EXHIBIT 13


<PAGE>



                                  [** LOGO **]

                                      WELLS
                                    FINANCIAL
                                      CORP.

                               1996 ANNUAL REPORT




<PAGE>




                              WELLS FINANCIAL CORP.
                                  ANNUAL REPORT

WELLS SAVINGS BANK fsb                           TABLE OF CONTENTS

<TABLE>
<CAPTION>


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

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

BRANCH OFFICES:                              Management's Discussion and Analysis of Financial 
                                               Condition and Results of Operations....................  5-15
Blue Earth
303 South Main Street                        Independent Auditor's Report..............................   16
Blue Earth, Minnesota 56013
                                             Consolidated Statements of Financial Condition............   17
Mankato - Madison East
Madison East Center                          Consolidated Statements of Income.........................   18
1400 Madison Avenue
Mankato, Minnesota 56001                     Consolidated Statements of Stockholders' Equity...........   19

Mankato - Riverfront                         Consolidated Statements of Cash Flows.....................20-22
1300 South Riverfront Drive
Mankato, Minnesota  56002                    Notes to Consolidated Financial Statements................23-46

Fairmont                                     Office Location and Other Corporate Information...........   47
Five Lakes Centre
300 South State Street                       
Fairmont, Minnesota  56031
                                             
Albert Lea
Skyline Mall
1710 West Main Street
Albert Lea, Minnesota  56007

St. Peter
120 South Minnesota Avenue
St. Peter, Minnesota  56082

LOAN ORIGINATION OFFICE:

Owatonna Loan Origination Office
108 West Park Square
Owatonna, Minnesota  55060


</TABLE>


<PAGE>



                             Wells Financial Corp.

Profile

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

The Bank is a federally  chartered  stock savings bank  headquartered  in Wells,
Minnesota. The Bank has seven full service offices located in Faribault, Martin,
Blue Earth, Nicollet, and Freeborn Counties,  Minnesota and one loan origination
office located in Steele County, Minnesota. The Bank was founded in 1934 and its
deposits have been federally insured by the Savings  Association  Insurance Fund
("SAIF") and its predecessor, the Federal Savings and Loan Insurance Corporation
("FSLIC"),  since  1934.  The Bank is a member  of the  Federal  Home  Loan Bank
("FHLB") System. The Bank is a community  oriented,  full service retail savings
institution offering traditional mortgage loan products.

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,  commercial and agricultural real estate, agricultural
operating and multi-family loans and purchases investment securities.

Stock Market Information

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

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

               April 11, 1995 - June 30, 1995          $ 9.75       $  8.50
               July 1, 1995 - September 30, 1995       $11.25       $  8.875
               October 1, 1995 - December 31, 1995     $11.375      $ 10.875
               January 1, 1996 - March 31, 1996        $11.50       $ 10.125
               April 1, 1996 - June 30, 1996           $11.875      $  9.875
               July 1, 1996 - September 30, 1996       $12.25       $ 11.375
               October 1, 1996 - December 31, 1996     $13.25       $ 12.50



The number of  stockholders  of record of common  stock as of the record date of
March 3,  1997,  was  approximately  593.  This does not  reflect  the number of
persons or entities who held stock in nominee or "street"  name through  various
brokerage firms. At February 15, 1997, there were 2,023,860 shares outstanding.

                                       1

<PAGE>


No dividends  were declared on the common stock during the years ended  December
31, 1996 or 1995.

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








                                       2

<PAGE>


WELLS FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)

 Financial Condition
--------------------------------------------------------------------------------------------------------------------
 December 31,                                             1992        1993        1994         1995         1996
--------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>         <C>          <C>          <C>          <C>      
Total assets                                            $ 176,357   $ 165,188    $ 182,716    $ 195,158    $ 201,326
Loans held for sale                                         2,253         775          114        1,944        1,791
Loans receivable, net                                     121,239     141,982      165,185      169,760      178,447
Mortgage-backed securities                                      -       1,023            -            -            -
Mortgage-backed securities available for sale                   -           -          961          867          428
Securities available for sale                                   -           -        5,951        6,753        7,100
Investment securities                                       8,832      14,759        5,991        4,199        2,049
Certificates of deposit                                     3,074         424          100          800          200
Cash and cash equivalents                                  37,718       3,480        1,480        8,192        8,301
Deposits                                                  166,512     153,769      146,412      146,686      145,349
Borrowed funds                                                  -           -       23,650       18,000       26,500
Equity                                                      8,985      10,181       11,506       28,852       28,202

Summary of Operations
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                  1992        1993        1994         1995         1996
--------------------------------------------------------------------------------------------------------------------

Interest income                                         $  13,197   $  11,164    $  11,573    $  13,489    $  14,669
Interest expense                                            9,243       6,726        6,510        8,165        8,146
Net interest income                                         3,954       4,438        5,063        5,324        6,523
Provision for loan losses                                     172           -          113          166          180
Noninterest income                                            845         999          737          809        1,014
Noninterest expense (1)                                     3,247       3,356        3,574        3,855        5,245
Income before cumulative effect of change
   in accounting  principle                                   805       1,179        1,283        1,270        1,200
Net income                                                    805       1,248        1,283        1,270        1,200

Other Selected Data
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                  1992        1993        1994         1995         1996
--------------------------------------------------------------------------------------------------------------------
Return on average assets before cumulative effect           0.45%       0.70%        0.74%        0.67%        0.61%
Return on average assets after cumulative effect            0.45%       0.74%        0.74%        0.67%        0.61%
Return on average equity before cumulative effect           9.39%      12.40%       11.66%        5.50%        4.24%
Return on average equity after cumulative effect            9.39%      13.12%       11.66%        5.50%        4.24%
Average equity to average assets                            4.77%       5.62%        6.31%       12.11%       14.40%
Equity to assets                                            5.09%       6.16%        6.30%       14.78%       14.01%
Net interest rate spread (2)                                2.22%       2.61%        2.80%        2.29%        2.72%
Nonperforming assets to  total loans (3)                    0.67%       0.56%        0.53%        0.17%        0.19%
Allowance for loan losses to total loans                    0.39%       0.28%        0.23%        0.30%        0.34%
Allowance for loan losses to nonperforming loans (3)       46.10%      52.37%       45.85%      171.24%      206.52%
Earnings per share (4)                                        N/A         N/A          N/A       $0.50        $0.61
                                                                                              

</TABLE>


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

                                       3

<PAGE>




To Our Stockholders:

We are pleased to present our second annual  stockholders'  report.  This report
represents the first full calendar year of operations  since the conversion from
mutual to stock ownership.

With the positive economic environment of 1996, our management team expected net
income to increase over 1995. Our operating  results,  however,  were negatively
affected by two factors.

The biggest impact came as a result of congressional  action approving a special
assessment on the industry to  recapitalize  the Savings  Association  Insurance
Fund  (SAIF).  The  Bank's  portion of that  assessment  was  $1,085,000,  which
negatively  impacted  earnings.  While this  assessment had a negative impact in
1996, we will benefit positively in future years as our annual deposit insurance
premium rate was reduced from twenty three basis points per dollar of deposit to
approximately  six basis points.  A further  reduction in the deposit  insurance
premium rate is scheduled for the year 2000.

The second  factor was the  installation  of new data  processing  equipment and
software.  As a result of that conversion we are now able to offer our customers
the latest in financial  products in a cost effective  manner.  While this had a
$132,000  non-recurring  negative  impact on our bottom line, the largest impact
was on  our  dedicated  staff  who  are to be  congratulated  for  completing  a
monumental task.

We  consider  1996 to be a  successful  year.  Even  with the  negative  impacts
described above, pre-tax income for 1996 equaled pre-tax income for 1995.

We had scheduled  the  conversion  of our loan  origination  office in Owatonna,
Minnesota to a full service branch in 1996, however, that conversion was delayed
until February 1997 and is operational as of this date.

Your Board of Directors,  management team and staff members  continue to work on
ways to improve and provide  additional  services  to our  customers  as well as
protect and enhance the value of your investment in Wells Financial Corp. To our
stockholders  who have been investors from the date of conversion and to our new
stockholders  who have invested since  conversion,  thank you for the confidence
you have placed in us.

Best Regards,


/s/ Lawrence H. Kruse
Lawrence H. Kruse
President and Chief Executive Officer


                                       4

<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                             (Dollars in Thousands)

General

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

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

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

Asset/Liability Management

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

         An asset or liability is interest rate sensitive within a specific time
period if it will  mature or  reprice  within  that time  period.  If the Bank's
assets  mature  or  reprice  more  quickly  or  to a  greater  extent  than  its
liabilities,  the Bank's net portfolio  value and net interest income would tend
to increase  during periods of rising interest rates but decrease during periods
of falling interest rates. If the Bank's assets mature or reprice more slowly or
to a lesser extent than its liabilities,  the Bank's net portfolio value and net
interest  income would tend to decrease  during periods of rising interest rates
but increase  during periods of falling  interest  rates.  The Bank's policy has
been to mitigate the interest rate risk inherent in

                                       5

<PAGE>



(Dollars in Thousands)

the  historical  savings  institution  business of originating  long-term  loans
funded by  short-term  deposits  by  pursuing  certain  strategies  designed  to
decrease the  vulnerability of its earnings to material and prolonged changes in
interest rates.

         The  Bank's  lending   strategy  is  focused  on  the   origination  of
traditional  one- to  four-family  mortgage  loans  primarily  secured by single
family  residences in the Bank's primary market area. In the Bank's market area,
loan demand has  exceeded  deposits  and the Bank has not found it  necessary or
desirable to purchase  mortgage  backed  securities to any  significant  extent.
During  recent  periods,   the  Bank  has  utilized   borrowings  as  a  way  of
accommodating  loan  demand,  consistent  with  its  goal of  maintaining  asset
quality.  The Bank  also  invests  a  portion  of its  assets  in  consumer  and
commercial  business and commercial real estate loans and investment  securities
as a  method  of  reducing  interest  rate  risk.  These  loans  typically  have
adjustable  interest  rates and are for  shorter  terms than  residential  first
mortgage loans. The Bank's entire commercial business loan portfolio and most of
the  commercial  real estate  portfolio  are secured by equipment or real estate
used for farming.  These loans typically have higher interest rates than one- to
four-family  loans but have not historically  resulted in greater losses for the
Bank.  As a key  element of its  strategy,  the Bank sells  higher loan to value
ratio fixed rate mortgage loans and mortgage  loans with original  maturities of
fifteen  years or less into the  secondary  market and retains  adjustable  rate
mortgage  loans and lower loan to value  ratio  fixed  rate loans with  original
maturities  greater than fifteen  years.  Although it is perceived that mortgage
loans with original maturities of fifteen years or less offer greater protection
from  interest  rate  risk  due to their  shorter  contractual  maturities  than
mortgage  loans with  original  maturities  greater  than fifteen  years,  it is
management's belief that the actual average life of mortgage loans with original
maturities of fifteen years or less is  approximately  equal to the average life
of  mortgage  loans  with  original   maturities  greater  than  fifteen  years.
Management  also believes  that the benefit of higher  yields on mortgage  loans
with original  maturities  that are greater than fifteen years more than offsets
the higher  contractual  cash flows that are  generated  by mortgage  loans with
original  maturities  of fifteen  years or less.  In addition,  the Bank retains
servicing on most of the loans that it sells, enabling it to generate additional
income and maintain certain economies of scale in loan processing.

