UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended                        December 31, 2003
                          ------------------------------------------------------

                                     - OR -

| |  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

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

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

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

                Minnesota                                         41-1799504
--------------------------------------------              ----------------------
       (State or other jurisdiction of                         (I.R.S. employer
      of incorporation or organization)                      identification no.)

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

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

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

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

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

         Registrant's  revenues for the year ended  December 31, 2003 were $19.3
million.

         Registrant's  voting stock trades on the Nasdaq  National  Market under
the symbol  "WEFC."  The  aggregate  market  value of the  voting  stock held by
non-affiliates  of registrant,  based upon the closing price of such stock as of
March 1, 2004 ($34.00 per share), was $33.1 million.

         As of March 1, 2004,  registrant  had 1,159,751  shares of Common Stock
outstanding.

         Transitional small Business Disclosure Format (Check one):
 Yes      No    X .
     ---       ---

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Part II -- Portions of Registrant's  Annual Report to Stockholders  for the
     fiscal year ended December 31, 2003.
2.   Part III -- Portions of  Registrant's  Proxy  Statement for the 2004 Annual
     Meeting of Stockholders.

<PAGE>

                                     PART I

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

         THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,  SUCH
AS STATEMENTS OF THE COMPANY'S PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND
INTENTIONS,  THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE COMPANY'S CONTROL). THE FOLLOWING FACTORS, AMONG OTHERS,
COULD CAUSE THE COMPANY'S  FINANCIAL  PERFORMANCE TO DIFFER  MATERIALLY FROM THE
PLANS,  OBJECTIVES,  EXPECTATIONS,  ESTIMATES AND  INTENTIONS  EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL
AND  THE  STRENGTH  OF  THE  LOCAL  ECONOMIES  IN  WHICH  THE  COMPANY  CONDUCTS
OPERATIONS;  THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES
AND LAWS,  INCLUDING  INTEREST  RATE  POLICIES OF THE BOARD OF  GOVERNORS OF THE
FEDERAL  RESERVE  SYSTEM,   INFLATION,   INTEREST  RATE,   MARKET  AND  MONETARY
FLUCTUATIONS;  THE TIMELY  DEVELOPMENT  OF AND  ACCEPTANCE  OF NEW  PRODUCTS AND
SERVICES OF THE COMPANY AND THE PERCEIVED  OVERALL  VALUE OF THESE  PRODUCTS AND
SERVICES BY USERS,  INCLUDING  THE  FEATURES,  PRICING  AND QUALITY  COMPARED TO
COMPETITORS'  PRODUCTS AND  SERVICES;  THE  WILLINGNESS  OF USERS TO  SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE COMPANY'S PRODUCTS AND SERVICES;  THE
SUCCESS OF THE  COMPANY IN  GAINING  REGULATORY  APPROVAL  OF ITS  PRODUCTS  AND
SERVICES,  WHEN REQUIRED;  THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND
REGULATIONS   (INCLUDING  LAWS  CONCERNING   TAXES,   BANKING,   SECURITIES  AND
INSURANCE);  TECHNOLOGICAL CHANGES,  ACQUISITIONS;  CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE COMPANY AT MANAGING THE RISKS INVOLVED
IN THE FOREGOING.

         THE COMPANY  CAUTIONS THAT THE FOREGOING  LIST OF IMPORTANT  FACTORS IS
NOT  EXCLUSIVE.  THE COMPANY DOES NOT  UNDERTAKE TO UPDATE ANY FORWARD-  LOOKING
STATEMENT,  WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
BEHALF OF THE COMPANY.

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

General

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

<PAGE>

public offering of common stock (the "Conversion"). As of December 31, 2003, the
Company had total assets of $223.8  million,  total deposits of $169.7  million,
and  stockholders'  equity  of $27.9  million  or 12.5%  of total  assets  under
generally  accepted  accounting  principles  ("GAAP")  in the  United  States of
America. The only subsidiary of the Company is the Bank.

         The primary  activity  of the Company is  directing  and  planning  the
activities of the Bank, the Company's  primary asset.  At December 31, 2003, the
remainder of the assets of the Company were  maintained  in deposits in interest
bearing  accounts with other financial  institutions.  The Company engages in no
other  significant  activities.  As a  result,  references  to  the  Company  or
Registrant  generally refer to the Bank, unless the context otherwise indicates.
In the discussion of regulation,  except for the discussion of the regulation of
the Company, all regulations apply to the Bank rather than the Company.

         The Bank is a federally  chartered stock savings bank  headquartered in
Wells, Minnesota.  The Bank has eight full service offices located in Faribault,
Martin, Blue Earth, Nicollet, Freeborn and Steele Counties, Minnesota and a loan
origination office in Dakota County,  Minnesota.  During 2003, the Bank leased a
facility and opened a loan origination  office in Cerro Gordo County,  Iowa. The
Bank was  founded in 1934 and  obtained  its  current  name in 1991.  The Bank's
deposits have been federally insured by the Savings  Association  Insurance Fund
("SAIF") and its predecessor, the Federal Savings and Loan Insurance Corporation
("FSLIC")  since 1934,  and the Bank is a member of the  Federal  Home Loan Bank
("FHLB") System. The Bank is a community  oriented,  full service retail savings
institution  offering  traditional   mortgage,   commercial  and  consumer  loan
products.  It is the Bank's intent to remain an  independent  community  savings
bank serving the local banking needs of southern Minnesota and northern Iowa.

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

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

Market Area

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

         Lending  Activities.  Historically  the  Bank's  lending  strategy  was
focused on the  origination of  traditional  one-to-four  family  mortgage loans
primarily secured by single family residences and, to a lesser

                                        2

<PAGE>

extent,  consumer,  agricultural real estate and agricultural operating loans in
the Bank's  primary  market area.  As a method to reduce  interest rate risk the
Bank has  modified  the  composition  of its loan  portfolio  to have less of an
emphasis on mortgage loans on single family residences and a greater emphasis on
consumer,  agricultural real estate,  agricultural operating loans and, over the
past few years,  commercial real estate and commercial  operating loans. Subject
to market  conditions,  the Bank plans to continue to expand its commercial real
estate and operating lending.

