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, 1999
                          ------------------------------------------------------

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

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

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

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

         Indicate  by check mark  whether  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---    ---
         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

         Registrant's  revenues for the year ended  December 31, 1999 were $15.9
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 3, 2000 ($12.23 per share), was $14.5 million.

         As of March 3, 2000,  registrant  had 1,389,157  shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Part II -- Portions of Registrant's  Annual Report to Stockholders  for the
     fiscal year ended December 31, 1999.

2.   Part III -- Portions of  Registrant's  Proxy  Statement for the 2000 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 public offering of
common stock (the "Conversion").  As of December 31, 1999, the Company had total

                                       1
<PAGE>

assets of $199.8 million,  total deposits of $157.0 million,  and  stockholders'
equity  of $23.5  million  or 11.8% of total  assets  under  generally  accepted
accounting principles ("GAAP"). The only subsidiary of the Company is the Bank.

         The primary  activity  of the Company is  directing  and  planning  the
activities of the Bank, the Company's  primary asset.  At December 31, 1999, the
remainder of the assets of the Company were  maintained in the form of a loan to
an employee stock  ownership plan ("ESOP") that was  established for the benefit
of the Bank's  employees,  deposits  in  interest  bearing  accounts  with other
financial institutions and selected investments. The Company engages in no other
significant  activities.  As a result,  references  to the Company or Registrant
generally  refer to the Bank,  unless the context  otherwise  indicates.  In the
discussion of  regulation,  except for the  discussion of the  regulation of the
Company, all regulations apply to the Bank rather than the Company.

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

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

         The principal sources of funds for the Registrant's  lending activities
are  deposits,  advances  from the Federal Home Loan Bank and the  amortization,
repayment,  and maturity of loans, 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.

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. The Company's loan portfolio predominantly consists
of mortgage  loans secured by one to  four-family  residences.  The Company also
makes consumer loans and commercial loans. For its mortgage loan portfolio,  the
Company   originates  and  retains  adjustable  rate  loans  as  well  as  lower
loan-to-value  ratio fixed rate loans with original  maturities that are greater
than twenty  years.  The Company  sells other  conventional  fixed rate mortgage
loans to the secondary market.  The Company's  consumer loan

                                       2
<PAGE>

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

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

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


                                       3
<PAGE>



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

<TABLE>
<CAPTION>
                                                                         At December 31,
                                   ------------------------------------------------------------------------------------------------
                                         1995                1996                1997                 1998              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             $136,022    79.38% $141,067     78.20%   $141,697    76.82%  $105,088    67.25%  $106,292   60.82%
  Multi-family                         880     0.51     1,355      0.75       1,167     0.63        950     0.61        654    0.37
  Commercial                        10,554     6.16    10,878      6.03      10,845     5.88     20,068    12.84     31,928   18.27
  Construction                       2,774     1.62     2,081      1.15       1,943     1.05      1,279     0.82      2,957    1.69
                                   -------    -----   -------     -----     -------    -----    -------    -----    -------   -----
      Total real estate loans      150,230    87.67   155,381     86.13     155,652    84.38    127,385    81.52    141,831   81.15
                                   -------    -----   -------     -----     -------    -----    -------    -----
Other Loans:
-----------
 Consumer Loans:
  Savings account                      436     0.25       443      0.25         349     0.19        395     0.25        578    0.33
  Vehicles                           3,353     1.96     4,619      2.56       4,988     2.70      4,644     2.97      4,914    2.81
  Home equity, home improvement
  and second mortgages              12,875     7.51    15,197      8.42      18,781    10.18     18,475    11.83     21,315   12.20
  Other                              3,279     1.91     3,588      1.99       3,411     1.85      2,970     1.90      3,144    1.80
                                   -------   ------   -------    ------     -------   ------    -------   ------    -------  ------
      Total consumer loans          19,943    11.63    23,847     13.22      27,529    14.92     26,484    16.95     29,951   17.14
Commercial business loans            1,191     0.70     1,171      0.65       1,299     0.70      2,394     1.53      2,988    1.71
                                   -------   ------   -------    ------     -------   ------    -------   ------    -------  ------
      Total other loans             21,134    12.33    25,018     13.87      28,828    15.62     28,878    18.48     32,939   18.85
                                   -------   ------   -------    ------     -------   ------    -------   ------    -------  ------
      Total loans                  171,364   100.00%  180,399    100.00%    184,480   100.00%   156,263   100.00%   174,770  100.00%
                                             ======              ======               ======              =======            ======
Less:
----
 Loans in process                      493                623                   351                 655                 722
  Deferred loan origination fees
   and costs                           689                714                   642                 450                 478
  Allowance for loan losses            512                615                   763                 853                 857
                                   -------            -------               -------             -------             -------
      Total loans receivable, net $169,670           $178,447              $182,724            $154,305            $172,713
                                   =======            =======               =======             =======             =======

