy  Statement is also  incorporated
herein by reference.


                                       25

<PAGE>



Item 10.  Executive Compensation
--------------------------------

     The  information  contained  under  the  section  captioned  "Director  and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners

                  Information  required by this item is  incorporated  herein by
                  reference  to the section  captioned  "Voting  Securities  and
                  Principal Holders Thereof" in the Proxy Statement.

         (b)      Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference to the first table under  "Information  with Respect
                  to Nominees for Director and  Directors  Continuing in Office"
                  in the Proxy Statement.

         (c)      Management of Registrant knows of no  arrangements,  including
                  any  pledge by any person of  securities  of  Registrant,  the
                  operation of which may at a subsequent date result in a change
                  in control of Registrant.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Certain   Relationships  and  Related
Transactions" in the Proxy Statement.

                                     PART IV

Item 13. Exhibits, List, and Reports on Form 8-K
------------------------------------------------

                  (a) The  following  exhibits  are  included  in this Report or
incorporated herein by reference:
<TABLE>
<CAPTION>
                 <S>     <C>
                   3(i)  Articles of  Incorporation  of Wells  Financial  Corp.*
                   3(ii) Bylaws of Wells Financial Corp.*
                  10.1   1995 Stock Option Plan of Wells Financial Corp.**
                  10.2   Management Stock Bonus Plan and Trust Agreements**
                  10.3   Change in Control Severance Agreement with James D. Moll***
                  10.4   Change in Control Severance Agreement with Gerald D. Bastian***
                  13     Annual Report to Stockholders for the fiscal year ended December 31, 1997
                  21     Subsidiaries of Registrant***
                  23     Consent of McGladrey & Pullen, LLP
                  27     Financial Data Schedule (in electronic filing only)
</TABLE>

         (b)      No reports on Form 8-K were filed  during the last  quarter of
                  the period covered by this report.


                                       26

<PAGE>



---------------------
*    Incorporated by reference to the  registration  statement on Form S-1 (File
     No. 33-87922) declared effective by the SEC on February 13, 1995.

**   Incorporated  by reference to the proxy  statement for a special meeting of
     stockholders held on November 15, 1995 and filed with the SEC on October 2,
     1995 (File No. 0-25342).

***  Incorporated by reference to the Registrant's  Form 10-K for the year ended
     December 31, 1995.


                                       27

<PAGE>



                                   SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 27, 1998.

                                       WELLS FINANCIAL CORP.


                                       By: /s/ Lawrence H. Kruse
                                           Lawrence H. Kruse
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

          Pursuant to the  requirement of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated as of March 27, 1998.

<TABLE>
<CAPTION>
<S>                                         <C>

/s/ Lawrence H. Kruse                       /s/ James D. Moll
------------------------------------------  ------------------------------------
Lawrence H. Kruse                           James D. Moll
President, Chief Executive Officer          Treasurer and Principal Financial and
and Director (Principal Executive Officer)  Accounting Officer
                                            (Principal Financial and Accounting Officer)



/s/ Wallace J. Butson                       /s/ Gerald D. Bastion
------------------------------------------  ------------------------------------
Dr. Wallace J. Butson                       Gerald D. Bastion
Secretary and Director                      Vice President and Director



                                            /s/ Richard A. Mueller
------------------------------------------  ------------------------------------
Joseph R. Gadola                            Richard A. Mueller
Director                                    Director

</TABLE>