SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

   [ X ]  ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December
          31, 2001

                                       OR

   [    ] TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transaction period
          from ______________ to ______________

                           Commission Number: 0-26577

                          WEBSTER CITY FEDERAL BANCORP

             (Exact Name of Registrant as Specified in its Charter)

         United States                                    42-1491186
-----------------------------------            -------------------------------
 (State or Other Jurisdiction of         (I.R.S. Employer Identification Number)
    Incorporation or Organization)

  820 Des Moines Street, Webster City, Iowa                50595-0638
        ------------------------------------              -------------
   (Address of Principal Executive Offices)                (Zip Code)

                                 (515) 832-3071
               ---------------------------------------------------
               (Registrant's Telephone Number including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None
                                      ----

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.10 per share
                     --------------------------------------
                                (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant  was  required  to file  reports)  and (2) has been  subject  to such
requirements for the past 90 days.
        YES [ X ] NO [ _ ]


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

   The Registrant's revenues for year ended December 31, 2001 were $6.7 million.

     As of February 28, 2002, there were issued and outstanding 1,871,151 shares
of the  Registrant's  Common Stock. The aggregate value of the voting stock held
by  non-affiliates  of the  Registrant,  computed by  reference to the last sale
price of such stock on the NASDAQ  "Small-Cap"  System as of February  28, 2002,
was $  10,098,234.  (The  exclusion  from such amount of the market value of the
shares owned by any person  shall not be deemed an  admission by the  Registrant
that such person is an affiliate of the Registrant.)

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Sections of Annual Report to  Stockholders  for the year ended December 31,
     2001 (Parts II and III).

2.   Proxy Statement for the 2002 Annual Meeting of Stockholders (Part III).


                                       1
<PAGE>


                                     PART I

ITEM 1.  BUSINESS

General

     The  Registrant,  Webster City Federal  Bancorp  (the  "Company"),  and its
subsidiaries, Webster City Federal Savings Bank and Security Title and Abstract,
Inc.,  conduct operations in Webster City, Iowa. Webster City Federal Bancorp is
the successor to Webster City Federal Savings Bank, a federal stock savings bank
(the "Bank"),  which  reorganized into the holding company  structure  effective
July 1, 1999 (the  "Holding  Company  Reorganization").  In the Holding  Company
Reorganization,  each outstanding share of the Bank's common stock was converted
by operation of law into one share of the  Registrant's  common stock,  and each
stockholder of the Bank received the same  ownership  interest in the Registrant
immediately following the Holding Company Reorganization as he or she had in the
Bank immediately  prior to that  transaction.  Webster City Federal Savings Bank
conducts its operations  from a single office in Webster City,  Iowa, and is the
successor  to Webster  City  Federal  Savings  and Loan  Association,  which was
chartered  originally in 1934, and became a federally chartered savings and loan
association  that same year.  The Bank's  deposits  are  insured by the  Federal
Deposit Insurance  Corporation ("FDIC") under the Savings Association  Insurance
Fund ("SAIF"). The Bank has been a member of the Federal Home Loan Bank ("FHLB")
System since 1934.  Security  Title and Abstract,  Inc. an Iowa  corporation  is
engaged  in the  business  of  providing  abstracting  and  title  services  for
properties  located  in  Hamilton  County,   Iowa.  The  Company  purchased  the
abstracting  company in September of 2000. At December 31, 2001, the Company had
total  assets  of  $102.3  million,   total  deposits  of  $70.0  million,   and
stockholders' equity of $21.3 million.

     The Company is  primarily  engaged in the business of  attracting  deposits
from  the  general  public  in the  Company's  market  area and  investing  such
deposits,  together  with other sources of funds,  in mortgage  loans secured by
one- to  four-family  residential  real estate for  retention  in the  Company's
portfolio.  At December 31, 2001,  $62.1 million,  or 82.8% of the Company's net
loan portfolio,  consisted of one-to four-family  residential mortgage loans and
$4.9  million,  or 7.2%,  of the  Company's  net  loan  portfolio  consisted  of
multi-family  residential,  commercial real estate and other loans.  The Company
also  originates home equity loans,  which totaled $4.7 million,  or 6.4% of the
Company's  net loan  portfolio  at December  31,  2001.  At December  31,  2001,
consumer and other loans  totaled $4.5  million,  or 6.0%,  of the Company's net
loan portfolio. The Company also invests in mortgage-backed securities issued or
guaranteed by the United States  Government or agencies  thereof,  which totaled
$4.2 million, or 4.1%, of total assets at December 31, 2001.

     The  Company's  principal  executive  office is  located  at 820 Des Moines
Street,  Webster City,  Iowa, and its telephone  number at that address is (515)
832-3071.

Market Area and Competition

     The  Company is  headquartered  in  Webster  City,  Iowa,  a  community  of
approximately  8,000 people.  The Company is the largest  independent  financial
institution and the leading  originator of home mortgage loans  headquartered in
Hamilton  County.  Although the Company  conducts its  operations  from a single
office,  its market area for lending and other  financial  services  consists of
Hamilton  and  surrounding  contiguous  counties.  Although  the  economy of the
Company's  market area is heavily  influenced  by  agriculture,  it has a fairly
diverse  industrial  base.  The major  employers  in the  Company's  market  are
Frigidaire, a home appliance manufacturer,  Van Diest Supply Co., a chemical and
fertilizer concern, Webster City Custom Meats, a meat processor,  Tasler Inc., a
pallet/styrofoam   packaging   manufacturer,   Arrow  &  Acme   Corporation,   a
die-castings   manufacturer,   Beam   Industries,   a  central   vacuum  systems
manufacturer, and Daily Freeman Journal, a newspaper and printing firm.

