2001 ANNUAL REPORT TO STOCKHOLDERS
                          WEBSTER CITY FEDERAL BANCORP

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



                 Table of Contents

                                                                           Page
                                                                          ------
Message of President and Chief Executive Officer . . . . . . . . . . . . . . 1

Selected Consolidated Financial and Other Data . . . . . . . . . . . . . . . 2

Key  Financial  Ratios and Other Data. . . . . . . . . . . . . . . . . . . . 3

Management's  Discussion  and  Analysis of  Financial
Condition  and Results of Operations . . . . . . . . . . . . . . . . . . . . 4

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . 13

Consolidated Balance Sheets . . . . . . . . . . . . . .. . . . . . . . . . . 14

Consolidated Statements of Operations . . . . . . . . . . . .  . . . . . . . 15

Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . .  16

Consolidated Statements of Cash Flows . . . . . . . . . . . .  . .  . . . .  17

Notes to Consolidated Financial Statements . . . . . .  . . . .  . . . . . . 18

Stockholder Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Directors and Executive Officers . . . . . . . . . . . .. . . . . . . . . .  40

<PAGE>


Dear Fellow Shareholders:

We are pleased to report another  excellent,  profitable year for the Company in
2001.  Net  income  for the year was  $1,189,899  or $.64 per  share.  Return on
average assets was 1.23%.

The Board voted to increase the dividend payable to our shareholders in November
of 2001 to $.25 per share, up $.05 per share from the previous quarters in 2001.

Our strong capital position, combined with our high liquidity levels, allows the
Company to meet the  challenges  of today as well as in the future.  We are well
positioned  to  take  advantage  of  future   opportunities  to  strengthen  the
performance of the Company for the benefit of our shareholders.

We  extend  congratulations  and many  thanks  to Ellis S. Swon for his years of
leadership  with the Company and its  subsidiary,  Webster City Federal  Savings
Bank.  Mr. Swon retired as Chairman of the Board June 30, 2001. He had been with
the Company and subsidiary for over 50 years.

The Board welcomed two new members July 1, 2001.  Stephen L. Mourlam,  Executive
Vice President and Chief Financial Officer of Webster City Federal Savings Bank,
has  been  with  the  bank for the past 22  years.  Kyle R.  Swon,  Senior  Vice
President  and  Chief  Lending  Officer,  has been with the bank for the past 14
years. Both have been with the Company since its formation.

We are proud to have a special  group of board  members and  employees  who work
toward a common  goal - to be a highly  profitable  financial  center  providing
friendly, convenient service to our customers.

Sincerely,



Phyllis A. Murphy
President

                                       1
<PAGE>


Selected Consolidated Financial and Other Data

         The following table sets forth certain consolidated financial and other
data of Webster City Federal Bancorp (the "Company") at the dates and for the
periods indicated. For additional information about the Company, reference is
made to "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company and
related notes included elsewhere herein.

Selected Financial Condition Data
<TABLE>
<CAPTION>

                                                         At December 31,
                                     ------------------------------------------------------
                                        2001       2000       1999       1998       1997
                                      --------   --------   --------   --------   --------
                                                         (In Thousands)

<S>                                   <C>        <C>        <C>        <C>        <C>
Total assets                          $102,361   $ 95,430   $ 94,525   $ 94,084   $ 95,024
Loans receivable, net
    Real estate                         70,031     63,831     58,592     53,084     50,431
    Consumer and other                   4,461      5,273      3,600      3,668      3,891
                                      --------   --------   --------   --------   --------
    Total loans receivable, net         74,492     69,104     62,192     56,752     54,322

Mortgage-backed securities               4,205      6,025      7,806      9,987     14,923
Investments                             10,189     11,518     14,916      9,899     16,637
Cash and cash equivalents                9,183      6,251      4,986     13,187      5,893
Deposits                                70,043     65,146     67,918     68,704     71,527
Stockholders' equity, substantially
restricted                              21,348     20,905     22,348     23,086     22,350

</TABLE>


Summary of Operations
<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                         ----------------------------------------------------
                                            2001       2000       1999       1998      1997
                                           ------     ------     ------     ------    ------
                                         (Dollars in thousands, except earnings per share
                                              and cash dividends per share amounts)


<S>                                        <C>       <C>         <C>         <C>       <C>
Interest income                            $6,713    $6,702      $6,410      $6,646    $6,740

Interest expense                            3,465     3,301       3,010       3,339     3,364
                                            -----     -----       -----       -----     -----
   Net interest income before provision

     for loan losses                        3,248     3,401       3,400       3,307     3,376

Provision for loan losses                      --        --          --          --        40
                                            -----     -----       -----       -----     -----
   Net interest income after provision

     for loan losses                        3,248     3,401       3,400       3,307     3,336
                                            -----     -----       -----       -----     -----
Non-interest income:

  Service charges and other fees              258       181         162         188       157

  Other income                                198       166          51          56        48
                                            -----     -----       -----       -----     -----
   Total non-interest income
                                              456       347         213         244       205
Non-interest expense:

  Salaries and employee benefits            1,009       892         811         789       723

  Premises and equipment                      126       131         117          79        95

  Other real estate expenses, net               6         1           2           2         5

  Advertising                                  30        27          29          27        28

  Federal deposit insurance premiums           13        14          40          43        36

  Other                                       682       591         585         492       493
                                            -----     -----       -----       -----     -----

    Total non-interest expense              1,866     1,656       1,584       1,432     1,380
                                            -----     -----       -----       -----     -----
Income before income taxes                  1,838     2,092       2,029       2,119     2,161

Income tax expense                            648       791         780         803       797
                                            -----     -----       -----       -----     -----
                                           $1,190    $1,301      $1,249      $1,316    $1,364
                                            =====     =====       =====       =====     =====


Earnings per share - basic                  $0.64     $0.67       $0.60       $0.63     $0.66
                                            =====     =====       =====       =====     =====


Earnings per share - diluted                $0.63     $0.67       $0.60       $0.62     $0.65
                                            =====     =====       =====       =====     =====


Cash dividends per share                    $0.85     $0.80       $0.80       $0.80     $0.80
                                            =====     =====       =====       =====     =====


</TABLE>


                                       2
<PAGE>

Financial Ratios and Other Data



<TABLE>
<CAPTION>



                                                          At or for the Year Ended December 31,
                                               ------------------------------------------------------
                                                  2001        2000       1999        1998       1997
                                                --------   --------   --------   --------   --------

<S>                                                <C>       <C>       <C>       <C>       <C>
Equity to assets at year end                       20.85%    21.91%    23.64%    24.54%    23.52%
Net interest spread                                 2.42%     2.60%     2.61%     2.39%     2.51%
Net interest margin                                 3.44%     3.72%     3.72%     3.56%     3.65%
Return on average assets                            1.23%     1.39%     1.39%     1.39%     1.45%
Return on average equity                            5.80%     6.17%     5.49%     5.79%     6.19%
Stockholders' equity to average assets ratio       22.03%    22.40%    23.98%    24.36%    23.70%
Non-interest income to average assets ratio         0.48%     0.35%     0.22%     0.26%     0.22%
Non-interest expense to average assets ratio        1.93%     1.64%     1.69%     1.52%     1.47%
Nonperforming loans to net loans                    1.30%     0.29%     0.01%     0.03%     0.00%
Nonperforming assets to total assets                1.00%     0.21%     0.01%     0.04%     0.06%
Average interest-earning assets to
  average interest-bearing liabilities            128.02%   131.21%   133.80%   132.50%   131.37%
Allowance for loan losses to
  net loans receivable                              0.51%     0.59%     0.61%     0.68%     0.71%
Allowance for loan losses to
  nonperforming loans                              39.13%      N/M       N/M       N/M       N/M

Net interest income to non-interest expense       174.03%   205.31%   214.71%   230.78%   248.26%

Number of full service offices                          1         1         1         1         1


   N/M = Not Meaningful

</TABLE>



                                       3
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


General

     Webster City Federal  Bancorp (the "Company") is a savings and loan holding
company whose primary  asset is 100% of the  outstanding  shares of Webster City
Federal Savings Bank (the "Bank"),  which  reorganized  into the holding company
structure,  effective July 1, 1999. The discussion  herein to the results of the
Company refers to the results of the Bank in the periods prior to July 1, 1999.

     The Company focuses on establishing and maintaining long-term relationships
with customers,  and is committed to serving the financial  service needs of the
communities in its market area. The Company  attracts  retail  deposits from the
general  public  and uses those  deposits,  together  with  borrowed  funds,  to
originate residential mortgage loans, home equity loans and consumer loans.

     The  Company's  current  business  strategy  is to  operate  the  Bank as a
well-capitalized,  profitable and  independent  community-oriented  savings bank
dedicated to providing  quality  customer  service.  Generally,  the Company has
sought to implement this strategy  primarily by using retail  deposits and, to a
lesser extent, public funds as its source of funds and maintaining a substantial
part of its assets in loans  secured  by one- to  four-family  residential  real
estate located in the Company's market area, home equity loans,  consumer loans,
mortgage-backed   securities   and  in  other  liquid   investment   securities.
Specifically,   the  Company's  business  strategy  incorporates  the  following
elements: (1) operating the Bank as a community-oriented  financial institution,
maintaining  a strong  core  customer  base by  providing  quality  service  and
offering  customers  the  access  to  senior  management  and  services  that  a
community-based  institution can offer;  (2)  maintaining  high asset quality by
emphasizing investment in residential mortgage loans, mortgage-backed securities
and other  securities  issued or guaranteed  by the United States  Government or
agencies thereof;  (3) maintaining capital in excess of regulatory  requirements
and growing only to the extent that adequate  capital  levels can be maintained;
and (4) managing interest rate risk exposure while achieving desirable levels of
profitability.

     The earnings of the Company  depend  primarily on its level of net interest
income,  which is the difference between interest earned on its interest-earning
assets,  consisting  primarily of mortgage  loans,  home equity loans,  consumer
loans,   mortgage-backed   securities,   interest-bearing   deposits   at  other
institutions, investment securities and other investments, and the interest paid
on interest-bearing liabilities,  which consist of savings deposits and advances
from the  Federal  Home Loan Bank.  Net  interest  income is a  function  of the
Company's  interest  rate spread,  which is the  difference  between the average
yield  earned  on   interest-earning   assets  and  the  average  rate  paid  on
interest-bearing  liabilities,  as well as a function of the average  balance of
interest-earning  assets  as  compared  to  interest-bearing   liabilities.  The
Company's  earnings  also  are  affected  by its  level of  non-interest  income
including  primarily  service  fees  and  charges,  and  non-interest   expense,
including  primarily  compensation  and  employee  benefits,  and  SAIF  deposit
insurance premiums.  Earnings of the Company also are affected  significantly by
general  economic and  competitive  conditions,  particularly  changes in market
interest rates, government policies and actions of regulatory authorities, which
events are beyond the control of the Company.

     The  Company's  critical  accounting  policy  relates to the  allowance for
losses on loans. In management's opinion, it is adequate to absorb losses in the
existing  portfolio.   In  evaluating  the  portfolio,   management  takes  into
consideration  numerous factors,  including current economic  conditions,  prior
loan loss  experience,  the composition of the loan portfolio,  and management's
estimate of probable  credit losses.  The allowance for loan loss is established
through  a  provision  for loss  based on  management's  evaluation  of the risk
inherent in the loan  portfolio,  the  composition  of the  portfolio,  specific
impaired loans and current economic conditions. Such evaluation,  which includes
a review  of all  loans  on  which  full  collectibility  may not be  reasonably
assured,  considers among other matters,  the estimated net realizable  value or
the fair value of the underlying  collateral,  economic  conditions,  historical
loan loss experience and other factors that warrant recognition in providing for
an adequate loan loss experience.




                                       4
<PAGE>



Comparison of Financial Condition

     Total assets increased $6.9 million, or 7.2%, to $102.3 million at December
31, 2001 from $95.4  million at December  31, 2000.  Deposits  increased by $4.9
million,  or 7.5%,  to $70.0  million at December 31, 2001 from $65.1 million at
December 31, 2000.  Cash and cash  equivalents  increased  by $2.9  million,  or
46.4%,  to $9.2  million at December  31, 2001 from $6.3 million at December 31,
2000.  The  Company  had  time  deposits  of $1.4  million  in  other  financial
institutions  at the  end  of  2001.  Investments  (other  than  mortgage-backed
securities)  decreased $1.7 million,  or 14.3%, to $10.2 million at December 31,
2001 from $11.5 million at December 31, 2000,  reflecting  continued strength in
loan demand in the Company's  market area. Net loans  receivable  increased $5.4
million,  or 7.8%,  to $74.5  million at December 31, 2001 from $69.1 million at
December 31, 2000.  Mortgage-backed securities decreased $1.8 million, or 29.9%,
to $4.2 million at December 31, 2001 from $6.0 million at December 31, 2000, due
to payments of principal.  There were no additional  mortgage-backed  securities
purchased during the year as management  sought  shorter-term  securities in the
lower market interest rate environment.

Stockholders'  equity  increased  by  $435,000,  or 2.1%,  to $21.3  million  at
December  31, 2001 from $20.9  million at December  31,  2000.  The  increase in
stockholders'  equity was due to net income of $1.2 million  partially offset by
cash dividends of $621,573 being paid to the stockholders.