</TABLE>
                                       4



<PAGE>

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


<TABLE>
<CAPTION>

                                                                          Years Ended December 31,
                                                     ----------------------------------------------------------------------
                                                        1995              1996           1997          1998          1999
                                                        ----              ----           ----          ----          ----
                                                                             (In Thousands)
<S>                                                <C>              <C>            <C>           <C>           <C>
Total gross loans receivable at
   beginning of year                                  $166,941         $171,364       $180,399      $184,480      $156,263
                                                       -------          -------        -------       -------       -------

Loans originated:
  One- to four-family residential                       30,609           43,411         28,035        93,546        48,627
  Commercial and multi-family real
    estate                                               1,366            1,759          2,286         9,364        14,860
  Construction loans                                     5,522            6,776          5,182         1,196         6,933
  Consumer loans                                        12,103           10,242         16,102        18,944        16,568
  Commercial business loans                              1,567              610          1,983         1,170           946
                                                        ------           ------         ------       -------        ------
Total loans originated                                  51,167           62,798         53,588       124,220        87,934
                                                        ------           ------         ------       -------        ------
Principal reductions:
  Loans sold                                            13,584           19,209         14,735        85,316        36,151
  Loan principal repayments                             33,160           34,554         34,772        67,121        33,276
                                                        ------           ------         ------        ------        ------
Total principal reductions                              46,744           53,763         49,507       152,437        69,427
                                                        ------           ------         ------       -------        ------
Total gross loans receivable at
  end of year                                         $171,364         $180,399       $184,480      $156,263      $174,770
                                                       =======          =======        =======       =======       =======
</TABLE>

         Due to the  historically  low interest  rates on  residential  mortgage
loans during 1998 and the first  quarter of 1999,  many of the  customers in the
Company's  market area elected to refinance  their mortgage loans which resulted
in the increase in loan originations during those periods.

         Loan  Sales.  During 1999 the  Company  sold $36.2  million of mortgage
loans  into  the  secondary  market.  The  Company  sells  the FHA and  Veterans
Administration ("VA") loans that it originates to another financial institution.
The Company does not retain the servicing on the FHA/VA loans.  The Company also
sells conforming fixed-rate  conventional loans with loan-to-value ratios of 90%
or higher to the Federal Home Loan Mortgage Corporation  ("FHLMC").  The Company
retains the  servicing  rights on these  loans.  All loans sold to FHLMC  ($35.6
million)  were sold without  recourse to the Company,  except for  documentation
deficiencies  that may require the Company to  repurchase  these loans  within a
limited time period following the sale to FHLMC. To a lesser extent, the Company
has sold loans with high loan to value ratios to maintain its loan quality.