     The Company encounters strong  competition both in attracting  deposits and
in  originating  real estate and other loans.  Its most direct  competition  for
deposits  has   historically   come  from   commercial   banks,   other  savings
associations, and credit unions. Competition for loans comes from such financial
institutions  as  well  as  mortgage  banking  companies.  The  Company  expects
continued  strong  competition in the foreseeable  future,  including  increased
competition from


                                       2
<PAGE>


"super-regional" banks entering the market by purchasing large banks and savings
banks. Many such  institutions  have greater  financial and marketing  resources
available  to them than does the  Company.  The  Company  competes  for  savings
deposits by  offering  depositors  a high level of  personal  service and a wide
range of competitively  priced financial services.  In recent years,  additional
strong competition has come from stock and bond dealers and brokers. The Company
competes for real estate  loans  primarily  through the interest  rates and loan
fees it charges and advertising.

     Finally,  competition is likely to increase as a result of the enactment of
the  Gramm-Leach-Biley  Act of 1999, which eases  restrictions on entry into the
financial services market by insurance companies and securities firms. Moreover,
to the extent that these changes  permit banks,  securities  firms and insurance
companies to affiliate, the financial services industry could experience further
consolidation.  This  could  result  in a growing  number  of  larger  financial
institutions  competing in the Company's  primary  market area that offer a wide
variety of financial services than the Company currently offers. Competition for
deposits,  for the  origination  of loans and the  provision of other  financial
services may limit the Company's growth and adversely  impact its  profitability
in the future.

Lending Activities

     Loan and Mortgage-Backed  Securities Portfolio  Composition.  The principal
components of the Company's loan portfolio are fixed- and adjustable-rate  first
mortgage  loans secured by one- to  four-family  residential  real estate,  home
equity loans,  multi-family  residential  mortgage loans,  and, to a much lesser
extent,  commercial  real estate loans and consumer loans. At December 31, 2001,
the  Company's  net loans  receivable  totaled  $74.5  million,  of which  $62.1
million,  or 82.8%,  were one- to four-family  residential  real estate mortgage
loans,  $4.9 million,  or 7.2%, were multi-family  residential,  commercial real
estate and other loans,  $4.7 million,  or 6.4%, were home equity loans and $4.5
million, or 6.0%, were consumer and other loans.

     The  Company  also  invests in  mortgage-backed  securities  consisting  of
pass-through  certificates  insured  or  guaranteed  by the  Federal  Home  Loan
Mortgage  Corporation  ("FHLMC"),  the Government National Mortgage  Association
("GNMA"), or the Federal National Mortgage Association ("FNMA"). At December 31,
2001,  mortgage-backed securities totaled $4.2 million, or 4.1% of total assets.
At December 31, 2001,  55.9% of the Company's  mortgage-backed  securities  were
secured by ARM loans, and 44.1% were secured by fixed-rate  loans. The Company's
policy    is    to    hold     mortgage-backed     securities    to    maturity.

                                       3
<PAGE>


     Analysis of Loan  Portfolio.  Set forth below is selected  data relating to
the  composition of the Company's loan portfolio by type of loan as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                                           At December 31,
                                                                --------------------------------------------------------------------
                                                                       2001                      2000                   1999
                                                                ---------------------  ---------------------   ---------------------
                                                                  Amount   Percent        Amount    Percent      Amount    Percent
                                                                  ------   -------        ------    -------      ------    -------
                                                                                    (Dollars in Thousands)

Real estate loans:
<S>                                                              <C>         <C>          <C>         <C>       <C>           <C>
  One- to four-family residential............................... $ 62,109    82.84%       $ 55,114    79.76%    $ 50,420      81.07%
  Home equity...................................................    4,729     6.35           4,750     6.87        4,142       6.66
 Multi-family residential, commercial real estate and other.....    4,963     7.19           5,317     7.69        5,248       8.43
                                                                ---------------------  ---------------------   ---------------------
    Total real estate loans.....................................   71,801    96.38%         65,181    94.32%      59,810      96.16%

Consumer and other loans:

  Automobile....................................................    2,362     3.17%          2,418     3.50%       1,682       2.71%
  Home improvement..............................................    1,124     1.51           1,485     2.15        1,083       1.74
  Loans on savings deposits.....................................      255     0.34             526     0.76          248       0.39
  Other.........................................................      720     0.97             770     1.11          587       0.94
                                                                ---------------------  ---------------------   ---------------------
    Total consumer and other loans..............................    4,461     5.99%          5,199     7.52%       3,600       5.78%

Real estate sold on contract....................................       62     0.09              66     0.10          100       0.16
                                                                ---------------------  ---------------------   ---------------------
    Total loans receivable......................................   76,324   102.46          70,446   101.95%      63,510     102.10%

Less:
Undisbursed loan proceeds....................................... $  1,449     1.95%       $    928     1.35%    $    922       1.48%
  Premiums on loans purchased...................................       (1)   (0.01)%            (3)   (0.01)%         (6)    (0.01)%

Unearned discount and net
    deferred loan fees..........................................        6     0.01              14     0.02%          20       0.02%
  Allowance for loan losses.....................................      378     0.51%            403     0.59%         382       0.61%
                                                                ---------------------  ---------------------   ---------------------
    Total loans receivable, net................................. $ 74,492   100.00%       $ 69,104   100.00%    $ 62,192     100.00%
                                                                =====================  =====================   =====================
<CAPTION>

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

                                                                           1998                      1997
                                                                    ---------------------  ---------------------
                                                                   Amount    Percent         Amount    Percent
                                                                   ------    -------         ------    -------
                                                                              (Dollars in Thousands)

Real estate loans:
<S>                                                                <C>          <C>          <C>          <C>
  One- to four-family residential...............................   $ 44,047     77.61%       $ 40,119     73.86%
  Home equity...................................................      4,347      7.66           4,286      7.89
 Multi-family residential, commercial real estate and other.....      5,961     10.50           6,509     11.98
                                                                    ---------------------  ---------------------
    Total real estate loans.....................................     54,355     95.77%         50,914     93.73%

Consumer and other loans:

  Automobile....................................................      1,536      2.71%          1,687      3.11%
  Home improvement..............................................        963      1.70           1,074      1.98
  Loans on savings deposits.....................................        417      0.73             423      0.78
  Other.........................................................        752      1.33             707      1.30
                                                                    ---------------------  ---------------------
    Total consumer and other loans..............................      3,668      6.47%          3,891      7.17%

Real estate sold on contract....................................        128      0.23             190      0.35
                                                                    ---------------------  ---------------------
    Total loans receivable......................................     58,151    102.47%         54,995    101.37%


Less:
Undisbursed loan proceeds.......................................   $    999      1.76%       $    265      0.49%
  Premiums on loans purchased...................................        (11)    (0.02)%           (17)    (0.03)%

Unearned discount and net
    deferred loan fees..........................................         26      0.05%             40      0.07%
  Allowance for loan losses.....................................        385      0.68%            385      0.71%
                                                                    ---------------------  ---------------------
    Total loans receivable, net.................................   $ 56,752    100.00%       $ 54,322    100.00%
                                                                    =====================  =====================
</TABLE>

                                        4
<PAGE>



         Loan and Mortgage-Backed Securities Maturity Schedule. The following
table sets forth the maturity or period of repricing of the Company's loan and
mortgage-backed securities portfolio at December 31, 2001. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Adjustable and floating rate loans are
included in the period in which interest rates are next scheduled to adjust
rather than in which they contractually mature, and fixed rate loans and
mortgage-backed securities are included in the period in which the final
contractual repayment is due.

<TABLE>
<CAPTION>
                                                                                       Beyond
                                       Within      1-3     3-5      5-10     10-20       20
                                       1 Year     Years   Years     Years    Years      Years    Total
                                      -------------------------------------------------------------------
                                                    (In Thousands)
Real estate loans:
<S>                                    <C>      <C>       <C>      <C>      <C>       <C>       <C>
  One- to four-family residential ..   $5,851   $ 8,825   $3,690   $6,009   $13,558   $28,905   $66,838
Multi-family residential, commercial
    real estate and other loans ....      790     1,589      195      651       884       854    4,963
Consumer and other loans ...........      722     1,337    1,272      488       560        82     4,461
Real estate sold on contract .......       --        30        3       29        --        --        62
                                       ------   -------   ------   ------   -------   -------   -------
    Total loans receivable (gross) .    7,363    11,781    5,160    7,177    15,002    29,841    76,324
                                       ------   -------   ------   ------   -------   -------   -------
Mortgage-backed securities (gross) .    1,929       566       64      535       851       230     4,175
                                       ------   -------   ------   ------   -------   -------   -------

    Total loans and
      mortgage-backed securities ...   $9,292   $12,347   $5,224   $7,712   $15,853   $30,071   $80,499
                                       ======   =======   ======   ======   =======   =======   =======

</TABLE>

         Fixed- and Adjustable-Rate Loan and Mortgage-Backed Securities
Schedule. The following table sets forth at December 31, 2001, the dollar amount
of all fixed rate and adjustable rate loans due, and mortgage-backed securities
that mature, after December 31, 2002.

                                          Fixed    Adjustable  Total
                                         -------  ----------  -------
                                                (In Thousands)
Real estate loans:
  One- to four-family residential ....   $43,866   $16,705   $60,591
  Multi-family residential, commercial
    real estate and other ............     2,786     1,783     4,569
Consumer and other loans .............     3,739        --     3,739
Real estate sold on contract .........        62        --        62
                                         -------   -------   -------
    Total loans receivable (gross) ...   $50,453   $18,488   $68,961
                                         =======   =======   =======

Mortgage-backed securities (gross) ...   $ 1,824   $   422   $ 2,246
                                         =======   =======   =======


     One- to Four-Family  Residential Real Estate Loans.  The Company's  primary
lending  activity  currently  consists  of the  origination  of  fixed  rate and
adjustable-rate  one- to four-family  owner-occupied  residential mortgage loans
collateralized  by properties  located in the Company's market area. The Company
also originates one- to four-family construction loans that convert to permanent
loans after the initial construction period which generally does not exceed nine
months.  The Company is a portfolio  lender.  In recent  years,  it has not sold
loans in the secondary  mortgage market and does not intend to conduct secondary
market  sales  in  the  foreseeable   future.  One-  to  four-family  loans  are
underwritten  and  originated  according  to  policies  approved by the Board of
Directors.  The  Company  has  purchased  one-  to  four-family  mortgage  loans
collateralized  by properties in Texas and Colorado.  At December 31, 2001,  the
Company had an aggregate principal balance of $5.3 million in purchased loans.

     The Company  currently  offers fixed rate one- to  four-family  residential
mortgage  loans with terms of up to 30 years.  One- to  four-family  residential
real estate loans often remain  outstanding  for  significantly  shorter periods
than their  contractual terms because borrowers may refinance or prepay loans at
their option. The average length of time that


                                       5
<PAGE>


the Company's one- to four-family  residential mortgage loans remain outstanding
varies  significantly  depending upon trends in market  interest rates and other
factors.  In recent years, the average maturity of the Company's  mortgage loans
has decreased significantly due to unprecedented volume of refinancing activity.
Accordingly,  estimates of the average length of one- to four-family  loans that
remain outstanding cannot be made with any degree of certainty.  Originations of
fixed rate  mortgage  loans are  monitored on an ongoing  basis and are affected
significantly by the level of market interest rates, the Company's interest rate
gap  position,  and loan  products  offered by the  Company's  competitors.  The
Company's fixed rate mortgage loans amortize on a monthly basis,  with principal
and interest due each month.