Results of Operations

     General.  The earnings of the Company depend  primarily on its level of net
interest  income,  which  is  the  difference  between  interest  earned  on the
Company's  interest-earning assets, consisting primarily of mortgage loans, home
equity loans, consumer loans, mortgage-backed securities,  investment securities
and other investments,  and the interest paid on  interest-bearing  liabilities,
consisting of savings  deposits,  FHLB advances and, to a lesser extent,  public
funds.  The Company had net income of $1.2  million for the year ended  December
31,  2001  compared  to $1.3  million,  and $1.2  million,  for the years  ended
December 31, 2000, and 1999, respectively.

Average Balance Sheet

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

<TABLE>
<CAPTION>

                                                                 Year Ended December 31,
                                    ------------------------------------------------------------------------------------
                                      2001                        2000                        1999
                                    ------------------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
                                                       Average                     Average                      Average
                                     Average           Yield/    Average           Yield/    Average            Yield/
                                     Balance  Interest   Cost    Balance   Interest  Cost    Balance   Interest   Cost
                                    --------- -------  -------   --------  ---------------   --------  -------  -------
<S>                                  <C>      <C>       <C>      <C>       <C>      <C>      <C>       <C>       <C>
  Loans receivable, net              $72,620  $5,632    7.76%    $66,222   $5,150   7.78%    $58,312   $4,502    7.72%
  Mortgage-backed securities           5,033     344    6.83%      6,741     464    6.88%      9,006      571    6.34%
  Investment securities                6,276     363    5.78%     14,643     875    5.98%     15,183      924    6.09%
  Other interest earning assets       10,959     373    3.40%      3,779     213    5.64%      8,670      413    4.76%
                                    --------- -------            --------  ------            --------  -------
  Total interest-earning asset        94,888   6,712    7.07%     91,385   6,702    7.33%     91,171    6,410    7.03%
Other noninterest-earning assets       1,982                       1,954                       2,004
                                    ---------                    --------                    --------
      Total assets                   $96,870                     $93,339                     $93,175
                                    =========                    ========                    ========
Interest-bearing liabilities:
   Deposits                           66,338   3,019    4.40%     64,743   3,018    4.40%     66,531    2,924    4.40%
   Borrowings                          7,783     446    5.73%      4,909     283    5.76%      1,608       86    5.35%
                                    --------- -------            --------  ------            --------  -------
  Total interest-bearing liabi        74,121   3,465    4.67%     69,652   3,301    4.74%     68,139    3,010    4.42%
Noninterest-bearing liabilities        2,211                       2,606                       2,256
                                    ---------                    --------                    --------
      Total liabilities               76,332                      72,258                      70,395
Stockholders' equity                  20,538                      21,081                      22,780
                                    ---------                    --------                    --------
   Total liabilities and
   stock's equity                    $96,870                     $93,339                     $93,175
                                    =========                    ========                    ========
Net interest income                           $3,247                       $3,401                      $3,400
                                              =======                      ======                      =======
Net interest rate spread                                2.40%                       2.59%                        2.61%
                                                       =======                     =======                      =======
Net interest margin (1)                                 3.42%                       3.72%                        3.72%
                                                       =======                     =======                      =======
Ratio of average interest-
   earning assets to average
   interest-bearing liabilities                       128.02%                     131.21%                      133.80%
                                                       =======                     =======                      =======
</TABLE>

(1)  Net  interest  margin  represents  net interest  income  divided by average
     interest-earning assets.


                                       5
<PAGE>


Rate/Volume Analysis

     The table  below  sets  forth  certain  information  regarding  changes  in
interest income and interest  expense of the Company for the periods  indicated.
For each category of interest-earning  assets and interest-bearing  liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes  in  average  volume  multiplied  by old rate);  (ii)  changes in rates
(changes  in rate  multiplied  by old  average  volume);  (iii) the net  change.
Changes attributable to both rate and volume have been allocated proportionately
to the change due to volume and the change due to rate.

<TABLE>
<CAPTION>

                                                                   Years Ended December 31,
                                     ------------------------------------------------------------------------------------------
                                                     2001 vs 2000                                     2000 vs 1999
                                     ----------------------------------------------    ----------------------------------------
                                             Increase/                                        Increase/
                                            (Decrease)                  Total                 (Decrease)              Total
                                              Due to                    Increase               Due to               Increase
                                     --------------------------                        -------------------------
                                          Volume          Rate          (Decrease)        Volume          Rate     (Decrease)
                                     ------------    ----------    ----------------    -----------    ----------    -----------
                                                    (In Thousands)                                 (In Thousands)
Interest income:
<S>                                       <C>            <C>                <C>             <C>           <C>            <C>
   Investment securities                  ($484)         ($29)              ($513)          ($32)         ($17)          ($49)
   Loans receivable, net                     498             2                 500            615            33            648
   Mortgage-backed securities              (117)           (2)               (119)          (153)            46          (107)
   Other interest earning assets             272         (112)                 160          (265)            65          (200)
                                     ------------    ----------    ----------------    -----------    ----------    -----------
      Total interest-earning assets         $169        ($141)                 $28           $165          $127           $292
                                     ------------    ----------    ----------------    -----------    ----------    -----------


Interest-bearing liabilities:
   Deposits                                   73          (72)                   1           (81)           175             94
   Borrowings                                165           (2)                 163            190             7            197
                                     ------------    ----------    ----------------    -----------    ----------    -----------
      Total interest-bearing
liabilities                                 $238         ($74)                $164           $109          $182           $291
                                     ------------    ----------    ----------------    -----------    ----------    -----------

Net change in interest income:             ($69)         ($67)              ($136)            $56         ($55)             $1
                                     ============    ==========    ================    ===========    ==========    ===========


</TABLE>

Comparison  of  Operating  Results  for the Years  Ended  December  31, 2001 and
December 31, 2000.

     Interest  Income.  Total interest income  increased by $10,400,  or .2%, to
$6.7 million for the year ended December 31, 2001 from $6.7 million for the year
ended December 31, 2000. The increase in interest income resulted primarily from
the  increase  in the volume of the  Bank's  interest-earning  assets  partially
offset  by a  decrease  in market  interest  rates on  interest-earning  assets.
Average  interest-earning assets increased by $3.5 million to $94.9 million from
$91.4  million.  The  increase  in  average   interest-earning  assets  resulted
primarily from an increase of $6.4 million,  or 9.7%, in the average  balance of
net loans  receivable  offset by a decrease of $1.8  million or 26.7% in average
balance of mortgage-backed  securities,  and a $7.2 million, or 190.5%, increase
in the average balance of other interest-earning assets, as management sought to
stay liquid during this time of falling interest rates.

     Interest income on loans receivable increased by $482,900, or 9.4%, to $5.6
million  for the year ended  December  31,  2001 from $5.2  million for the year
ended  December 31, 2000.  This increase in interest  income was the result of a
net increase in average loans  outstanding  for 2001 as compared to 2000, due to
increased loan originations.  The average yield on the loan portfolio  decreased
to 7.76% for the year  ended  December  31,  2001 from  7.78% for the year ended
December 31,  2000.  The Company uses a lagging  index for its  adjustable  rate
loans,  and this caused the overall  yield on the loan  portfolio to decrease in
2001 compared to 2000. Interest income on mortgage-backed  securities  decreased
by $120,300,  or 25.9%,  to $343,900.  This decrease in interest income resulted
from a  decrease  in  average  mortgage-backed  securities  outstanding  of $1.8
million, or 26.7% and a decrease in average yield on mortgage-backed  securities
to 6.83% from 6.88% due to lower market interest rates.

     Interest Expense. Total interest expense increased by $163,800, or 5.0%, to
$3.5 million for the year ended December 31, 2001 from $3.3 million for the year
ended December 31, 2000. The principal  reason the increase in interest  expense
was an increase the amount of borrowing  the Company had during 2001 compared to
2000.  Borrowing  increased by $1.5 million or 18.3% to $9.7 million at December
31, 2001 from $8.2 million at December 31, 2000. The average yield on borrowings
decreased by 3 basis points to 5.73% for 2001 compared to 5.76% for 2000.


                                       6
<PAGE>



     Provision  for Loan Loss  Expense.  The company  maintains an allowance for
loan losses based upon  management's  evaluation of risks in the loan portfolio,
the  Company's  past loan loss  experience,  and  current  and  expected  future
economic conditions.  The Company had no expenses from provision for loan losses
for the year ended December 31, 2001 or in 2000. Management believes that it has
maintained  its allowance for loan losses at a level that is adequate to provide
for loan losses,  although  there can be no assurance  that such losses will not
exceed estimated amounts.

A summary of the allowance for loan losses follows:


                                                 December 31
                                 ----------------------------------------
                                       2001          2000          1999
                                  ---------     ---------     ---------
                                                $ 403,485             $
Balance beginning of year           382,403     $ 385,188
Charge offs:
    Auto loans                       (4,363)           --       385,188
    Other                           (21,007)       (1,968)       (4,110)
                                 ----------------------------------------

                                    (25,370)       (1,968)       (9,263)
                                 ----------------------------------------
Recoveries:
    Residential                          --        22,500            --
    Other                                74           550         6,478
                                 ----------------------------------------

                                         --        23,050         6,478
                                 ----------------------------------------

Net (charge-offs)recoveries         (25,296)       21,082        (2,785)
                                 ----------------------------------------

Additions charged to operations          --            --            --
                                 ----------------------------------------

Balance end of year               $ 378,188     $ 403,485     $ 382,403
                                 ========================================

Ratio of net charge-offs during
the period to average loans
outstanding during the period           .04%          .01%          .01%
                                 ========================================

           The allocation of the allowance for loan losses follows:

                                                   December 31
                                        ---------------------------------
                                           2001      2000        1999
                                           ----      ----        ----

Balance at end of period applicable to

    Real Estate                          $340,369   $363,137   $344,162
    Consumer                               37,819     40,348     38,240
                                         --------  ----------  ----------
    Total                                $378,188   $403,485   $382,402
                                        =========  ==========  ========


Net Interest  Income.  Net interest income decreased by $153,400 or 4.5% to $3.2
million  for the year ended  December  31,  2001 from $3.4  million for the year
ended December 31, 2000. The principal  reason net interest income decreased was
that the Company's  interest rate spread  declined to 2.40% for 2001 compared to
2.60% for 2000.


                                       7
<PAGE>


     Non-interest Income.  Non-interest income increased by $109,200,  or 31.5%,
to $456,300 for the year ended  December 31,  2001,  from  $347,100 for the same
period ended December 31, 2000. The increase in  non-interest  income was due to
increased fee income on loan  originations  from the  increased  loan volume and
deposits.

     Non-interest Expense. Non-interest expense increased by $209,600, or 12.7%,
to $1.9  million for the year ended  December 31, 2001 from $1.7 million for the
year ended  December  31,  2000.  Non-interest  expense  consists  primarily  of
salaries and employee  benefits,  premises and  occupancy  costs,  furniture and
equipment expense,  data processing expense, SAIF deposit insurance premiums and
stock related expenses.

     Income  Taxes.  Income tax expense  decreased  by  $143,000,  or 18.1%,  to
$648,000 for the year ended  December 31, 2001 from $791,000 for the same period
in 2000. The effective tax rate for 2001 was 35.3% compared to 37.8% for 2000.

Comparison  of  Operating  Results  for the Years  Ended  December  31, 2000 and
December 31, 1999.

     Interest Income.  Total interest income increased by $291,700,  or 4.6%, to
$6.7 million for the year ended December 31, 2000 from $6.4 million for the year
ended December 31, 1999. The increase in interest income resulted primarily from
the  increase in the volume of the Bank's  interest-earning  assets.  Increasing
market  interest  rates was the major cause in the increase in average  yield on
interest-earning  assets. Average  interest-earning assets increased by $214,000
to $91.4 million from $91.2  million.  The increase in average  interest-earning
assets  resulted  primarily from an increase of $7.9 million,  or 13.6%,  in the
average balance of net loans receivable  offset by a decrease of $2.3 million or
25.2% in average balance of mortgage-backed  securities,  and a $4.9 million, or
56.4%,  decrease in the average  balance of other  interest-earning  assets,  as
management sought to increase the average balance of higher yielding loans.

     Interest  income on loans  receivable  increased by $647,200,  or 14.4%, to
$5.2 million for the year ended December 31, 2000 from $4.5 million for the year
ended  December 31, 1999.  This increase in interest  income was the result of a
net increase in average loans  outstanding  for 2000 as compared to 1999, due to
increased loan originations.  The average yield on the loan portfolio  increased
to 7.78% for the year  ended  December  31,  2000 from  7.72% for the year ended
December 31,  1999.  The Company uses a lagging  index for its  adjustable  rate
loans,  and this caused the overall  yield on the loan  portfolio to increase in
2000 compared to 1999. Interest income on mortgage-backed  securities  decreased
by $107,000,  or 18.7%,  to $464,300.  This decrease in interest income resulted
from a  decrease  in  average  mortgage-backed  securities  outstanding  of $2.3
million,  or 25.2%  offset by a  increase  in average  yield on  mortgage-backed
securities to 6.88% from 6.34% due to higher market interest rates.