                                        3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                        At December 31,
                              -------------------------------------------------------------------------------------------------
                                     2003                 2002                2001               2000                1999
                              ------------------    -----------------   ----------------  ------------------   ----------------
                               Amount    Percent     Amount   Percent    Amount  Percent   Amount    Percent    Amount  Percent
                              --------   -------    --------  -------   -------- -------  --------   -------   -------- -------
                                                                       (Dollars in Thousands)
<S>                        <C>         <C>       <C>        <C>      <C>        <C>    <C>          <C>    <C>        <C>
Real Estate Loans:
  One- to four-family.......  $ 42,432    26.08%    $53,967    36.00%   $80,613    49.01% $112,579     58.29% $106,292   60.82%
  Multi-family..............       389     0.25         439     0.29        484     0.29       523      0.27       654    0.37
  Commercial................    65,120    40.03      51,958    34.66     41,510    25.24    38,514     19.94    31,928   18.27
  Construction..............     9,697     5.96       4,830     3.22      2,185     1.33     2,043      1.06     2,957    1.69
                              --------   ------     -------   ------    -------   ------  --------    ------  --------  ------
      Total real
        estate loans........   117,638    72.32     111,194    74.17    124,792    75.87   153,659     79.56   141,831   81.15

Other Loans:
 Consumer Loans:
  Savings account...........       457     0.28         387     0.26        635     0.39       558      0.30       578    0.33
  Vehicles..................     6,146     3.78       5,687     3.79      4,914     2.99     5,333      2.76     4,914    2.81
  Home equity, home
  improvement and
  second mortgages..........    21,755    13.37      22,826    15.23     26,228    15.95    26,155     13.54    21,315   12.20
  Other.....................     7,254     4.46       3,905     2.60      4,314     2.62     4,449      2.30     3,144    1.80
                              --------   ------     -------   ------    -------   ------  --------    ------  --------  ------
      Total consumer loans..    35,612    21.89      32,805    21.88     36,091    21.95    36,495     18.90    29,951   17.14
Commercial business loans...     9,421     5.79       5,917     3.95      3,591     2.18     2,967      1.54     2,988    1.71
                              --------   ------     -------   ------    -------   ------  --------    ------  --------  ------
      Total other loans.....    45,033    27.68      38,722    25.83     39,682    24.13    39,462     20.44    32,939   18.85
                              --------   ------     -------   ------    -------   ------  --------    ------  --------  ------
      Total loans...........   162,671   100.00%    149,916   100.00%   164,474   100.00%  193,121    100.00%  174,770  100.00%
                                         ======               ======              ======              ======            ======
Less:
  Loans in process..........     1,562                3,202               2,694                657                 722
  Deferred loan
   origination fees
   and costs................       156                  220                 315                494                 478
  Allowance for loan losses.       904                  908                 952                833                 857
                              --------            ---------            --------           --------            --------
      Total loans
        receivable, net.....  $160,049            $ 145,586            $160,513           $191,137            $172,713
                              ========            =========            ========           ========            ========
</TABLE>
                                                                              4

<PAGE>

         Loan Maturity  Tables.  The following  table sets forth the maturity of
the Company's  loan  portfolio at December 31, 2003.  The table does not include
prepayments, scheduled principal repayments or loans held for sale. All mortgage
loans are shown as maturing based on contractual maturities.




                                                           Commercial
                                                          Business and
                                          Construction      Consumer      Total
                                          ------------      --------      -----
                                                          (In Thousands)
Amounts Due:
  Within 1 year or less..............          $6,190        $ 7,681     $13,871
  After 1 year through 5 years.......           3,507         26,307      29,814
  After 5 years......................               -         11,045      11,045
                                               ------        -------     -------
Total amount due.....................          $9,697        $45,033     $54,730
                                               ======        =======     =======


         The following table sets forth the dollar amount of all loans due after
December 31, 2004 that have pre-determined interest rates or which have floating
or adjustable interest rates. This table does not include loans held for sale.

<TABLE>
<CAPTION>
                                                                 Floating or
                                               Fixed Rates    Adjustable Rates           Total
                                               -----------    ----------------           -----
                                                               (In Thousands)
<S>                                           <C>                <C>                <C>
One- to four-family ........................    $ 21,956           $ 20,314           $ 42,270
Commercial and multi-family real estate ....      57,141              6,710             63,851
Construction ...............................           -              3,507              3,507
Commercial business and consumer ...........      29,189              8,163             37,352
                                                --------           --------           --------
  Total ....................................    $108,286           $ 38,694           $146,980
                                                ========           ========           ========

</TABLE>

         One- to Four-Family  Residential  Loans. The Company  originates single
family  residential  mortgage loans secured by property in the Company's primary
market area. Due to low interest rates on fixed rate residential  mortgage loans
during the past two years,  the Company has sold the  majority of these loans to
the  secondary  market.  As a source of  noninterest  income and to maintain its
customer  base the Bank retains the  servicing on the majority of the loans sold
to the secondary market. The Company  originates  adjustable rate mortgage loans
for  retention  in its  portfolio  with  loan-to-value  ratios  of up to 95% and
requires private mortgage insurance when the loan-to-value ratio exceeds 80%.

         The Company's  adjustable  rate loans provide for annual 1%-2% interest
rate  adjustments  with a  maximum  adjustment  over  the  term of the  loan of,
generally, 5%.

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

                                        5

<PAGE>

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

         At December 31, 2003,  the Company was servicing  approximately  $380.4
million  of loans for  others,  primarily  long term  fixed  rate  loans sold to
FreddieMac.  Generally,  the  Company  retains  all  servicing  on loans sold to
FreddieMac  and does not  retain  servicing  on FHA/VA  loans  sold.  Except for
document  deficiencies  that may occur  during  origination  that may  require a
repurchase by the Company, loans are sold without recourse.

         Consumer  Loans.  The Company  offers second  mortgage loans on one- to
four-family  residences.  Such  loans  are only made on  owner-occupied  one- to
four-family  residences and are subject to a 90% combined  loan-to-value  ratio.
The Company holds the majority of the underlying first mortgages on these loans.
The  underwriting  standards  for  second  mortgage  loans  are  similar  to the
Company's  standards  applicable to one- to four-family  residential loans. To a
lesser  extent,  the  Company  makes loans  secured by  vehicles  and by savings
accounts held with the Company.  Loans secured by vehicles totaled $6.1 million,
or 3.78% of the loan portfolio at December 31, 2003.