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

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


                                       6

<PAGE>




(Dollars in Thousands)

Net Portfolio Value

         To encourage  associations  to reduce their interest rate risk, the OTS
adopted a rule  incorporating  an interest rate risk ("IRR")  component into the
risk-based capital rules. This rule in not yet in effect. The IRR component is a
dollar  amount  that will be  deducted  from total  capital  for the  purpose of
calculating an institution's  risk-based capital  requirement and is measured in
terms of the  sensitivity  of its net  portfolio  value  ("NPV")  to  changes in
interest rates. NPV is the difference  between incoming and outgoing  discounted
cash flows  from  assets,  liabilities,  and  off-balance  sheet  contracts.  An
institution's  IRR  is  measured  as the  change  to its  NPV as a  result  of a
hypothetical 200 basis point change in market interest rates. A resulting change
in NPV of more than 2% of the estimated  market value of its assets will require
the  institution to deduct from its capital 50% of that excess change.  The rule
provides  that the OTS  will  calculate  the IRR  component  quarterly  for each
institution.  The Bank,  based on asset size and  risk-based  capital,  has been
informed  by the  OTS  that it is  exempt  from  this  rule.  Nevertheless,  the
following  table  presents the Bank's NPV at December 31, 1996, as calculated by
the OTS, based on information provided to the OTS by the Bank.

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

<S>                    <C>       <C>           <C>                    <C>             <C>                  <C>   
              +400            $10,168       $(14,999)              (60)%           5.48%               -691 bp
              +300             14,327        (10,841)              (43)%           7.52%               -486 bp
              +200             18,381         (6,787)              (27)%           9.42%               -297 bp
              +100             22,086         (3,081)              (12)%          11.07%               -131 bp
                --             25,167                                             12.39%
              -100             27,388          2,220                 9 %          13.29%                 90 bp
              -200             28,681          3,513                14 %          13.79%                140 bp
              -300             29,741          4,573                18 %          14.18%                179 bp
              -400             31,272          6,104                24 %          14.75%                237 bp
                    
</TABLE>


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


                                       7

<PAGE>



(Dollars in Thousands)



                                                                   At
                                                              December 31,
                                                                   1996
                                                           -------------------

        *** Risk Measures: 200 bp rate shock ***
        Pre-Shock NPV Ratio: NPV as % of PV of Assets            12.39  %
        Exposure Measure: Post-Shock NPV Ratio                    9.42  %
       Sensitivity Measure: Change in NPV Ratio                   (297) bp




         Although  the OTS has  informed  the Bank that it is not subject to the
IRR component  discussed  above, the Bank is still subject to interest rate risk
and, as can be seen above,  rising interest rates will reduce the Bank's NPV. If
the Bank were  subject to the IRR  component  at December  31, 1996, a deduction
from capital would have been required.

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

                                       8

<PAGE>


--------------------------------------------------------------------------------
Average Balance Sheet (Dollars in Thousands)
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                        -------------------------------------------------------------------------------------------
                                                     1994                          1995                            1996
                                        --------------------------------------------------------------------------------------------
                                         Average             Average    Average              Average    Average            Average
                                         Balance  Interest  Yield/Cost  Balance  Interest   Yield/Cost  Balance  Interest Yield/Cost
                                        --------------------------------------------------------------------------------------------
Interest-earning assets:
<S>                                     <C>       <C>          <C>     <C>        <C>         <C>      <C>         <C>       <C>  
   Loans receivable (1)                 $153,477   $10,813      7.05%   $170,395   $12,571     7.38%    $173,383    $13,617   7.85%
   Mortgage-backed securities                993        68      6.85%        949        55     5.80%         661         45   6.81%
   Investments (2)                        15,025       692      4.61%     15,618       863     5.53%      18,281      1,007   5.51%
                                        ------------------             -------------------              -------------------
      Total interest-earning assets     $169,495   $11,573      6.83%    186,962   $13,489     7.22%     192,325    $14,669   7.63%
                                                 ---------                       ---------                         --------
                                                                                                                  
Noninterest earning assets                 4,853                           3,847                           4,163   
                                        --------                      ----------                       ---------           
      Total assets                      $174,348                        $190,809                        $196,488   
                                        ========                      ==========                       =========  
                                                                                                                  
Interest bearing liabilities:                                                                                     
   Savings, NOW and money                                                                                         
      market accounts (3)               $ 38,910   $   857      2.20%   $ 36,553   $   937     2.56%    $ 36,578    $   949   2.59%
   Certificates of deposit               110,173     5,027      4.56%    110,169     6,066     5.51%     110,139      6,111   5.55%
   Borrowed funds                         12,610       626      4.96%     18,938     1,162     6.14%      19,269      1,086   5.64%
                                        ------------------            --------------------             --------------------
      Total interest bearing 
       liabilities                       161,693   $ 6,510      4.03%    165,660   $ 8,165     4.93%     165,986    $ 8,146   4.91%
                                                  --------                       ---------                         --------
                                                                                                                  
Noninterest bearing liabilities            1,651                           2,050                           2,199   
                                        --------                      ----------                       ---------  
                                                                                                                  
      Total liabilities                  163,344                         167,710                         168,185   
Equity                                    11,004                          23,099                          28,303   
                                        --------                      ----------                       ---------  
      Total liabilities and equity      $174,348                        $190,809                        $196,488   
                                        ========                      ==========                       =========  
Net interest income                                $ 5,063                         $ 5,324                          $ 6,523
                                                  =========                       =========                         ========
Interest rate spread (4)                                        2.80%                          2.29%                          2.72%
Net yield on interest earning assets(5)                         2.99%                          2.85%                          3.39%
Ratio of average interest earning 
   assets to average interest bearing 
   liabilities                              1.05X                           1.13X                           1.16X  

</TABLE>

(1)  Average balances include non-accrual loans and loans held for sale.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  For 1996,  the average  balance and average  cost for savings  accounts and
     demand  deposit  accounts  were  $16,219  and  $20,359 and 2.65% and 2.55%,
     respectively.
(4)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(5)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       9
<PAGE>


Rate/Volume Analysis  (Dollars in Thousands)

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

<TABLE>
<CAPTION>

                                                             Years Ended December 31,
                                   -------------------------------------- --- ---------------------------------------
                                               1995 vs. 1994                              1996 vs. 1995
                                   --------------------------------------     ---------------------------------------
                                        Increase (Decrease) Due to                  Increase (Decrease) Due to
                                   --------------------------------------     ---------------------------------------
                                                        Rate/                                      Rate/
                                    Volume    Rate     Volume      Net         Volume     Rate     Volume     Net
                                   --------- -------- ---------- --------     --------- --------- --------- ---------
Interest Income:
<S>                                <C>       <C>      <C>         <C>         <C>         <C>     <C>       <C>     
  Loans receivable                 $  1,193  $   506  $      59   $1,758      $    220    $  811  $     15  $  1,046
  Mortgage-backed securities             (3)     (10)         -      (13)          (17)       10       (15)      (22)
   Investments                           27      138          6      171           147       (3)        12       156
                                   --------- -------- ---------- --------     --------- --------- --------- ---------
    Total interest-earning assets     1,217      634         65    1,916           350       818        12     1,180
                                   --------- -------- ---------- --------     --------- --------- --------- ---------

Interest expense:
  Deposit accounts                      (93)   1,222        (10)   1,119             -        57         -        57
  Borrowed funds                        314      149         73      536            19       (94)       (1)      (76)
                                   --------- -------- ---------- --------     --------- --------- --------- ---------
     Total interest-bearing             221    1,371         63    1,655            19       (37)       (1)      (19)
liabilities
                                   --------- -------- ---------- --------     --------- --------- --------- ---------

Net change in interest income      $    996    $(737)  $      2   $  261      $    331    $  855  $     13  $  1,199
                                   ========= ======== ========== ========     ========= ========= ========= =========
</TABLE>


                                       10

<PAGE>


(Dollars in Thousands)

Financial Condition

         Total assets  increased by $6,168 from $195,158 at December 31, 1995 to
$201,326 at December 31, 1996.  The increase in total assets was  primarily  the
result of an $8,777 increase in the loan portfolio from $169,670 at December 31,
1995 to $178,447 at December 31, 1996.  The increase in loans  receivable is the
result of management's decision to retain higher yielding thirty year fixed rate
loans that were  originated  during 1996. The increase in the loan portfolio was
partially offset by a $600 decrease in certificates of deposit which matured and
a $2,150  decrease in  securities  held to maturity.  The decrease in securities
held to maturity  was the result of $2,500 of  securities  issued by agencies of
the United  States  being  called  during the last two months of 1996.  Mortgage
backed  securities  that are  available  for sale  decreased  by $439 due to the
repayment of  principal.  Premises and  equipment  increased by $282 during 1996
primarily  due to the upgrading by the Bank of its data  processing  system with
new computer hardware and software.

         In accordance with the Bank's internal classification of assets policy,
management  evaluates  the loan  portfolio on a quarterly  basis to identify and
determine the adequacy of the allowance for loan losses. As of December 31, 1995
and  December  31,  1996 the  balance in the  allowance  for loan losses and the
allowance  for loan losses as a percentage  of total loans was $512 and $615 and
0.30% and 0.34%, respectively.

         Loans on which the accrual of interest has been  discontinued  amounted
to $298 at December 31, 1996 and 1995.  The effect of  nonaccrual  loans was not
significant  to the  results  of  operations.  The  Company  includes  all loans
considered impaired under FASB Statement No. 114 in nonaccrual loans. The amount
of impaired loans was not material at December 31, 1996 and 1995.

     Deposits decreased by $1,337 from $146,686 at December 31, 1995 to $145,349
at December  31,  1996.  To fund the  increase in loans  receivable  referred to
above, borrowed funds increased by $8,500 during the same period.

         Equity  decreased  by $650 from $28,852 at December 31, 1995 to $28,202
at December  31,  1996.  This  decrease is primarily  due to the  repurchase  of
163,640  shares of  treasury  stock,  at a cost of $1,763,  and the  purchase of
49,735 of the Company's  shares,  at a cost of $539, for Management  Stock Bonus
Plan awards.  These  decreases in equity were partially  offset by net income of
$1,200,  the allocation of $163 of employee stock  ownership plan shares and the
amortization of $259 of unearned compensation.

Comparison of Operating Results for the Years Ended December 31, 1996 and 1995

         General.  For the year ended  December  31, 1996,  net interest  income
increased by $1,199 when  compared to the same period in 1995.  This increase in
net interest income would normally result in an increase in income before income
taxes.  However, on September 30, 1996, a law was enacted which required savings
institutions  insured by the Savings Association  Insurance Fund (SAIF) to pay a
one time special  assessment to  recapitalize  the SAIF.  The Bank's  assessment
amounted to $1,085, which was recorded as an expense during the third quarter of
1996.  This special SAIF  assessment  was the primary  reason for income  before
income taxes for fiscal year 1996 being equal to income  before income taxes for
fiscal year 1995.  Income tax expense for the year ended  December  31, 1996 was
$70 higher than income tax for the year ended December 31, 1995 primarily due to
an increase in nondeductible expenses incurred by the Company, which resulted in
a  reduction  in net income of $70 from $1,270 for the year ended  December  31,
1995 to $1,200 for the year ended December 31, 1996. 