     The Company also originates  adjustable-rate  mortgage ("ARM") loans with a
maximum term of up to 30 years. The Company's ARM loans have interest rates that
adjust  every year or every three years  based on an  interest  rate index.  The
Company's  one-year ARM loans have terms of up to 30 years,  with interest rates
that adjust annually based on changes in the Quarterly  National Average Cost of
Funds for All SAIF Insured  Institutions  (the "SII Index").  The maximum annual
increase in the interest rate charged on the Company's one-year ARM loans is 100
basis points, and the maximum life of the loan increase in interest rates is 600
basis points.  The interest rate on the Company's  three-year  ARM loans adjusts
every  three  years by up to 200 basis  points per  adjustment  based on the SII
Index at the time of  adjustment.  The  maximum  life of the  loan  increase  in
interest rate on the  Company's  three-year  ARM loans is 600 basis  points.  In
2001,  ARM loan  originations  decreased as a percentage of total  mortgage loan
originations,  due to a higher  demand for  longer  term fixed rate loans in the
generally lower market interest rate  environment.  For the years ended December
31, 2001 and  December 31, 2000,  the Company  originated  $1.1 million and $1.5
million of ARM loans,  respectively,  which  represented 5.9% and 11.9% of total
mortgage loan originations, respectively, during such years.

     The  Company's  one-  to  four-family   residential  first  mortgage  loans
customarily include due-on-sale clauses, which are provisions giving the Company
the right to declare a loan  immediately  due and  payable  in the event,  among
other things,  that the borrower  sells or otherwise  disposes of the underlying
real  property  serving as  security  for the loan.  Due-on-sale  clauses are an
important means of adjusting the rates on the Company's fixed rate mortgage loan
portfolio,  and the  Company  has  generally  exercised  its rights  under these
clauses.

     Regulations  limit the amount that a savings  association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan  origination.  Such  regulations  permit a maximum
loan-to-value ratio of 100% for residential  property and 90% for all other real
estate loans.  The Company's  lending  policies limit the maximum  loan-to-value
ratio on fixed rate  loans  without  private  mortgage  insurance  to 90% of the
lesser of the appraised  value or the purchase price of the property to serve as
collateral for the loan.

     The Company makes one- to four-family real estate loans with  loan-to-value
ratios of up to 95%;  however,  for one- to  four-family  real estate loans with
loan-to-value  ratios of between 90% and 95%, the Company requires the first 25%
of the loan  amount to be covered by private  mortgage  insurance.  The  Company
requires fire and casualty insurance,  as well as a certificate of title, on all
properties securing real estate loans made by the Company.

     Low  and  Moderate  Income  Loans.  The  Company  participates  in  low- to
moderate-income  home loan programs to qualifying  borrowers.  One loan program,
which is offered through the Company,  enables borrowers to purchase a home with
a minimum 5% downpayment and a 95% loan-to-value  ratio.  Loans are offered on a
fixed-rate basis with terms of up to 30 years.

     Multi-Family  Residential,  Commercial  Real  Estate and Other Real  Estate
Loans.  At December  31,  2001,  the Company had a total of 36 loans  secured by
multi-family and commercial real estate properties.  The Company's  multi-family
real  estate  loans  are  secured  by  multi-family  residences,  such as rental
properties,  and  commercial  real  estate  loans are  secured  by other  income
producing  properties  such as nursing homes and office  buildings.  The Company
also originates multi-family  construction loans that convert to permanent loans
after the  initial  construction  period  which  generally  does not exceed nine
months.  At December 31, 2001, the Company's  multi-family  and commercial  real
estate  loans had an average  principal  balance  of  $148,900  and the  largest
multi-family or commercial real estate loan had a principal balance of $867,000.
Multi-family  and  commercial  real estate  loans  currently  are  offered  with
adjustable  interest  rates,  although in the past the  Company  has  originated
fixed-rate multi-family and commercial real estate loans. The terms of each loan
are  negotiated on a  case-by-case  basis,  although such loans  typically  have
adjustable interest

                                       6
<PAGE>


rates tied to a market index with a 600 basis point lifetime  interest rate cap,
and  amortize  over 15 years.  An  origination  fee of 1% is usually  charged on
multi-family loans. The Company generally makes multi-family and commercial real
estate loans up to 75% of the appraised value of the property securing the loan.

     The Company's originations of multi-family and commercial real estate loans
have been limited in recent years because of limited local demand.  However,  as
noted previously, the Company has in the past purchased out-of-market loans, and
the aggregate  principal balance of such multi-family and commercial real estate
loans at December 31, 2001 was $5.3 million.

     Loans secured by multi-family and commercial real estate generally  involve
a greater  degree of credit risk than one- to four-family  residential  mortgage
loans and carry larger loan balances.  This increased credit risk is a result of
several factors, including the concentration of principal in a limited number of
loans and  borrowers,  the  effects of  general  economic  conditions  on income
producing properties,  and the increased difficulty of evaluating and monitoring
these  types  of  loans.   Furthermore,   the  repayment  of  loans  secured  by
multi-family  and  commercial  real  estate  is  typically  dependent  upon  the
successful operation of the related real estate property.  If the cash flow from
the  project  is  reduced,  the  borrower's  ability  to  repay  the loan may be
impaired.

     Home Equity and Home  Improvement  Loans.  The Company also originates home
equity and home improvement loans. As of December 31, 2001, home equity and home
improvement  loans  totaled $5.9 million,  or 7.9%, of the Company's  total loan
portfolio.  The  Company's  home  equity and home  improvement  loans have fixed
interest  rates and are generally for terms of 5 to 10 years,  with a maximum of
15 years.  The Company's home equity and home  improvement  loans are closed-end
loans for specific dollar amounts.  They are secured by the borrower's principal
residence with a maximum  loan-to-value ratio,  including the principal balances
of both the first and second mortgage loans, of 90% or less.

     Other Consumer Loans. To a much lesser extent,  the Company also originates
loans  secured by savings  deposits,  generally  with  fixed  rates,  as well as
automobile  loans and student loans.  Automobile  loans are made on both new and
used  cars,  and  are  offered  for  terms  of up to 72  months.  The  Company's
automobile loans have fixed interest rates and have  loan-to-value  ratios of up
to 85%.  Consumer loans entail greater credit risk than do residential  mortgage
loans,  particularly  in the case of  consumer  loans that are secured by assets
that  depreciate  rapidly,  such  as  automobiles,   mobile  homes,  boats,  and
recreational vehicles.