         Federal  regulations permit federally  chartered thrift institutions to
make secured and unsecured consumer loans up to 35% of an institution's  assets.
In addition,  a federal thrift has lending  authority above the 35% category for
certain consumer loans, property improvement loans, and loans secured by savings
accounts. The Company originates consumer loans in order to provide a wide range
of  financial  services to its  customers  and  because  the  shorter  terms and
normally higher  interest rates on such loans help maintain a profitable  spread
between its average loan yield and its cost of funds.  Consumer loans,  however,
tend to have a higher risk of default than residential  mortgage loans. Based on
the Company's experience, a borrower faced with either paying a mortgage loan to
avoid  foreclosure on the borrower's  home or defaulting on a consumer loan will
continue  paying the  mortgage  loan.  At  December  31,  2003,  the Company had
approximately $72,000 in consumer loans that were more than 90 days delinquent.

         Commercial Real Estate Loans. In order to enhance yields on its assets,
the Company  originates  loans secured by commercial real estate.  Approximately
74% of this portfolio is secured by farm real estate. In addition to originating
farm real estate loans, the Company also purchases  participations  in farm real
estate loans that are originated by commercial banks in southern Minnesota. Most
of the  remainder of the  portfolio  is secured by  commercial  real estate.  At
December 31, 2003,  loans secured by farm real estate were originated in amounts
up to the lesser of 65% of the  appraised  value of the  property  or $1,300 per
tillable acre.  These loans are evaluated on a cash flow basis in addition to an
asset  value  basis.  Loans  secured by  commercial  real  estate are  generally
originated  in  amounts up to 80% of the  appraised  value of the  property.  At
December 31, 2003, the Company's  largest  commercial real estate loan consisted
of a  $2,606,000  performing  commercial  construction  loan.  As  part  of  its
underwriting,  the Company requires that borrowers qualify for a commercial loan
at the fully indexed interest rate rather than at the origination interest rate.

                                        6

<PAGE>

Loans secured by commercial  real estate  generally  involve a greater degree of
risk than  residential  mortgage  loans and carry  larger  loan  balances.  This
increased credit risk is a result of several factors, including concentration of
principal  in a limited  number of loans and  borrowers,  the effects of general
economic conditions on income producing  properties and the increased difficulty
of evaluating and monitoring these types of loans. Furthermore, the repayment of
loans  secured  by  commercial  real  estate  is  typically  dependent  upon the
successful  operation of the related real estate project.  If the cash flow from
the project is reduced, the borrowers ability to repay the loan may be impaired.
The Company's  commercial real estate loan portfolio primarily consists of loans
secured by  agricultural  real estate.  For loans secured by  agricultural  real
estate,  repayment  is  dependent,  primarily,  on the  successful  operation or
management  of the farm property  securing the loan.  The success of the farming
operation  may be affected  by any number of factors  outside the control of the
farm  borrower,  including  weather  conditions,  recent  changes in  government
support programs,  grain and livestock prices, and the uncertainty of government
programs and other  regulations.  While the  scheduled  repayments  of farm real
estate  loans  depends on the  successful  operation  of the farm,  the  Company
underwrites these loans to be collateral dependent with a maximum  loan-to-value
ratio of 65%. At December 31, 2003,  the  outstanding  balance on the  Company's
largest  agricultural  real estate loan was $804,000.  At December 31, 2003, the
outstanding  balance of the Company's  largest  commercial real estate loans not
secured by agricultural real estate ranged from $1.5 million to $2.6 million.

         Commercial  Business  Loans.  The Company's  commercial  business loans
consist of commercial and agricultural  operating and term loans. The commercial
operating  and  term  loans  are  generally  secured  by  equipment,  inventory,
commercial  real estate and  receivables.  The  agricultural  operating and term
loans are primarily  secured by farm equipment,  livestock,  crops and farm real
estate.  Commercial and agricultural loans generally involve a greater degree of
risk than residential  mortgage loans. This increased credit risk is a result of
several factors,  including the effects of general  economic  conditions and the
increased difficulty of evaluating and monitoring these types of loans.

         Construction Loans.  Construction  loans, with a maximum  loan-to-value
ratio of 80%, are made on commercial real estate projects. These loans generally
have a term of  approximately  one year and a fixed interest rate.  Construction
loans are also made on single family residential property to the individuals who
are the owners and occupants upon  completion of  construction.  These loans are
generally  made for a term of six months with a maximum  loan-to-value  ratio of
80%, after which the loan is rewritten to a permanent loan and, generally,  sold
to the secondary market.

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

         Construction lending is generally considered to involve a higher degree
of credit risk than long-term financing of residential properties. The Company's
risk of loss on a  construction  loan is dependent  largely upon the accuracy of
the initial  estimate of the property's  value at completion of  construction or
development  and  the  estimated  cost  of  construction.  If  the  estimate  of
construction  cost and the  marketability of the property upon completion of the
project  prove  to be  inaccurate,  the  Company  may be  compelled  to  advance
additional  funds to complete the development.  Furthermore,  if the estimate of
value proves to be inaccurate, the Company may be confronted, at or prior to the
maturity  of the loan,  with a  property  with a value that is  insufficient  to
assure full repayment.  For the small number of speculative  loans originated to
builders,  the  ability of the  builder to sell  completed  dwelling  units will
depend,  among other things, on demand,  pricing, and availability of comparable
properties and economic conditions.

                                        7

<PAGE>

         Loans to One Borrower.  Loans-to-one  borrower are limited in an amount
equal to 15% of  unimpaired  capital and  unimpaired  surplus and an  additional
amount equal to 10% of unimpaired  capital and unimpaired surplus if the loan is
secured by readily marketable collateral (generally,  financial instruments, not
real estate) or $500,000, whichever is higher. The Company's maximum loan-to-one
borrower limit was approximately $2.9 million as of December 31, 2003.