                                       11

<PAGE>

(Dollars in Thousands)

         Interest Income.  The Company's interest income increased by $1,180 for
the year ended  December 31, 1996 when  compared to the year ended  December 31,
1995.  This is  primarily  the  result  of an  upward  repricing  of the  Bank's
adjustable rate loan portfolio and the increase in loans receivable. To a lesser
extent,  the  increase in  interest  income was the result of an increase in the
average balance of investment securities.

         Interest  Expense.  The average amount of deposits during 1996 remained
approximately  equal to the average amount of deposits  during 1995. An increase
in the interest rates paid on deposits  caused  interest  expense on deposits to
increase by $57, from $7,003 for the year ended  December 31, 1995 to $7,060 for
the year ended  December 31, 1996.  The average  amount of borrowed funds during
1996  increased  by $331 when  compared  to 1995.  This  increase in the average
amount of borrowed  funds was offset by a decrease in the interest rates paid on
borrowed  funds,  which  resulted in a decrease in interest  expense on borrowed
funds.  The decrease in the interest paid on borrowed  funds offset the increase
in interest paid on deposits and resulted in a $19 decrease in interest  expense
for fiscal year 1996 when compared to fiscal year 1995.

         Net Interest  Income.  Net interest income  increased by $1,199 for the
year ended  December 31, 1996 when compared to the year ended December 31, 1995.
Again,  this is primarily the result of the increase in loans receivable and the
result  of the  repricing  of the  Bank's  adjustable  rate  loan  portfolio  as
described  above,  as well as  below  under  the 1995 to 1994  comparison  under
"Interest  Income" and "Net Interest Income" and to a lesser extent,  the result
of the decrease in interest  expense.  During  1996,  the  adjustable  rate loan
portfolio  repriced from the increase in interest rates that began in late 1994,
making it unlikely  that  interest  income will  increase due to rate  increases
during the next several quarters.

         Provision for Loan Losses.  The provision for loan losses  increased by
$14 for 1996 when compared to 1995.  Management  monitors the allowance for loan
loss in relation to the size and quality of the loan  portfolio  and adjusts the
provision  for loan  losses to  adequately  provide for loan  losses.  While the
Company maintains its allowance for loan losses at a level that is considered to
be adequate to provide for  potential  losses,  there can be no  assurance  that
further  additions  will not be made to the loss  allowance and that losses will
not exceed estimate amounts.

         Noninterest Income.  Noninterest income increased by $205 from $809 for
the year ended December 31, 1995 to $1,014 for the year ended December 31, 1996.
This  increase  is  primarily  due to  increases  in the  gain on sale of  loans
originated for sale and insurance  commissions.  The increase in the gain on the
sale of loans  originated  for sale  resulted  primarily  from the  recording of
mortgage  servicing  rights on loans sold during the year due to the adoption of
FASB Statement No. 122 during the period. The increase in insurance  commissions
was the result of the  acquisition  of additional  local  accounts by the Bank's
insurance subsidiary.

         Noninterest  Expense.  Noninterest  expense  increased  by $1,390  from
$3,855  for the year  ended  December  31,  1995 to  $5,245  for the year  ended
December 31, 1996. As described  above, the legislation that was signed into law
on September 30, 1996  resulted in a one time special  assessment to the Bank of
$1,085.  This  assessment is the primary  reason for the increase in noninterest
expense.  As a result of this  legislation,  the Bank's  annual  assessment  was
reduced from twenty  three basis points per dollar of deposits to  approximately
six  basis  points  per  dollar  of  deposits.  Also,  as part  of  management's
commitment to provide  competitive  products and excellent service to the Bank's
customers,  the Bank converted to a new data  processing  software system during
the second quarter of 1996. The decision to convert the data processing software
was based upon  management's  desire to improve marketing of the Bank's products
to current as well as potential customers. The software conversion resulted in a
non-recurring expense of approximately $132 that was

                                       12

<PAGE>


(Dollars in Thousands)

recorded during 1996. In addition,  approximately  $498 in hardware and software
costs were capitalized and will be depreciated over their useful lives.

         Income Tax Expense.  While income  before income taxes was the same for
the years ended December 31, 1996 and 1995,  income tax expense increased during
1996  primarily  due to an increase in  nondeductible  expenses  incurred by the
Company. Income tax expense as a percentage of income before taxes for the years
ended December 31, 1996 and 1995 was 43.18% and 39.87%, respectively.

Comparison of Operating Results for the Years Ended December 31, 1995 and 1994

         General.  Net income  decreased  by $13 from  $1,283 for the year ended
December 31, 1994 to $1,270 for the year ended  December 31, 1995.  As discussed
in more detail  below,  this  decrease  was due to an  increase  in  noninterest
expense,  which was partially  offset by an increase in net interest  income and
noninterest income.

         Interest Income. Interest income increased by $1,916 for the year ended
December  31, 1995 as compared to the year ended  December  31,  1994.  This was
primarily  the result of the  increase in loans  receivable  and other  interest
earning  assets which were funded  through the use of proceeds  from the sale of
common  stock.  To a  lesser  degree,  the  increase  was  due to the  Company's
adjustable rate loan portfolio, which constitutes approximately 60% of its total
loan portfolio, repricing upward as this loan portfolio uses lagging indices.

         Interest  Expense.  Interest  expense  increased by $1,655 for the year
ended  December 31, 1995 when compared to the year ended  December 31, 1994. The
increase  resulted  from  increases  of  interest  rates  paid on  deposits  and
borrowings. A portion of the proceeds from the sale of common stock were used to
reduce interest  sensitive Federal Home Loan Bank borrowings,  which resulted in
lower  interest  expense  for the year  ended  December  31,  1995 than if those
proceeds had been used for other purposes.

         Net Interest Income.  Net interest income increased by $261 from $5,063
to $5,324 on December  31, 1994 and 1995,  respectively.  Because the  Company's
interest-bearing  liabilities reprice faster than its  interest-earning  assets,
the Company  generally  experiences  a decrease in its net interest  income when
interest  rates  increase.  However,  since  interest rates began rising in late
1994,  the  delayed  effect  in 1995 of the  lagging  indices  on the  Company's
adjustable  rate loan  portfolio,  coupled  with the  increase in its total loan
portfolio,  caused  interest  income to increase by more than  interest  expense
during the year ended  December 31, 1995. The Company  therefore  experienced an
increase in net interest income.

         Provision for Loan Losses.  The provision for loan losses  increased by
$53 for the year  ended  December  31,  1995  when  compared  to the year  ended
December 31, 1994.  In accordance  with the Bank's  internal  classification  of
assets policy,  management  evaluates the loan portfolio on a quarterly basis to
identify and determine  the adequacy of the  allowance  for loan losses.  During
1995, management made the decision to increase the provision for loan losses due
to the increase in the Company's loan  portfolios.  While the Company  maintains
its  allowance  for loan losses at a level that it  considers  to be adequate to
provide for potential  losses,  there can be no assurance that further additions
will  not be made to the  loss  allowances  and  that  losses  will  not  exceed
estimated amounts.

                                       13

<PAGE>



(Dollars in Thousands)

         Noninterest Income.  Noninterest income increased by $72, from $737 for
the year ended  December 31, 1994 to $809 for the year ended  December 31, 1995.
This  increase was caused  primarily by an increase of $80 in loan  origination,
commitment and other fees due to an increase in loan  originations  during 1995.
In addition, insurance commissions increased by $34 resulting primarily from the
acquisition  of additional  local accounts by the Bank's  insurance  subsidiary.
These increases in noninterest income were partially offset by a decrease of $43
in loan  servicing  fees.  This  decrease was the result of a reduction in loans
serviced for others during the first ten months of 1995.

         Noninterest Expense. Noninterest expense increased by $281 for the year
ended  December 31, 1995 when compared to the year ended  December 31, 1994. The
majority  of  this  increase  resulted  from  compensation  and  benefits  which
increased by $239, due primarily to increased  employee benefit costs and normal
compensation  adjustments.  These employee benefit costs are expected to further
increase  in 1996 as the  result  of  vesting  of  shares  awarded  through  the
Management  Stock Bonus Plan. The increase  during 1996 is not expected to be as
great as the increase during 1995.  Professional  fees associated with operating
as a publicly traded company resulted in a $55 increase for the same period.

     Income Tax Expense.  The  Company's  income tax expense as a percentage  of
income before income taxes remained  stable at 39.9% for the year ended December
31, 1995 as compared to 39.3% for the year ended December 31, 1994.

Liquidity and Capital Resources

         The Bank is required under applicable  federal  regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other  investments  having  maturities of five years or less.
Current OTS  regulations  require  that a savings  association  maintain  liquid
assets of not less than 5% of its  average  daily  balance  of net  withdrawable
deposit accounts and borrowings payable in one year or less, of which short-term
liquid assets must consist of not less than 1%. At December 31, 1996, the Bank's
liquidity,  as measured for  regulatory  purposes,  was 6.11%.  The Bank adjusts
liquidity as appropriate to meet its asset/liability objectives.

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

     The Bank's  most liquid  asset is cash  including  investments  in interest
bearing accounts at the FHLB of Des Moines that have no withdrawal restrictions.
The level of these assets are dependent on the Bank's  operating,  financing and
investing  activities  during any given period. At December 31, 1996, the Bank's
cash totaled  $6,675.  This  compares to the Bank's cash at December 31, 1995 of
$7,600.

                                       14

<PAGE>

(Dollars in Thousands)

         Also  available  to  the  Bank  to  meet  liquidity   requirements  are
borrowings  from the Federal Home Loan Bank. At December 31, 1996,  the Bank had
$26,500 in  outstanding  advances  from the FHLB of Des Moines,  which have been
used to fund loan  originations.  At December 31, 1996, the Bank had the ability
to borrow approximately 3.5 times its then outstanding advances.

         The Bank has other sources of liquidity if a need for additional  funds
arises although the Bank has not used them.  Additional sources of funds include
borrowing against mortgage-backed or other securities. At December 31, 1996, the
mortgage-backed securities portfolio consisted solely of collateralized mortgage
obligations  guaranteed as to principal by FNMA or FHLMC.  These  securities are
considered  non-high-risk securities under applicable criteria. These securities
had a market value of $428 at December 31, 1996 and the carrying  value of these
securities are adjusted quarterly to reflect market value.

     In 1996,  the  Company  approved  stock  buy back  programs  in which up to
317,188 shares of the common stock of the Company may be acquired. An additional
191,313 shares may be purchased in the future in accordance with these programs.

         The Bank is  required  to maintain  specified  amounts of capital.  The
capital  standards  generally  require the  maintenance  of  regulatory  capital
sufficient to meet a tangible capital  requirement,  a core capital  requirement
and a risk-based capital requirement.  At December 31, 1996, the Bank's tangible
capital  totaled $20.5  million,  or 10.31% of adjusted  total assets,  and core
capital  totaled  $20.5  million,  or 10.31% of  adjusted  total  assets,  which
substantially  exceeded  the  respective  1.5%  tangible  capital  and 3.0% core
capital   requirements  at  that  date  by  $17.5  million  and  $14.5  million,
respectively,  or 8.81% and 7.31% of adjusted  total assets,  respectively.  The
Bank's  risk-based  capital totaled $21.1 million at December 31, 1996 or 18.61%
of  risk-weighted  assets,  which exceeded the current  requirements  of 8.0% of
risk-weighted assets by $12.0 million or 10.61% of risk-weighted assets.


