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, 2002
                          ------------------------------------------------------
                                     - OR -


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

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

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

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

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

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

Registrant's telephone number, including area code:           (507) 553-3151
                                                              --------------

Securities registered pursuant to Section 12(b) of the Act:         None
Securities registered pursuant to Section 12(g) of the Act:         ----

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

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

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

         Registrant's  revenues for the year ended  December 31, 2002 were $19.8
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, 2003 ($23.05 per share), was $24.2 million.

         As of March 3, 2003,  registrant  had 1,128,277  shares of Common Stock
outstanding.

         Transition Small Business Disclosure Format (Check One): Yes    No  X.
                                                                     ---    ---
                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Part II -- Portions of Registrant's  Annual Report to Stockholders  for the
     fiscal year ended December 31, 2002.

2.   Part III -- Portions of  Registrant's  Proxy  Statement for the 2003 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, 2002, the Company had total

                                        1

<PAGE>

assets of $220.6 million,  total deposits of $169.1 million,  and  stockholders'
equity  of $25.2  million  or 11.4% of total  assets  under  generally  accepted
accounting  principles  ("GAAP")  in the  United  States  of  America.  The only
subsidiary of the Company is the Bank.

         The primary  activity  of the Company is  directing  and  planning  the
activities of the Bank, the Company's  primary asset.  At December 31, 2002, 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.  During
2002, the Bank leased a facility and opened a loan origination  office in Dakota
County, 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 and borrowed funds.

Market Area

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

         Lending Activities. 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.  Dependent upon the level
of the interest rates at the time mortgage loans on single-family  dwellings are
originated, the

                                        2
<PAGE>

Company may also retain 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 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,
                                  --------------------------------------------------------------------------------------------------
                                       2002                 2001                 2000                1999                1998
                                  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..........   $53,967    36.00%    $80,613    49.01%  $112,579     58.29%  $106,292     60.82% $105,088   67.25%
  Multi-family................       439     0.29         484     0.29        523      0.27        654      0.37       950    0.61
  Commercial..................    51,958    34.66      41,510    25.24     38,514     19.94     31,928     18.27    20,068   12.84
  Construction................     4,830     3.22       2,185     1.33      2,043      1.06      2,957      1.69     1,279    0.82
                                 -------   ------     -------   ------    -------    ------    -------    ------   -------  ------
      Total real estate
        loans.................   111,194    74.17     124,792    75.87    153,659     79.56    141,831     81.15   127,385   81.52

Other Loans:
------------
 Consumer Loans:
  Savings account.............       387     0.26         635     0.39        558      0.30        578      0.33       395    0.25
  Vehicles....................     5,687     3.79       4,914     2.99      5,333      2.76      4,914      2.81     4,644    2.97
  Home equity, home
  improvement and
  second mortgages............    22,826    15.23      26,228    15.95     26,155     13.54     21,315     12.20    18,475   11.83
  Other.......................     3,905     2.60       4,314     2.62      4,449      2.30      3,144      1.80     2,970    1.90
                                 -------   ------     -------   ------    -------    ------    -------    ------   -------  ------
      Total consumer loans....    32,805    21.88      36,091    21.95     36,495     18.90     29,951     17.14    26,484   16.95

Commercial business loans.....     5,917     3.95       3,591     2.18      2,967      1.54      2,988      1.71     2,394    1.53
                                 -------   ------     -------   ------    -------    ------    -------    ------   -------  ------
      Total other loans.......    38,722    25.83      39,682    24.13     39,462     20.44     32,939     18.85    28,878   18.48
                                 -------   ------     -------   ------    -------    ------    -------    ------   -------  ------
      Total loans.............   149,916   100.00%    164,474   100.00%   193,121    100.00%   174,770    100.00%  156,263  100.00%
                                           ======               ======               ======               ======            ======
Less:
-----
  Loans in process............     3,202                2,694                 657                  722                 655
  Deferred loan
   origination fees
   and costs..................       220                  315                 494                  478                 450
  Allowance for loan losses...       908                  952                 833                  857                 853
                               ---------             --------            --------             --------            --------
      Total loans
        receivable, net....... $ 145,586             $160,513            $191,137             $172,713            $154,305
                               =========             ========            ========             ========            ========
</TABLE>
                                        4
<PAGE>

         Loan Maturity  Tables.  The following  table sets forth the maturity of
the Company's  loan  portfolio at December 31, 2002.  The table does not include
prepayments, scheduled principal repayments or loans held for sale. All mortgage
loans are shown as maturing based on contractual maturities.