                                       5
<PAGE>

         Loan Maturity  Tables.  The following  table sets forth the maturity of
the Company's  loan  portfolio at December 31, 1999.  The table does not include
prepayments, scheduled principal repayments or loans held for sale. All mortgage
loans are shown as maturing based on contractual maturities.
<TABLE>
<CAPTION>

                                  1- to 4-          Other
                                   Family        Residential
                                 Real Estate         and
                                  Mortgage        Commercial   Construction      Consumer         Total
                                  --------        ----------   ------------      --------         -----
                                                               (In Thousands)
<S>                         <C>               <C>              <C>            <C>              <C>
Amounts Due:
  Within 1 year                $     275         $    111         $ 2,957        $  3,728       $   7,071
  1 to 3 years                     1,735              106              --           4,101           5,942
  3 to 5 years                     1,852            3,361              --          10,074          15,287
  5 to 10 years                   11,384            7,161              --          14,560          33,105
  Over 10 years                   91,046           21,843              --             476         113,365
                                --------          -------          ------         -------         -------
Total amount due               $ 106,292         $ 32,582         $ 2,957        $ 32,939         174,770
                                ========          =======          ======         =======
Less:
Allowance for loan losses                                                                             857
Loans in process                                                                                      722
Deferred loan fees                                                                                    478
                                                                                                  -------
  Loans receivable, net                                                                         $ 172,713
                                                                                                  =======
</TABLE>

         The following table sets forth the dollar amount of all loans due after
December  31,  2000  that have  pre-determined  interest  rates  and which  have
floating or adjustable  interest  rates.  This table does not include loans held
for sale.
<TABLE>
<CAPTION>

                                                                            Floating or
                                                         Fixed Rates     Adjustable Rates       Total
                                                         -----------     ----------------       -----
                                                                          (In Thousands)
<S>                                                  <C>                  <C>             <C>
One- to four-family                                     $ 51,205             $ 54,812        $ 106,017
Commercial and multi-family real estate                   25,641                6,830           32,471
Construction                                                  --                   --               --
Commercial business and consumer                          17,139               12,072           29,211
                                                         -------              -------         --------
  Total                                                 $ 93,985             $ 73,714        $ 167,699
                                                         =======              =======         ========
</TABLE>


         One- to Four-Family  Residential  Loans. The Company's  primary lending
activity consists of the origination of single family residential mortgage loans
secured by property  located in the Company's  primary  market area. The Company
generally  originates  one- to  four-family  residential  mortgage loans without
private  mortgage  insurance in amounts up to 80% of the lesser of the appraised
value or selling price of the mortgaged property. The Company typically requires
private mortgage insurance or government  guarantee on any loan at more than 80%
of the value of the mortgaged property.  The Company originates  adjustable rate
mortgage loans for retention in its portfolio with loan-to-value ratios of up to
95% and requires private mortgage insurance when the loan-to-value ratio exceeds
80%.
                                       6
<PAGE>

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

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

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

         At December  31, 1999 the Company was  servicing  approximately  $155.2
million of loans for others, primarily long term fixed rate loans sold to FHLMC.
Generally, the Company retains all servicing on loans sold to FHLMC and does not
retain servicing on FHA/VA loans sold. Except for document deficiencies that may
occur during origination that may require a repurchase by the Company, loans are
sold without recourse.

         Consumer  Loans.  The Company  offers second  mortgage loans on one- to
four-family  residences  which are typically  offered as adjustable  rate loans.
Such loans are only made on  owner-occupied  one- to four-family  residences and
are  subject  to a 90%  combined  loan-to-value  ratio.  The  Company  holds the
majority of the  underlying  first  mortgages on these loans.  The  underwriting
standards  for second  mortgage  loans are  similar to the  Company's  standards
applicable to one- to four-family  residential  loans.  To a lesser extent,  the
Company  makes loans  secured by vehicles and by savings  accounts held with the
Company.  Loans secured by vehicles totaled $4.9 million,  or 2.81%, of the loan
portfolio at December 31, 1999.