Impact of Inflation and Changing Prices

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


                                       15

<PAGE>


                                     [LOGO]
                             McGLADREY & PULEN, LLP
                             ----------------------
                  Certified Public Accountants and Consultants



                          INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying  consolidated statements of financial condition
of Wells  Financial  Corp.  and Subsidiary as of December 31, 1996 and 1995, and
the related  consolidated  statements of income,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Wells  Financial
Corp.  and Subsidiary as of December 31, 1996 and 1995, and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

As  discussed  in Note 1 to the  consolidated  financial  statements,  effective
January 1, 1994, the Company changed its method of accounting for investments in
debt and marketable equity securities to adopt FASB Statement No. 115.



                                        /s/McGladrey & Pullen, LLP
Rochester, Minnesota
February 11, 1997

                                       16
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
(dollars in thousands)

ASSETS                                                  1996        1995
---------------------------------------------------------------------------
Cash, including interest-bearing accounts
  1996 $7,560; 1995 $6,316                          $    8,301 $     8,192
Certificates of deposit (Note 2)                           200         800
Securities available for sale (Notes 3 and 12)           7,100       6,753
Securities held to maturity (Note 4)                     2,049       4,199
Mortgage-backed securities available for sale
(Notes 3 and 5)                                            428         867
Loans held for sale, net of unrealized losses
  1996 $30; 1995 $-0- (Note 6)                           1,791       1,944
Loans receivable, net (Notes 6, 12, 16 and 17)         178,447     169,670
Accrued interest receivable                              1,060       1,120
Premises and equipment (Note 9)                          1,519       1,237
Foreclosed real estate (Note 8)                             78          29
Other assets                                               353         347
                                                    -----------------------
         Total assets                               $  201,326 $   195,158
                                                    =======================


LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------
Liabilities
  Deposits (Note 10)                                $  145,349 $   146,686
  Borrowed funds (Note 12)                              26,500      18,000
  Advances from borrowers for taxes and insurance          681         683
  Income taxes (Note 13):
    Current                                                  -          54
    Deferred                                               358         340
  Accrued interest payable                                 126         221
  Accrued expenses and other liabilities (Note 11)         110         322
                                                    -----------------------
         Total liabilities                             173,124     166,306
                                                    -----------------------

Commitments, contingencies and credit risk (Notes
14, 16, and 17)

Stockholders' Equity (Notes 11, 15 and 20)
  Preferred stock, no par value; 500,000 shares
    authorized; none outstanding                             -           -
  Common stock, $.10 par value; 7,000,000 shares
    authorized; 2,187,500 shares issued                    219         219
  Additional paid-in capital                            16,588      16,537
  Retained earnings, substantially restricted           13,986      12,786
  Unrealized appreciation on securities
    available for sale, net of related taxes               348         318
  Unearned Employee Stock Option Plan shares              (896)     (1,008)
  Unearned compensation-restricted stock awards           (280)          -
  Less cost of 163,640 shares of treasury stock         (1,763)          -
                                                    -----------------------
         Total stockholders' equity                     28,202      28,852
                                                    -----------------------
         Total liabilities and stockholders' equity $  201,326 $   195,158
                                                    =======================

See Notes to Consolidated Financial Statements.

                                       17
<PAGE>


WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED  STATEMENTS OF INCOME 
Years Ended December 31, 1996,  1995 and 1994
(dollars in thousands, except per share data)

                                            1996        1995       1994
--------------------------------------------------------------------------
Interest and Dividend Income
  Loans receivable
    First mortgage loans                $   11,558 $    10,854 $    9,505
    Consumer and other loans                 2,059       1,717      1,308
  Investment securities and other
    interest- bearing deposits               1,052         918        760
                                        ----------------------------------
         Total interest income              14,669      13,489     11,573
                                        ----------------------------------
Interest Expense
  Deposits                                   7,060       7,003      5,884
  Borrowed funds                             1,086       1,162        626
                                        ----------------------------------
         Total interest expense              8,146       8,165      6,510
                                        ----------------------------------
         Net interest income                 6,523       5,324      5,063
Provision for loan losses (Note 6)             180         166        113
                                        ----------------------------------
         Net interest income after
             provision for loan losses       6,343       5,158      4,950
                                        ----------------------------------
Noninterest Income
  Gain on sale of loans                        102          31          8
  Loan origination and commitment fees          81          60         30
  Loan servicing fees                          202         186        229
  Insurance commissions                        318         247        213
  Fees and service charges                     246         225        175
  Other                                         65          60         82
                                        ----------------------------------
         Total noninterest income            1,014         809        737
                                        ----------------------------------
Noninterest Expense
  Compensation and benefits (Note 11)        1,911       1,890      1,651
  Occupancy and equipment (Note 14)            644         535        531
  Federal insurance premiums and
    assessment (Note 10)                     1,406         336        346
  Data processing                              359         263        243
  Advertising                                  150         144        136
  Other                                        775         687        667
                                        ----------------------------------
         Total noninterest expense           5,245       3,855      3,574
                                        ----------------------------------
         Income before income taxes          2,112       2,112      2,113
Income tax expense (Note 13)                   912         842        830
                                        ----------------------------------
         Net income                     $    1,200 $     1,270 $    1,283
                                        ==================================

Earnings per share (Note 18):
  Primary and fully diluted             $     0.61 $      0.50
                                        ======================

See Notes to Consolidated Financial Statements.

                                       18
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                                         
                                                                Unrealized       Unearned
                                                                Appreciation     Employee     Unearned
                                                                (Depreciation)     Stock    Compensation-
                                        Additional              on  Securities   Ownership    Restricted                  Total
                                Common    Paid-In   Retained    Available          Plan         Stock      Treasury   Stockholders'
                                 Stock    Capital   Earnings    for Sale, net      Shares       Awards       Stock        Equity
------------------------------------------------------------------------------------------------------------------------------------
                          
<S>                             <C>      <C>        <C>          <C>               <C>           <C>        <C>        <C>       
Balances, December 31, 1993     $    -   $       -  $ 10,233     $    (52)         $     -       $      -   $      -   $   10,181
                          
  Net income                         -           -     1,283            -                -              -          -        1,283
  Net changes in unrealized              
    appreciation (depreciation)        
    on securities available for         
    sale, net of related taxes       -           -         -           42                -              -          -           42
                                ----------------------------------------------------------------------------------------------------
                          
Balances, December 31, 1994          -           -    11,516          (10)               -              -          -       11,506
                          
  Proceeds from sale of                 
    2,187,500 shares,               
    net of offering costs
    of $775 (Note 20)              219      16,506         -            -           (1,120)             -          -       15,605
  Net income                         -           -     1,270            -                -              -          -        1,270
  Net changes in unrealized              
    appreciation on       
    securities available             
    for sale, net of      
    related taxes                    -           -         -          328                -              -          -          328
  Allocated ESOP shares              -          31         -            -              112              -          -          143
                                ----------------------------------------------------------------------------------------------------
                          
Balances, December 31, 1995        219      16,537    12,786          318           (1,008)             -          -       28,852
                          
  Net income                         -           -     1,200            -                -              -          -        1,200
  Net changes in          
    unrealized appreciation          
    on securities         
    available for sale,                 
    net of related taxes             -           -         -           30                -              -          -           30
  Treasury stock purchases,              
    163,640 shares 
    (Notes 11 & 15)                  -           -         -            -                -              -     (1,763)      (1,763)
  Purchase of common stock            
    for restricted stock                 
    awards (Note 11)                 -           -         -            -                -           (539)         -         (539)
  Amortization of unearned                
    compensation                     -           -         -            -                -            259          -          259
  Allocated ESOP shares              -          51         -            -              112              -          -          163
                                ----------------------------------------------------------------------------------------------------
                          
Balances, December 31, 1996     $  219   $  16,588  $ 13,986     $    348          $  (896)      $   (280)  $  (1,763) $   28,202
                                ====================================================================================================
</TABLE>
                          
See Notes to Consolidated Financial Statements.

                                       19
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)

                                                   1996       1995       1994 
--------------------------------------------------------------------------------
Cash Flows From Operating Activities
  Net income                                  $   1,200    $ 1,270   $  1,283
  Adjustments to reconcile net income to
    net cash  provided by (used in)
    operating activities:
    Provision for loan losses                       180        166        113
    Gain on sale of loans                          (102)       (31)        (8)
    Amortization of mortgage servicing rights        17          -          -
    FHLB stock dividends                              -        (32)         -
    Compensation on allocation of ESOP shares       163        143          -
    Amortization of unearned compensation           228          -          -
    Write-down of foreclosed real estate              8         18          -
    Gain on sale of foreclosed realestate           (17)       (16)       (25)
    Unrealized loss on loans held for sale           30          -          -
    Loss on disposal of equipment                     7          -         17
    Deferred income taxes                            (8)        34         59
    Depreciation and amortization on premises
      and equipment                                 264        192        203
    Amortization of deferred loan
      origination fees                             (145)      (136)      (217)
    Amortization of excess servicing fees            14         14         15
    Amortization of securities premiums
      and discounts                                  (2)         1        (19)
    Loans originated for sale                    19,207    (15,414)    (2,310)
    Proceeds from the sale of loans held
      for sale                                  (19,057)    13,615      2,979
    Changes in assets and liabilities:
      Accrued interest receivable                    60       (208)       (94)
      Other assets                                   67         52       (192)
      Income taxes payable, current                 (54)       119       (336)
      Accrued expenses and other liabilities       (276)       158         84
                                              -------------------------------
         Net cash provided by (used in)
             operating activities                 1,784        (55)     1,552
                                              ------------------------------- 


                                   (Continued)

                                       20
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)

                                                1996       1995        1994
-------------------------------------------------------------------------------
Cash Flows From Investing Activities
  Net increase in loans                     $  (8,999)  $ (4,624)   $(23,216)
  Certificates of deposit:
    Maturities                                    800         100        424
    Purchases                                    (200)       (800)      (100)
  Purchase of securities available for sale      (287)       (280)      (233)
  Securities held to maturity:
    Maturities and calls                        5,900       3,795      5,026
    Purchases                                  (3,749)     (1,994)    (1,860)
  Proceeds from principal repayments of 
    mortgage backed securities                    436         138          -
  Purchase of premises and equipment             (552)        (36)      (147)
  Proceeds from the sale and redemption
    of foreclosed real estate                     117         229        151
                                          ----------------------------------
      Net cash (used in) investing
        activities                             (6,534)     (3,472)   (19,955)  
                                          ----------------------------------

Cash Flows From Financing Activities
  Net increase (decrease) in deposits          (1,337)        274     (7,357)
  Net increase (decrease) from advances
    from borrowers for taxes and insurance         (2)         10        110
  Proceeds from borrowed funds                 35,000      18,000     23,650
  Repayments on borrowed funds                (26,500)    (23,650)         -
  Proceeds from issuance of common stock            -      15,605          -
  Purchase of treasury stock                   (1,763)          -          -
  Purchase of common stock for
    restricted stock awards                      (539)          -          -
                                          ----------------------------------
      Net cash provided by financing 
        activities                              4,859      10,239     16,403

                                          ----------------------------------
      Net increase (decrease) in cash             109       6,712     (2,000)

Cash
  Beginning                                     8,192       1,480      3,480
                                          ----------------------------------
  Ending                                    $   8,301   $   8,192   $  1,480
                                          ----------------------------------

                                   (Continued)

                                       21
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)

                                              1996       1995        1994
----------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow
Information
  Cash payments for:
    Interest on deposits                  $    7,164 $     6,901 $    5,862
    Interest on borrowed funds                 1,076       1,172        611
    Income taxes                                 981         723      1,171
                                          ================================= 

Supplemental Schedule of Noncash
  Investing and Financing Activities
  Transfers from loans to foreclosed
    real estate                           $      157 $       109 $      117
  Issuance of shares to ESOP in
    conjunction with conversion from 
    mutual to stock form                           -       1,120          -
  Allocation of ESOP shares to 
    participants                                 112         112          -
  Transfer of investment and
    mortgage-backed securities held 
    for investment to investment
    and mortgage-backed securities
    available for sale (adoption 
    of FASB Statement No. 115)                     -           -      6,656
                                          ================================= 

See Notes to Consolidated Financial Statements.