     Interest Expense. Total interest expense increased by $290,900, or 9.7%, to
$3.3 million for the year ended December 31, 2000 from $3.0 million for the year
ended  December  31,  1999.  The  principal  reason for the increase in interest
expense  was an  increase  the amount of  borrowing  the Company had during 2000
compared to 1999.  Borrowing increased by $5.0 million or 156.3% to $8.2 million
at December 31, 2000 from $3.2 million at December 31, 1999.  The average  yield
on  borrowings  increased  by 41 basis  points to 5.76% for 2000 as  compared to
5.35% for 1999.

     Provision  for Loan Loss  Expense.  The Company  maintains an allowance for
loan losses based upon  management's  evaluation of risks in the loan portfolio,
the  Company's  past loan loss  experience,  and  current  and  expected  future
economic  conditions.  The Company had no provision for loan losses for the year
ended December 31, 2000 or in 1999.  Management  believes that it has maintained
its  allowance  for loan  losses at a level that is adequate to provide for loan
losses,  although  there can be no  assurance  that such  losses will not exceed
estimated amounts.

     Net Interest Income. Net interest income remained unchanged at $3.4 million
for the year ended  December 31, 2000 and for the year ended  December 31, 1999.
The principal  reason for net interest income  remaining  unchanged was that the
Company's interest rate spread remained essentially  unchanged at 2.60% for 2000
compared to 2.61% for 1999.

     Non-interest Income.  Non-interest income increased by $115,400,  or 54.2%,
to $328,600 for the year ended  December 31,  2000,  from  $213,100 for the same
period ended December 31, 1999. The increase in  non-interest  income was due to
increased fees and a deficiency  settlement  from a lawsuit of $25,100 and a one
time  state  refund of  $45,200  in  September  for a tax  refund  for the years
1991-1994 on interest earned outside the state of Iowa.

     Non-interest  Expense.  Non-interest expense increased by $77,100, or 4.9%,
to $1.7  million for the year ended  December 31, 2000 from $1.6 million for the
year ended  December  31,  1999.  Non-interest  expense  consists  primarily  of
salaries and employee  benefits,  premises and  occupancy  costs,  furniture and
equipment expense,  data processing expense, SAIF deposit insurance premiums and
stock related expenses.


                                       8
<PAGE>


     Income Taxes. Income tax expense increased by $11,000, or 1.4%, to $791,000
for the year ended  December 31, 2000 from $780,000 for the same period in 1999.
The effective tax rate for 2000 was 37.8% compared to 38.4% for 1999.

<TABLE>
<CAPTION>

                                                         Payments Due by Period
-------------------------------------------------------------------------------------------
Contractual Obligations                  Less than       1-3          4-5      After 5
  (Dollars in Thousands)      Total       1 Year        Years        Years      Years
-------------------------- -----------  ----------- ------------- ---------- ------------

<S>                         <C>          <C>         <C>           <C>        <C>
Total borrowings            $ 9,700      $      -    $ 1,500       $ 2,000    $ 6,200

<CAPTION>

                                       Amount of Commitment - Expiration by Period
-------------------------------------------------------------------------------------------
Commitments                             Less than       1-3            4-5         After 5
  (Dollars in Thousands)      Total      1 Year        Years          Years         Years
-------------------------- ----------- ------------ -------------  -----------   -------------

<S>                         <C>           <C>         <C>           <C>         <C>
Commitment to lend          $ 402         $ 402       $   --        $   --      $    --


</TABLE>



Market Risk Management

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk is comprised primarily of interest rate risk resulting
from its core banking  activities of lending and deposit  taking.  Interest rate
risk is the risk that changes in market  interest rates might  adversely  affect
the  Company's  net interest  income or the economic  value of its  portfolio of
assets,  liabilities,  and off-balance sheet contracts.  Management  continually
develops  and applies  strategies  to mitigate  this risk.  Management  does not
believe that the Company's  primary market risk exposure and how those exposures
were managed in 2001 have changed when compared to 2000. Market risk limits have
been established by the Board of Directors based on the Company's  tolerance for
risk.

The Company's policy in recent years has been to reduce its exposure to interest
rate risk generally by better  matching the maturities and interest rates of its
interest rate sensitive  assets and  liabilities  by  emphasizing  ARM loans and
fixed-rate one-to-four-family mortgage loans with terms of 15 years or less, and
by maintaining relatively high levels of liquidity. By maintaining a significant
percentage  of its assets in cash and other liquid  investments,  the Company is
able to reinvest a higher  percentage  of its assets more quickly in response to
changes in market interest rates, thereby reducing its exposure to interest rate
volatility.  In  addition,  the  Company  offers  competitive  rates on  deposit
accounts and prices certificates of deposit to provide customers with incentives
to choose certificates of deposit with longer terms.

The Company primarily relies on the OTS Net Portfolio Value Model (the Model) to
measure its  susceptibility to interest rate changes.  Net portfolio value (NPV)
is defined as the present value of expected net cash flows from existing  assets
minus the present  value of expected  net cash flows from  existing  liabilities
plus or minus  the  present  value of net  expected  cash  flows  from  existing
off-balance  sheet  contracts,  if any. The Model estimates the current economic
value of each type of asset,  liability,  and  off-balance  sheet contract after
various assumed instantaneous,  parallel shifts in the Treasury yield curve both
upward and downward.

The NPV Model uses an option-based  pricing approach to value one-to-four family
mortgages,  mortgages  serviced by or for others,  and firm  commitments to buy,
sell,  or  originate  mortgages.  This  approach  makes use of an interest  rate
simulation  program to generate  numerous  random  interest  rate paths that, in
conjunction with a prepayment  model, are used to estimate  mortgage cash flows.


                                       9
<PAGE>


Prepayment  options and interest rate caps and floors contained in mortgages and
mortgage-related  securities introduce significant uncertainty in estimating the
timing  of cash  flows  for  these  instruments  that  warrants  the use of this
sophisticated  methodology.  All other financial  instruments are valued using a
static  discounted cash flow method.  Under this approach,  the present value is
determined by discounting  the cash flows the instrument is expected to generate
by the yields currently  available to investors from an instrument of comparable
risk and duration.

The following table sets forth the present value estimates for major  categories
of financial  instruments of the Company at September 30, 2001, as calculated by
the OTS NPV Model.  The table shows the present value of the  instruments  under
rate shock  scenarios of -300 basis points to +300 basis points in increments of
100 basis points.  OTS has suppressed all model outputs associated with the -300
bps scenario because of the abnormally low prevailing interest rate environment.
As  illustrated  in the table,  the Company's NPV is more  sensitive in a rising
rate scenario than in a falling rate  scenario.  As market rates  increase,  the
market value of the Company's  large  portfolio of mortgage loans and securities
declines  significantly  and prepayments  slow. As interest rates decrease,  the
market value of mortgage  loans and  mortgage-backed  securities  increase  less
dramatically  due to prepayment  risk,  periodic rate caps,  and other  embedded
options.


Actual changes in market value will differ from estimated changes in this table
due to various risks and uncertainties.


<TABLE>
<CAPTION>

                                       Present Value Estimates by Interest Rate Scenario
                                                  Calculated at September 2001


                                      -300 bp    -200 bp      -100 bp      0 bp      +100 bp      +200 bp      +300 bp
                                      -------    --------    --------    --------     --------     --------     --------
                                                                     (Dollars in Thousands)

<S>                                   <C>        <C>         <C>         <C>          <C>          <C>          <C>
Financial Instrument:


Mortgage loans and securities       $   --      80,026      78,360      76,602       74,299       71,783       69,337

Non-mortgage loans                      --       5,017       4,954       4,893        4,833        4,774        4,717

Cash, deposits and securities           --      15,485      15,425      15,366       15,308       15,251       15,194

Other assets                            --       2,849       3,258       3,659        4,030        4,375        4,704
                                   -------    --------    --------    --------     --------     --------     --------


Total assets                            --     103,377     101,997     100,520       98,470       96,183       93,952
                                   -------    --------    --------    --------     --------     --------     --------


Deposits                                --      70,403      69,990      69,583       69,186       68,798       68,416

Borrowings                              --       6,861       6,779       6,377        6,264        6,205        6,178

Other liabilities                       --         139         139         139          139          139          139
                                   -------    --------    --------    --------     --------     --------     --------


Total liabilities                       --      77,403      76,908      76,099       75,589       75,142       74,733

Commitments                                        107          73          25          (38)        (101)        (158)
                                   -------    --------    --------    --------     --------     --------     --------


Net portfolio value                $   --      26,081      25,161      24,446       22,842       20,940       19,061
                                   =======    ========    ========    ========     ========     ========     ========

Net portfolio value ratio             0.00%      25.23%      24.67%      24.32%       23.20%       21.77%       20.29%
                                   =======    ========    ========    ========     ========     ========     ========

NPV minimum board limit               0.00%      22.00%      21.00%      20.00%       19.00%       18.00%       17.00%
                                   =======    ========    ========    ========     ========     ========     ========

</TABLE>


Liquidity and Capital Resources

     The  Company is required to  maintain  minimum  levels of liquid  assets as
defined by OTS regulations.  This  requirement,  which varies from time to time,
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Company historically has maintained a
level of liquid assets in excess or regulatory  requirements,  and the Company's
liquidity  ratio  averaged  30.0% during the month of December 2001. The Company
adjusts its liquidity levels in order to meet funding needs of deposit outflows,
payment of real estate taxes on mortgage loans, repayment of borrowings and loan
commitments. The Company also adjusts liquidity as appropriate to meet its asset
and liability management objectives.

     The  Company's  primary  sources of funds are  deposits,  amortization  and
repayment of loans and  mortgage-backed  securities,  maturities  of  investment
securities  and  other  investments,   and  earnings  and  funds  provided  from
operations.  While scheduled  principal  repayments on loans and mortgage-backed
securities are a relatively  predictable source of funds, deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions, and competition.  The Company manages the pricing of its deposits to
maintain  a desired  deposit  balance.  In  addition,  the  Company  invests  in
short-term  interest-earning  assets,  which  provide  liquidity to meet lending
requirements.  At December 31, 2001,  $12.5 million,  or 58.7%, of the Company's
investment portfolio (including cash, deposits in other financial  institutions,
FHLB stock,  and  securities)  was scheduled to mature in one year or less, $8.8
million,  or 41.3%,  was scheduled to mature in one to five years,  and none was
scheduled  to  mature  in over  five  years.  Assets  qualifying  for  liquidity
outstanding  at December  31, 2001  amounted to $20.9  million.  For  additional
information  about cash  flows  from the  Company's  operating,  financing,  and
investing activities,  see Statements of Cash Flows included in the Consolidated
Financial Statements.

     A major  portion  of the  Company's  liquidity  consists  of cash  and cash
equivalents,  which are a product of its  operating,  investing,  and  financing
activities.  The primary sources of cash are net earnings,  principal repayments
on loans and  mortgage-backed  securities,  and  increases in deposit  accounts.
Liquidity  management  is  both a  daily  and  long-term  function  of  business
management.  If the Company  requires  funds beyond its ability to generate them
internally,  it may borrow from the FHLB,which  provides an additional source of
funds.


                                       10
<PAGE>



     At December 31, 2001,  the Company had core  capital of $20.6  million,  or
20.2% of adjusted total assets,  which was approximately $16.5 million above the
minimum requirements of 4.0% of adjusted total assets in effect on that date. On
December  31,  2001,  the  Company  had  risk-based  capital  of  $20.9  million
(including $20.6 million in core capital),  or 36.9% of risk-weighted  assets of
$56.6 million.  This amount was $16.3 million above the 8% requirement in effect
on that date.  The Company is presently in compliance  with the fully  phased-in
capital requirements.

     At December 31,  2001,  the Company had  outstanding  loan  commitments  of
$401,500.  This amount does not include $1.4 million of the unfunded  portion of
loans in process.  Certificates of deposit  scheduled to mature in less than one
year as of December 31, 2001, totaled $38.3 million.  Based on prior experience,
management believes that a significant portion of such deposits will remain with
the Company.

     Impact of Inflation and Changing Prices

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

Impact of New Accounting Standards

SFAS No. 141 & 142
------------------

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets.  Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June  30,  2001  as  well  as  all  purchase  method  business
combinations completed after June 30, 2001. Statement 142 requires that goodwill
and intangible assets with indefinite  useful lives no longer be amortized,  but
instead  tested  for  impairment  at  least  annually  in  accordance  with  the
provisions of Statement 142.  Statement 142 also requires that intangible assets
with estimable useful lives be amortized over their respective  estimated useful
lives to their  estimated  residual  values,  and  reviewed  for  impairment  in
accordance  with  FAS  Statement  No.  121,  Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of. The Company is
required to adopt the provisions of Statement 141 immediately, and Statement 142
effective  January 1, 2002.  Goodwill and intangible assets acquired in business
combinations  completed  before July 1, 2001 will  continue to be amortized  and
tested for  impairment  in accordance  with the  appropriate  pre-Statement  142
accounting  requirements  prior to the  adoption of  Statement  142. The Company
adopted  the  provisions  of SFAS No. 141 as of July 1, 2001 and SFAS No. 142 on
January 2002. The effects of implementation were immaterial.



                                       11
<PAGE>


SFAS No. 143 & 144
------------------

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation  associated with the retirement of tangible long-lived
assets that  result  from the  acquisition,  construction,  development,  and/or
normal use of the assets.  The Company also records a corresponding  asset which
is depreciated over the life of the asset. The Company is required to adopt SFAS
No. 143 on January 1, 2003.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of Long-Lived  Assets (SFAS No. 144). SFAS No. 144 addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
The  Company   adopted  SFAS  No.  144  on  January  1,  2002.  The  effects  of
implementation were immaterial.