         Federal  regulations permit federally  chartered thrift institutions to
make secured and unsecured consumer loans up to 35% of an institution's  assets.
In addition,  a federal thrift has lending  authority above the 35% category for
certain consumer loans, property improvement loans, and loans secured by savings
accounts. The Company originates consumer loans in order to provide a wide range
of  financial  services to its  customers  and  because  the  shorter  terms and
normally higher  interest rates on such loans help maintain a profitable  spread
between its average loan yield and its cost of funds.  Consumer loans,  however,
tend  to  have a  higher  risk  of  default  than  residential  mortgage  loans.
Typically,  based on the  Company's  experience,  a borrower  faced with  either
paying a mortgage loan to avoid foreclosure on the borrower's home or defaulting
on a consumer loan will continue  paying the mortgage loan. At December 31, 1999
the Company had  approximately  $79,000 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
93% 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

                                       7
<PAGE>

portfolio is secured by church real estate.  At December 31, 1999, loans secured
by farm real  estate were  originated  in amounts up to the lesser of 65% of the
appraised  value of the  property or $1,000 per tillable  acre.  These loans are
evaluated  on a cash flow  basis in  addition  to an asset  value  basis.  Loans
secured by church real estate are  generally  originated in amounts up to 70% of
the appraised value of the property. At December 31, 1999, the Company's largest
commercial real estate loan consisted of a $1,125,000 performing loan secured by
farm real estate. All commercial real estate loans, excluding loans of less than
$200,000 secured by farm real estate, require prior approval by the Bank's Board
of Directors.  As part of its underwriting,  the Company requires that borrowers
qualify for a commercial loan at the fully indexed  interest rate rather than at
the origination interest rate.

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

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

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

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

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

                                       8
<PAGE>

ability of the  builder to sell  completed  dwelling  units will
depend,  among other things, on demand,  pricing, and availability of comparable
properties and economic conditions.

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

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

         Loan  Commitments.  The Company  issues  written  commitments or verbal
commitments  to  prospective  borrowers  on  all  real  estate  approved  loans.
Generally,  the  commitment  requires  acceptance  within 90 days of the date of
issuance.  Commitments  for consumer loans are given verbally and not in writing
and  generally  expire in a shorter  period of time.  At December 31, 1999,  the
Company had $20.2  million of  commitments  to cover  originations,  undisbursed
funds for loans in process and unused  lines of credit.  The  Company  estimates
that the majority of the Company's commitments are funded.

         Loans to One Borrower.  Loans-to-one  borrower are limited in an amount
equal to 15% of  unimpaired  capital and  unimpaired  surplus and an  additional
amount equal to 10% of unimpaired  capital and unimpaired surplus if the loan is
secured by readily marketable collateral (generally,  financial instruments, not
real estate) or $500,000, whichever is higher. The Company's maximum loan-to-one
borrower limit was approximately $2.5 million as of December 31, 1999.

         At December  31, 1999,  the  Company's  largest  amount of loans to one
borrower  was  $1.1  million,   consisting   of  performing   loans  secured  by
approximately  8  dwelling  units  and a  personal  residence,  all of which are
located in the Company's market area.

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

                                       9
<PAGE>
foreclosure is commenced.  The loan committee meets regularly to
determine when foreclosure  proceedings  should be initiated and the customer is
notified when foreclosure has been commenced.