                                                      Commercial
                                                     Business and
                                     Construction      Consumer       Total
                                     ------------      --------       -----
                                                    (In Thousands)
Amounts Due:
  Within 1 year or less...........       $4,295         $ 4,589      $ 8,884
  After 1 year through 5 years....          535          22,897       23,432
  After 5 years...................           --          11,236       11,236
                                         ------         -------      -------
Total amount due..................       $4,830         $38,722      $43,552
                                         ======         =======      =======


         The following table sets forth the dollar amount of all loans due after
December  31,  2003  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..........................   $20,380         $27,897       $48,277
Commercial and multi-family real estate.....    46,903           4,545        51,448
Construction................................       175             360           535
Commercial business and consumer............    27,144           6,989        34,133
                                               -------         -------      --------
  Total.....................................   $94,602         $39,791      $134,393
                                               =======         =======      ========
</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%.

         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.

                                        5

<PAGE>

         The Company  primarily  originates  fixed and adjustable  rate mortgage
loans with 15-30 year terms. The Company offers various loan programs, including
low  documentation  loans for loans with lower  loan-to-  value ratios and other
loan  programs  using  cost of funds  or  one-year  U.S.  treasury  indices  for
adjustable  rate loan  repricing.  Interest  rates charged on mortgage loans are
competitively priced based on market conditions and the Company's cost of funds.
Throughout  the year,  origination  fees for loans were generally 1% of the loan
amount. The Company's standard  underwriting  guideline for fixed-rate  mortgage
loans  conform to 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, 2002,  the Company was servicing  approximately  $307.3
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  $5.7  million,  or 3.79% of the loan  portfolio at
December 31, 2002.

         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, 2002,
the Company had approximately  $142,000 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
86% of this portfolio is secured by farm real estate. In addition to originating
farm real estate loans, the Company also purchases  participations  in farm real
estate loans that are originated by commercial banks in southern Minnesota. Most
of the  remainder of the  portfolio  is secured by  commercial  real estate.  At
December 31, 2002,  loans secured by farm real estate were originated in amounts
up to the lesser of 65% of the  appraised  value of the  property  or $1,300 per
tillable acre.  These loans are evaluated on a cash flow basis in addition to an
asset  value  basis.  Loans  secured by  commercial  real  estate are  generally
originated  in  amounts up to 80% of the  appraised  value of the  property.  At
December 31, 2002, the Company's  largest  commercial real estate loan consisted
of a $997,000  performing loan secured by commercial real estate. All commercial
real estate loans,  excluding loans of less than $750,000  secured by commercial
real estate, and $1 million 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.

                                        6

<PAGE>

         Loans secured by  commercial  real estate  generally  involve a greater
degree of risk than  residential  mortgage loans and carry larger loan balances.
This  increased  credit  risk is a result  of  several  factors,  including  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.

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

         Construction  Loans.  Construction  loans  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  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.

         Loans to One Borrower.  Loans-to-one  borrower are limited in an amount
equal to 15% of  unimpaired  capital and  unimpaired  surplus and an  additional
amount equal to 10% of unimpaired  capital and unimpaired surplus if the loan is
secured by readily marketable collateral (generally,  financial instruments, not
real estate) or $500,000, whichever is higher. The Company's maximum loan-to-one
borrower limit was approximately $2.9 million as of December 31, 2002.

                                        7

<PAGE>

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

         Loans are  reviewed on a monthly  basis and are  generally  placed on a
non-accrual status when a mortgage loan or a non-mortgage loan becomes 120 or 90
days delinquent, respectively, and, in the opinion of management, the collection
of additional  interest is doubtful.  Interest  accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  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.