Safe Harbor Statement

     This report contains certain forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identifiable  by use  of the  words  "believe,"  "expect,"  "intend,"
"anticipate,"  "estimate,"  "project"  or  similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse effect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions, the
legislative/regulatory  situation,  monetary  and  fiscal  policies  of the U.S.
Government,  including  polices of the U.S.  Treasury  and the  Federal  Reserve
Board, the quality of composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.  Further,
information  concerning  the  Company  and its  business,  including  additional
factors  that  could  materially  affect the  Company's  financial  results,  is
included in the Company's filings with the Securities and Exchange Commission.



                                       12
<PAGE>

                WEBSTER CITY FEDERAL Bancorp AND SUBSIDIARies

                        Consolidated Financial Statements

                           December 31, 2001 and 2000
<PAGE>

                          Independent Auditors' Report



The Board of Directors
Webster City Federal Bancorp
Webster City, Iowa:


We have audited the  accompanying  consolidated  balance  sheets of Webster City
Federal Bancorp and subsidiaries (the Company) as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the  three-year  period  ended  December 31,
2001. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Webster City Federal
Bancorp and  subsidiaries  as of December 31, 2001 and 2000,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                  /s/ KPMG  LLP
                                  -------------


Des Moines, Iowa
January 18, 2002



                                       13
<PAGE>



<TABLE>
<CAPTION>
                                               WEBSTER CITY FEDERAL BANCORP
                                                     AND SUBSIDIARIES
                                                Consolidated Balance Sheets
                                                December 31, 2001 and 2000
                                    Assets                                                2001                  2000
                                                                                   -------------------   -----------------
<S>                                                                              <C>                          <C>
Cash and cash equivalents                                                        $      9,183,215             6,250,706
Time deposits in other financial institutions                                           1,399,000                    --
Securities available-for-sale (note 2)                                                 10,188,900            11,517,920
Securities held-to-maturity (market value of $4,654,121
     in 2001 and $6,397,578 in 2000) (note 2)                                           4,574,354             6,393,740
Loans receivable, net (notes 3, 4, and 7)                                              74,492,269            69,104,213
Federal Home Loan Bank (FHLB) stock, at cost                                              613,200               613,200
Office property and equipment, net (note 5)                                               882,238               494,804
Deferred taxes on income (note 8)                                                         189,000               203,000
Accrued interest receivable (notes 2 and 3)                                               568,569               670,379
Prepaid expenses and other assets                                                         270,618               181,649
                                                                                   -------------------   -----------------
                                                                                 $    102,361,363            95,429,611
                                                                                   ===================   =================
                     Liabilities and Stockholders' Equity
Deposits (note 6)                                                                $     70,042,590            65,145,809
FHLB advance (note 7)                                                                   9,700,000             8,200,000
Advance payments by borrowers for taxes and insurance                                     338,167               316,766
Accrued interest payable (note 6)                                                          53,454                50,855
Current income taxes payable (note 8)                                                      84,414                90,119
Accrued expenses and other liabilities (note 9)                                           794,438               721,158
                                                                                   -------------------   -----------------
                 Total liabilities                                                     81,013,063            74,524,707
                                                                                   -------------------   -----------------
Stockholders' equity (note 10): Serial preferred stock, $.10 par value.
        Authorized 10,000,000 shares, none issued                                              --                    --
     Common stock, $.10 par value. Authorized 20,000,000 shares,
        2,133,386 issued and 1,871,151 outstanding in 2001,
        and authorized 20,000,000 shares, 2,122,216 issued
        and 1,883,078 outstanding in 2000                                                 213,339               212,222
     Additional paid-in capital                                                         9,242,996             9,093,681
     Retained earnings, substantially restricted                                       15,749,736            15,181,410
     Unrealized gain (loss) on securities available-for-sale                               23,168               (34,833)
     Treasury stock, 262,238 and 239,138 shares
        in 2001 and 2000, respectively                                                 (3,880,939)           (3,547,576)
                                                                                   -------------------   -----------------
                 Total stockholders' equity                                            21,348,300            20,904,904
                                                                                   -------------------   -----------------
Commitments and contingencies (notes 3 and 13)
                 Total liabilities and stockholders' equity                      $    102,361,363            95,429,611
                                                                                   ===================   =================
See accompanying notes to consolidated financial statements.

</TABLE>

                                       14
<PAGE>


<TABLE>
<CAPTION>
                                              WEBSTER CITY FEDERAL BANCORP
                                                     AND SUBSIDIARIES
                                           Consolidated Statements of Operations
                                       Years ended December 31, 2001, 2000, and 1999


                                                                    2001                  2000                  1999
                                                             -------------------   -------------------   -------------------
Interest income:
<S>                                                        <C>                          <C>                   <C>
     Loans receivable                                      $      5,632,220             5,149,323             4,502,081
     Mortgage-backed and related securities                         343,953               464,265               571,316
     Investment securities                                          363,564               875,385               923,589
     Other interest earning assets                                  372,775               213,131               413,440
                                                             -------------------   -------------------   -------------------
                 Total interest income                            6,712,512             6,702,104             6,410,426
                                                             -------------------   -------------------   -------------------
Interest expense:
     Deposits (note 6)                                            3,018,904             3,018,113             2,924,174
     FHLB advances (note 7)                                         445,726               282,746                80,699
     ESOP loan (note 9)                                                  --                    --                 5,086
                                                             -------------------   -------------------   -------------------
                 Total interest expense                           3,464,630             3,300,859             3,009,959
                                                             -------------------   -------------------   -------------------
                 Net interest income                              3,247,882             3,401,245             3,400,467
Provision for losses on loans (note 4)                                   --                    --                    --
                                                             -------------------   -------------------   -------------------
                 Net interest income after provision
                    for losses on loans                           3,247,882             3,401,245             3,400,467
                                                             -------------------   -------------------   -------------------
Noninterest income:
     Fees and service charges                                       258,423               181,329               162,211
     Gain on sale of securities                                          --                18,500                    --
     Other                                                          197,870               147,233                50,929
                                                             -------------------   -------------------   -------------------
                 Total noninterest income                           456,293               347,062               213,140
                                                             -------------------   -------------------   -------------------
Noninterest expense:
     Compensation, payroll taxes,
        and employee benefits (note 9)                            1,008,798               891,530               810,858
     Advertising                                                     29,622                26,678                28,712
     Office property and equipment                                  126,593               131,331               117,286
     Federal insurance premiums                                      12,749                13,985                39,832
     Data processing services                                       132,739               119,071               113,219
     Other real estate expenses, net                                  6,487                   993                 1,654
     Other                                                          549,288               473,089               472,365
                                                             -------------------   -------------------   -------------------
                 Total noninterest expense                        1,866,276             1,656,677             1,583,926
                                                             -------------------   -------------------   -------------------
                 Earnings before taxes on income                  1,837,899             2,091,630             2,029,681
Taxes on income (note 8)                                            648,000               791,000               780,000
                                                             -------------------   -------------------   -------------------
                 Net earnings                              $      1,189,899             1,300,630             1,249,681
                                                             ===================   ===================   ===================
Earnings per share - basic (note 1)                        $           0.64                  0.67                  0.60
                                                             ===================   ===================   ===================
Earnings per share - diluted (note 1)                      $           0.63                  0.67                  0.60
                                                             ===================   ===================   ===================
See accompanying notes to consolidated financial statements.

</TABLE>


                                       15
<PAGE>



<TABLE>
<CAPTION>
                                                                               WEBSTER CITY FEDERAL BANCORP
                                                                                    AND SUBSIDIARIES
                                                                     Consolidated Statements of Stockholders' Equity
                                                                       Years ended December 31, 2001, 2000, and 1999

                                                                                           Additional
                                                               Common        Treasury        paid-in        Retained
                                                               stock          stock          capital        earnings
                                                             ----------     -----------     -----------    -----------



<S>                         <C> <C>                     <C>                                 <C>            <C>
        Balance at December 31, 1998                    $   211,599               --        9,012,687      14,020,513
                                                                 --               --               --       1,249,681
Net earnings                                                    623               --           71,933              --
Exercise of options (6,229 shares)                               --               --            9,061              --
Stock appreciation of allocated ESOP shares                      --               --               --              --
Principal reduction                                              --       (1,476,326)              --              --
Repurchase of common stock (96,938 shares)                       --               --               --        (751,466)
Dividends paid on common stock                                   --               --               --              --
                                                            212,222       (1,476,326)       9,093,681      14,518,728
Balance at December 31, 1999
                                                                 --               --               --       1,300,630
Comprehensive income:                                            --               --               --              --
   Net income                                                    --               --               --              --
   Unrealized loss on securities available-for-sale              --               --               --              --
                                                                 --               --               --       1,300,630
         Total comprehensive income                              --               --               --              --
                                                                 --       (2,071,250)              --              --
Repurchase of common stock (142,400 shares)                      --               --               --        (637,948)
Dividends paid on common stock                                   --               --               --              --
                                                            212,222       (3,547,576)       9,093,681      15,181,410
Balance at December 31, 2000
                                                                 --               --               --       1,189,899
Comprehensive income:                                            --               --               --              --
   Net income                                                    --               --               --              --
   Unrealized gain on securities available-for-sale              --               --               --       1,189,899
                                                        -----------      -----------      -----------     -----------
         Total comprehensive income                           1,117               --          149,315              --
                                                                 --         (333,363)              --              --
Exercise of options (11,170 shares)                              --               --               --        (621,573)
Repurchase of common stock (23,100 shares)                       --               --               --              --
Dividends paid on common stock                          $   213,339       (3,880,939)       9,242,996      15,749,736
                                                        ===========      ===========      ===========     ===========
Balance at December 31, 2001

<CAPTION>


                                                                                     Accumulated
                                                                    Unearned            other
                                                                      ESOP         comprehensive
        Balance at December 31, 1998                                 shares         income (loss)        Total
                                                                   -------------- ----------------   ------------
<S>                                                                  <C>              <C>            <C>
Net earnings                                                         (159,064)             --         23,085,735
Exercise of options (6,229 shares)                                         --              --          1,249,681
Stock appreciation of allocated ESOP shares                                --              --             72,556
Principal reduction                                                        --              --              9,061
Repurchase of common stock (96,938 shares)                            159,064              --            159,064
Dividends paid on common stock                                             --              --         (1,476,326)
                                                                           --              --           (751,466)
Balance at December 31, 1999                                        -------------     -----------     ------------
                                                                           --              --         22,348,305
Comprehensive income:
   Net income                                                              --              --          1,300,630
   Unrealized loss on securities available-for-sale                        --         (34,833)           (34,833)
Balance at December 31, 1999                                        -------------     -----------     ------------

         Total comprehensive income
                                                                           --         (34,833)         1,265,797
Balance at December 31, 1999                                        -------------     -----------     ------------
Dividends paid on common stock                                             --              --         (2,071,250)
                                                                           --              --           (637,948)
Balance at December 31, 1999                                        -------------     -----------     ------------
                                                                           --         (34,833)        20,904,904
Comprehensive income:
   Net income                                                              --              --          1,189,899
   Unrealized gain on securities available-for-sale                        --          58,001             58,001
Balance at December 31, 1999                                        -------------     -----------     ------------
         Total comprehensive income                                        --          58,001          1,247,900
Balance at December 31, 1999                                        -------------     -----------     ------------
Exercise of options (11,170 shares)                                        --              --            150,432
Repurchase of common stock (23,100 shares)                                 --              --           (333,363)
Dividends paid on common stock                                             --              --           (621,573)
Balance at December 31, 1999                                        -------------     -----------     ------------
Balance at December 31, 2001                                               --          23,168         21,348,300
                                                                    ==============    ===========     =============
</TABLE>

                                       16
<PAGE>
<TABLE>
<CAPTION>



                                             WEBSTER CITY FEDERAL BANCORP
                                                     AND SUBSIDIARIES
                                          Consolidated Statements of Cash Flows
                                             Years ended 2001, 2000, and 1999