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

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

         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,
                                                      --------------------------------------------------------------
                                                             1995          1996        1997        1998        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                                              $  265       $  164      $  219      $  192      $   --
  All other mortgage loans                                      --           59          --          --          32
Non-mortgage loans:
  Commercial                                                     7           --          --          --          --
  Consumer                                                      26           75          18          68          79
                                                             -----        -----       -----       -----       -----
Total                                                       $  298       $  298      $  237      $  260      $  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                                                  --          147         201         100          11
  All other mortgage loans                                      --           --          --          --          --
Non-mortgage loans:
  Commercial                                                    --           --          --          --          --
  Consumer                                                       1           --           4          --          --
                                                             -----        -----       -----       -----       -----
Total                                                       $    1       $  147      $  205      $  100      $   11
                                                             =====        =====       =====       =====       =====
Total non-accrual and accruing loans
  past due 90 days or more                                  $  299       $  445      $  442      $  360      $  122
                                                             =====        =====       =====       =====       =====
Foreclosed real estate                                      $   29       $   78      $   35      $   --      $   55
                                                             =====        =====       =====       =====       =====
Other nonperforming assets                                  $   --       $   --      $           $   --      $   --
                                                             =====        =====       =====       =====       =====
                                                                                         --
Total nonperforming assets                                  $  328       $  523      $  477      $  360      $  177
                                                             =====        =====       =====       =====       =====
Total non-accrual and accruing loans past
  due 90 days or more to net loans                            0.18%        0.25%       0.24%       0.23%       0.07%
                                                              ====         ====        ====        ====        ====
Total non-accrual and accruing loans past
  due 90 days or more to total assets                         0.15%        0.22%       0.22%       0.19%       0.06%
                                                              ====         ====        ====        ====        ====
Total nonperforming assets to total assets                    0.17%        0.26%       0.24%       0.19%       0.09%
                                                              ====         ====        ====        ====        ====
</TABLE>
                                       10
<PAGE>

         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, 1999.  Amounts  included in the Company's  interest
income on  non-accrual  loans for the year ended December 31, 1999 were likewise
immaterial.

         Classified  Assets.  Office of Thrift Supervision  ("OTS")  regulations
provide for a classification  system for problem assets of insured  institutions
which  covers all problem  assets.  Under this  classification  system,  problem
assets of insured  institutions are classified as "substandard,"  "doubtful," or
"loss." An asset is considered  substandard if it is  inadequately  protected by
the  current net worth and paying  capacity of the obligor or of the  collateral
pledged, if any. Substandard assets include those characterized by the "distinct
possibility"  that the  insured  institution  will  sustain  "some  loss" if the
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, 1999.

                                                           (In Thousands)
Special Mention                                               $ $911
Substandard                                                      209
Doubtful assets                                                   --
Loss assets                                                       --
                                                                  --
     Total                                                    $1,120
                                                               =====
General loss allowance                                        $  857
                                                               =====

         Foreclosed Real Estate. Real estate acquired by the Company as a result
of  foreclosure  or by deed in lieu of  foreclosure is classified as real estate
owned until it is sold. When property is acquired it is recorded at the lower of
the loan  balance or the fair value at the date of  foreclosure  less  estimated
costs of disposition.  There may be significant  other expenses incurred such as
attorney and other extraordinary servicing costs involved with foreclosures. The
Company had $55,000 in foreclosed real estate at December 31, 1999.

                                       11
<PAGE>
         Allowance for Loan and Real Estate Losses. It is management's policy to
provide for losses on  unidentified  loans in its loan  portfolio and foreclosed
real  estate.  A  provision  for loan losses is charged to  operations  based on
management's  evaluation  of the  potential  losses  that may be incurred in the
Company's loan portfolio. Such evaluation,  which includes a review of all loans
of which full  collectibility  of interest and  principal  may not be reasonably
assured,  considers the Company's past loan loss experience,  known and inherent
risks in the  portfolio,  adverse  situations  that may  affect  the  borrower's
ability to repay,  estimated  value of any  underlying  collateral  and  current
economic conditions.

         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.