                                        8

<PAGE>

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

<TABLE>
<CAPTION>
                                                         At December 31,
                                             --------------------------------------
                                              2002    2001    2000    1999    1998
                                              ----    ----    ----    ----    ----
                                                    (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 ............................   $287    $194    $108    $ --    $192
  All other mortgage loans ................     --      --     195      32      --
Non-mortgage loans:
  Commercial ..............................     --      --      --      --      --
  Consumer ................................    141     214      60      79      68
                                              ----    ----    ----    ----    ----
Total .....................................   $428    $408    $363    $111    $260
                                              ====    ====    ====    ====    ====

Accruing loans which are contractually past
due 90 days or more:
Mortgage loans:
  Construction loans ......................   $ --    $ --    $ --    $ --    $ --
  Permanent loans secured by 1-to-4 family
    residences ............................    249     211     258      11     100
  All other mortgage loans ................     --      11      --      --      --
Non-mortgage loans:
  Commercial ..............................     --      --      --      --      --
  Consumer ................................      1       2       4     --      --
                                              ----    ----    ----    ----    ----
Total .....................................   $250    $224    $262    $ 11    $100
                                              ====    ====    ====    ====    ====
Total non-accrual and accruing loans
  past due 90 days or more ................   $678    $632    $625    $122    $360
                                              ====    ====    ====    ====    ====
Foreclosed real estate ....................   $209    $252    $ 54    $ 55    $ --
                                              ====    ====    ====    ====    ====
Other nonperforming assets ................   $ --    $ --    $ --    $ --    $ --
                                              ====    ====    ====    ====    ====
Total nonperforming assets ................   $887    $884    $679    $177    $360
                                              ====    ====    ====    ====    ====
Total non-accrual and accruing loans past
  due 90 days or more to net loans ........   0.47%   0.39%   0.33%   0.07%   0.23%
                                              ====    ====    ====    ====    ====
Total non-accrual and accruing loans past
  due 90 days or more to total assets .....   0.31%   0.27%   0.28%   0.06%   0.19%
                                              ====    ====    ====    ====    ====
Total nonperforming assets to total assets    0.40%   0.38%   0.31%   0.09%   0.19%
                                              ====    ====    ====    ====    ====
</TABLE>

         Interest income that would have been recorded on loans accounted for on
a non-accrual  basis under the original  terms of such loans was  immaterial for
the year ended  December 31, 2002.  Amounts  included in the Company's  interest
income on  non-accrual  loans for the year ended December 31, 2002 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

                                        9

<PAGE>

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, 2002.

                                                   (In Thousands)
Special Mention.............................           $   359
Substandard.................................             1,367
Doubtful assets.............................                --
Loss assets.................................                --
                                                       -------
     Total..................................           $ 1,726
                                                       -------
Allowance for loan loss.....................           $   908
                                                       =======


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

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

                                       10

<PAGE>

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

<TABLE>
<CAPTION>
                                                                   At December 31,
                       ---------------------------------------------------------------------------------------------------------
                             2002                 2001                 2000                 1999                 1998
                       --------------------  -------------------  --------------------  ------------------   -------------------

                                Percent of           Percent of            Percent of          Percent of            Percent of
                                 Loans in             Loans in              Loans in           Loans in              Loans in
                                   Each                 Each                  Each               Each                  Each
                                Category to          Category to           Category to         Category to           Category to
                       Amount   Total Loans  Amount  Total Loans  Amount   Total Loans  Amount Total Loans   Amount  Total Loans
                       ------   -----------  ------  -----------  ------   -----------  ------ -----------   ------  -----------
                                                            (Dollars in Thousands)
<S>                  <C>          <C>        <C>      <C>        <C>          <C>      <C>      <C>          <C>      <C>
At end of year
allocated to:
Mortgage............. $   566       74.17%    $ 574     75.87%    $  749        79.56%  $  749    81.15%      $ 722     81.52%
Consumer and
  non-mortgage.......     342       25.83       378     24.13         84        20.44      108    18.85         131     18.48
                      -------      ------     -----    ------     ------       ------   ------   ------       -----    ------
Total allowance...... $   908      100.00%    $ 952    100.00%    $  833       100.00%  $  857   100.00%      $ 853    100.00%
                      =======      ======     =====    ======     ======       ======   ======   ======       =====    ======
</TABLE>
                                       11