                                                                                     2001             2000             1999
                                                                                 -----------      -----------      -----------
Cash flows from operating activities:
<S>                                                                                      <C>              <C>              <C>
    Net earnings                                                                 $ 1,189,899        1,300,630        1,249,681
                                                                                 -----------      -----------      -----------
    Adjustments to reconcile net earnings to net cash provided by operating
       activities:
         Depreciation and amortization                                                65,236           90,874           57,582
         Earned but unallocated shares of ESOP                                            --               --          159,064
         Stock appreciation of allocated ESOP shares                                      --               --            9,061
         Change in:
            Accrued interest receivable                                              101,810           90,888          (97,619)
            Prepaid expenses and other assets                                        (70,636)        (160,358)          36,441
            Accrued interest payable                                                   2,599          (71,357)          11,819
            Accrued expenses and other liabilities                                    73,280           86,623           80,724
            Accrued taxes on income                                                    2,310           44,661          (24,096)
            Deferred taxes on income                                                 (14,000)         (29,000)         (19,000)
                                                                                 -----------      -----------      -----------
              Total adjustments                                                      160,599           52,331          213,976
                                                                                 -----------      -----------      -----------
              Net cash provided by operating activities                            1,350,498        1,352,961        1,463,657
                                                                                 -----------      -----------      -----------
Cash flows from investing activities:
    Proceeds from maturity of time deposits in other financial institutions               --        2,585,000        3,111,000
    Proceeds from the maturity of investment securities held to maturity                  --               --        4,900,000
    Proceeds from sales of securities available-for-sale                           9,550,000        2,996,700               --
    Purchase of investment securities available-for-sale                          (8,155,235)              --               --
    Purchase of investment securities held to maturity                                    --               --       (9,905,814)
    Purchase of time deposits                                                     (1,399,000)              --       (3,431,000)
    Principal collected on mortgage-backed securities                              1,806,728        1,766,477        3,226,586
    Purchase of mortgage-backed securities                                                --               --       (1,070,487)
    Net change in loans receivable                                                (5,387,668)      (6,904,897)      (5,431,628)
    Proceeds from the sale of real estate                                                 --               --           22,460
    Purchase of office property and equipment                                       (438,477)         (92,432)         (40,619)
                                                                                 -----------      -----------      -----------
              Net cash (used in) provided by investing activities                 (4,023,652)         350,848       (8,619,502)
                                                                                 -----------      -----------      -----------
Cash flows from financing activities:
    Net change in deposits                                                         4,896,781       (2,772,393)        (785,386)
    Net (decrease) increase in advance payments
       by borrowers for taxes and insurance                                           21,401           42,389           54,794
    Proceeds from FHLB advance                                                     1,500,000        5,000,000        2,000,000
    Repurchase of common stock                                                      (333,363)      (2,071,250)      (1,476,326)
    ESOP costs                                                                            --               --         (159,064)
    Proceeds on stock options                                                        142,417               --           72,556
    Dividends paid                                                                  (621,573)        (637,948)        (751,466)
                                                                                 -----------      -----------      -----------
              Net cash provided by (used in) financing activities                  5,605,663         (439,202)      (1,044,892)
                                                                                 -----------      -----------      -----------
              Net increase (decrease) in cash and cash equivalents                 2,932,509        1,264,607       (8,200,737)
Cash and cash equivalents at beginning of year                                     6,250,706        4,986,099       13,186,836
                                                                                 -----------      -----------      -----------
Cash and cash equivalents at end of year                                         $ 9,183,215        6,250,706        4,986,099
                                                                                 ===========      ===========      ===========
Supplemental disclosures of cash flow information: Cash paid during the year
    for:
       Interest                                                                  $ 3,462,031        3,372,216        2,998,140
       Taxes on income                                                               659,846          744,483          821,582
       Transfer of securities held-to-maturity to available-for-sale                      --       14,548,897               --
                                                                                 ===========      ===========      ===========
See accompanying notes to consolidated financial statements

</TABLE>


                                      17
<PAGE>



                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


(1)    Summary of Significant Accounting Policies and Practices

       (a)    Description of Business

              Webster City Federal Bancorp (the Company) and its subsidiaries,
              Webster City Federal Savings Bank (the Bank) and Security Title
              and Abstract, Inc., conduct operations in Webster City, Iowa, a
              community of approximately 8,000 people. The Bank is primarily
              engaged in the business of attracting deposits from the general
              public in its market area and investing such deposits in mortgage
              loans secured by one- to four-family residential real estate. The
              Bank's primary area for lending and other financial services
              consists of Hamilton County, Iowa and the surrounding contiguous
              counties. Security Title and Abstract, Inc. is engaged in the
              business of providing abstracting and title services. The primary
              area for these services consists of Hamilton County, Iowa and the
              surrounding contiguous counties.

              Webster City Federal Bancorp was formed on July 1, 1999 pursuant
              to a plan of reorganization adopted by the Bank and its
              stockholders. Pursuant to the reorganization, each share of
              Webster City Federal Savings Bank stock held by existing
              stockholders of the Bank was exchanged for a share of common stock
              of Webster City Federal Bancorp. The reorganization had no
              financial statement impact and is reflected for all prior periods
              presented. Approximately 60% of the Company's common stock is
              owned by WCF Financial M.H.C., a mutual holding company (the
              Holding Company). The remaining 40% of the Company's common stock
              is owned by the general public including the Bank's Employee Stock
              Ownership Plan.

       (b)    Principles of Consolidation

              The consolidated financial statements include the accounts of
              Webster City Federal Bancorp, Security Title and Abstract, Inc.,
              Webster City Federal Savings Bank, and the Bank's wholly owned
              subsidiary, WCF Service Corporation, which is engaged in the sales
              of mortgage life and credit life insurance to the Bank's loan
              customers. All material intercompany accounts and transactions
              have been eliminated.

              The consolidated financial statements have been prepared in
              accordance with accounting principles generally accepted in the
              United States of America. In preparing such financial statements,
              management is required to make estimates and assumptions that
              affect the reported amounts of assets and liabilities and
              disclosure of contingent assets and liabilities as of the date of
              the balance sheet and revenues and expenses for the period. Actual
              results could differ significantly from those estimates. Material
              estimates that are particularly susceptible to significant change
              relate to the determination of the allowance for loan losses.

       (c)    Earnings Per Share Computations

               The Company applies Statement of Financial  Accounting  Standards
               (SFAS) No. 128, Earnings per Share for basic and diluted earnings
               per share calculation and reporting standards.




                                   (Continued)


                                       18
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


              Earnings per share-basic for 2001 is computed using the 1,868,769
              weighted-average common shares outstanding for the year, net of
              254,231 weighted-average treasury shares and divided into the net
              earnings of $1,189,899. Earnings per share-diluted for 2001 is
              computed using the 1,868,769 weighted-average common shares
              outstanding and adding the dilutive effect of stock options
              totaling 5,513 shares and divided into the net earnings of
              $1,189,899.

              Earnings per share-basic for 2000 is computed using the 1,939,415
              weighted-average common shares outstanding for the year, net of
              182,801 weighted-average treasury shares and divided into the net
              earnings of $1,300,630. Earnings per share-diluted for 2000 is
              computed using the 1,939,415 weighted-average common shares
              outstanding and divided into the net earnings of $1,300,630.

              Earnings per share-basic for 1999 is computed using the 2,080,517
              weighted-average common shares outstanding for the year, which is
              net of 6,770 weighted-average unearned ESOP shares and 30,866
              weighted-average treasury shares and divided into the net earnings
              of $1,249,681. Earnings per share-diluted for 1999 is computed
              using the 2,080,517 weighted-average common shares outstanding and
              adding the dilutive effect of stock options totaling 6,459 shares
              and divided into the net earnings of $1,249,681.

       (d)    Cash and Cash Equivalents

              For the purpose of reporting cash flows, the Company includes cash
              and due from other financial institutions and time deposits in
              other financial institutions with original maturities of three
              months or less in cash and cash equivalents. Included as cash
              equivalents at December 31, 2001 and 2000, were interest-bearing
              deposits totaling $8,859,353 and $5,815,975, respectively.

       (e)    Securities

              Investment securities are classified based on the Company's
              intended holding period. Securities which the Company has the
              ability and positive intent to hold to maturity are classified as
              held-to-maturity. Securities held principally for the purpose of
              near-term sales are classified as trading. Securities which may be
              sold prior to maturity to meet liquidity needs, to respond to
              market changes, or to adjust the Company's asset-liability
              position are classified as available-for-sale. At December 31,
              2001 and 2000, the Bank had no trading securities.

              Securities held-to-maturity are carried at cost, adjusted for
              amortization of premiums and accretion of discounts. Trading
              securities are carried at fair value, with gains and losses, both
              realized and unrealized, included in operations. Securities
              available-for-sale are carried at fair value, with the aggregate
              unrealized gains or losses, net of the effect of taxes on income,
              reported as a component of stockholders' equity. Other than
              temporary unrealized losses are recorded in the consolidated
              statement of operations.




                                   (Continued)

                                       19
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


              Mortgage-backed securities are classified as held-to-maturity at
              amortized cost. Premiums and discounts are amortized and accreted
              using the interest method over the remaining period to contractual
              maturity, adjusted for prepayments. Actual prepayment experience
              is periodically reviewed, and the amortization and accretion are
              adjusted accordingly. These investments are not carried as
              available-for-sale, as the Company has the ability and it is
              management's positive intent to hold them to maturity.

               Net  realized  gains or  losses  are shown in the  statements  of
               operations using the specific identification method.

       (f)    Allowance for Losses on Loans

              The allowance for losses on loans is maintained at an amount
              considered adequate to provide for such losses. The allowance for
              losses on loans is based on management's periodic evaluation of
              the loan portfolio and reflects an amount that, in management's
              opinion, is adequate to absorb probable losses in the existing
              portfolio. In evaluating the portfolio, management takes into
              consideration numerous factors, including current economic
              conditions, prior loan loss experience, the composition of the
              loan portfolio, and management's estimate of anticipated credit
              losses.

              Accrued interest receivable on loans which become more than ninety
              days in arrears is charged to an allowance which is established by
              a charge to interest income. Interest income is subsequently
              recognized only to the extent cash payments are received until, in
              management's judgment, the borrower's ability to make periodic
              interest and principal payments is back to normal, in which case
              the loan is returned to accrual status.

              Under the Company's credit policies, all loans with interest more
              than ninety days in arrears and restructured loans are considered
              impaired loans. Loan impairment is measured based on the present
              value of expected future cash flows, discounted at the loan's
              effective interest rate except, where more practical, at the
              observable market price of the loan or the fair value of the
              collateral, if the loan is collateral dependent.

       (g)    Loan Origination Fees and Related Costs

              Mortgage loan origination fees and certain direct loan origination
              costs, if material, are deferred, and the net fee or cost is
              amortized using the interest method over the estimated life of the
              loan. Direct loan origination costs for other loans are expensed,
              as such costs are not material in amount.

              Premiums and discounts in connection with mortgage loans purchased
              are amortized over the term of the loans using the interest
              method.


                                   (Continued)

                                       20
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


       (h)    Financial Instruments With Off-balance Sheet Risk

              Commitments to extend credit are agreements to lend to a customer
              as long as there is no violation of any conditions established in
              the contract. Commitments generally have fixed expiration dates or
              other termination clauses and may require payment of a fee. Since
              many of the commitments are expected to expire without being drawn
              upon, the total commitment amounts do not necessarily represent
              future cash requirements (see note 3). The Company evaluates each
              customer's creditworthiness on a case-by-case basis. The amount of
              collateral obtained, if deemed necessary by the Company, upon
              extension of credit is based on management's credit evaluation of
              the counterparty.

       (i)    Office Property and Equipment

              Office property and equipment are recorded at cost, and
              depreciation is provided primarily by the straight-line method
              over the estimated useful lives of the related assets, which range
              from ten to fifty years for the office building and improvements
              and five to twenty-five years for furniture, fixtures, and
              equipment.

              Maintenance and repairs are charged against income. Expenditures
              for improvements are capitalized and subsequently depreciated. The
              cost and accumulated depreciation of assets retired or otherwise
              disposed of are eliminated from the asset and accumulated
              depreciation accounts. Related profit or loss from such
              transactions is credited or charged to income.

       (j)    Taxes on Income

              The Company and its subsidiaries file consolidated federal income
              tax returns. Federal taxes on income are allocated based on
              taxable income or loss included in the consolidated return. For
              state tax purposes, the Bank files a franchise tax return and the
              Company, Security Title and Abstract, Inc., and WCF Service
              Corporation file corporate income tax returns.

              The Company utilizes the asset and liability method for taxes on
              income and deferred tax assets and liabilities are recognized for
              the future tax consequences attributable to differences between
              the financial statement carrying amounts of existing assets and
              liabilities and their respective tax bases. Deferred tax assets
              and liabilities are measured using enacted tax rates expected to
              apply to taxable income in the years in which those temporary
              differences are expected to be recovered or settled. The effect on
              deferred tax assets and liabilities of a change in tax rates is
              recognized in income in the period that includes the enactment
              date.

       (k)    Stock Option Plan

              The Company provides pro forma net earnings and pro forma earnings
              per share disclosures for employee stock option grants made in
              1996 and subsequent years as if the fair-value-based method, which
              recognizes as expense over the vesting period the fair value of
              stock-based awards at the date of grant, had been applied.