                                       12

<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
                         -------------------------------------------------------------------------------------------------------
                                1995                     1996              1997                1998                  1999
                         ----------------------   -----------------  ------------------   ----------------     -----------------

                                    Percent of           Percent of         Percent of           Percent of           Percent of
                                     Loans in           Loans in Each        Loans in            Loans in             Loans in
                                       Each              Category to          Each                 Each                 Each
                                    Category to          Total Loans        Category to          Category to          Category to
                                                         -----------
                          Amount    Total Loans   Amount            Amount  Total Loans   Amount Total Loans   Amount Total Loans
                          ------    -----------   ------            ------  -----------   ------ -----------   ------ -----------
<S>                       <C>       <C>        <C>     <C>       <C>      <C>        <C>       <C>         <C>       <C>
At end of year allocated to:
Mortgage                     $394      87.67%     $484     86.13%    $617     84.38%     $ 722     81.52%      $ 749     81.15%
Consumer and non-mortgage     118      12.33       131     13.87      146     15.62        131     18.48         108     18.85%
                              ---     -------      ---    -------     ---    ------       ----    ------        ----    ------
Total allowance              $512     100.00%     $615    100.00%    $763    100.00%     $ 853    100.00%      $ 857    100.00%
                              ===     ======       ===    ======      ===    ======       ====    ======        ====    ======

</TABLE>

                                       13

<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,
                                                  ------------------------------------------------------------------
                                                  1995          1996           1997          1998          1999
                                                  ----          ----           ----          ----          ----


<S>                                           <C>            <C>            <C>          <C>           <C>
Total loans outstanding                           $171,364       $180,399       $184,480     $156,263      $174,770
                                                   =======        =======        =======      =======       =======
Average loans outstanding                         $170,395       $173,383       $183,591     $172,219      $161,444
                                                   =======        =======        =======      =======       =======

Beginning allowance balances                      $    376       $    512       $    615     $    763      $    853
Provision:
  One- to four-family                                  166            180            180          120            27
  Commercial and multi-family
    real estate                                         --             --             --           --            --
  Consumer                                              --             --             --           --            --
Charge-offs:
  One- to four-family                                   23             21             12           --            --
  Commercial and multi-family
    real estate                                         --             --             --           --            --
  Consumer                                              18             67             54           46            43
Recoveries:
  One- to four-family                                   --             --             --           --            --
  Commercial and multi-family
    real estate                                         --             --             --           --            --
  Consumer                                              11             11             34           16            20

Other                                                   --             --             --           --            --
                                                   -------        -------        -------      -------       -------

Ending allowance balance                          $    512       $    615       $    763     $    853      $    857
                                                   =======        =======        =======      =======       =======

Allowance for loan losses as a percent
  of total loans outstanding                          0.30%          0.34%          0.41%        0.55%         0.49%
Net loans charged off as a percent of
  average loans outstanding                           0.02%          0.04%          0.02%        0.02%         0.01%


</TABLE>
                                       14

<PAGE>



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

                                                                             At December 31,
                                                         -----------------------------------------------------------
                                                         1995         1996          1997           1998         1999
                                                         ----         ----          ----           ----         ----
                                                                       (Dollars in Thousands)

<S>                                                  <C>          <C>             <C>          <C>         <C>
Total foreclosed real estate and real estate
  in judgment, net                                      $  29        $  78           $  35        $  --       $  55
                                                         ====         ====            ====         ====        ====
Allowance balances - beginning                             --           --              --           --          --
Provision                                                  --           --              --           --          --

Charge-offs                                                --           --              --           --          --
Recoveries                                                 --           --              --           --          --
Other                                                      --           --              --           --          --
                                                         ----         ----            ----         ----        ----
Allowance balances - ending                             $  --        $  --           $  --        $  --       $  --
                                                         ====         ====            ====         ====        ====
Allowance for losses on foreclosed real estate
  in judgment to net foreclosed real estate and
  real estate in judgment                                  --%          --%             --%          --%         --%
                                                           ==           ==              ==           ==          ==
</TABLE>

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,
1999, the Company had an investment  portfolio of  approximately  $18.5 million,
consisting primarily of U.S. government  corporate and agency obligations.  To a
lesser extent, the portfolio also includes FHLMC 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.