     Loan  Originations,   Solicitation,   Processing,  and  Commitments.   Loan
originations  are derived  from a number of sources  such as real  estate  agent
referrals,  existing  customers,  borrowers,  builders,  attorneys,  and walk-in
customers.  Upon  receiving a loan  application,  the  Company  obtains a credit
report and employment  verification to verify specific  information  relating to
the applicant's  employment,  income, and credit standing. In the case of a real
estate loan,  an  appraiser  approved by the Company  appraises  the real estate
intended to  collateralize  the proposed  loan. An  underwriter in the Company's
loan department  checks the loan application file for accuracy and completeness,
and verifies the information  provided.  Pursuant to the Company's  written loan
policies,  all  loans  are  approved  by the  Loan  Committee,  which  meets  as
necessary.  After the loan is  approved,  a loan  commitment  letter is promptly
issued to the borrower.

     If the loan is approved,  the  commitment  letter  specifies  the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral,  and required
insurance  coverage.  Commitments are typically  issued for 60-day periods.  The
borrower  must  provide  proof of fire and  casualty  insurance  on the property
serving as collateral,  which insurance must be maintained  during the full term
of the loan. A certificate of title, based on a title search of the property, is
generally required on all loans secured by real property.  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.



                                       7
<PAGE>


Origination, Purchase and Sale of Loans. The table below shows the Company's
originations, purchases and sales of loans for the years indicated.



                                                     Year Ended December 31
                                                     ----------------------
                                                   2001       2000       1999
                                                   ----       ----       ----
                                                        (In Thousands)

Total loans receivable at beginning of year ... $ 69,104    $ 62,192   $ 56,752
Loans purchased:
  Real estate:
Total loans purchased .........................       --         450         --
                                                --------    --------   --------
Loans originated:
  Real estate .................................   21,101      12,440     20,576
  Consumer ....................................    2,116       5,617      2,857
                                                --------    --------   --------
     Total loans originated ...................   23,217      18,507     23,433
                                                --------    --------   --------
Loans transferred to REO ......................      (48)         --         --
Loan repayments ...............................  (17,789)    (11,607)   (18,007)
Other loan activity (net) .....................        8          12         14
                                                --------    --------   --------
   Total loans receivable at end of year, net   $ 74,492    $ 69,104   $ 62,192
                                                ========    ========   ========


     Loan Origination Fees. In addition to interest earned on loans, the Company
generally  receives fees in  connection  with loan  originations.  Mortgage loan
origination fees and certain loan origination  costs, if material,  are deferred
and the net fee or cost is recognized in operations  using the interest  method.
Direct loan origination costs on other loans are expensed, as such costs are not
material in amount.  Fees deferred are recognized into income  immediately  upon
prepayment of the related loan. Such fees vary with the volume and type of loans
and  commitments  made and  purchased,  principal  repayments,  and  competitive
conditions  in the  mortgage  markets,  which in turn  respond to the demand and
availability of money.

Mortgage-Backed Securities

     A part of the Company's  business involves  investments in  mortgage-backed
securities.   At  December  31,  2001,  all  of  the  Company's  mortgage-backed
securities  were insured or guaranteed by a United States  Government  agency or
sponsored corporation. All of the Company's mortgage-backed securities portfolio
consists of pass-through  certificates.  The Company invests in  mortgage-backed
securities to supplement  local loan  originations as well as to reduce interest
rate risk exposure.

     The Company's pass-through  certificates represent a participation interest
in a pool of  single-family  mortgages,  the principal and interest  payments on
which  are  passed  from  the  mortgage  originators,   through   intermediaries
(generally   quasi-governmental   agencies)   that   pool  and   repackage   the
participation  interest  in the form of  securities,  to  investors  such as the
Company.  Such  quasi-governmental   agencies  that  guarantee  the  payment  of
principal  and  interest to  investors,  include the FHLMC,  GNMA,  or the FNMA.
Pass-through  certificates  typically are issued with stated principal  amounts,
and the  securities  are  backed  by pools of  mortgages  that have  loans  with
interest rates and maturities that are within a specified  range. The underlying
pool of  mortgages  can be composed of either fixed rate  mortgage  loans or ARM
loans.  The  interest  rate  risk  characteristics  of the  underlying  pool  of
mortgages, i.e., fixed rate or adjustable rate, are passed on to the certificate
holder.




                                       8
<PAGE>


         Set forth below is information relating to the Company's purchases,
sales and repayments of mortgage-backed securities for the years indicated.

                                           Year Ended December 31,
                                         ------------------------------------
                                                2001       2000       1999
                                             -------    -------    -------
                                                       (In Thousands)
Mortgage-backed securities
  at beginning of year: ..................   $ 6,025    $ 7,805    $ 9,987
      Purchases ..........................        --         --      1,070
     Repayments ..........................    (1,807)    (1,766)    (3,226)
     Discount (premium) amortization .....       (13)       (14)
                                             -------    -------    -------
(26) Mortgage-backed securities
  at end of year, net ....................   $ 4,205    $ 6,025    $ 7,805
                                             =======    =======    =======


     The following table sets forth selected data relating to the composition of
the Company's mortgage-backed securities for the years indicated.


                                                At December 31,
                                  ----------------------------------------------
                                      2001            2000           1999
                                  ------------     -----------     ------------
                                  $         %        $     %         $      %
                                  -----   ----     -----  ----     -----  ----
                                           (Dollars in Thousands)

Mortgage-backed securities:
  Adjustable .................   $2,349   55.9%   $3,146  52.2%   $4,696  60.2%
  Fixed ......................    1,856   44.1     2,879  47.8     3,109  39.8
                                  -----   ----     -----  ----     -----  ----
    Total mortgage-backed
      securities, net ........   $4,205  100.0%   $6,025 100.0%   $7,805 100.0%
                                 ======  =====    ====== =====    ====== =====


     At December 31, 2001,  mortgage-backed  securities totaled $4.2 million, or
4.1%,  of  total  assets.  ARM  loans  collateralized  55.9%  of  the  Company's
mortgage-backed  securities portfolio, and fixed-rate loans collateralized 44.1%
of the  Company's  mortgage-backed  securities  portfolio.  All of the Company's
mortgage-backed  securities are insured or guaranteed by the FHLMC, the GNMA, or
the FNMA.  At December 31, 2001,  all the Company's  mortgage-backed  securities
were  classified  as "held to  maturity."  At December 31, 2001,  the  Company's
mortgage-backed securities portfolio had a fair value of $4.3 million.