<PAGE>

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

<TABLE>
<CAPTION>
                                                                  At December 31,
                                         --------------------------------------------------------------
                                            2002         2001          2000         1999         1998
                                         ---------    ---------     ---------    ---------    ---------
                                                                 (Dollars in Thousands)
<S>                                    <C>          <C>           <C>          <C>          <C>
Total loans outstanding ..............   $ 149,916    $ 164,474     $ 193,121    $ 174,770    $ 156,263
                                         =========    =========     =========    =========    =========
Average loans outstanding ............   $ 162,622    $ 186,772     $ 184,773    $ 161,444    $ 172,219
                                         =========    =========     =========    =========    =========

Beginning allowance balances .........   $     952    $     833     $     857    $     853    $     763
Provision:
  One-to-four family .................          23         (175)           --           27          120
  Commercial and multi-family
    real estate ......................          --           --            --           --           --
  Consumer ...........................          --          355            --           --           --
Charge-offs:
  One-to-four family .................          31           --            --           --           --
  Commercial and multi-family
    real estate ......................          --           --            --           --           --
  Consumer ...........................          55           89            49           43           46
Recoveries:
  One-to-four family .................          --           --            --           --           --
  Commercial and multi-family
    real estate ......................          --           --            --           --           --
  Consumer ...........................          19           28            25           20           16

Other ................................          --           --            --           --           --
                                         ---------    ---------     ---------    ---------    ---------

Ending allowance balance .............   $     908    $     952     $     833    $     857    $     853
                                         =========    =========     =========    =========    =========

Allowance for loan losses as a percent
  of total loans outstanding .........        0.61%        0.58%         0.43%        0.49%        0.55%
Net loans charged off as a percent of
  average loans outstanding ..........        0.04%        0.03%         0.01%        0.01%        0.02%
</TABLE>

                                       12

<PAGE>

Investment Activities

         The Company is required under federal regulations to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and certain other investments.  The Company has maintained a liquidity portfolio
in excess of  regulatory  requirements.  Liquidity  levels may be  increased  or
decreased  depending  upon  the  yields  on  investment  alternatives  and  upon
management's  judgment as to the  attractiveness of the yields then available in
relation to other  opportunities  and its expectation of future yield levels, as
well as  management's  projections as to the  short-term  demand for funds to be
used in the Company's loan  origination  and other  activities.  At December 31,
2002, the Company had an investment  portfolio of  approximately  $21.9 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.

         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, 2002, the
Company's  securities  that  were  classified  as  available  for  sale  had  an
unrealized net gain of $1.26 million. At December 31, 2002, the market value for
the interest bearing deposits shown below approximated their cost.


                                                     At December 31,
                                          ---------------------------------
                                            2002         2001         2000
                                          -------      -------      -------
                                                    (In Thousands)
Securities available for sale:
  Equity securities ...................   $   945      $ 1,047      $ 1,102
  U.S. Agency Securities ..............    18,473       12,503       13,012
  Obligations of state and political
    subdivisions ......................       438          438          236
                                          -------      -------      -------
    Total securities available for sale    19,856       13,988       14,350
FHLB stock ............................     1,875        1,875        1,875
Certificates of deposit ...............       200          200          200
                                          -------      -------      -------
    Total investments .................   $21,931      $16,063      $16,425
                                          =======      =======      =======


                                       13

<PAGE>

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


<TABLE>
<CAPTION>
                                                                      At December 31, 2002
                                   -------------------------------------------------------------------------------------------------
                                                                                              More than               Total
                                   One Year or Less  One to Five Years Five to Ten Years      Ten Years      Investment Securities
                                   ----------------  ----------------- -----------------  ----------------- ------------------------
                                   Carrying Average  Carrying Average  Carrying   Average Carrying  Average Carrying Average  Market
                                    Value   Yield     Value   Yield     Value     Yield     Value    Yield   Value    Yield   Value
                                    -----   -----     -----   -----     -----     -----     -----    -----   -----    -----   -----
                                                                                 (Dollars in Thousands)
<S>                               <C>       <C>     <C>       <C>     <C>                 <C>               <C>       <C>    <C>
U.S. Agency Obligations (1)....... $    20   6.32%   $18,891   5.16%   $   --       -- %   $   --      -- %  $18,911   5.16%  18,911
FHLB Stock........................      --     --         --     --        --       --         --      --      1,875     --    1,875
Equity Securities.................      --     --         --     --        --       --         --      --        945     --      945
Certificates of Deposit...........     200   2.46%        --     --%       --       -- %       --      -- %      200   2.46%     200
                                   -------           -------           ------              ------            -------         -------
  Total........................... $   220           $18,891           $   --              $   --            $21,931         $21,931
                                   =======           =======           ======              ======            =======         =======
</TABLE>