                                       15
<PAGE>

         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, 1999, the
Company's  securities  that  were  classified  as  available  for  sale  had  an
unrealized  net  gain  of $1.1  million.  The  Company's  securities  that  were
classified  as held to maturity  had a net  unrealized  loss of  $469,000.  This
unrealized loss is not reflected in the table below because these securities are
carried at amortized cost in accordance with SFAS 115. At December 31, 1999, the
market value for the interest  bearing deposits shown below  approximated  their
cost.


                                                  At December 31,
                                            --------------------------
                                             1997      1998       1999
                                            -----      ----       ----
                                                   (In Thousands)

Securities available for sale:
  Equity securities                         $2,640    $2,968     $2,551
Securities held to maturity:
  U.S. agency securities                     3,198     5,539     15,559
                                             -----     -----     ------
    Total investment securities              5,838     8,507     18,110
Interest-bearing deposits                    1,850       500        400
Mortgage-backed securities available
   for sale                                     86        --         --
                                             -----     -----     ------
    Total investments                       $7,774    $9,007    $18,510
                                             =====     =====     ======

                                       16

<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,
                        ------------------------------------------------------------------------------------------------------------

                          One Year or Less   One to Five Years  Five to Ten Years  More than Ten Years  Total Investment Securities
                        -------------------  ------------------- ----------------- ------------------   ----------------------------
                        Carrying   Average   Carrying  Average  Carrying Average Carrying  Average  Carrying     Average     Market
                          Value     Yield      Value    Yield    Value    Yield    Value    Yield     Value       Yield      Value
                        --------  --------  ---------  ------- -------- -------- --------  -------  --------    --------    -------
                                                                    (Dollars in Thousands)

<S>                     <C>       <C>     <C>         <C>       <C>      <C>   <C>       <C>    <C>           <C>       <C>
U.S. Agency Obligations   $ --        --%   $15,559     5.93%     $ --      --%   $  --       --%  $15,559       5.93%     $15,090
FHLB Stock                  --        --         --       --        --      --       --       --     1,421          --       1,421
Equity Securities           --        --         --       --        --      --       --       --     1,130          --       1,130
Interest Bearing Deposits  400       .19         --                 --               --                400       5.19%         400
                           ---               ------                ----            -----            ------                  ------
  Total                   $400              $15,559               $ --            $  --            $18,510                 $18,041
                           ===               ======                ====            =====            ======                  ======
</TABLE>


                                       17

<PAGE>


Sources of Funds

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

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

         Jumbo Certificate Accounts. The following table indicates,  at December
31, 1999,  the amount of the  Company's  certificates  of deposit of $100,000 or
more by time remaining until maturity.


Maturity Period
---------------
                                                  In Thousands)
Within three months                                  $3,124
Three through six months                              1,026
Six through twelve months                             1,223
Over twelve months                                    2,953
                                                      -----
                                                     $8,326
                                                      =====

         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, 1999,  the Company had $17.0  million in advances
outstanding  from  the  FHLB of Des  Moines  (see  Note 10 of the  Notes  to the
Company's Consolidated Financial Statements).  Future use of advances depends on
the rates on advances as compared to the rates on deposits.

                                       18
<PAGE>

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

                                   As of and for the Years Ended December 31
                                  ---------------------------------------------
                                     1997               1998             1999
                                     ----               ----             ----
                                            (Dollars in Thousands)
FHLB advances                        $24,500            $5,000          $17,000
Weighted average interest rate
  of FHLB advances                      5.92%             5.34%            5.73%
Maximum amount of advances           $29,500           $29,500          $17,000
Average amount of advances           $26,808           $14,615           $7,462
Weighted average interest rate
  of average amount of advances         5.75%             5.74%            5.16%

Subsidiary Activity

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

         The Bank is  permitted  to invest up to 2% of its assets in the capital
stock of, or secured or unsecured  loans to,  subsidiary  corporations,  with an
additional  investment  of 1% of  assets  when  such  additional  investment  is
utilized primarily for community development purposes.  Under the 2% limitation,
as of December 31, 1999, the Bank was  authorized to invest up to  approximately
$3.9 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
$714,000 at December 31, 1999.