     Effective  February  1992,  the OTS adopted  Thrift  Bulletin 52 ("TB 52").
Among  other  things,  TB 52 sets  forth  certain  guidelines  with  respect  to
depository  institutions' investment in certain "high risk mortgage securities."
"High-risk  mortgage  securities" are defined as any mortgage derivative product
that at the time of  purchase,  or at any  subsequent  date,  meets any of three
tests  that  are  set  forth  in TB 52.  High-risk  mortgage  securities  may be
purchased  only in limited  circumstances,  and if held in a portfolio,  must be
reported as trading assets at market value, or as  available-for-sale  assets at
the lower of cost or market value. In certain  circumstances,  OTS examiners may
seek the orderly  divestiture of high-risk mortgage  securities.  As of December
31, 2001,  the Company did not hold any "high-risk  mortgage  securities" in its
portfolio.

Delinquencies and Classified Assets

     Delinquencies. The Company's collection procedures provide that when a loan
is 15 days past due,  a  computer-generated  late  charge  notice is sent to the
borrower requesting payment, plus a late charge. If delinquency continues, early
in the  second  month,  a  delinquent  notice is mailed  along  with a letter or
telephone  call  advising that the  mortgagors  are in violation of the terms of
their  mortgage  contract.  If a loan becomes 60 days past due, the loan becomes
subject to



                                       9
<PAGE>


possible legal action.  Management has been authorized by the Board of Directors
to send a letter during the third month  advising of pending legal action.  This
letter generally grants mortgagors an additional 15 days to bring the account to
date prior to start of any legal action.  If not paid,  foreclosure  proceedings
are  initiated.  To the extent  required by the  Department of Housing and Urban
Development  ("HUD")  regulations,  generally  within 45 days of delinquency,  a
Section  160 HUD  notice  is given to the  borrower,  which  provides  access to
consumer counseling services.

     It is  sometimes  necessary  and  desirable  to arrange  special  repayment
schedules with mortgagors to prevent  foreclosure or filing for bankruptcy.  The
mortgagors are required to submit a written repayment schedule, which is closely
monitored  for  compliance.  Under these terms,  the account is brought to date,
usually within a few months.

     Nonperforming  Assets. Loans are reviewed on a regular basis and are placed
on a nonaccrual  status when, in the opinion of  management,  the  collection of
additional interest is doubtful.  Mortgage loans are placed on nonaccrual status
generally  when  either  principal  or  interest  is more than 90 days past due.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income.

     Real estate  acquired by the Company as a result of  foreclosure or by deed
in lieu of foreclosure is deemed real estate owned ("REO") until such time as it
is  sold.  In  general,  the  Company  considers  collateral  for a  loan  to be
in-substance  foreclosed  if:  (i) the  borrower  has little or no equity in the
collateral; (ii) proceeds for repayment of the loan can be expected to come only
from the operation or sale of the collateral;  and (iii) the borrower has either
formally or effectively  abandoned control of the collateral to the Company,  or
retained  control of the collateral but is unlikely to be able to rebuild equity
in the collateral or otherwise  repay the loan in the foreseeable  future.  Cash
flow  attributable to  in-substance  foreclosures is used to reduce the carrying
value of the collateral.

     When REO is acquired or  otherwise  deemed REO, it is recorded at the lower
of the unpaid principal balance of the related loan or its estimated fair value,
less  estimated  selling  expenses.  Valuations  are  periodically  performed by
management,  and any subsequent  decline in fair value is charged to operations.
At December 31, 2001, the Company had $48,400 in REO.

     Delinquent Loans and Nonperforming  Assets.  The following table sets forth
information  regarding  non-accrual  loans  delinquent  90 days or more and real
estate owned by the Company at the dates indicated. When a loan is delinquent 90
days or more, the Company fully reserves all accrued interest thereon and ceases
to accrue  interest  thereafter.  See notes 1 and 3 to the Notes to Consolidated
Financial Statements.

<TABLE>
<CAPTION>

                                                                  At December 31,
                                                  ---------------------------------------------
                                                  2001        2000      1999      1998      1997
                                                -------     --------   ------    ------    ------
                                                              (Dollars in Thousands)
Delinquent loans:
<S>                                             <C>       <C>        <C>        <C>       <C>
  One- to four-family residential real estate   $  909    $   195    $    --    $   --    $   --
  All other real estate .....................       --         --         --        --        --
  Consumer loans, other .....................       58         --          6        15        --
                                                ------    -------    -------    ------    ------
    Total delinquent loans ..................      967                   195         6        --
                                                                                          ------
Total real estate owned (1) .................       48         --         --        22        59
                                                ------    -------    -------    ------    ------
      Total non-performing assets ...........   $1,015    $   195    $     6   $    37    $   59
                                                ======    =======    =======    ======    ======

Total loans delinquent 90 days or more
  to net loans receivable ...................     1.30%      0.29%      0.01%     0.03%     0.00%
Total loans delinquent 90 days or more
  to total assets ...........................      .95%      0.20%      0.01%     0.02%     0.00%
Total non-performing loans and REO
  to total assets ...........................     1.00%      0.20%      0.01%     0.04%     0.06%

</TABLE>

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

(1)  Represents the net book value of property  acquired by the Company  through
     foreclosure or deed in lieu of foreclosure. Upon acquisition, this property
     is recorded at the lower of its fair value,  less estimated  selling costs,
     or the principal balance of the related loan.