                                       22
<PAGE>


WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 1.  Summary of Significant Accounting Policies

Nature  of  operations:   Operations  of  Wells  Financial   Corp.   (Company)
primarily  consist of banking services through it's subsidiary,  Wells Federal
Bank, fsb (Bank).  The Bank's  subsidiary,  Wells Insurance Agency,  Inc. is a
property and casualty  insurance  agency.  The Company  serves it's  customers
through the Bank's seven locations in South Central Minnesota.

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

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

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

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

Securities  and  accounting  change:  The  Company  adopted  the  provisions  of
Financial  Accounting  Standards Board (FASB) Statement No. 115,  Accounting for
Certain  Investments  in Debt and  Equity  Securities,  as of  January  1, 1994.
Statement  No.  115  requires   that   management   determine  the   appropriate
classification  of securities at the date of adoption,  and  thereafter,  at the
date individual  securities are acquired,  and that the  appropriateness of such
classification be reassessed at each reporting date.

Securities to be held to maturity are those debt securities that the Company has
both the positive  intent and ability to hold to maturity  regardless of changes
in market condition, liquidity needs, or changes in general economic conditions.
These securities are stated at amortized cost. Securities available for sale are
those  debt or  equity  securities  that  the  Company  intends  to hold  for an
indefinite period of time but not necessarily to maturity.  Any decision to sell
a  security  available  for sale would be based on  various  factors,  including
significant  movements  in interest  rates,  changes in the  maturity mix of the
Company's  assets  and  liabilities,   liquidity   needs,   regulatory   capital
considerations,  and other similar  factors.  Securities  available for sale are
carried at market value. Unrealized gains or losses are reported as increases or
decreases in stockholders' equity, net of the related deferred tax effect.

                                       23
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)

Prior to the adoption of Statement  No. 115, debt  securities  which the Company
had the intent and ability to hold to maturity  were carried at amortized  cost.
Equity  securities  were carried at the lower of aggregate  cost or market value
net of unrealized  losses which were  recognized  through a valuation  allowance
that was shown as a reduction  in the carrying  value of the related  securities
and as a corresponding reduction in stockholders' equity.

Under  both the newly  adopted  accounting  standard  and the  Company's  former
accounting  practices,  premiums and discounts on securities  are amortized over
the  contractual   lives  of  those  securities,   except  for   mortgage-backed
securities,  for which  prepayments  are  probable  and  predictable,  which are
amortized  over  the  estimated  expected  repayment  terms  of  the  underlying
mortgages.  The method of amortization  results in a constant effective yield on
those  securities  (the  interest  method).   Interest  on  debt  securities  is
recognized  in  income as  accrued.  Realized  gains  and  losses on the sale of
securities are determined using the specific identification method.

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

The  effect of the  adoption  of  Statement  No.  115 on  January 1, 1994 was to
increase  securities  by $332,  increase  deferred tax  liabilities  by $136 and
increase equity by $196.

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

Loans receivable: Loans receivable are stated at the amount of unpaid principal,
reduced by an allowance for loan losses and net deferred loan origination fees.

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

Impaired loans are measured  based on the present value of expected  future cash
flows  discounted  at the  loan's  effective  interest  rate or, as a  practical
expedient,  at the  loan's  observable  market  price or the  fair  value of the
collateral  if the loan is collateral  dependent.  A loan is impaired when it is
probable  the  creditor  will be unable to collect all  principal  and  interest
payments due in accordance with the terms of the loan  agreement.  The Company's
loans considered impaired at December 31, 1996 and 1995 were immaterial.

                                       24
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 1.     Summary of Significant Accounting Policies (Continued)

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

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

Mortgage servicing rights:  The Company generally  continues to service mortgage
loans sold to others and  receives a servicing  fee over the lives of the loans.
Beginning  January 1, 1996,  a portion of the cost of such loans is allocated to
the mortgage  servicing  rights retained and recognized as a separate asset. The
recorded  mortgage  servicing  rights are being  amortized in proportion to, and
over the period of, estimated net servicing income.

Mortgage  servicing rights recognized are periodically  evaluated for impairment
based on the fair  value  of those  rights.  Fair  values  are  estimated  using
discounted cash flows based on current market rates of interest. For purposes of
measuring  impairment,  the rights must be stratified by one or more predominant
risk  characteristics  of the  underlying  loans.  The  Company  stratifies  its
mortgage  servicing rights based on the interest rate and term of the underlying
loans. The amount of impairment  recognized is the amount,  if any, by which the
amortized cost of the rights for each stratum exceed their fair value.

Foreclosed real estate:  Real estate properties acquired through, or in lieu of,
loan  foreclosure  are  initially  recorded  at lower of cost or fair value less
estimated costs to sell at date of foreclosure. Costs relating to improvement of
property are capitalized,  whereas costs relating to the holding of property are
expensed.

Valuations  are   periodically   performed  by  management  and  charge-offs  to
operations  are made if the carrying  value of a property  exceeds its estimated
fair value less estimated costs to sell.

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

                                       25
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)

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

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

   Cash:  The  carrying  amounts  reported in the  consolidated  statement  of
   financial  condition  for cash and  interest-bearing  accounts  approximate
   their fair values.

   Certificates of deposit:  The carrying  amounts  reported in the consolidated
   statement of financial  condition  for  certificate  of deposits  approximate
   their fair values.

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

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

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

   Mortgage  servicing  rights:  The fair  value of  mortgage  servicing  rights
   approximates   its  carrying   value  as  the  interest  rate  and  repayment
   assumptions  used in the  calculation of mortgage  servicing  rights have not
   changed significantly.

   Deposits  and other  liabilities:  The fair  values of  demand  deposits  and
   savings  accounts equal their carrying  amounts,  which represent the amounts
   payable on demand.  Fair values for  fixed-rate  certificates  of deposit are
   estimated  using a discounted  cash flow  calculation  that applies  interest
   rates  currently  being offered on  certificates  to a schedule of aggregated
   expected monthly  maturities on those  certificates.  The carrying amounts of
   advances by borrowers for taxes and insurance  and accrued  interest  payable
   approximate their fair values.

                                       26
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)

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

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

Emerging accounting standards: The FASB issued Statement No. 125, Accounting for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities.
This Statement  establishes  basic  principles  that state that an entity should
recognize only assets it controls and liabilities it has incurred. Assets should
be "derecognized" only when control has been surrendered,  liabilities should be
"derecognized"  only  when  they  have been  extinguished,  and  recognition  of
financial  assets and  liabilities  should not be  affected  by the  sequence of
transactions  unless the effect of the  transactions  is to  maintain  effective
control  over  a  transferred   financial  asset.   This  Statement  applies  to
transactions  that occur  after  December  31,  1996.  FASB  Statement  No. 127,
Deferral of the Effective Date of Certain  Provisions of FASB Statement No. 125,
defers certain  provisions of Statement No. 125 to  transactions  after December
31, 1997.  These  Statements  will not have a material  effect on the  financial
position and results of operations of the Company or its subsidiary.

Reclassification of certain income and expenses:  Certain income and expenses on
the consolidated  statements of income for the years ended December 31, 1995 and
1994 have been reclassified, with no effect on net income, to be consistent with
the classifications adopted for the year ended December 31, 1996.

Note 2.  Certificates of Deposit

Certificates  of deposit with a carrying  value of $200 and $800 at December 31,
1996 and 1995,  respectively,  had weighted  average  yields of 5.75% and 6.58%,
respectively, and contractual maturities of less than one year.

                                       27
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 3.  Securities Available for Sale

                                              December 31, 1996
                                     ------------------------------------------
                                                 Gross       Gross
                                     Amortized  Unrealized Unrealized
                                       Cost      Gains       Losses  Fair Value
-------------------------------------------------------------------------------
Mutual Funds:
  Short term U.S. government 
  securities fund                   $   2,396 $        - $    (76) $   2,320
  U.S. Government mortgage 
    securities fund                     1,251          -      (80)     1,171
  Intermediate mortgage securities
  fund                                  1,209          -      (60)     1,149
Stock in Federal Home Loan Bank         1,633          -        -      1,633
FHLMC stock                                29        798        -        827
                                    -----------------------------------------
                                        6,518        798     (216)     7,100
Mortgage-backed securities                427          1        -        428
                                    -----------------------------------------
                                    $   6,945 $      799 $   (216) $   7,528
                                    -----------------------------------------

                                              December 31, 1995
                                     ------------------------------------------
                                                 Gross       Gross
                                     Amortized  Unrealized Unrealized
                                       Cost      Gains       Losses  Fair Value
-------------------------------------------------------------------------------
Mutual Funds:
  Short term U.S. government
    securities fund                 $   2,261 $        - $    (22) $   2,239
  U.S. Government mortgage
    securities fund                     1,170          -      (32)     1,138
  Intermediate mortgage securities
    fund                                1,137          -      (20)     1,117
Stock in Federal Home Loan Bank         1,633          -        -      1,633
FHLMC stock                                29        597        -        626
                                    -----------------------------------------
                                        6,230        597      (74)     6,753
Mortgage-backed securities                862          5        -        867
                                    -----------------------------------------
                                    $   7,092 $      602 $    (74) $   7,620
                                    -----------------------------------------

Equity securities do not have contractual maturities. Mortgage-backed securities
lack a single  maturity  date as the  borrowers  retain  the right to prepay the
obligations.

The Company's  subsidiary,  as a member of the Federal Home Loan Bank system, is
required to maintain an  investment  in capital  stock of the Federal  Home Loan
Bank in an amount  equal to 1% of its  outstanding  home loans.  No ready market
exists for the bank stock,  and it has no quoted  market value.  For  disclosure
purposes, such stock is assumed to have a market value which is equal to cost.

                                       28
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 3.    Securities Available for Sale (Continued)

Changes in unrealized  appreciation  (depreciation) on securities  available for
sale:

                                                      Years Ended December 31,
                                                      --------------------------
                                                        1996     1995    1994
--------------------------------------------------------------------------------
Balance, beginning                                      $ 318  $  (10)  $   -
  Transfer of unrealized loss on securities carried at
    the lower of cost or market at January 1, 1994          -     -       (52)
  Initial unrealized gain on date of adoption of
    statement No. 115, not of related deferred
    tax effect                                              -     -       196

  Unrealized appreciation (depreciation) during
    the year                                               56     531    (291)
  Deferred tax effect relating to unrealized
    appreciation (depreciation)                           (26)   (203)    137
                                                        ---------------------
Balance, ending                                         $ 348  $  318   $ (10)
                                                        ---------------------


There were no sales of securities during the years ended December 31, 1996, 1995
and 1994.