(1)  Includes obligations of state and political subdivisions.

                                       14

<PAGE>

Sources of Funds

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

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

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

         Non-interest  bearing demand accounts constituted $4.3 million, or 2.6%
of the Bank's deposit  portfolio at December 31, 2002. Money market accounts and
NOW accounts constituted $34.7 million, or 20.5% of the Bank's deposit portfolio
at December 31, 2002.  Regular savings accounts  constituted  $22.4 million,  or
13.2 % of the Bank's  deposit  portfolio at December 31, 2002.  Certificates  of
deposit constituted $107.7 million or 63.7% of the deposit portfolio,  including
$9.6  million of which had  balances of $100,000  and over.  As of December  31,
2002, the Bank had no brokered deposits.


         Jumbo Certificate Accounts. The following table indicates,  at December
31, 2002,  the amount of the  Company's  certificates  of deposit of $100,000 or
more by time remaining until maturity.



                                       Certificates of
                                           Deposit          Weighted
Maturity Period                         (In Thousands)    Interest Rate
---------------                         --------------    -------------
Within three months................      $     301             2.5 %
Three through six months...........          1,059             2.12
Six through twelve months..........          1,018             2.26
Over twelve months.................          7,186             3.37
                                         ---------             ----
                                         $   9,564             3.09%
                                         =========             ====

         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

                                       15

<PAGE>

withdrawal requirements.  At December 31, 2002, the Company had $23.0 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.

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

<TABLE>
<CAPTION>
                                        As of and for the Years Ended December 31,
                                        ------------------------------------------
                                             2002        2001           2000
                                             ----        ----           ----
                                                 (Dollars in Thousands)
<S>                                      <C>         <C>            <C>
FHLB advances..........................    $23,000     $23,000        $33,500
Weighted average interest rate
  of FHLB advances.....................       5.34%       5.34%          5.77%
Maximum amount of advances.............    $23,000     $33,500        $37,500
Average amount of advances.............    $23,000     $25,192        $25,538
Weighted average interest rate
  of average amount of advances........       5.41%       5.36%          6.08%
</TABLE>

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, 2002, the Bank was  authorized to invest up to  approximately
$4.4 million in the stock of, or loans to, service corporations.

         WIA was incorporated  under the laws of the State of Minnesota in 1976.
WIA offers life,  health,  casualty,  and business insurance on behalf of others
and also offers fixed-rate annuities.  The Bank's investment in WIA totaled $1.1
million at December 31, 2002.

         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  2002,  GMM
originated $47.6 million in single family dwelling loans, which were sold to the
secondary  market.  At December 31, 2002,  the Bank's  investment in GMM totaled
$1.8 million.

Personnel

         As of December  31,  2002,  the Bank had 87  full-time  and 7 part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Company,  with no employees of its own, utilizes those of
the Bank.

                                       16

<PAGE>

Competition

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

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

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

Regulation of the Company

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

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

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

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

     Recent Legislation to Curtail Corporate Accounting Irregularities.  On July
30, 2002,  President  Bush signed into law the  Sarbanes-Oxley  Act of 2002 (the
"Act"). The Securities and Exchange Commission

                                       17

<PAGE>

(the  "SEC")  promulgated  certain  regulations  pursuant  to the Act which were
effective August 29, 2002, and will continue to propose additional  implementing
or clarifying regulations as necessary in furtherance of the Act.