                                       10
<PAGE>


         The following table sets forth information with respect to loans
delinquent 30-89 days in the Company's portfolio at the dates indicated.

                                              At December 31,
                                   -------------------------------------
                                    2001     2000    1999  1998    1997
                                   ------   ------  ----- ------  ------
                                            (In Thousands)
Loans past due 30-89 days:
  One- to four-family residential   $1,145   $588   $445   $521   $632
  All other mortgages ...........       --     --     --     --     20
Consumer, other .................      197    208     60     94     63
                                    ------   ----   ----   ----   ----
    Total past due 30-89 days ...   $1,342   $796   $505   $615   $715
                                    ======   ====   ====   ====   ====


     The following  table sets forth  information  with respect to the Company's
delinquent loans and other problem assets at December 31, 2001.

                                                    At  December   31,  2001
                                                     ----------------------
                                                         Balance  Number
                                                          ------  -----
                                                     (Dollars in Thousands)

Residential real estate:
  Loans 30 to 89 days delinquent ......................   $1,145   43
  Loans 90 days or more delinquent ....................      909   21
All other real estate loans:
  Loans 30 to 89 days delinquent ......................       --   --
  Loans 90 days or more delinquent ....................       --   --
Commercial non-real estate (30 days or more delinquent)       --   --
Consumer loans (30 days or more delinquent) ...........      238   45
Foreclosed real estate and repossessions ..............       48    1
Other non-performing assets ...........................       --   --
Restructured loans within the meaning of Statement of
  Financial Accounting Standards No. 15 (not included
  in other nonperforming categories above) ............       --   --
Loans to facilitate sale of real estate owned .........       62    4


     Classification   of   Assets.   Federal   regulations   provide   for   the
classification  of loans and other  assets  such as debt and  equity  securities
considered by the OTS to be of lesser quality as  "substandard,"  "doubtful," or
"loss"  assets.  An  asset is  considered  "substandard"  if it is  inadequately
protected by the current net worth and paying  capacity of the obligor or of the
collateral pledged, if any.  "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected.  Assets classified as "doubtful" have all
of the weaknesses  inherent in those  classified  "substandard,"  with the added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
that do not  expose  the  savings  institution  to risk  sufficient  to  warrant
classification in one of the aforementioned  categories,  but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated  as special  mention  are  generally  loans  that,  while  current in
required  payments,  have  exhibited  some  potential  weaknesses  that,  if not
corrected, could increase the level of risk in the future. At December 31, 2001,
the Company had no special mention loans, $1.4 million in substandard assets and
$42,100 in doubtful assets.




                                       11
<PAGE>


     The  following  table  sets  forth the  aggregate  amount of the  Company's
classified assets for the years indicated.

                                                  Year Ended December 31,
                                        ----------------------------------------
                                           2001          2000          1999
                                        ----------    ----------    ----------
                                                   (In Thousands)

Substandard assets...................   $   1,396      $    647      $     564
Doubtful assets......................          42            --              3
Loss assets..........................          --            --             --
                                        ---------      --------      ---------
     Total classified assets.........   $   1,438      $    647      $     567
                                        =========      ========      =========


     Allowance for Loan Losses.  Management's policy is to provide for estimated
losses on the Company's loan portfolio based on  management's  evaluation of the
estimated losses that may be incurred.  The Company  regularly  reviews its loan
portfolio,  including  problem  loans,  to determine  whether any loans  require
classification  or the  establishment of appropriate  reserves or allowances for
losses.  Such  evaluation,  which  includes  a review of all loans of which full
collectibility  of  interest  and  principal  may  not  be  reasonably  assured,
considers,  among other  matters,  the  estimated  fair value of the  underlying
collateral. During the years ended December 31, 2001, 2000 and 1999, the Company
added $ 0, $ 0, and $0,  respectively,  to the  provision  for loan losses.  The
Company's allowance for loan losses totaled $378,000,  $403,000, and $382,000 at
December 31, 2001, 2000, and 1999, respectively.

     Management believes that the allowances for losses on loans and investments
in real estate are adequate.  While  management  uses  available  information to
recognize  losses on loans and investments in real estate,  future  additions to
the  allowances  may be necessary  based on changes in economic  conditions.  In
addition,  various regulatory agencies, as an integral part of their examination
process,  periodically  review the Company's  allowances for losses on loans and
investments  in real estate.  Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information available
to them at the time of their examination.

     Analysis of the Allowance For Loan Losses.  The following  table sets forth
the analysis of the allowance for loan losses for the years indicated.

<TABLE>
<CAPTION>


                                                                    Year Ended December 31,
                                                     -------------------------------------------------------

                                                         2001         2000      1999       1998       1997
                                                      -------    ---------   -------    -------    -------
                                                    (Dollars in Thousands)

<S>                                                    <C>        <C>         <C>        <C>        <C>
Net loans outstanding ..............................   $74,492    $  69,104   $62,192    $56,572    $54,322
Average net loans outstanding ......................    72,620       66,222    58,312     55,704     54,058
                                                       =======    =========   =======    =======    =======

Allowance balances (at beginning of year) ..........       403          382       385        385        359
Provision for losses ...............................        --           --        --         --         40
Charge-offs ........................................        25            2         9          1         15
Recoveries .........................................         0           23         6          1          1
                                                       -------    ---------   -------    -------    -------
Allowance balance (at end of year) .................   $   378    $     403   $   382    $   385    $   385
                                                       =======    =========   =======    =======    =======

Allowance for loan losses as a percent
of net loans receivable at end of year .............      0.51%   0. 59%         0.61%      0.68%      0.71%
Net loans charged off as a percent
  of average net loans outstanding .................      0.04%   0. 01%         0.01%      0.00%      0.03%
Ratio of allowance for loan losses
  to total nonperforming loans
  at end of year ...................................      39.1%   N/M             N/M        N/M        N/M
Ratio of allowance for loan losses
  to total nonperforming loans and REO
  at end of year ...................................      37.2%   N/M             N/M        N/M     652.54%

</TABLE>


                                       12
<PAGE>


Investment Activities

     The Company's investment portfolio comprises  investment  securities,  FHLB
stock, and interest-earning deposits in other institutions. The Company has $5.0
million in corporate debt securities,  all of which were rated A2 or better.  At
December 31, 2001,  $12.5  million,  or 58.7%,  of the  Company's in  investment
securities were scheduled to mature in one year or less, $8.8 million, or 41.3%,
were  scheduled  to mature in from one to five years,  and no  investments  were
scheduled to mature in over five years.