         Loan Delinquencies.  The Company's  collection  procedures provide that
when a mortgage  loan is 15 days past due, a notice of  nonpayment  is sent.  If
payment is still  delinquent  after 30 days past due the customer will receive a
letter and/or  telephone call and may receive a visit from a  representative  of
the Company. If the delinquency  continues,  similar subsequent efforts are made
to eliminate the delinquency.  If the loan continues in a delinquent  status for
60 days past due and no repayment  plan is in effect,  a notice of right to cure
default is mailed to the customer giving 30 additional days to bring the account
current before  foreclosure is commenced.  The loan committee meets regularly to
determine when foreclosure  proceedings  should be initiated and the customer is
notified when foreclosure has been commenced.

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

         Non-accrual loans fluctuate over time due to a variety of factors.  The
Company's  experience  has been that these  fluctuations  are normal and are not
dependant on any one factor over time.

                                        8

<PAGE>

         The following table sets forth information regarding non-accrual loans,
real estate owned, and certain other repossessed assets and loans.

<TABLE>
<CAPTION>
                                                              At December 31,
                                              ----------------------------------------------
                                                2003      2002      2001      2000      1999
                                              ------    ------    ------    ------    ------
                                                           (Dollars in Thousands)
<S>                                          <C>       <C>       <C>       <C>       <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  Permanent loans secured by 1-to-4 family
    residences ............................   $  281    $  287    $  194    $  108    $   --
  All other mortgage loans ................      295        --        --       195        32
Non-mortgage loans:
  Commercial ..............................      182        --        --        --        --
  Consumer ................................       71       141       214        60        79
                                              ------    ------    ------    ------    ------
Total .....................................   $  829    $  428    $  408    $  363    $  111
                                              ======    ======    ======    ======    ======

Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
  Construction loans ......................   $   --    $   --    $   --    $   --    $   --
  Permanent loans secured by 1-to-4 family
    residences ............................      171       249       211       258        11
  All other mortgage loans ................       --        --        11        --        --
Non-mortgage loans:
  Commercial ..............................       --        --        --        --        --
  Consumer ................................        1         1         2         4        --
                                              ------    ------    ------    ------    ------
Total .....................................   $  172    $  250    $  224    $  262    $   11
                                              ======    ======    ======    ======    ======
Total non-accrual and accruing loans
  past due 90 days or more ................   $1,001    $  678    $  632    $  625    $  122
                                              ======    ======    ======    ======    ======
Foreclosed real estate ....................   $   --    $  209    $  252    $   54    $   55
                                              ======    ======    ======    ======    ======
Other nonperforming assets ................   $   --    $   --    $   --    $   --    $   --
                                              ======    ======    ======    ======    ======
Total nonperforming assets ................   $1,001    $  887    $  884    $  679    $  177
                                              ======    ======    ======    ======    ======
Total non-accrual and accruing loans past
  due 90 days or more to net loans ........     0.63%     0.47%     0.39%     0.33%     0.07%
                                              ======    ======    ======    ======    ======
Total non-accrual and accruing loans past
  due 90 days or more to total assets .....     0.45%     0.31%     0.27%     0.28%     0.06%
                                              ======    ======    ======    ======    ======
Total nonperforming assets to total assets      0.45%     0.40%     0.38%     0.31%     0.09%
                                              ======    ======    ======    ======    ======
</TABLE>


         At  December  31,  2003,  non-accrual  loans on 1-4  family  residences
consisted  of five  loans.  Management  estimates  that the market  value of the
collateral  on these loans exceeds the  remaining  principal  balance on each of
these loans.  Non-accrual  loans on all other mortgage loans and on non-mortgage
commercial  loans  consist  of four  loans,  three of which are made to the same
borrower.  Management is in negotiations  with the borrower to obtain additional
collateral and guarantees from the borrower and does not believe there will be a
charge-off on these loans. Consumer loans that are in non-accrual status consist
of 14 loans,  12 of which are  secured.  The  principal  balance of the  largest
unsecured consumer loan that is in nonaccrual status is $5,000.

         Interest income that would have been recorded on loans accounted for on
a non-accrual  basis under the original  terms of such loans was  immaterial for
the year ended  December 31, 2003.  Amounts  included in the Company's  interest
income on  non-accrual  loans for the year ended December 31, 2003 were likewise
immaterial.

                                        9

<PAGE>

         Classified  Assets.  Office of Thrift Supervision  ("OTS")  regulations
provide for a classification  system for problem assets of insured  institutions
which  covers all problem  assets.  Under this  classification  system,  problem
assets of insured  institutions are classified as "substandard,"  "doubtful," or
"loss." An asset is considered  substandard if it is  inadequately  protected by
the  current net worth and paying  capacity of the obligor or of the  collateral
pledged, if any. Substandard assets include those characterized by the "distinct
possibility"  that the  insured  institution  will  sustain  "some  loss" if the
deficiencies  are not corrected.  Assets  classified as doubtful have all of the
weaknesses   inherent   in  those   classified   substandard,   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts,  conditions and values, "highly
questionable  and  improbable."  Assets  classified as loss are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
may be designated  "special  mention" because of potential  weakness that do not
currently warrant classification in one of the aforementioned categories.

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

         The following table provides  further  information  about the Company's
problem assets as of December 31, 2003.


                                                           (In Thousands)
            Special Mention.............................       $   748
            Substandard.................................         1,820
            Doubtful assets.............................            --
            Loss assets.................................            --
                                                               -------
                 Total..................................       $ 2,568
                                                               -------
            Allowance for loan loss.....................       $   904
                                                               =======