         The  passage  of the  Act and the  regulations  implemented  by the SEC
subject  publicly-traded  companies to additional and more cumbersome  reporting
regulations and disclosure. These new regulations, which are intended to curtail
corporate fraud, require the chief executive officer and chief financial officer
of  the  Company  to  personally  certify  certain  SEC  filings  and  financial
statements  and to  certify  as to the  existence  of  disclosure  controls  and
procedures  within the Company are designed to ensure that information  required
to be disclosed by the Company in its SEC filings is processed,  summarized  and
reported accurately.

         The Act and regulations  promulgated  thereunder by the SEC also impose
additional measures to be taken by the Company's officers, directors and outside
auditors and impose accelerated reporting requirements by officers and directors
of the Company in connection  with certain  changes in their equity  holdings of
the Company.  Implementation  of and compliance  with the Act and  corresponding
regulations will likely increase the Company's expenses.

Regulation of the Bank

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

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

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

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

         The FDIC administers two separate deposit  insurance funds.  Generally,
the Bank Insurance Fund (the "BIF") insures the deposits of commercial banks and
the SAIF insures the deposits of savings institutions. The FDIC is authorized to
increase deposit insurance premiums if it determines such increases

                                       18

<PAGE>

are  appropriate  to maintain  the reserves of either the SAIF or BIF or to fund
the  administration  of the FDIC.  In addition,  the FDIC is  authorized to levy
emergency  special  assessments  of BIF and SAIF  members.  The FDIC has set the
deposit  insurance  assessment rates for SAIF member  institutions for the first
six months of 2003 at 0% to 0.27% of insured  deposits on an  annualized  basis,
with the assessment rate for most savings institutions set at 0%.

         In addition,  all institutions  insured by the FDIC are required to pay
quarterly  assessments,  totaling  approximately 0.0190% of insured deposits for
the 2002  calendar  year,  to fund  interest  payments  on bonds  issued  by the
Financing  Corporation,  an  agency of the  Federal  government  established  to
recapitalize the predecessor to the SAIF. These  assessments will continue until
the Financing Corporation bonds mature in 2017.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 4.0% of total adjusted assets for most savings institutions,  and (3) a
risk-based capital requirement equal to 8.0% of total risk-weighted  assets. The
Bank exceeded  these minimum  standards at December 31, 2002. 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.

         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  2002,  the  Company  declared  four  $0.18 per share  quarterly
dividends to its shareholders.  During 2001, the Company declared four $0.16 per
share quarterly  dividends to its  shareholders.  The Company's  dividend payout
ratio for 2002 was 25.3% and for 2001 was 22.0%.

         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, 2002,  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

                                       19

<PAGE>

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.

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 full service  office  located at 53
First Street, S.W., Wells, Minnesota, seven additional full service offices, and
one loan origination  office.  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  2002  Annual  Report  to
Stockholders (the "Annual Report"), is incorporated herein by reference.

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

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

                                       20

<PAGE>

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

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

         Independent Auditor's Report.

         Consolidated  Statements of Financial Condition as of December 31, 2002
         and 2001.

         Consolidated  Statements  of Income for the Years  Ended  December  31,
         2002, 2001, and 2000.

         Consolidated  Statements  of  Stockholders'  Equity for the Years Ended
         December 31, 2002, 2001, and 2000.

         Consolidated  Statements of Cash Flows for the Years Ended December 31,
         2002, 2001, and 2000.

         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  required  under this item is  incorporated  herein by
reference to the Proxy  Statement for the  Registrant's  2003 Annual  Meeting of
Stockholders (the "Proxy Statement") under the sections captioned  "Proposal I -
Election  of  Directors"  and  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance".

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.

                                       21

<PAGE>

          (b)  Security Ownership of Management

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

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

          (d)  Securities  Authorized  for Issuance  Under  Equity  Compensation
               Plans

         Set forth below is  information as of December 31, 2002 with respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.