                                   (Continued)

                                       21
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


       (l)    Fair Value of Financial Instruments

              The Company discloses estimated fair values for its financial
              instruments. Fair value estimates, methods, and assumptions are
              set forth below:

o                 Cash and cash equivalents and time deposits in other financial
                  institutions - The carrying amount is a reasonable estimate of
                  fair value.

o                 Securities available-for-sale and held-to-maturity - The fair
                  value of investment securities is estimated based on bid
                  prices published in financial newspapers, bid quotations
                  received from securities dealers, or quoted market prices of
                  similar instruments, adjusted for differences between the
                  quoted instruments and the instruments being valued.

o                 Loans - Fair values are estimated for portfolios of loans with
                  similar financial characteristics. Loans are segregated by
                  type, such as real estate, consumer, and commercial. The fair
                  value of loans is calculated by discounting scheduled cash
                  flows through the estimated maturity using estimated market
                  discount rates that reflect the credit and interest rate risk
                  inherent in the loan. The estimate of maturity is based on the
                  Company's historical experience, with repayments for each loan
                  classification, modified, as required, by an estimate of the
                  effect of current economic and lending conditions. The effect
                  of nonperforming loans is considered in assessing the credit
                  risk inherent in the fair value estimate.

o FHLB stock - The value of FHLB stock is equivalent to its carrying value
because the stock is redeemable at par value.

o                 Accrued interest receivable and accrued interest payable - The
                  recorded amount of accrued interest receivable and accrued
                  interest payable approximates fair value as a result of the
                  short-term nature of the instruments.

o                 Deposits - The fair value of deposits with no stated maturity,
                  such as passbook, money market, noninterest bearing checking,
                  and NOW accounts, is equal to the amount payable on demand.
                  The fair value of certificates of deposit is based on the
                  discounted value of contractual cash flows. The discount rate
                  is estimated using the rates currently offered for deposits of
                  similar remaining maturities. The fair value estimates do not
                  include the benefit that results from the low-cost funding
                  provided by the deposit liabilities compared to the cost of
                  borrowing funds in the market.

o                 FHLB advances - The fair value of the FHLB advances is based
                  on the discounted value of the cash flows. The discount rate
                  is estimated using the rates currently offered for fixed rate
                  advances of similar remaining maturities.

o                 Off-balance sheet assets (liabilities) - The unrealized gains
                  and losses of commitments to extend credit are estimated using
                  the difference between current levels of interest rates and
                  committed rates. The unrealized gains and losses of letters of
                  credit are based on fees currently charged for similar
                  agreements.

o

                                   (Continued)

                                       22
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


               Limitations - Fair value  estimates are made at a specific  point
               in time,  based on relevant  market  information  and information
               about the  financial  instrument.  Because no market exists for a
               significant portion of the Company's financial instruments,  fair
               value estimates are based on judgments  regarding future expected
               loss    experience,    current    economic    conditions,    risk
               characteristics  of  various  financial  instruments,  and  other
               factors.  These  estimates  are  subjective in nature and involve
               uncertainties and matters of significant judgment and, therefore,
               cannot be determined with precision. Changes in assumptions could
               significantly affect these estimates.

       (m)    Effect of New Financial Accounting Standards

               In June 2001,  the Financial  Accounting  Standards  Board (FASB)
               issued SFAS No. 141,  Business  Combinations,  (SFAS No. 141) and
               SFAS No. 142,  Goodwill  and Other  Intangible  Assets  (SFAS No.
               142).   SFAS  No.  141  requires  that  the  purchase  method  of
               accounting  be used for all business  combinations.  SFAS No. 141
               specifies  criteria that intangible assets acquired in a business
               combination  must meet to be recognized  and reported  separately
               from  goodwill.  SFAS No.  142 will  require  that  goodwill  and
               intangible  assets  with  indefinite  useful  lives no  longer be
               amortized, but instead tested for impairment at least annually in
               accordance with the provisions of SFAS No. 142. SFAS No. 142 also
               requires that  intangible  assets with estimable  useful lives be
               amortized over their  respective  estimated useful lives to their
               estimated   residual   values  and  reviewed  for  impairment  in
               accordance with SFAS No. 144.

               The Company  adopted the provisions of SFAS No. 141 as of July 1,
               2001 and  SFAS  No.  142 on  January  1,  2002.  The  effects  of
               implementation were immaterial.

               In June 2001, the FASB issued SFAS No. 143,  Accounting for Asset
               Retirement  Obligations (SFAS No. 143). SFAS No. 143 requires the
               Company  to  record  the  fair  value  of  an  asset   retirement
               obligation  as a  liability  in the  period  in which it incurs a
               legal  obligation  associated  with the  retirement  of  tangible
               long-lived assets that result from the acquisition, construction,
               development,  and/or  normal use of the assets.  The Company also
               records a corresponding  asset which is depreciated over the life
               of the asset.  The  Company is  required to adopt SFAS No. 143 on
               January 1, 2003.

               In August, 2001, the FASB issued SFAS No. 144, Accounting for the
               Impairment or Disposal of Long-Lived  Assets (SFAS No. 144). SFAS
               No. 144  addresses  financial  accounting  and  reporting for the
               impairment or disposal of long-lived  assets. The Company adopted
               SFAS No. 144 on January 1, 2002.  The  effects of  implementation
               were immaterial.

(2)    Securities Available-for-sale and Held-to-maturity

       In connection with the adoption of SFAS 133 and SFAS 138, the Bank
       transferred certain securities in its portfolio from held-to-maturity to
       available-for-sale in order to provide more flexibility in the management
       of the portfolio. Securities transferred had an amortized cost of
       $14,548,897 with net unrealized losses of $259,637 at the date of the
       transfer.



                                   (Continued)

                                       23
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


       Securities available-for-sale at December 31, 2001 and 2000 were as
follows:

<TABLE>
<CAPTION>

                                                             Gross            Gross           Estimated
                                         Amortized        unrealized       unrealized           fair
           Description                      cost             gains           losses             value
-----------------------------------   -----------------  --------------   --------------  ------------------
2001:
<S>                                     <C>                    <C>                              <C>
    U.S. agency securities              $ 5,000,000            93,400                --         5,093,400
    Corporate                             5,155,235             4,000            63,735         5,095,500
                                        -----------       -----------       -----------       -----------
                                        $10,155,235            97,400            63,735        10,188,900
                                        ===========       ===========       ===========       ===========
2000:
    U.S. agency securities              $11,550,000             3,700            35,780        11,517,920
                                        -----------       -----------       -----------       -----------
                                        $11,550,000             3,700            35,780        11,517,920
                                        ===========       ===========       ===========       ===========
</TABLE>


       Securities held-to-maturity at December 31, 2001 and 2000 were as
follows:
<TABLE>
<CAPTION>

                                                             Gross             Gross
                                        Amortized          unrealized         unrealized         Estimated
        Description                       cost               gains            losses           fair value
---------------------------------   -----------------    --------------    --------------    ----------------

2001:
<S>                                      <C>                    <C>                               <C>
     Municipal bonds                     $  369,294             2,186                --           371,480
     Mortgage-backed securities:
        Federal National Mortgage
           Association (FNMA)             1,101,885             9,631               923         1,110,593
        Government National Mortgage
           Association (GNMA)             2,064,025            15,103             9,129         2,069,999
        Federal Home Loan Mortgage
           Corporation (FHLMC)            1,039,150            65,726             2,827         1,102,049
                                         ----------        ----------        ----------        ----------
                                         $4,574,354            92,646            12,879         4,654,121
                                         ==========        ==========        ==========        ==========
                                                                Gross           Gross
                                        Amortized             unrealized     unrealized         Estimated
        Description                       cost                  gains          losses           fair value
---------------------------------   -----------------    --------------    --------------    ----------------
2001:
     Municipal bonds                    $  368,730                --             4,412           364,318
     Mortgage-backed securities:
        FNMA                             1,639,930             4,199            12,058         1,632,071
        GNMA                             2,917,177             8,780            35,827         2,890,130
        FHLMC                            1,467,903            56,328            13,172         1,511,059
                                        ----------        ----------        ----------        ----------
                                        ----------        ----------        ----------        ----------
                                        $6,393,740            69,307            65,469         6,397,578
                                        ==========        ==========        ==========        ==========


</TABLE>
                                   (Continued)

                                       24
<PAGE>


                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999



       The amortized cost and estimated fair value of securities
       held-to-maturity and securities available-for-sale at December 31, 2001
       are shown below by contractual maturity. Expected maturities will differ
       from contractual maturities because borrowers may have the right to call
       or prepay obligations with or without call or prepayment penalties.

<TABLE>

<CAPTION>

                                                       Held-to-Maturity          Available-for-Sale
                                                 ----------------------------   -----------------------------
                                                    Amortized      Estimated       Amortized       Estimated
                                                      cost         fair value        cost          fair value
                                                  -----------     -----------     -----------     -----------
<S>                                               <C>               <C>            <C>             <C>
Due in one year or less                     $              --              --       2,000,000       2,047,600
Due after one year through five years                 369,294         371,480       7,155,235       7,127,500
Due after five years, but less than ten years              --              --       1,000,000       1,013,800
Mortgage-backed and related securities              4,205,060       4,282,641              --              --
                                                  -----------     -----------     -----------     -----------
                                                  $ 4,574,354       4,654,121      10,155,235      10,188,900
                                                  ===========     ===========     ===========     ===========

</TABLE>

       There were no sales of securities held-to-maturity during the years ended
       December 31, 2001, 2000, and 1999. Proceeds from the sale of securities
       available-for-sale during 2000 totaled $2,996,700 and resulted in gross
       realized gains of $18,500 and gross realized losses of $0.

       At December 31, 2001 and 2000, accrued interest receivable for securities
       available-for-sale and securities held-to-maturity totaled $143,589 and
       $257,900, respectively.


                                   (Continued)

                                       25
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


(3)    Loans Receivable

       At December 31, 2001 and 2000, loans receivable consisted of the
following:

                                                 2001              2000
                                            ------------      ------------
Real estate loans:
     One- to four-family residential        $ 62,109,087        55,113,819
     Multifamily residential and other         4,963,000         5,317,000
     Home equity                               4,729,799         4,750,442
                                            ------------      ------------
                                              71,801,886        65,181,261
                                            ------------      ------------
Consumer and other loans:
     Automobile                                2,362,000         2,418,000
     Home improvement                          1,123,443         1,485,474
     Loans on savings deposits                   255,395           525,893
     Other                                       720,287           769,966
                                            ------------      ------------
                                               4,461,125         5,199,333
                                            ------------      ------------
Real estate sold on contract                      61,595            66,303
                                            ------------      ------------
                 Total loans receivable       76,324,606        70,446,897
Premium on loans purchased                           966             3,409
Unearned discount on loans purchased              (6,071)          (14,410)
Loans in process                              (1,449,044)         (928,199)
Allowance for losses on loans                   (378,188)         (403,484)
                                            ------------      ------------
                                            $ 74,492,269        69,104,213
                                            ============      ============

Accrued  interest  receivable on loans  receivable  was $424,980 and $412,479 at
December 31, 2001 and 2000, respectively.

     The Company  originates  residential  and commercial  real estate loans and
     other consumer loans,  primarily in its Hamilton  County,  Iowa market area
     and adjacent counties.  In addition,  the Company has purchased residential
     loans,  primarily  in Iowa,  Texas,  and  Colorado.  At December  31, 2001,
     approximately   $3.8  million  of  the  Company's  loans  were  secured  by
     properties  in Texas and  Colorado.  Although the Company has a diversified
     loan portfolio,  a substantial  portion of its borrowers'  ability to repay
     their loans is dependent upon economic  conditions in the Company's  market
     area.


                                   (Continued)

                                       26
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


       Loans with interest more than ninety days in arrears, defined as impaired
       and carried on nonaccrual status, amounted to $908,863 and $194,552 at
       December 31, 2001 and 2000, respectively. The allowance for loan losses
       related to these loans were $0. The average balances of nonaccrual loans
       for the years ended December 31, 2001 and 2000 were $400,245 and $39,480,
       respectively. For the years ended December 31, 2001 and 2000, interest
       income, which would have been recorded under the original terms of the
       loans, was approximately $23,711 and $3,054, respectively.

       At December 31, 2001, the Company had commitments to buy or fund five
       fixed rate loans totaling $401,500. At December 31, 2000, the Company had
       commitments to buy or fund four fixed rate loans totaling $198,700. There
       were no commitments to sell loans.

       Loan customers of the Company include certain executive officers and
       directors and their related interests and associates. All loans to this
       group were made in the ordinary course of business at prevailing terms
       and conditions. Such loans at December 31, 2001 and 2000 amounted to
       $826,415 and $878,921, respectively. During the year ended December 31,
       2001, $120,342 of new loans were made and repayments totaled $172,848.

(4)    Allowance for Losses on Loans

       A summary of the allowance for losses on loans follows:


                                                 December 31
                                           -----------------------
                                       2001           2000           1999
                                  ---------      ---------      ---------
Balance at beginning of year      $ 403,484        382,402        385,188
Provision for losses                     --             --             --
Charge-offs                         (25,370)        (1,968)        (9,264)
Recoveries                               74         23,050          6,478
                                  ---------      ---------      ---------
Balance at end of year            $ 378,188        403,484        382,402
                                  =========      =========      =========

                                   (Continued)


                                       27
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999



(5)    Office Property and Equipment

       At December 31, 2001 and 2000, the cost and accumulated depreciation of
office property and equipment were as follows:

                                             2001           2000
                                       ----------     ----------
Land                                   $  125,746        125,746
Office building and improvements        1,016,180        815,740
Furniture, fixtures, and equipment        667,113        429,077
                                       ----------     ----------
                                        1,809,039      1,370,563
Less accumulated depreciation             926,801        875,759
                                       ----------     ----------
                                       $  882,238        494,804
                                       ==========     ==========
(6)    Deposits

       At December 31, 2001 and 2000, deposits are summarized as follows:

                                        2001            2000
                                 -----------     -----------
Passbook                         $ 4,633,636       4,318,947
Money market plus                  7,559,363       6,022,667
Noninterest-bearing checking       1,763,289       1,284,867
NOW                                8,261,056       7,454,103
Certificates of deposit           47,825,246      46,065,225
                                 -----------     -----------
                                 $70,042,590      65,145,809
                                 ===========     ===========


       The aggregate amount of certificates of deposit with a minimum
       denomination of $100,000 was approximately $5,651,638 and $5,801,396 at
       December 31, 2001 and 2000, respectively.