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

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

                                       10

<PAGE>

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

<TABLE>
<CAPTION>
                                                                      At December 31,
                    ----------------------------------------------------------------------------------------------------------------
                             2003                   2002                   2001                       2000                1999
                    ----------------------  ---------------------  ----------------------  -------------------- --------------------
                               Percent of             Percent of             Percent of             Percent of           Percent of
                                Loans in               Loans in               Loans in               Loans in             Loans in
                                  Each                  Each                   Each                   Each                 Each
                               Category to           Category to            Category to            Category to         Category to
                       Amount  Total Loans    Amount  Total Loans   Amount   Total Loans   Amount   Total Loans Amount  Total Loans
                       ------  -----------    ------  -----------   ------   -----------   ------   ----------- ------  -----------
                                                                                (Dollars in Thousands)
<S>                  <C>        <C>        <C>         <C>         <C>        <C>        <C>         <C>       <C>       <C>
At end of year
allocated to:
Mortgage..........     $  566     72.32%     $   566     74.17%      $ 574      75.87%     $ 749       79.56%    $ 749     81.15%
Consumer and
  non-mortgage....        338     27.68          342     25.83         378      24.13         84       20.44       108     18.85
                       ------    ------      -------    ------       -----     ------      -----      ------     -----    ------
Total allowance...     $  904    100.00%     $   908    100.00%      $ 952     100.00%     $ 833      100.00%    $ 857    100.00%
                       ======    ======      =======    ======       =====     ======      =====      ======     =====    ======
</TABLE>

                                       11

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                At December 31,
                                                   -----------------------------------------------------------------------
                                                     2003             2002            2001          2000            1999
                                                   ---------       ---------        --------      --------        --------
                                                                            (Dollars in Thousands)
<S>                                               <C>             <C>              <C>           <C>             <C>
Total loans outstanding.....................       $ 162,671       $ 149,916        $164,474      $193,121        $174,770
                                                   =========       =========         =======       =======         =======
Average loans outstanding...................       $ 152,279       $ 162,622        $186,772      $184,773        $161,444
                                                   =========       =========         =======       =======         =======

Beginning allowance balances................       $     908       $     952        $    833      $    857      $      853
Provision:
  One-to-four family........................              --              23            (175)           --              27
  Commercial and multi-family
    real estate.............................              --              --              --            --              --
  Consumer..................................              --              --             355            --              --
Charge-offs:
  One-to-four family........................              --              31              --            --              --
  Commercial and multi-family
    real estate.............................              --              --              --            --              --
  Consumer..................................              23              55              89            49              43
Recoveries:
  One-to-four family........................              --              --              --            --              --
  Commercial and multi-family
    real estate.............................              --              --              --            --              --
  Consumer..................................              19              19              28            25              20

Other.......................................              --              --              --            --              --
                                                   ---------       ---------        --------      --------       ---------
Ending allowance balance....................       $     904       $     908        $    952      $    833        $    857
                                                   =========       =========        ========      ========         =======

Allowance for loan losses as a percent
  of total loans outstanding................            0.56%           0.61%           0.58%         0.43%           0.49%
Net loans charged off as a percent of
  average loans outstanding.................           0.003%           0.04%           0.03%         0.01%           0.01%

</TABLE>

                                       12

<PAGE>

Investment Activities

         The Company is required under federal regulations to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and certain other investments.  The Company has maintained a liquidity portfolio
in excess of  regulatory  requirements.  Liquidity  levels may be  increased  or
decreased  depending  upon  the  yields  on  investment  alternatives  and  upon
management's  judgment as to the  attractiveness of the yields then available in
relation to other  opportunities  and its expectation of future yield levels, as
well as  management's  projections as to the  short-term  demand for funds to be
used in the Company's loan  origination  and other  activities.  At December 31,
2003, the Company had an investment  portfolio of  approximately  $28.9 million,
consisting primarily of U.S. government,  corporate and agency obligations. To a
lesser extent,  the portfolio also includes  FreddieMac  stock,  certificates of
deposit  and FHLB  stock,  as  permitted  by the OTS  regulations.  The  Company
classifies its investments, including debt and equity securities, as either held
to maturity or available for sale, in accordance with SFAS 115. The Company will
continue to seek high quality  investments.  The primary and secondary  goals of
the   investment   portfolio  are  safety  of  principal  and  rate  of  return,
respectively.

         Investment Portfolio. The following table sets forth the carrying value
of the Company's investments,  including short-term investments, FHLB stock, and
mortgage-backed  securities,  at the dates indicated.  At December 31, 2003, the
Company's  securities  that  were  classified  as  available  for  sale  had  an
unrealized net gain of $863,000.  At December 31, 2003, the market value for the
interest bearing deposits shown below approximated their cost.


                                                At December 31,
                                          ---------------------------
                                            2003      2002      2001
                                          -------   -------   -------
                                                (In Thousands)
Securities available for sale:
  Equity securities ...................   $   933   $   945   $ 1,047
  U.S. Agency Securities ..............     5,576    14,700    12,449
  Mortgage-backed securities ..........    19,035     3,773        54
  Obligations of state and political
    subdivisions ......................     1,866       438       438
                                          -------   -------   -------
    Total securities available for sale    27,410    19,856    13,988
FHLB stock ............................     1,303     1,875     1,875
Certificates of deposit ...............       200       200       200
                                          -------   -------   -------
    Total investments .................   $28,913   $21,931   $16,063
                                          =======   =======   =======

                                       13

<PAGE>

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


<TABLE>
<CAPTION>
                                                                      At December 31, 2003
                               -------------------------------------------------------------------------------------------------
                                                                                            More                 Total
                                One Year or Less  One to Five Years Five to Ten Years   than Ten Years   Investment Securities
                               ------------------ ----------------- ------------------ ---------------- ------------------------
                                Carrying  Average  Carrying Average Carrying   Average Carrying Average Carrying Average   Market
                                  Value    Yield     Value   Yield    Value     Yield    Value   Yield    Value   Yield    Value
                                 -------  -------   ------- -------  -------   -------  ------- -------  ------- -------  ------
                                                                      (Dollars in Thousands)
<S>                             <C>     <C>     <C>        <C>     <C>         <C>      <C>    <C>    <C>        <C>   <C>
U.S. Agency Obligations (1)....   $365    1.34%   $ 5,724    3.43%   $   515     2.88%    $838   4.39%  $ 7,442    3.40% $ 7,442
Mortgage-backed securities(2)..     --      --      6,140    3.46     12,895     3.57       --     --    19,035    3.54   19,035
FHLB Stock.....................     --      --        --       --         --       --       --     --     1,303      --    1,303
Equity Securities..............     --      --        --       --         --       --       --     --       933      --      933
Certificates of Deposit........    200    1.13%       --       --         --       --       --     --       200    1.13%     200
                                  ----            -------           -------               ----          -------          -------
  Total........................   $565            $11,864           $13,410               $838          $28,913          $28,913
                                  ====            =======           =======               ====          =======          =======
</TABLE>

(1)  Includes obligations of state and political subdivisions.
(2)  Not including amortization or prepayments.  Mortgage-backed  securities are
     shown at scheduled maturity.