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

                                                                                                 Number of securities
                                                 Number of                 Weighted-             remaining available
                                              securities to be         average exercise           for future issuance
                                                issued upon                price of                  under equity
                                                exercise of               outstanding             compensation plans
                                                outstanding                options,             (excluding securities
                                             options, warrants           warrants and            reflected in column
                                                 and rights                 rights                       (a))
                                             -----------------           ------------            -------------------
<S>                                             <C>                      <C>                          <C>
Equity compensation plans
  approved by shareholders

1995 Stock Option Plan                             81,119                   $13.18                       41,375

Management Stock Bonus Plan
and Trust Agreements                               18,450                       --                       11,473

Equity compensation plans
  not approved by shareholders                        N/A                      N/A                          N/A
                                                   ------                   ------                       ------
     TOTAL.............................            99,569                   $10.74                       52,848
                                                   ======                   ======                       ======
</TABLE>

                                       22
<PAGE>


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

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

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

          (a)  The   following   exhibits   are   included  in  this  Report  or
               incorporated herein by reference:
<TABLE>
<CAPTION>
           <S>          <C>
                   3(i)    Articles of Incorporation of Wells Financial Corp.*
                   3(ii)   Bylaws of Wells Financial Corp.**
                  10.1     1995 Stock Option Plan of Wells Financial Corp.***
                  10.2     Management Stock Bonus Plan and Trust Agreements***
                  10.3     Change in Control Severance Agreement with James D. Moll****
                  10.4     Change in Control Severance Agreement with Gerald D. Bastian****
                  13       Annual  Report to  Stockholders  for the fiscal  year
                           ended   December   31,  2002  (only  those   portions
                           incorporated by reference in this document are deemed
                           filed)
                  21       Subsidiaries of Registrant****
                  23       Consent of McGladrey & Pullen, LLP
                  99.1     Certification pursuant to 18 USC Section 1350 as adopted pursuant to Section 906
                           of the Sarbanes-Oxley Act of 2002.
</TABLE>


                                       23
<PAGE>

         (b)      Reports on Form 8-K.

                  None

_____________________
*    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.



Item 14.  Controls and Procedures
---------------------------------

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
             --------------------------------------------------
evaluation  as of a date within 90 days of the filing date of this Annual Report
on Form 10-KSB,  the  Registrant's  principal  executive  officer and  principal
financial officer have concluded that the Registrant's  disclosure  controls and
procedures  (as defined in Rules  13a-14(c) and 15d-14(c)  under the  Securities
Exchange  Act of 1934  (the  "Exchange  Act"))  are  effective  to  ensure  that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.

         (b) Changes in internal controls.  There were no significant changes in
             ----------------------------
the Registrant's  internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

                                       24

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 25, 2003.


                                   WELLS FINANCIAL CORP.



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


         Pursuant to the  requirement  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated as of March 25, 2003.


<TABLE>
<CAPTION>
<S>                                                <C>
/s/ Lonnie R. Trasamar                                /s/ James D. Moll
-----------------------------------------------       --------------------------------------------
Lonnie R. Trasamar                                    James D. Moll
President, Chief Executive Officer and Director       Treasurer and Principal Financial and
(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
Chairman of the Board                                 Director



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

</TABLE>
<PAGE>

                            SECTION 302 CERTIFICATION


     I,  Lonnie R.  Trasamar,  President  and Chief  Executive  Officer of Wells
Financial Corp., certify that:

1.   I have reviewed this Annual Report on Form 10-KSB of Wells Financial Corp.;

2.   Based on my  knowledge,  this  Annual  Report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this Annual Report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this Annual Report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this Annual Report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this Annual Report
          is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   Annual   Report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and
<PAGE>

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     Annual Report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.




Date:   March 25, 2003                /s/Lonnie R. Trasamar
                                    ------------------------------------------
                                      Lonnie R. Trasamar
                                      President and Chief Executive Officer

<PAGE>

                            SECTION 302 CERTIFICATION


     I, James D. Moll,  Treasurer and Principal Financial and Accounting Officer
of Wells Financial Corp., certify that:

1.   I have reviewed this Annual Report on Form 10-KSB of Wells Financial Corp.;

2.   Based on my  knowledge,  this  Annual  Report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this Annual Report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this Annual Report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this Annual Report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this Annual Report
          is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this Annual Report (the "Evaluation Date"); and

     (c)  presented   in  this   Annual   Report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and
<PAGE>

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     Annual Report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.



Date:   March 25, 2003                /s/James D. Moll
                                      -------------------------------------
                                      James D. Moll
                                      Treasurer and Principal Financial and
                                      Accounting Officer