Securities with a carrying value of $-0- and $100 at December 31, 1996 and 1995,
respectively,  were pledged to secure public  deposits and for other purposes as
required or permitted by law.

Note  4.  Securities Held to Maturity
<TABLE>
<CAPTION>

                                                               December 31, 1996
                                            ----------------------------------------------------
                                                             Gross          Gross
                                            Amortized     Unrealized      Unrealized
                                               Cost          Gains          Losses    Fair Value
------------------------------------------------------------------------------------------------
Debt securities:
<S>                                         <C>            <C>            <C>          <C>      
U.S. Government corporations and agencies   $   2,049      $        -     $   (5)      $   2,044
                                            ====================================================
</TABLE>


<TABLE>
<CAPTION>

                                                               December 31, 1995
                                            ----------------------------------------------------
                                                             Gross          Gross
                                            Amortized     Unrealized      Unrealized
                                               Cost          Gains          Losses    Fair Value
------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>            <C>         <C>       
Debt securities:
  U.S. Treasury securities                 $      800      $       -      $       -   $      800
  U.S. Government corporations and agences      3,399              2            (11)       3,390
                                           -----------------------------------------------------
                                           $    4,199      $       2      $     (11)  $    4,190
                                           =====================================================
</TABLE>

                                       29


<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 4.  Securities Held to Maturity (Continued)

Contractual maturities:  All securities held to maturity as of December 31, 1996
have contractual maturities from over one year through five years.

Note 5.  Mortgage-Backed Securities Available For Sale

The amortized cost and approximate market values of  mortgage-backed  securities
available for sale, which consist solely of REMICs, are summarized as follows:

                                                   Years Ended December 31,
                                                   ------------------------
                                                        1996        1995
---------------------------------------------------------------------------
Cost:
  Principal balance                                 $      427 $       862
  Unamortized premiums                                       -           -
                                                    -----------------------
                                                    $      427 $       862
                                                    =======================

Approximate fair value                              $      428 $       867
                                                    =======================


Note 6.  Loans Receivable and Loans Held for Sale

Composition of loans receivable:
<TABLE>
<CAPTION>

                                                                    Years Ended December 31,
                                                                    ------------------------
                                                                         1996        1995
--------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>        
First mortgage loans (principally conventional):
  Principal balances:
    Secured primarily by one-to-four family residences               $  140,444   $ 135,529
    Secured by other properties, primarily agricultural real estate      12,233      11,434
    Construction                                                          2,081       2,774
    Less net deferred loan origination fees                                (714)       (689)
                                                                     -----------------------
         Total first mortgage loans                                     154,044     149,048
                                                                     -----------------------
Consumer and other loans:
  Principal balances:
    Home equity, home improvement and second mortgages                   15,197      12,875
    Agricultural operating loans                                          1,171       1,191
    Vehicle loans                                                         4,619       3,353
    Other                                                                 4,031       3,715
                                                                     -----------------------
         Total consumer and other loans                                  25,018      21,134
                                                                     -----------------------
         Total loans                                                    179,062     170,182
Less allowance for loan losses                                             (615)       (512)
                                                                     -----------------------
         Loan receivable, net                                         $  178,447  $ 169,670
                                                                     =======================
</TABLE>

                                       30

<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 6.     Loans Receivable and Loans Held for Sale (Continued)

Allowance for loan losses:

                                             Years Ended December 31,
                                       -----------------------------------
                                           1996        1995       1994
--------------------------------------------------------------------------

Balance, beginning                     $      512 $       376 $       398
  Provision for loan losses                   180         166         113
  Loans charged off                           (88)        (41)       (144)
  Recoveries                                   11          11           9
                                       -----------------------------------
Balance, ending                        $      615 $       512 $       376
                                       -----------------------------------

Nonaccrual  loans:  Loans on which the accrual of interest has been discontinued
amounted  to  $298,  $298  and  $839  at  December  31,  1996,  1995  and  1994,
respectively.  The effect of nonaccrual loans was not significant to the results
of operations.

The Company includes all loans considered  impaired under FASB Statement No. 114
in nonaccrual  loans.  The amount of impaired loans was not material at December
31, 1996 and 1995.

Related  party  loans:  The  Company  has  entered  into  transactions  with its
executive officers,  directors,  significant shareholders,  and their affiliates
(related  parties).  The  aggregate  amount of loans to such related  parties at
December 31, 1996 was $380.  During 1996, new loans to such related parties were
$8 and repayments were $52.

Loans held for sale: As of December 31, 1996 and 1995, the Company's  loans held
for sale were  $1,791 and $1,944,  respectively,  and  consisted  of one to four
family  residential real estate loans.  Loans held for sale have been reduced by
estimated  unrealized  losses  of $30 and $-0- at  December  31,  1996 and 1995,
respectively.

Outstanding commitments to sell loans at December 31, 1996 were $563.

Note 7.  Loan Servicing

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated statements of financial condition. The unpaid principal balances of
these  loans as of  December  31,  1996  and  1995  were  $66,125  and  $56,263,
respectively,  and consist of one-to-four  family residential real estate loans.
These  loans  are  serviced   primarily  for  the  Federal  Home  Loan  Mortgage
Corporation.

The Company  adopted FASB Statement No. 122,  Accounting for Mortgage  Servicing
Rights, effective January 1, 1996 on a prospective basis. The Statement requires
that a portion of the loan cost be allocated to the  mortgage  servicing  rights
retained and be recognized as a separate asset. Mortgage servicing rights in the
amount of $105 were  capitalized  during the year ended  December 31, 1996.  The
Company recognized  amortization of the cost of mortgage servicing rights in the
amount of $17 for the year ended December 31, 1996.  This resulted in net income
being $88  greater  than had  Statement  No. 122 not been  adopted.  A valuation
allowance  was not required for the  mortgage  servicing  rights at December 31,
1996.

                                       31
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 8.  Foreclosed Real Estate

The Company had investment in real estate acquired through foreclosure or deeded
to the Company in lieu of foreclosure of $78 and $29 as of December 31, 1996 and
1995,  respectively.  No allowances  for losses on  foreclosed  real estate were
required at these dates.

Note 9.  Premises and Equipment

Premises and equipment are summarized as follows:

                                                    Years Ended December 31,
                                                    -----------------------
                                                        1996        1995
---------------------------------------------------------------------------
Cost:
  Land                                              $       71 $        71
  Buildings and improvements                             1,075       1,075
  Leasehold improvements                                   537         533
  Furniture, fixtures and equipment                      1,682       1,245
                                                    -----------------------
                                                         3,365       2,924

  Less accumulated depreciation and amortization         1,846       1,687
                                                    -----------------------
                                                    $    1,519 $     1,237
                                                    =======================


Note 10.  Deposits

Composition of deposits:

                                                    Years Ended December 31,
                                                    -----------------------
                                                        1996        1995
---------------------------------------------------------------------------

Demand and NOW accounts                             $   21,638 $    20,182
Savings accounts                                        16,312      15,878
Certificates of deposit                                107,399     110,626
                                                    -----------------------
                                                    $  145,349 $   146,686
                                                    =======================

The aggregate  amount of certificates of deposit over $100 was $9,447 and $7,152
at December 31, 1996 and 1995, respectively.

                                       32
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 10.     Deposits (Continued)

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

Years Ending December 31,
----------------------------------------------------------------------------

1997                                                             $   80,023
1998                                                                 15,893
1999                                                                 10,570
2000                                                                    913
                                                                 -----------
                                                                 $  107,399
                                                                 ===========

Eligible  savings  accounts  are insured up to $100 by the  Savings  Association
Insurance  Fund  (SAIF)  under  management  of  the  Federal  Deposit  Insurance
Corporation  (FDIC).  On  September  30, 1996,  legislation  was signed into law
requiring savings  institutions  insured by the SAIF to pay a special assessment
to  recapitalize  the fund.  The Company  recorded its  assessment  of $1,085 in
September, 1996.

Note 11.  Employee Benefit Plans

Defined benefit plan: The Bank had a qualified,  noncontributory defined-benefit
retirement plan covering  substantially all of its employees.  The benefits were
based on each employee's  years of service and average monthly  compensation and
reduced by a percentage of the employee's  social security  benefit.  It was the
policy of the Bank to fund the maximum amount that could be deducted for federal
income tax purposes.

Effective  December 31, 1995, the plan was amended such that no further benefits
will be  earned  for  employee  service.  In  conjunction  therewith,  the  Bank
recognized a curtailment  gain of $75 for the year ended  December 31, 1995. The
plan was terminated on November 1, 1996 and all obligations were settled on that
date by payments to the  participants in cash or by payments to their individual
accounts in the Bank's 401(k) plan (see below).

                                       33
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 11.     Employee Benefit Plans (Continued)

The following  table sets forth the plan's funded status and amounts  recognized
in the Company's consolidated statements of financial condition:
<TABLE>
<CAPTION>
                                                                 December 31,
                                                           -----------------------
                                                               1996        1995
----------------------------------------------------------------------------------
<S>                                                           <C>       <C>       
Actuarial present value of benefit obligations:
   Accumulated benefit obligation:
    Vested                                                    $     -   $      896
    Nonvested                                                       -            -
                                                              --------------------
Projected benefit obligation for service rendered to date           -          896

Plan assets at fair value; primarily certificates of
  deposit issued by the Bank                                        -          783
                                                              ---------------------
Plan assets greater (less) than projected benefit obligation        -          113

Unrecognized net transition obligation                              -            -
                                                               --------------------
Accrued pension liability (included in other liabilities)      $    -    $     113
                                                               ====================
</TABLE>


The components of net pension expense are summarized as follows:
<TABLE>
<CAPTION>

                                                        Years Ended December 31,
                                                -----------------------------------
                                                       1996        1995        1994
-----------------------------------------------------------------------------------
<S>                                                 <C>          <C>       <C>     
Service cost-benefits earned during the period      $      -     $  100    $     93
Interest cost on projected benefit obligation             45         82          69
Actual return on plan assets                             (39)       (39)        (20)
Net amortization and deferral                              -        (22)        (34)
Curtailment gain                                           -        (75)          -
                                                    -------------------------------
      Net pension expense                           $      6     $   46    $    108
                                                    ===============================
</TABLE>

Assumptions used to develop the net periodic cost were:

                                                         December 31,
                                             -----------------------------------
                                                1996        1995       1994
--------------------------------------------------------------------------------

Discount rate                                    N/A        8.0%        8.0%
Expected long-term rate of return on assets      N/A        9.0%        9.0%
Rate of increase in compensation levels          N/A         N/A        5.5%

                                       34
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 11.     Employee Benefit Plans (Continued)

Defined  Contribution  401(k) Plan: The Bank provides a 401(k) plan which covers
substantially  all of the Bank's employees who are eligible as to age and length
of service. A participant may elect to make contributions of up to 15 percent of
the  participant's  annual  compensation.  At the  discretion  of the  Board  of
Directors,  the Bank may make matching  contributions of up to 4 percent of each
participant's  contribution.  Contributions made by the Bank for the years ended
December 31, 1996, 1995 and 1994 were $-0-, $-0-, and $33, respectively.