                                       14

<PAGE>

Sources of Funds

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

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

         The interest rates paid by the Bank on deposits can be set daily at the
direction of senior management.  Senior management  determines the interest rate
to offer the public on new and maturing accounts.  Senior management obtains the
interest rates being offered by other financial  institutions  within its market
area.  This data along with a report showing the dollar value of certificates of
deposit maturing is reviewed and interest rates are determined.

         Non-interest bearing demand accounts constituted $6.0 million, or 3.52%
of the Bank's deposit  portfolio at December 31, 2003. Money market accounts and
NOW  accounts  constituted  $40.6  million,  or  23.94%  of the  Bank's  deposit
portfolio at December 31,  2003.  Regular  savings  accounts  constituted  $30.0
million,  or 17.69% of the  Bank's  deposit  portfolio  at  December  31,  2003.
Certificates  of deposit  constituted  $93.1  million  or 54.85% of the  deposit
portfolio, including $7.9 million of which had balances of $100,000 and over. As
of December 31, 2003, the Bank had no brokered deposits.

         Jumbo Certificate Accounts. The following table indicates,  at December
31, 2003,  the amount of the  Company's  certificates  of deposit of $100,000 or
more by time remaining until maturity.



                                     Certificates of          Weighted
                                         Deposit            Interest Rate
                                         -------            -------------
Maturity Period                      (In Thousands)
---------------
Within three months.............          $3,260                2.00%
Three through six months........             825                1.69
Six through twelve months.......           1,111                1.53
Over twelve months..............           2,696                3.27
                                          ------                ----
                                          $7,892                2.34%
                                          ======                ====

         Borrowings.  Deposits are the primary  source of funds of the Company's
lending and investment activities and for its general business purposes. Through
the  Bank,  the  Company  may  obtain  advances  from the FHLB of Des  Moines to
supplement  its supply of lendable  funds.  Advances from the FHLB of Des Moines
are typically  secured by a pledge of the Bank's stock in the FHLB of Des Moines
and a portion of the Company's  first  mortgage  loans and certain other assets.
The Bank, if the need arises,  may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.  At  December  31,  2003,  the Company had $23 million in advances
outstanding  from  the  FHLB  of Des  Moines  (see  Note 9 of the  Notes  to the
Company's Consolidated

                                       15

<PAGE>

Financial  Statements).  Future use of advances depends on the rates on advances
as compared to the rates on deposits.

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


                                 As of and for the Years Ended December 31,
                                 ------------------------------------------
                                   2003           2002           2001
                                  -------        -------        -------
                                          (Dollars in Thousands)
FHLB advances .................   $23,000        $23,000        $23,000
Weighted average interest rate
  of FHLB advances ............      5.34%          5.34%          5.34%
Maximum amount of advances ....   $23,000        $23,000        $33,500
Average amount of advances ....   $23,000        $23,000        $25,192
Weighted average interest rate
  of average amount of advances      5.41%          5.41%          5.36%

Subsidiary Activity

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

         The Bank is  permitted  to invest up to 2% of its assets in the capital
stock of, or secured or unsecured  loans to,  subsidiary  corporations,  with an
additional  investment  of 1% of  assets  when  such  additional  investment  is
utilized primarily for community development purposes.  Under the 2% limitation,
as of December 31, 2003, the Bank was  authorized to invest up to  approximately
$4.5 million in the stock of, or loans to, service corporations.

         WIA was incorporated  under the laws of the State of Minnesota in 1976.
WIA offers life,  health,  casualty,  and business insurance on behalf of others
and also offers fixed-rate annuities.  The Bank's investment in WIA totaled $1.1
million at December 31, 2003.

         GMM  was  incorporated  under  the  laws  of  Minnesota  in  1997.  GMM
originates  loans  through  referrals  from  community   commercial  banks  and,
primarily,  sells  these  loans  to  the  secondary  market.  During  2003,  GMM
originated $66.3 million in single family dwelling loans, which were sold to the
secondary  market.  At December 31, 2003,  the Bank's  investment in GMM totaled
$3.1 million.

         REIT was  incorporated  under the laws of Delaware in 2002.  Wells REIT
Holding,  LLC is the holding company of Wells Real Estate Investment Trust, LLC,
which invests in real estate loans acquired from the Bank.

Personnel

         As of December 31, 2003, the Bank had 94 full-time and three  part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Company,  with no employees of its own, utilizes those of
the Bank.

                                       16

<PAGE>

Competition

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

         Loan  competition  varies  depending  upon  market   conditions.   Loan
competition  includes branches of large  Minneapolis-based  commercial banks and
thrifts, credit unions, mortgage bankers with local sales staff and local banks.
The  Company  believes  that  it is  one  of  the  few  area  lenders  that  has
consistently  offered  a  variety  of loans  throughout  all  types of  economic
conditions.

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

Regulation of the Company

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

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

         As a unitary savings and loan holding company, the Company generally is
not  subject  to  any  restrictions  on  its  business  activities.   While  the
Gramm-Leach-Bliley  Act (the "GLB Act")  terminated the "unitary  thrift holding
company"  exemption  from  activity  restrictions  on a prospective  basis,  the
Company enjoys  grandfathered status under this provision of the GLB Act because
it acquired the Bank prior to May 4, 1999. As a result,  the  Company's  freedom
from activity restrictions as a unitary savings and loan holding company was not
affected by the GLB Act.  However,  if the Company were to acquire control of an
additional  savings  institution,  its business  activities  would be subject to
restriction under the Home Owners' Loan Act. Furthermore, if the Company were in
the future to sell control of the Bank to any other company,  such company would
not succeed to the Company's grandfathered status under the GLB Act and would be
subject to the Home Owner's Loan Act's activity restrictions.