                                   (Continued)


                                       28
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999



     At December 31, 2001, the scheduled  maturities of  certificates of deposit
     were as follows:

                                   2002     $38,266,495
                                   2003       5,988,578
                                   2004       1,160,604
                                   2005       1,428,052
                    2006 and thereafter         981,517
                                            -----------
                                            -----------
                                            $47,825,246
                                            ===========

     Interest  expense on deposits for the years ended December 31, 2001,  2000,
     and 1999 is summarized as follows:

                                  2001           2000           1999
                              ----------     ----------     ----------
Passbook                      $   73,236        111,190        105,367
Money market plus and NOW        290,319        355,930        303,713
Certificates of deposit        2,655,349      2,550,993      2,515,094
                              ----------     ----------     ----------
                              $3,018,904      3,018,113      2,924,174
                              ==========     ==========     ==========


       Public funds amounted to approximately $1,451,000 and $799,000 at
December 31, 2001 and 2000, respectively.

       At December 31, 2001 and 2000, accrued interest payable on deposits
totaled $53,454 and $50,855, respectively.

(7)    Advances from Federal Home Loan Bank (FHLB)

       The following is a summary of advances from FHLB at December 31, 2001 and
2000:

   FHLB of Des Moines
Maturity in fiscal year   Interest
   ending December 31       rate             2001                 2000
-----------------------  ------------  -----------------    -----------------
          2001              6.98%        $       --            2,000,000
          2003              3.63          1,500,000                   --
          2005              4.78          1,000,000                   --
          2006              5.09          1,000,000                   --
          2009              5.55          3,200,000            3,200,000
          2010              5.64          3,000,000            3,000,000
                                       -----------------    -----------------
                                         $9,700,000            8,200,000
                                       =================    =================

                                   (Continued)


                                       29
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


       Advances from the FHLB are secured by stock in the FHLB. In addition, the
       Bank has agreed to maintain unencumbered additional security in the form
       of certain residential mortgage loans aggregating no less than 125% of
       outstanding advances. The advances require monthly interest payments and
       interest is due at a maturity.

(8)    Taxes on Income

       Taxes on income were comprised as follows:

<TABLE>
<CAPTION>

                                                   2001                                        2000
                                 ---------------------------------------   --------------------------------------------
                                 Federal         State          Total        Federal          State          Total
                                ---------      ---------      ---------      ---------      ---------      ---------
<S>                             <C>               <C>           <C>            <C>            <C>            <C>
Current                         $ 573,000         89,000        662,000        710,000        110,000        820,000
Deferred                          (12,000)        (2,000)       (14,000)       (25,000)        (4,000)       (29,000)
                                ---------      ---------      ---------      ---------      ---------      ---------
                                ---------      ---------      ---------      ---------      ---------      ---------
                                $ 561,000         87,000        648,000        685,000        106,000        791,000
                                =========      =========      =========      =========      =========      =========

<CAPTION>


                                                    1999
                                  -------------------------------------------
                                    Federal          State          Total
                                   ---------      ---------      ---------
<S>                                <C>              <C>            <C>
Current                            $ 691,000        108,000        799,000
Deferred                             (16,000)        (3,000)       (19,000)
                                   ---------      ---------      ---------
                                   $ 675,000        105,000        780,000
                                   =========      =========      =========
</TABLE>


       Taxes on income differ from the amounts computed by applying the federal
       income tax rate of 34% to earnings before taxes on income for the
       following reasons, expressed in percentages:

<TABLE>
<CAPTION>

                                                                     December 31
                                                      -------------------------------------------
                                                         2001            2000           1999
                                                      ------------    -----------    ------------
<S>                                                      <C>            <C>             <C>
Federal income tax rate                                  34.0     %     34.0            34.0
Items affecting federal income tax rate:
    State taxes on income, net of federal benefit         3.3            3.3             3.3
    Other                                                (2.0)           0.5             1.1
                                                      ------------    -----------    ------------
                                                         35.3     %     37.8            38.4
                                                      ============    ===========    ============
</TABLE>

                                   (Continued)


                                       30
<PAGE>


                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


       The tax effects of temporary differences that give rise to significant
       portions of deferred tax assets and deferred tax liabilities at December
       31, 2001 and 2000 are presented below:


                                                         2001           2000
                                                    ---------      ---------
Deferred tax assets:
     Deferred directors' fees                       $ 266,000        247,000
     General bad debt allowance                       140,000        140,000
     Securities available-for-sale                         --         18,000
                                                    ---------      ---------
                 Gross deferred tax assets            406,000        405,000
     Less valuation allowance                              --             --
                                                    ---------      ---------
                 Net deferred tax assets              406,000        405,000
                                                    ---------      ---------
Deferred tax liabilities:
     Deferred loan fees                              (120,000)      (116,000)
     FHLB stock dividends                             (74,000)       (74,000)
     Tax bad debt reserve                                  --         (4,000)
     Accrual to cash conversion for
        interest income on certain loans                   --         (8,000)
     Securities available-for-sale                    (10,000)            --
     Other                                            (13,000)            --
                                                    ---------      ---------
                 Gross deferred tax liabilities      (217,000)      (202,000)
                                                    ---------      ---------
                 Net deferred tax asset             $ 189,000        203,000
                                                    =========      =========
(9)    Benefit Plans

       (a)    Retirement Plan

              The Bank is a participant in the Financial Institutions Retirement
              Fund (FIRF), and substantially all of its officers and employees
              are covered by the retirement plan. FIRF does not segregate the
              assets, liabilities, or costs by participating employer. According
              to FIRF's administrators, as of June 30, 2001, the date of the
              latest actuarial valuation, the Bank made a contribution of
              $27,474 to the plan in 2001. The Bank did not make any
              contributions to the plan in 2000 or 1999.

       (b)    ESOP

              All employees meeting the age and service requirements are
              eligible to participate in the ESOP established in August 1994.
              Contributions made by the Company to the ESOP are allocated to
              participants by a formula based on compensation. Participant
              benefits become 100% vested after five years of service. ESOP
              expense was $0, $0, and $161,894 for the years ended December 31,
              2001, 2000, and 1999, respectively.

                                   (Continued)


                                       31
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


              The Company paid the balance of the ESOP loan during 1999.
              Interest expense on the ESOP's borrowing for the years ended
              December 31, 2001, 2000, and 1999 was $0, $0, and $5,086,
              respectively. On January 1, 1999, 6,588 shares were released for
              allocation. The remaining shares were released from allocation
              when the loan was paid on June 30, 1999.

       (c)    Deferred Compensation

              The Company has deferred compensation agreements with certain
              directors, and at December 31, 2001 and 2000, had accrued deferred
              compensation of $712,532 and $661,994, respectively. Directors'
              fees deferred were $25,500, $29,700, and $29,400 for 2001, 2000,
              and 1999, respectively.

       (d)    Stock Option Plan

              In 1996, the Company adopted a stock option plan (the Plan)
              pursuant to which the Company's board of directors may grant stock
              options to officers, key employees, and nonemployee directors of
              the Company. The Plan authorizes grants of options to purchase up
              to 95,000 shares of authorized but unissued common stock and
              treasury stock. Stock options for 80,750 shares were granted upon
              adoption of the Plan. Stock options are granted with an exercise
              price equal to the stock's fair market value at the date of grant.
              All stock options have ten-year terms and vest and become fully
              exercisable in three equal annual installments, commencing one
              year from the date of grant.

              At December 31, 2001 and 2000, there were 14,250 additional
              options available for grant under the Plan. The per share
              weighted-average fair value of stock options granted during 1996
              was $2.00 on the date of grant using the Black Scholes
              option-pricing model, with the following weighted-average
              assumptions: expected dividend yield of 6.27%, expected volatility
              of 22%, risk-free interest rate of 6.37%, and an expected life of
              six years.

              The Company applies Accounting Principles Board Opinion No. 25 in
              accounting for its Plan, and, accordingly, no compensation cost
              has been recognized for its stock options in the financial
              statements. Had the Company determined compensation cost based on
              the fair value at the grant date for its stock options under SFAS
              123, the Company's net earnings and earnings per share would have
              been reduced to the pro forma amounts indicated below:


                                                 2001        2000       1999
                                            ------------ ----------- -----------
Net earnings                  As reported  $ 1,189,899    1,300,630   1,249,681
                              Pro forma      1,189,899    1,278,699   1,221,679
                                            ============ =========== ===========
Earnings per share - basic    As reported  $      0.64         0.67        0.60
                              Pro forma           0.63         0.66        0.59
                                            ============ =========== ===========
Earnings per share - diluted  As reported  $      0.63         0.67        0.60
                              Pro forma           0.63         0.66        0.58
                                            ============ =========== ===========


                                   (Continued)

                                       32
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


              Pro forma net earnings reflects only options granted in 1996. The
              full impact of calculating compensation cost for stock options
              under SFAS 123 is not reflected in the pro forma net income
              amounts presented above because compensation cost is reflected
              over the options' vesting period. There were no options granted in
              2001, 2000, and 1999.

              Stock option activity during the periods indicated was as follows:
<TABLE>
<CAPTION>


                                                    2001                    2000                       1999
                                            --------------------  ------------------------   ---------------------------
                                           Number       Exercise     Number        Exercise        Number      Exercise
                                          of shares     price        of shares     price          of shares    price
                                          -------      --------     ---------     ----------     -------      --------
<S>                                        <C>           <C>          <C>            <C>           <C>           <C>
Balance at beginning of year               50,611      $ 12.75        50,611        $12.75         56,837       $12.75
Granted                                        --        --               --            --             --           --
Exercised                                 (11,170)       12.75            --            --         (6,226)       12.75
Expired                                        --        --               --            --             --           --
                                          -------                    ---------                    -------
Balance at end of year                     39,441        12.75        50,611         12.75         50,611        12.75
                                          =======      ========      =========     ==========     =======      ========
</TABLE>

              At December 31, 2001, the exercise price and weighted-average
              remaining contractual life of outstanding options was $12.75 and
              4.33 years, respectively.

(10)   Stockholders' Equity

       (a)    Stock Holding Company Reorganization

              On July 1, 1999, the board of directors of Webster City Federal
              Savings Bank adopted a plan of reorganization to create a two-tier
              mutual holding company structure with the establishment of a
              Webster City Federal Bancorp, a stock holding company parent of
              the Bank. Pursuant to the reorganization, each share of Webster
              City Federal Savings Bank common stock held by the existing
              stockholders of the Bank was exchanged for a share of common stock
              of Webster City Federal Bancorp. Upon completion of the
              reorganization, Webster City Federal Bancorp owns 100% of the
              Bank. Approximately 60% of Webster City Federal Bancorp is owned
              by WCF Financial, M.H.C., a mutual holding company and 40% is
              owned by outside investors, including the Bank's ESOP.

       (b)    Common Stock Repurchase

              The Company repurchased 23,100 and 142,400 shares of common stock
              during 2001 and 2000, respectively. These shares are recorded at
              cost in the consolidated balance sheet.

       (c)    Regulatory Capital Requirements

              The Financial Institution Reform, Recovery and Enforcement Act of
              1989 (FIRREA) and the capital regulations of the Office of Thrift
              Supervision (OTS) promulgated thereunder require institutions to
              have a minimum 3% core capital ratio and a minimum 8% risk-based
              capital ratio. These capital standards set forth in the capital
              regulations must generally be no less stringent than the capital
              standards applicable to national banks. FIRREA also specifies the
              required ratio of housing-related assets in order to qualify as a
              savings institution. The Company and Bank met the regulatory
              capital requirements at December 31, 2001 and 2000.


                                   (Continued)

                                       33
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


              The Federal Deposit Insurance Corporation Improvement Act of 1991
              (FDICIA) established additional capital requirements which require
              regulatory action against depository institutions in one of the
              undercapitalized categories defined in implementing regulations.
              Institutions, such as the Bank, which are defined as well
              capitalized, must generally have a leverage capital (core) ratio
              of at least 5%, a tier 1 risk-based capital ratio of at least 6%,
              and a total risk-based capital ratio of at least 10%. FDICIA also
              provides for increased supervision by federal regulatory agencies,
              increased reporting requirements for insured depository
              institutions, and other changes in the legal and regulatory
              environment for such institutions. The Company and Bank met the
              regulatory capital requirements at December 31, 2001 and 2000.

     The Bank's  actual and required  capital  amounts and ratios as of December
     31, 2001 were as follows:

<TABLE>
<CAPTION>

                                                                                                           To be well-
                                                                                  For capital            capitalized under
                                                                                   adequacy              prompt corrective
                                                     Actual                        purposes              action provisions
                                          ------------------------------ ---------------------------- ----------------------
                                               Amount         Percent         Amount       Percent      Amount     Percent
                                          -----------------  ----------- ---------------  --------- ------------  ----------
Tangible capital:
<S>                                     <C>                    <C>        <C>                <C>       <C>            <C>
    Consolidated                        $   21,193,000         20.7%      $ 1,535,000        1.5%      $   N/A         N/A
    Webster City Federal Savings Bank       20,632,000         20.2         1,532,000        1.5           N/A         N/A
Tier 1 leverage (core) capital:
    Consolidated                            21,193,000         20.7         4,093,000        4.0        5,116,000      5.0
    Webster City Federal Savings Bank       20,632,000         20.2         4,085,000        4.0        5,106,000      5.0
Risk-based capital:
    Consolidated                            21,436,000         37.8         4,537,000        8.0        5,672,000     10.0
    Webster City Federal Savings Bank       20,875,000         36.9         4,530,000        8.0        5,663,000     10.0
Tier 1 risk-based capital:
    Consolidated                            21,193,000         37.4            N/A           N/A        3,403,000      6.0
    Webster City Federal Savings Bank       20,632,000         36.4            N/A           N/A        3,398,000      6.0
                                          =================  =========== ===============  =========   ============  ==========

</TABLE>

               At December  31, 2001 and 2000,  the Bank had federal  income tax
               bad debt reserves of approximately  $2,430,000,  which constitute
               allocations  to bad debt reserves for federal income tax purposes
               for which no provision for taxes on income had been made. If such
               allocations  are charged for other than bad debt losses,  taxable
               income is created to the extent of the charges.