         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  1999,  GMM
originated $10.2 million in single family dwelling loans, which were sold to the
secondary  market.  At December 31, 1999,  the Bank's  investment in GMM totaled
$197,000.

Personnel

         As of December 31, 1999,  the Bank had 64 full-time  and two  part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Company,  with no employees of its own, utilizes those of
the Bank.

Competition

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

                                       19
<PAGE>
         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

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

Regulation of the Company

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

         The Company  generally  is not  restricted  in the types of business in
which it may engage,  provided that the Bank maintains a specified amount of its
assets in housing  related  investments.  The  changes to  federal  banking  law
affected by the Gramm-Leach-Bliley Act are not expected to materially impact the
Company or the Bank.

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

Regulation of the Bank

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

                                       20
<PAGE>

         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  may  also  prohibit  an  insured
depository institution from engaging in any activity the FDIC determines to pose
a serious threat to the SAIF.

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

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

         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% 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, 1999. The Bank's capital
ratios  are  set  forth  in  Note  12 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.

                                       21
<PAGE>

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

         Dividend and Other Capital Distribution Limitations. 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  1999,  the  Company  declared  four  $0.15 per share  quarterly
dividends to its  shareholders.  During 1998, the Company declared one $0.12 per
share quarterly  dividend and three $0.15 per share  quarterly  dividends to its
shareholders.  The  Company's  dividend  payout ratio for 1999 was 47.6% and for
1998 was 40.0%.

         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, FNMA and FHLMC as
qualifying  QTIs. As of December 31, 1999,  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  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.

                                       22
<PAGE>

         Proposed  Regulation.  The OTS  has  announced  that  it will  consider
amending its capital standards so as to more closely conform its requirements to
those of the other federal banking agencies.  The impact of this possible change
is not expected to materially  impact the Bank. The impact on the Company cannot
yet be determined.

Item 2. Description of Properties
---------------------------------

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

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

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

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

         Not Applicable.

                                     PART II

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

         The  information  contained under the section  captioned  "Stock Market
Information"  on  pages  1  and  2  of  the  Company's  1999  Annual  Report  to
Stockholders (the "Annual Report"), is incorporated herein by reference.

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

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

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

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

         Independent Auditor's Report.

         Consolidated  Statements of Financial Condition as of December 31, 1999
and 1998.

         Consolidated  Statements  of Income for the Years  Ended  December  31,
1999, 1998, and 1997.

                                       23
<PAGE>

         Consolidated  Statements  of  Stockholders'  Equity for the Years Ended
December 31, 1999, 1998, and 1997.

         Consolidated  Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.

         Notes to Consolidated Financial Statements.

Item 8.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure
--------------------------------------------------------------------------------
         Not applicable.

                                    PART III

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

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

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

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

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

         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

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

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

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

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

                                       24
<PAGE>

                                     PART IV

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

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

          3(i) Articles of Incorporation of Wells Financial Corp.*
          3(ii) Bylaws of Wells Financial Corp.**
          10.1 1995 Stock Option Plan of Wells Financial Corp.***
          10.2 Management Stock Bonus Plan and Trust Agreements***
          10.3 Change in Control Severance Agreement with James D. Moll****
          10.4 Change in Control Severance Agreement with Gerald D. Bastian****
          13   Annual Report to Stockholders  for the fiscal year ended December
               31, 1999 (only those portions  incorporated  by reference in this
               document are deemed filed)
          21   Subsidiaries of Registrant****
          23   Consent of McGladrey & Pullen, LLP
          27   Financial Data Schedule (in electronic filing only)

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

---------------------

*    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.

                                       25


<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 21, 2000.

                                        WELLS FINANCIAL CORP.


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

     Pursuant to the  requirement of the Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated as of March 21, 2000.
<TABLE>
<CAPTION>



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



/s/ 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
Director                                     Director



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

</TABLE>