         The  continuation  of the  Company's  exemption  from  restrictions  on
business  activities  as a unitary  savings  and loan  holding  company  is also
subject  to the  Company's  continued  compliance  with  the  QTL  Test.  See "-
Regulation of the Bank - Qualified Thrift Lender Test."

         Sarbanes-Oxley  Act of 2002.  On July 30, 2002,  President  Bush signed
into law the  Sarbanes-  Oxley  Act of 2002  (the  "Act").  The  Securities  and
Exchange Commission (the "SEC") has promulgated new regulations  pursuant to the
Act  and  may  continue  to  propose   additional   implementing  or  clarifying
regulations  as necessary in  furtherance  of the Act. The passage of the Act by
Congress and the

                                       17

<PAGE>

implementation of new regulations by the SEC subject  publicly-traded  companies
to  additional  and  more  cumbersome  reporting   regulations  and  disclosure.
Compliance with the Act and corresponding regulations may increase the Company's
expenses.

Regulation of the Bank

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

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

         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.  Any change in such regulations,  whether by the OTS, the FDIC, or the
Congress  could have a material  adverse  impact on the Company,  the Bank,  and
their operations.

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

         The FDIC administers two separate deposit  insurance funds.  Generally,
the Bank Insurance Fund (the "BIF") insures the deposits of commercial banks and
the SAIF insures the deposits of savings institutions. The FDIC is authorized to
increase  deposit  insurance  premiums  if  it  determines  such  increases  are
appropriate  to maintain  the  reserves of either the SAIF or BIF or to fund the
administration  of the  FDIC.  In  addition,  the  FDIC  is  authorized  to levy
emergency  special  assessments  of BIF and SAIF  members.  The FDIC has set the
deposit  insurance  assessment rates for SAIF member  institutions for the first
six months of 2004 at 0% to 0.27% of insured  deposits on an  annualized  basis,
with the assessment rate for most savings institutions set at 0%.

         In addition,  all institutions  insured by the FDIC are required to pay
quarterly  assessments,  totaling  approximately 0.0154% of insured deposits for
the 2003  calendar  year,  to fund  interest  payments  on bonds  issued  by the
Financing  Corporation,  an  agency of the  Federal  government  established  to
recapitalize the predecessor to the SAIF. These  assessments will continue until
the Financing Corporation bonds mature in 2017.

                                       18

<PAGE>

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 4.0% of total adjusted assets for most savings institutions,  and (3) a
risk-based capital requirement equal to 8.0% of total risk-weighted  assets. The
Bank exceeded  these minimum  standards at December 31, 2003. The Bank's capital
ratios  are  set  forth  in  Note  11 to the  Company's  Consolidated  Financial
Statements.  Regulations  that enable the OTS to take prompt  corrective  action
against savings  institutions  effectively impose higher capital requirements on
the Bank.

         Dividend and Other Capital Distribution Limitations. The Bank must give
the OTS 30 days advance notice of any proposed  distribution of capital, such as
a declaration of dividends to the Company,  and the OTS has the authority  under
its supervisory  powers to prohibit any payment of dividends to the Company that
it deems to constitute an unsafe or unsound practice. In addition,  the Bank may
not  declare or pay a dividend on its capital  stock if the  dividend  would (1)
reduce the  regulatory  capital of the Bank  below the amount  required  for the
liquidation account established in connection with the conversion from mutual to
stock form or (2)  reduce  the  amount of capital of the Bank below the  amounts
required in accordance with other OTS regulations.  In contrast, the Company has
fewer restrictions on its payment of dividends to its stockholders.

         During  2003,  the  Company  declared  four  $0.20 per share  quarterly
dividends to its shareholders.  During 2002, the Company declared four $0.18 per
share quarterly  dividends to its  shareholders.  The Company's  dividend payout
ratio for 2003 was 25.6% and for 2002 was 25.3%.

         Qualified  Thrift  Lender Test.  Savings  institutions  must meet a QTL
test. If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full  borrowing  privileges  from the FHLB of Des Moines.  The
required  percentage of QTIs is 65% of portfolio  assets  (defined as all assets
minus  intangible  assets,  property used by the  institution  in conducting its
business and liquid  assets equal to 20% of total  assets).  Certain  assets are
subject to a  percentage  limitation  of 20% of portfolio  assets.  In addition,
savings  associations  may include  shares of stock of the FHLBs,  FannieMae and
FreddieMac  as  qualifying  QTIs.  As of  December  31,  2003,  the  Bank was in
compliance with its QTL requirement.

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

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

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

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances

                                       19

<PAGE>

maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy the liquidity requirements that are imposed by the OTS.

Item 2. Description of Property
-------------------------------

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

Item 3. Legal Proceedings
-------------------------

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

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

         On November 18, 2003,  Wells  Financial Corp. held a Special Meeting of
Stockholders to approve (1) the Wells Financial Corp. 2003 Stock Option Plan and
(2) the Wells Financial Corp. 2003 Stock Bonus Plan. The proposals were approved
by the following votes:


PROPOSAL                                          FOR      AGAINST     ABSTAIN
--------                                          ---      -------     -------

(1)      Approval of the Wells Financial
         Corp. 2003 Stock Option Plan           515,075    199,318      5,175

(2)      Approval of the Wells Financial
         Corp. 2003 Stock Bonus Plan            519,975    194,118      5,475


                                     PART II

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

         The  information  contained under the section  captioned  "Stock Market
Information"  on  pages  1  and  2  of  the  Company's  2003  Annual  Report  to
Stockholders (the "Annual Report"), is incorporated herein by reference.

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

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

                                       20

<PAGE>

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

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

         Independent Auditor's Report.

         Consolidated  Statements of Financial Condition as of December 31, 2003
         and 2002.

         Consolidated  Statements  of Income for the Years  Ended  December  31,
         2003, 2002, and 2001.

         Consolidated  Statements  of  Stockholders'  Equity for the Years Ended
         December 31, 2003, 2002, and 2001.

         Consolidated  Statements of Cash Flows for the Years Ended December 31,
         2003, 2002, and 2001.

         Notes to Consolidated Financial Statements.

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

         None.