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

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

Compensation expense for the ESOP was $163 and $143 for the years ended December
31, 1996 and 1995, respectively.

Shares of the Company  held by the ESOP at  December  31, 1996 and 1995 are as
follows:

                                                          1996      1995
---------------------------------------------------------------------------

Shares released for allocation                           28,000     14,000
Unreleased (unearned) shares                            112,000    126,000
                                                       --------------------
                                                        140,000    140,000
                                                       --------------------
Fair value of unreleased (unearned) shares             $  1,470 $    1,386
                                                       ====================

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

                                       35
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 11.     Employee Benefit Plans (Continued)

The exercise  price under the awards was  established  at $11.00 per share which
was the fair market price on the date of adoption.  Under APB Opinion No. 25, no
expense has been  recorded  for these  options for the years ended  December 31,
1996 and 1995 as the option  price is the quoted  market  price of the shares at
the date of the awards.

Grants under the Plan are accounted for following APB Opinion No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized, as noted
above, for this Plan. Had  compensation  cost for the Plan been determined based
on the grant date fair values of awards (the method  described in FASB Statement
No. 123),  additional  compensation  cost charged to income would have been $176
and $23 for the years ended December 31, 1996 and 1995,  respectively.  Reported
net income and  earnings  per common  share  would have been  reduced to the pro
forma amounts shown below:

                                                    Years Ended December 31,
                                                    ------------------------
                                                         1996        1995
----------------------------------------------------------------------------
Net Income:
  As reported                                       $    1,200 $     1,270
  Pro forma                                              1,095       1,256

Primary and fully diluted earnings per share:
  As reported                                       $     0.61 $      0.50
  Pro forma                                               0.56        0.49

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

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

The status of the Company's  fixed stock option plan as of December 31, 1996 and
1995, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                   ------------------------------------------------------
                                            1996                      1995
                                   ------------------------------------------------------
                                              Weighted-Average           Weighted-Average
Fixed Options                        Shares    Exercise Price    Shares   Exercise Price
-----------------------------------------------------------------------------------------

<S>                                 <C>        <C>              <C>        <C>         
Outstanding at beginning of year    125,405    $        11            -    $          -
of year
Granted                                   -              -      125,405              11
Exercised                                 -              -            -               -
Forfeited                                 -              -            -               -
                                   ------------------------------------------------------
Outstanding at end of year          125,405    $        11      125,405    $         11
                                   ======================================================
</TABLE>

                                       36
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 11.     Employee Benefit Plan (Continued)

As of December 31, 1996, there were 125,405 options outstanding, all options had
an exercise price of $11.00 per share, and their remaining  contractual life was
8.8  years.  As  of  December  31,  1996  and  1995,   25,081  and  -0-  shares,
respectively, were exercisable.

Management  Stock Bonus Plan:  The Bank  adopted a  Management  Stock Bonus Plan
(Plan) which was approved by the  Company's  stockholders  on November 15, 1995.
Restricted  stock awards covering  shares  representing an aggregate of up to 4%
(87,500 shares) of the common stock issued by the Company in the mutual to stock
conversion  may be granted to directors and employees of the Bank.  These awards
vest at the rate of 20% per year of continuous service with the Bank. The status
of shares  awarded as of December  31, 1996 and 1995 and the changes  during the
years ended on those dates is presented below:

                                                     Years Ended December 31,
                                                     ----------------------
                                                        1996        1995
---------------------------------------------------------------------------
Outstanding at beginning of year                        49,735           -
Granted                                                      -      49,735
Vested and distributed                                  (9,595)          -
Forfeited                                               (1,760)          -
                                                     ----------------------
Outstanding at end of year                              38,380      49,735
                                                     ======================

The Bank  recorded  expense  of $228  relating  to this Plan for the year  ended
December 31, 1996 and $31 for the year ended December 31, 1995.

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

Note 12.  Borrowed Funds

Borrowed  funds  consisted of advances  from  Federal Home Loan Bank (FHLB),  as
follows:

                                                        December 31,
                                                  -----------------------
                                                      1996        1995
-------------------------------------------------------------------------
     Due Date      Interest Rate
----------------------------------
     06/05/96          5.70%                      $         - $    7,500
     09/20/96          5.91%                                -      3,000
     06/05/97          5.67%                            7,500      7,500
     06/05/97          5.91%                            5,000          -
     06/27/97          6.35%                            3,000          -
     05/04/98          5.46%                            5,000          -
     05/26/98          5.61%                            6,000          -
                                                  -----------------------
                                                  $    26,500 $   18,000
                                                  =======================
                                       37
<PAGE>

WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 12.     Borrowed Funds (Continued)

The Company had $2,000 of unused  borrowings  available  on the advance due June
27, 1997 as of December 31, 1996.

The advances due on June 5, 1997 have fixed interest rates.  The advances due on
June 27, 1997,  May 4, 1998 and May 26, 1998 have variable  interest  rates,  at
December  31, 1996 the current  rates were as stated  above.  Prepayment  of the
advances will result in prepayment penalties.

The  advances  are  collateralized  by FHLB  stock and first  mortgage  loans of
$39,750 at December 31, 1996.

Note 13.  Income Tax Matters

The Company and its subsidiary file consolidated federal income tax returns. For
the years ended  December 31, 1995 and 1994,  if certain  conditions  are met in
determining taxable income, the Company was allowed a special bad debt deduction
based on a percentage of taxable  income (8 percent) or on specified  experience
formulas. The Company used the taxable income method in 1995 and 1994.

Effective for the year ended December 31, 1996,  federal income tax laws changed
to eliminate the  percentage of taxable  income formula for the Company and will
only allow bad debt deductions based on actual charge-offs.

The components of income tax expense are as follows:

                                              Years Ended December 31,
                                       -----------------------------------
                                           1996        1995        1994
--------------------------------------------------------------------------

Federal:
  Current                              $       690 $      612 $       582
  Deferred (credit)                            (6)         24          42
                                       -----------------------------------
                                               684        636         624
                                       -----------------------------------
State:
  Current                                      230        196         189
  Deferred (credit)                            (2)         10          17
                                       -----------------------------------
                                               228        206         206
                                       -----------------------------------
         Total                         $       912 $      842 $       830
                                       ===================================

                                       38
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 13.     Income Tax Matters (Continued)

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

                                              Years Ended December 31,
                                        ----------------------------------
                                             1996       1995       1994
--------------------------------------------------------------------------

Statutory rate applied to income        $       739 $      739 $      740
before income taxes
State income taxes, net of federal              137        137        137
benefit
Effect of graduated rates                       (21)       (21)       (21)
Other                                            57        (13)       (26)
                                        ----------------------------------
         Income tax expense             $       912 $      842 $      830
                                        ==================================


The net deferred  tax  liability  included in  liabilities  in the  accompanying
statements of financial condition includes the following amounts of deferred tax
assets and liabilities:

                                                          December 31,
                                                    -----------------------
                                                        1996        1995
---------------------------------------------------------------------------
Deferred tax assets:
  Allowance for loan losses                         $      189   $     131
  Deferred loan origination fees                            40          94
  Other                                                     35          54
                                                    -----------------------
                                                           264         279
  Less valuation allowance                                   -           -
                                                    -----------------------
                                                           264         279
                                                    -----------------------
Deferred tax liabilities:
  Premises and equipment                                   169         192
  Securities available for sale                            236         210
  FHLB stock dividends                                     217         217
                                                    -----------------------
                                                           622         619
                                                    -----------------------
                                                    $     (358)  $    (340)
                                                    =======================

Retained  earnings at December  31, 1996 and 1995 include  approximately  $1,839
related to the pre-1987  allowance for loan losses for which no deferred federal
income tax liability has been recognized.  This amount  represents an allocation
of income to bad debt deductions for tax purposes only.  Reduction of amounts so
allocated  for  purposes  other than tax bad debts or  adjustments  arising from
carryback of net  operating  losses would create  income for tax purposes  only,
which  would be  subject to the then  current  corporate  income  tax rate.  The
unrecorded  deferred  income tax  liability  on the above  amount for  financial
statement purposes was approximately $736 at December 31, 1996 and 1995.

                                       39
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 14.  Lease Commitments

The Company leases certain branch facilities under operating leases. Some leases
require the Company to pay related insurance,  maintenance and repairs, and real
estate taxes.  Future minimum rental  commitments  under operating  leases as of
December 31, 1996 are as follows:

Years Ending

----------------------------------------------------------------------------
1997                                                             $      130
1998                                                                     68
1999                                                                     31
2000                                                                     26
2001                                                                     26
Thereafter                                                               15
                                                                 -----------
                                                                 $      296
                                                                 ===========

Total rental expense related to operating  leases was  approximately  $162, $163
and $158 for the years ended December 31, 1996, 1995 and 1994, respectively.

Note 15.  Stockholders' Equity, Regulatory Capital and Dividend Restrictions

In 1996,  the Company  approved two stock buy back programs in which up to 14.5%
of the  common  stock of the  Company  may be  acquired  by April 11,  1997.  In
accordance  with the provisions of its stock buy back programs,  the Company had
purchased 125,875 shares of treasury stock as of December 31, 1996.

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory - and possibly additional  discretionary - actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and ratios of total and Tier I
capital (as defined in the  regulations) to  risk-weighted  assets (as defined),
and of Tier I capital (as defined) to average  assets (as  defined).  Management
believes,  as of December  31,  1996,  that the Bank meets all capital  adequacy
requirements to which it is subject.

As of May 20,  1996,  the  most  recent  examination  by the  Office  of  Thrift
Supervision  categorized  the Bank as "well  capitalized"  under the  regulatory
framework  for  Prompt  Corrective  Action.  To  be  categorized  as  adequately
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I  leverage  ratios.  There  are no  conditions  or events  since  that
notification that management believes have changed the Bank's category.

                                       40
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 15.     Regulatory Capital and Dividend Restrictions (Continued)

The following table summarizes the Bank's compliance with its regulatory capital
requirements at December 31, 1996:

                        Bank's Capital       Bank's Capital      Bank's Capital 
                       ---------------------------------------------------------
                       Amount    Percent    Amount   Percent    Amount  Percent
--------------------------------------------------------------------------------
Tier 1 (core) capital  $20,478   10.31 %   $ 5,961    3.00 %   $14,517   7.31 %
Risk-based capital      21,064   18.61 %     9,054    8.00 %    12,010  10.61 %

Under  current  regulations,  the Bank is not  permitted to pay dividends on its
stock if its regulatory  capital would reduce below (i) the amount  required for
the liquidation  account  established to provide a limited priority claim to the
assets of the Bank to certain qualifying depositors who had deposits at the Bank
and who continue to maintain those deposits after its conversion  from a Federal
mutual savings and loan  association to a Federal stock savings bank pursuant to
its Plan of  Conversion  (Plan)  adopted  October 19,  1994,  or (ii) the Bank's
regulatory capital requirements.  As a "Tier 1" institution (an institution with
capital  in excess of its  capital  requirements,  both  immediately  before the
proposed capital distribution and after giving effect to such distribution), the
Bank may make capital  distributions  without the prior consent of the Office of
Thrift Supervision (OTS) in any calendar year. The capital distribution is equal
to the greater of 100% of net income for the year to date plus 50% of the amount
by which the lesser of the institution's  tangible,  core or risk-based  capital
exceeds its capital requirement for such capital commitment,  as measured at the
beginning of the  calendar  year or up to 75% of net income over the most recent
four quarter period.