       (d)    Dividends and Restrictions Thereon

               The board of  directors  of the Company  declared  and paid three
               20(cent) and one 25(cent) per share dividends in 2001.

               The Holding  Company  waived its right to receive  the  dividends
               declared and paid during 2001. The OTS required that the retained
               earnings of the Bank be restricted by $977,500, the amount of the
               2001 waived dividends. Cumulative restricted retained earnings at
               December 31, 2001 for waived dividends were $6,210,000.

               The Holding  Company  waived its right to receive  the  dividends
               declared and paid on all four of the 20(cent) per share dividends
               during 2000.  The OTS required that the retained  earnings of the
               Bank be  restricted  by  $920,000,  the amount of the 2000 waived
               dividends.  Cumulative  restricted  retained earnings at December
               31, 2000 for waived dividends were $5,232,500.


                                   (Continued)

                                       34
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


              Prior to the formation of the Company, the Board of Directors of
              the Bank declared and paid two 20(cent) per share dividends during
              the first and second quarters of 1999. The Board of Directors of
              the Company declared and paid two 20(cent) per share dividends
              during the third and fourth quarters of 1999.

              The Holding Company waived its right to receive the dividends
              declared and paid on all four of the 20(cent) per share dividends
              during 1999. The OTS required that the retained earnings of the
              Bank be restricted by $920,000, the amount of the 1999 waived
              dividends. Cumulative restricted retained earnings at December 31,
              1999 for waived dividends were $4,312,500.

              Federal regulations impose certain limitations on the payment of
              dividends and other capital distributions by the Bank. Under the
              regulations, a savings institution, such as the Bank, that will
              meet the fully phased-in capital requirements (as defined by the
              OTS regulations) subsequent to a capital distribution is generally
              permitted to make such capital distribution without OTS approval
              so long as they have not been notified of the need for more than
              normal supervision by the OTS. The Bank has not been so notified
              and, therefore, may make capital distributions during the calendar
              year equal to net income plus 50% of the amount by which the
              Bank's capital exceeds the fully phased-in capital requirement as
              measured at the beginning of the calendar year. A savings
              institution with total capital in excess of current minimum
              capital requirements but not in excess of the fully phased-in
              requirements is permitted by the new regulations to make, without
              OTS approval, capital distributions of between 25% and 75% of its
              net income for the previous four quarters, less dividends already
              paid for such period. A savings institution that fails to meet
              current minimum capital requirements is prohibited from making any
              capital distributions without prior approval from the OTS.



                                   (Continued)

                                       35
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999



(11)   Fair Value of Financial Instruments

       The estimated fair values of Company's financial instruments (as
       described in note 1) at December 31, 2001 and 2000 were as follows:

<TABLE>
<CAPTION>



                                                               2001                                     2000
                                              ---------------------------------------  ----------------------------------------
                                                  Carrying               Fair               Carrying               Fair
                                                   amount                value               amount               value
                                              ------------------   ------------------  -------------------  -------------------
Financial assets:
<S>                                         <C>                        <C>                  <C>                  <C>
    Cash and cash equivalents               $     9,183,215            9,183,215            6,250,706            6,250,706
    Time deposits in other
      financial institutions                      1,399,000            1,399,000                   --                   --
    Securities available-for-sale                10,188,900           10,188,900           11,517,920           11,517,920
    Securities held-to-maturity                   4,574,354            4,654,121            6,393,740            6,397,578
    Loans receivable, net                        74,492,269           74,806,150           69,104,213           65,345,825
    FHLB stock                                      613,200              613,200              613,200              613,200
    Accrued interest receivable                     568,569              568,569              670,379              670,379
Financial liabilities:
    Deposits                                     70,042,590           70,760,304           65,145,809           65,873,276
    FHLB advances                                 9,700,000            8,884,267            8,200,000            7,848,417
    Accrued interest payable                         53,454               53,454               50,855               50,855
                                              ==================   ==================  ===================  ===================
                                                  Notional            Unrealized            Notional            Unrealized
                                                   Amount             gain (loss)            Amount            gain (loss)
                                              ------------------   ------------------  -------------------  -------------------
Off-balance sheet instrument:
    Commitments to extend credit            $       401,500                   --              198,700                   --
                                              ==================   ==================  ===================  ===================
</TABLE>


                                   (Continued)


                                       36
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999


(12)   Parent Company Only Financial Statements

<TABLE>
<CAPTION>
                                                                  Condensed Balance Sheets
                                                                 December 31, 2001 and 2000
                                                                     2001              2000
                                                                ------------      ------------
<S>                                                             <C>                 <C>
Cash and cash equivalents                                       $    459,223           318,069
Investment in subsidiaries                                        20,890,314        20,599,391
                                                                ------------      ------------
                 Total assets                                   $ 21,349,537        20,917,460
                                                                ============      ============
Liabilities:
     Accrued expenses                                           $      1,237            12,556
                                                                ------------      ------------
Stockholders' equity:
     Common stock                                                    213,339           212,222
     Additional paid-in capital                                    9,242,996         9,093,681
     Retained earnings                                            15,749,736        15,181,410
     Unrealized gain (loss) on securities
        available-for-sale                                            23,168           (34,833)
     Treasury stock                                               (3,880,939)       (3,547,576)
                                                                ------------      ------------
                 Total stockholders' equity                       21,348,300        20,904,904
                                                                ------------      ------------
                 Total liabilities and stockholders' equity     $ 21,349,537        20,917,460
                                                                ============      ============


<CAPTION>
                                          Condensed Statements of Operations
                                For the years ended December 31, 2001, 2000, and 1999

                                                            2001             2000             1999
                                                        -----------      -----------      -----------
<S>                                                     <C>                <C>              <C>
Dividend income                                         $ 1,000,000        2,500,000        3,082,125
Interest income                                                  61               59              250
Equity in undistributed earnings of subsidiaries            232,922       (1,128,205)      (1,775,022)
Noninterest expenses                                        (73,084)         (96,224)         (57,672)
                                                        -----------      -----------      -----------
                 Earnings before income tax expense       1,159,899        1,275,630        1,249,681
Income tax benefit                                          (30,000)         (25,000)              --
                                                        -----------      -----------      -----------
                 Net earnings                           $ 1,189,899        1,300,630        1,249,681
                                                        ===========      ===========      ===========


</TABLE>





                                   (Continued)

                                       37
<PAGE>

                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARies

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000, and 1999



<TABLE>
<CAPTION>

                                            Condensed Statements of Cash Flows
                                   For the years ended December 31, 2001, 2000, and 1999

                                                                   2001            2000              1999
                                                               -----------      -----------      -----------
Operating activities:
<S>                                                            <C>                <C>              <C>
     Net earnings                                              $ 1,189,899        1,300,630        1,249,681
     Change in accrued expenses                                     (3,304)          12,556               --
     Equity in undistributed earnings of subsidiaries             (232,922)       1,128,205        1,775,022
                                                               -----------      -----------      -----------
                 Net cash provided by operating activities         953,673        2,441,391        3,024,703
                                                               -----------      -----------      -----------
Investing activities:
     Investment in subsidiary                                           --         (251,384)              --
                                                               -----------      -----------      -----------
Financing activities:
     Repurchase of common stock                                   (333,363)      (2,071,250)      (1,476,326)
     Proceeds on stock options                                     142,417               --           40,349
     Dividends paid                                               (621,573)        (637,948)        (751,466)
                                                               -----------      -----------      -----------
                 Net cash used in financing activities            (812,519)      (2,709,198)      (2,187,443)
                                                               -----------      -----------      -----------
                 Net increase (decrease) in cash
                    and cash equivalents                           141,154         (519,191)         837,260
Cash and cash equivalents at beginning of year                     318,069          837,260               --
                                                               -----------      -----------      -----------
Cash and cash equivalents at end of year                       $   459,223          318,069          837,260
                                                               ===========      ===========      ===========

</TABLE>


(13)   Contingencies

       The Company is involved with various claims and legal actions arising in
       the ordinary course of business. In the opinion of management, the
       ultimate disposition of these matters will not have a material adverse
       effect on the Bank's consolidated financial statements.


                                       38

<PAGE>




                          WEBSTER CITY FEDERAL BANCORP
                             STOCKHOLDER INFORMATION



ANNUAL MEETING

     The Annual Meeting of  Stockholders  will be held at 1:00 p.m.,  Wednesday,
April 17,  2002,  at the main  office of the  Company  located at 820 Des Moines
Street, Webster City, Iowa.

STOCK INFORMATION

     Webster City Federal  Bancorp  common stock is traded over the counter,  on
the NASDAQ Small-Cap Market under the symbol "WCFB".

     As of February 28, 2002, the Company had 214  shareholders of record (which
does not include  approximately  250  shareholders  whose stock is in nominee or
"street" name) and 1,871,151 shares of common stock outstanding.

     The price ranges of the common  stock and  dividend  payouts on such common
stock for each quarter were as follows:

<TABLE>
<CAPTION>
                                2001           2000
                             Dividend         Dividend       Fiscal Year 2001   Fiscal Year 2000
                               Paid            Paid           Low       High       Low       High
                            -----------    --------------    -----------------  ---------------------


<S>                             <C>           <C>             <C>      <C>         <C>      <C>
         First quarter ........ $.20          $.20            $14.00   $14.87      $11.00   $15.13
         Second quarter ....... $.20          $.20            $13.75   $14.90      $11.05   $13.88
         Third quarter ........ $.20          $.20            $14.00   $17.00      $11.13   $12.88
         Fourth quarter ....... $.25          $.20            $15.25   $16.75      $11.25   $14.13


</TABLE>


STOCKHOLDER AND GENERAL INQUIRIES                    TRANSFER AGENT

Phyllis A. Murphy, President                       Registrar and Transfer Co.
Webster City Federal  Bancorp                      10 Commerce Drive
820 Des Moines Street, P.O. Box 638                Cranford, New Jersey  07016
Webster City, Iowa 50595-0638                      (800) 368-5948
(515) 832-3071



ANNUAL AND OTHER REPORTS

     The  Company is  required  to file an annual  report on Form 10-KSB for its
year ended December 31, 2001 with the Securities and Exchange Commission. Copies
of the Form 10-KSB,  annual  report and the Company's  Quarterly  Reports may be
obtained  without  charge by contacting  Phyllis A. Murphy,  President and Chief
Executive Officer, Webster City Federal Bancorp, 820 Des Moines Street, P.O. Box
638, Webster City, Iowa 50595-0638, (515) 832-3071.


                                      39


<PAGE>



                          WEBSTER CITY FEDERAL BANCORP
                             STOCKHOLDER INFORMATION



COMPANY AND BANK ADDRESS

   820 Des Moines Street                Telephone:       (515) 832-3071
   Webster City, IA  50595-0638         Fax:             (515) 832-3085
                                        Web Page:        www.webcityfed.com
<TABLE>
<CAPTION>


DIRECTORS OF THE BOARD

<S>                                              <C>
Dr. Carroll E. Haynes                             Donald I. Newman
         Chairman of the Board                             Retired President and
         Retired Dentist                                   Chief Executive Officer
                                                           of Webster City Federal Savings Bank

Phyllis A. Murphy                                 Dennis J. Tasler
         President and Chief Executive Officer             President and Chief
         of Webster City Federal Savings Bank              Executive Officer
                                                           of Tasler Pallet & EPS, Inc.

Dr. Leo Moriarty                                  Stephen L. Mourlam
         Dentist                                           Executive Vice President and Chief
                                                           Financial Officer of
                                                           Webster City Federal Savings Bank

Kyle R. Swon
         Senior Vice President and Chief Lending Officer
         of Webster City Federal Savings Bank
</TABLE>


WEBSTER CITY FEDERAL SAVINGS BANK EXECUTIVE OFFICERS

Phyllis A. Murphy
         President and Chief Executive Officer

Stephen L. Mourlam
         Executive Vice President and Chief Financial Officer

Kyle R. Swon
         Senior Vice President and Chief Lending Officer



<TABLE>
<CAPTION>

INDEPENDENT AUDITORS       CORPORATE COUNSEL           SPECIAL COUNSEL

<S>                       <C>                        <C>
 KPMG LLP                 Bottorff Law Firm           Luse  Lehman   Gorman   Pomerenk  &
 Schick
 2500 Ruan Center         913 Seneca Street           5335 Wisconsin Ave NW, Suite 400
 Des Moines, Iowa 50309   Webster City, Iowa 50595    Washington, DC  20015

</TABLE>

                                       40