Item 8A.  Controls and Procedures
---------------------------------

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
evaluation of the Company's  disclosure  controls and  procedures (as defined in
Rule 13a-15(e) under the Securities  Exchange Act of 1934 (the "Exchange Act")),
the Company's  principal  executive officer and principal financial officer have
concluded that as of the end of the period covered by this Annual Report on Form
10-KSB such  disclosure  controls and  procedures  are  effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.

         (b) Changes in internal  control over financial  reporting.  During the
last  quarter of the year  under  report,  there was no change in the  Company's
internal control over financial  reporting that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

                                    PART III

Item 9.  Directors and Executive Officers of the Registrant
-----------------------------------------------------------

         The  information  required  under this item is  incorporated  herein by
reference to the proxy  statement for the  Registrant's  2004 Annual  Meeting of
Stockholders (the "Proxy Statement") under the Sections captioned  "Proposal I -
Election  of  Directors"  and  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance".

                                       21

<PAGE>

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

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

         The Company has adopted a Code of Ethics that applies to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller or persons performing similar functions. A copy of the Company's Code
of Ethics will be  furnished,  without  charge,  to any person who requests such
copy by writing to the Secretary,  Wells Financial Corp., 53 First Street, S.W.,
Wells, Minnesota 56097.

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

         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference  to the first table under  "Proposal I - Election of
                  Directors" in the Proxy Statement.

         (c)      Changes in Control

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

         (d)      Securities Authorized  for  Issuance Under Equity Compensation
                  Plans

                                       22

<PAGE>

         Set forth below is  information as of December 31, 2003 with respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.

<TABLE>
<CAPTION>
                                 EQUITY COMPENSATION PLAN INFORMATION
                                           (a)                      (b)                   (c)

                                                                                  Number of securities
                                        Number of                 Weighted-       remaining available
                                     securities to be         average exercise     for future issuance
                                       issued upon                price of            under equity
                                       exercise of               outstanding       compensation plans
                                       outstanding                options,       (excluding securities
                                    options, warrants           warrants and      reflected in column
                                        and rights                 rights                 (a))
                                   ---------------------     ------------------  ------------------------
<C>                                  <C>                               <C>          <C>
Equity compensation plans
  approved by shareholders
2003 Stock Option Plan                    36,000                    $30.15                84,000
2003 Stock Bonus Plan                     17,500                       N/A                32,500
1995 Stock Option Plan                    61,547                     13.71                    --
1995 Stock Bonus Plan                     12,835                       N/A                    --
Equity compensation plans
  not approved by shareholders               N/A                       N/A                   N/A
                                         -------                   -------               -------
                  TOTAL                  127,882                   $ 15.09               116,500
                                         =======                   =======               =======
</TABLE>


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

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

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

         (a) The following  exhibits are included in this Report or incorporated
herein by reference:

<TABLE>
<CAPTION>
<S>                    <C>
                   3(i)    Articles of  Incorporation  of Wells  Financial  Corp.*
                   3(ii)   Bylaws of Wells Financial Corp.**
                  10.1     1995 Stock Option Plan of Wells Financial Corp.***
                  10.2     Management Stock Bonus Plan and Trust Agreements***
                  10.3     Change in Control Severance Agreement with James D. Moll****
                  10.4     Change in Control Severance Agreement with Gerald D. Bastian****
                  10.5     Wells Financial Corp. 2003 Stock Option Plan*****
                  10.6     Wells Financial Corp. 2003 Stock Bonus Plan*****

                                       23

<PAGE>

                  13       Annual  Report to  Stockholders  for the fiscal  year
                           ended   December   31,  2003  (only  those   portions
                           incorporated by reference in this document are deemed
                           filed)
                  21       Subsidiaries of Registrant****
                  23       Consent of McGladrey & Pullen, LLP
                  31       Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                  32       Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

         (b) Reports on Form 8-K.

                  A Report on Form 8-K,  dated  November 5, 2003, was filed with
                  the SEC on November 6, 2003 to report  earning for the quarter
                  ended September 30, 2003.

Item 14.  Principal Accountant Fees and Services
------------------------------------------------

         The  information  called  for by this  item is  incorporated  herein by
reference to the section  entitled  "Proposal I - Election of  Directors" in the
Proxy Statement.


---------------
*        Incorporated by reference to the registration statement on Form S-1
           (File No. 33-87922) declared effective by the SEC on
           February 13, 1995.
**       Incorporated by reference to the identically numbered exhibit to the
         Registrant's Form 10-KSB for the year ended December 31,1998
         (File No. 0-25342).
***      Incorporated  by reference to the  exhibits to the  Registrant's  proxy
           statement for a special  meeting of  stockholders  held on
           November 15, 1995 and filed with the SEC on October 2, 1995
          (File No. 0-25342).
****     Incorporated  by reference to the identically  numbered  exhibit to the
           Registrant's Form 10-K for the year ended December 31, 1995.
*****    Incorporated  by reference to the  exhibits to the  Registrant's  proxy
           statement for a special  meeting of  stockholders  held on
           November 18, 2003 and filed with the SEC on October 20, 2003
          (File No. 0-25342).



                                       24

<PAGE>

                                   SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 19, 2004.

                                      WELLS FINANCIAL CORP.


                                      By:  /s/ Lonnie R. Trasamar
                                           -------------------------------------
                                           Lonnie R. Trasamar
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

          Pursuant to the  requirement of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated as of March 19, 2004.


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

/s/ Lonnie R. Trasamar                                 /s/ James D. Moll
-----------------------------------------------        ---------------------------------------------
Lonnie R. Trasamar                                     James D. Moll
President, Chief Executive Officer and Director        Treasurer and Chief Financial Officer
(Principal Executive Officer)                           (Principal Financial and Accounting Officer)



/s/ Dale E. Stallkamp                                  /s/ Gerald D. Bastian
-----------------------------------------------        ---------------------------------------------
Dale E. Stallkamp                                      Gerald D. Bastian
Director                                               Vice President and Director



/s/ Randel I. Bichler                                  /s/ Richard A. Mueller
-----------------------------------------------        ---------------------------------------------
Randel I. Bichler                                      Richard A. Mueller
Chairman of the Board                                  Director



/s/ David Buesing
-----------------------------------------------
David Buesing
Director

</TABLE>