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

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

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

Commitments to extend credit on loans totaled  approximately $11,850 and $11,506
at December  31, 1996 and 1995,  respectively.  The  portion of  commitments  to
extend  credit that  related to fixed rate loans is $676 and $957 as of December
31, 1996 and 1995, respectively.

                                       41
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 16.     Financial Instruments with Off-Statement of Financial Condition
             Risk (Continued)

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since some of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future cash  requirements.  The  Company  evaluates  each  customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
it is deemed  necessary  by the Company upon  extension  of credit,  is based on
management's  credit evaluation of the counterparty.  Collateral held varies but
normally includes real estate and personal property.

Note 7.  Concentrations

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

Concentration by institution:  As of December 31, 1996 the Company had $7,554 on
deposit with the FHLB of Des Moines.

Note 18.  Earnings Per Share

Earnings per share is calculated by dividing net income by the weighted  average
number of shares of common and common equivalent shares  outstanding,  including
shares  issuable upon  exercise of dilutive  options  outstanding.  The weighted
number of common and common  equivalent  shares  outstanding  for the year ended
December  31, 1996 and the period from April 11, 1995 to December  31, 1995 were
1,967,185 and 2,063,166, respectively.

The earnings per share  calculation  for 1995  includes  earnings from April 11,
1995, the date of conversion, to December 31, 1995.

                                       42
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 19.  Fair Values of Financial Instruments

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
                                                       Years Ended December 31,            
                                            ----------------------------------------------
                                                      1996                   1995    
------------------------------------------------------------------------------------------
                                              Carrying     Fair      Carrying     Fair
                                               Amount      Value      Amount      Value
                                            ----------------------------------------------
<S>                                         <C>         <C>        <C>         <C>       
Financial assets                            
  Cash                                      $     8,301 $    8,301 $     8,192 $    8,192
  Certificates of deposit                           200        200         800        800
  Securities and mortgage backed                                    
    securities available for sale                 7,528      7,528       7,620      7,620
  Securities held to maturity                     2,049      2,044       4,199      4,190
  Loans receivable, net                         178,447    179,721     169,670    170,972
  Loans held for sale                             1,791      1,791       1,944      1,944
  Mortgage servicing rights                          88         88           -          -
  Accrued interest receivable                     1,060      1,060       1,120      1,120
                                            
Financial liabilities                       
  Deposits                                      145,349    145,702     146,686    146,966
  Borrowed funds                                 26,500     26,502      18,000     18,012
  Advances from borrowers for
    taxes and insurance                             681        681         683        683
  Accrued interest payable                          126        126         221        221
                                            ==============================================
</TABLE>
                                            
                             
Note 20.  Conversion to Stock Form Ownership

On  October  19,  1994,  the Board of  Directors  of the Bank  adopted a Plan of
Conversion  (the  "Conversion").  The  OTS  approved  this  transaction  and the
registration  statement  was  declared  effective  by the SEC as of February 13,
1995. The institution  converted from a federal mutual savings bank to a federal
stock savings bank with the concurrent  formation of a holding  company on April
11, 1995.

As part of the Conversion,  the Company issued  2,187,500 shares of common stock
(140,000  shares  of which  were  acquired  by the  ESOP)  at $8 per  share in a
community offering resulting in gross proceeds of $17,500.  Expenses relating to
the Conversion totaled $775. One-half of the net proceeds,  excluding the common
stock acquired by the ESOP, or $8,362,  were used by the Company to acquire 100%
of the common stock of the Bank.

                                       43
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 20.     Conversion to Stock Form Ownership (Continued)

At the time of the Conversion,  the Bank established a liquidation account in an
amount equal to its retained  earnings as of the date of the latest statement of
financial condition  appearing in the final prospectus.  The liquidation account
is  maintained  for the benefit of eligible and  supplemental  eligible  account
holders  who  continue  to  maintain  their  accounts  at  the  Bank  after  the
Conversion.  The liquidation account will be reduced annually to the extent that
eligible and supplemental eligible account holders have reduced their qualifying
deposits.  Subsequent  increases  will not restore an eligible and  supplemental
eligible account holder's interest in the liquidation account. In the event of a
complete  liquidation,  each eligible and  supplemental  eligible account holder
will be entitled to receive a distribution  from the  liquidation  account in an
amount  proportionate to the current adjusted  qualifying  balances for accounts
then held.

Note 21.  Financial Information of Wells Financial Corp. (Parent Only)

The Company's  condensed  statements  of financial  condition as of December 31,
1996 and 1995 and related condensed  statements of income and cash flows for the
year ending December 31, 1996 and the period April 11, 1995, date of conversion,
to December 31, 1995 are as follows:

                                                     December 31,   December 31,
Condensed Statements of Financial Condition             1996           1995
--------------------------------------------------------------------------------
Assets
  Cash, including deposits with Wells Federal
    Bank, fsb 1996 $203; 1995 $880                  $     1,829    $    1,500  
  Certificates of deposit                                   200           800
  Securities held to maturity                               499           200
  Investment in Wells Federal Bank, fsb                  21,731        21,355
  Loan to Wells Federal Bank, fsb                         4,000         5,000
  Accrued interest receivable                                15            10
                                                    --------------------------
         Total assets                               $    28,274    $   28,865
                                                    ==========================
                                                                 
Liabilities and Stockholders' Equity                           
  Liabilities                                       $        72    $       13
  Stockholders' equity                                   28,202        28,852
                                                    --------------------------
         Total liabilities and stockholders' equity $    28,274    $   28,865
                                                    ==========================


                                                    Year Ended     Period Ended
                                                    December 31,   December 31,
Condensed Statements of Income                         1996           1995
--------------------------------------------------------------------------------
Interest income                                     $      466     $      326  
Other expense                                               73             87
                                                    ----------------------------
         Income before income taxes                        393            239
Income tax expense                                         169             97
                                                    ----------------------------
         Net income before equity in net
             income of subsidiary                          224            142
Equity in net income of subsidiary                         976            889
                                                    ----------------------------
         Net income                                 $    1,200     $    1,031 
                                                    ============================



                                       44
<PAGE>
WELLS FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
------------------------------------------------------------------------------
Note 21.     Financial Information of Wells Financial Corp. (Parent Only)
             (Continued)
<TABLE>
<CAPTION>
                                                            Year Ended     Period Ended
                                                            December 31,   December 31,
Condensed Statements of Cash Flows                             1996            1995
---------------------------------------------------------------------------------------
<S>                                                         <C>               <C>       
Cash Flows From Operating Activities                        
  Net income                                                $    1,200        $    1,031
  Adjustment to reconcile net income to net cash                              
    provided by operating activities:                                         
    Equity in undistributed net income of subsidiary              (976)             (889)
    Increase in accrued interest receivable                         (5)              (10)
    Increase in other liabilities                                   59                13
                                                            -----------------------------
         Net cash provided by operating activities                 278               145
                                                            -----------------------------
Cash Flows From Investing Activities                                          
  Purchase of certificates of deposit                             (200)             (800)
  Purchase of securities held to maturity                       (1,999)             (800)
  Proceeds from the maturities of certificates of deposit          800                 -
  Proceeds from maturity of securities held to maturity          1,700               600
  Investment in Wells Federal Bank, fsb                              -            (8,362)
  (Increase) decrease in loan to Wells Federal Bank, fsb         1,000            (5,000)
                                                            -----------------------------
         Net cash provided by (used in) investing activities     1,301           (14,362)
                                                            -----------------------------
Cash Flows From Financing Activities                                          
  Net proceeds from sale of common stock                             -            15,605
  Payments relating to ESOP stock                                  112               112
  Purchase of treasury stock                                    (1,362)                -
                                                            -----------------------------
         Net cash provided by (used in) financing activities    (1,250)           15,717
                                                            -----------------------------
         Net increase in cash                                      329             1,500
                                                                              
Cash                                                                          
  Beginning of period                                            1,500                 -
                                                            -----------------------------
  End of period                                             $    1,829        $    1,500
                                                            =============================
                                                                              
</TABLE>                                                                      
                                                                              
                                       45
                                                                              
<PAGE>                                                                        
WELLS FINANCIAL CORP. AND SUBSIDIARY                                          
                                                                              
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                    
(dollars in thousands)                                                        
---------------------------------------------------------------------------
Note 22.  Selected Quarterly Financial Data (Unaudited)                    
          (dollars in thousands, except per share data)                  

                                     Year Ended December 31, 1996
---------------------------------------------------------------------------
                                First      Second      Third      Fourth
                             ----------------------------------------------

Interest income              $     3,578 $    3,583 $     3,715 $    3,793
Net interest income                1,552      1,577       1,686      1,708
Provision for loan losses             45         45          45         45
Net income (loss)                    500        363        (144)       481
Earnings per share, primary
  and fully diluted                 0.24       0.19       (0.07)      0.25

                                      Year Ended December 31, 1995
---------------------------------------------------------------------------
                                First      Second      Third      Fourth
                             ----------------------------------------------

Interest income              $     3,132 $    3,299 $     3,489 $    3,569
Net interest income                1,120      1,302       1,405      1,497
Provision for loan losses             31         45          45         45
Net income                           197        303         400        370
Earnings per share from
April 11,
  1995, the date of
  conversion:
    Primary and fully 
    diluted                            -       0.13        0.19       0.18



                                       46

<PAGE>
                OFFICE LOCATION AND OTHER CORPORATE INFORMATION

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

                  Board of Directors of Wells Financial Corp.

                               Lawrence H. Kruse
                         President, Wells Federal Bank
       Gerald D. Bastian                      Joseph R. Gadola
       Branch Manager, Wells Federal Bank     Attorney, Gadola Law Office
                                              
       Wallace J. Butson                      Richard Mueller
       Secretary, Wells Federal Bank          Pharmacist, Wells Drug, Co
                                              
                                              
                   Executive Officers of Wells Financial Corp.
       Lawrence H. Kruse                      James D. Moll
        President and Chief                   Treasurer and Principal Financial
        Executive Officer                      and Accounting Officer
                                              
       Gerald D. Bastian                      Wallace J. Butson
        Vice President                         Secretary
                                              
                         ---------------------------
                                              
       Corporate Counsel:                     Independent Auditors:
       Joseph R. Gadola, Esq.                 McGladrey & Pullen, LLP
        28 South Broadway                      Suite 400
        Wells, Minnesota  56097                102 South Broadway
                                               Rochester, Minnesota  55904
                                              
       Special Counsel:                       Transfer Agent and Registrar:
       Malizia, Spidi, Sloane & Fisch, P.C.   Registrar and Transfer Company
        One Franklin Square                    10 Commerce Drive
        Suite 700 East                         Cranford, New Jersey  07016
        1301 K Street, N.W.                  
        Washington, D.C.  20005              
                                              
                         ---------------------------
                                           
The Company's Annual Report for the Year Ended December 31, 1996, filed with the
Securities and Exchange Commission on Form 10-K is available without charge upon
written request. For a copy of the Form 10-K or any other investor  information,
please write the Secretary of the Company,  at the Company's corporate office in
Wells,  Minnesota.  The annual meeting of stockholders will be held on April 16,
1997 at 4:00 p.m. at the Corporate Office, Wells, Minnesota.

                                       47