     The Company is required  under  federal  regulations  to maintain a minimum
amount of liquid assets that may be invested in specified short-term  securities
and certain other investments.  The Company generally has maintained a portfolio
of liquid assets that exceeds regulatory  requirements.  Liquidity levels may be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its  expectation  of the level of yield
that will be available in the future, as well as management's  projections as to
the short term demand for funds to be used in the Company's loan origination and
other  activities.  Currently,  due to lower  demand  for loans,  the  Company's
liquidity  levels are higher than they have been in recent  periods.  Management
believes  that the higher  levels are prudent  because of the  possibility  that
interest  rates may  increase.  By  maintaining  high levels of  liquidity,  the
Company is able to reinvest  its assets  more  quickly in response to changes in
market interest  rates,  thereby  potentially  reducing its exposure to interest
rate volatility.

     Investment Portfolio.  The following table sets forth the carrying value of
the Company's investment portfolio for the years indicated.
<TABLE>
<CAPTION>

                                                             Year Ended December 31,
                                                       --------------------------------
                                                             2001      2000      1999
                                                          -------   -------   -------
                                                                (In Thousands)
Investment portfolio:
<S>                                                       <C>       <C>       <C>
  U.S. Government and agency obligations ..............   $ 5,093   $11,518   $14,916
  Corporate debt securities ...........................     5,096        --        --
  Interest-earning deposits in other institutions .....    10,258     5,816     6,824
  FHLB stock ..........................................       613       613       613
                                                          -------   -------   -------
    Total investments .................................   $21,060   $18,315   $22,353
                                                          =======   =======   =======

</TABLE>


                                       13
<PAGE>



         Investment Portfolio Maturities. The following table sets forth the
scheduled maturities, carrying values, market values and weighted average yields
for the Company's investment portfolio at December 31, 2001.


<TABLE>
<CAPTION>

                                                                    At December 31, 2001
                                           -------------------------------------------------------------------------------

                                             One Year or Less            One to Five Years       Five to Ten Years
                                           ---------------------     ----------------------   ----------------------

                                                        Annualized             Annualized                Annualized
                                                        Weighted               Weighted                  Weighted
                                             Carrying   Average     Carrying   Average        Carrying   Average
                                              Value      Yield       Value      Yield          Value      Yield
                                              -----      -----       -----      -----          -----      -----
                                                                          (Dollars in Thousands)

Investment portfolio:
<S>                                        <C>          <C>          <C>         <C>         <C>         <C>
   Investment securities, U.S. Government  $ 2,024      4.40%        $8,401      5.24%       $   --         --%
 FHLB stock..............................      613      4.45             --        --            --         --
  Interest-earning deposits
    in other institutions................    9,858      3.40            400      3.71            --         --
                                           --------     -----       --------    ------       -------    ---------
      Total..............................  $12,495      3.62%        $8,801      5.17%         $ --         --%
                                           =======      =====        ======    =======       ========   =========

<CAPTION>

                                           More than Ten Years               Total
                                        --------------------------    -------------------------
                                                      Annualized                   Annualized
                                                      Weighted                     Weighted
                                           Carrying   Average           Carrying   Average
                                            Value      Yield             Value      Yield
                                            -----      -----             -----      -----


Investment portfolio:
<S>                                        <C>        <C>               <C>           <C>
   Investment securities, U.S. Government  $--        --%               $10,425       5.08%
 FHLB stock..............................   --        --                    613       4.45
  Interest-earning deposits
    in other institutions................   --        --                 10,258       3.42
                                          --------    ------            -------      ------
      Total..............................  $--        --%               $21,296       4.27%
                                          =======     ======            =======      ======



</TABLE>






                                       14
<PAGE>


Sources of Funds

         General. The Company's deposit-gathering activities are currently
conducted from the Company's facility in Webster City, Iowa. Deposits are the
major source of the Company's funds for lending and other investment purposes.
In addition to deposits, the Company derives funds from the amortization and
prepayment of loans and mortgage-backed securities, the maturity of investment
securities, and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources or on a longer term basis for general
business purposes. Historically, the Company has maintained a high level of
liquidity, and only rarely uses borrowed funds.

         Deposits. Consumer and commercial deposits are attracted principally
from within the Company's market area through the offering of a broad selection
of deposit instruments including NOW accounts, passbook savings, money market
deposit, term certificate accounts and individual retirement accounts. Deposit
account terms vary according to the minimum balance required, the period of time
during which the funds must remain on deposit, and the interest rate, among
other factors. The maximum rate of interest, which the Company must pay, is not
established by regulatory authority. The Company regularly evaluates its
internal cost of funds, surveys rates offered by competing institutions, reviews
the Company's cash flow requirements for lending and liquidity, and executes
rate changes when deemed appropriate. The Company has sought to decrease the
risk associated with changes in interest rates by offering competitive rates on
deposit accounts and by pricing certificates of deposit to provide customers
with incentives to choose certificates of deposit with longer terms. Due to the
current low market interest rate environment, however, terms of over 36 months
are not attractive to customers. The Company does not obtain funds through
brokers through a solicitation of funds outside its market area. The Company
also obtains funds from local governmental sources and held approximately
$800,000 in such funds at December 31, 2001.

         Deposit Portfolio. Savings in the Company as of December 31, 2001, were
represented by the various types of deposit programs described below.

<TABLE>
<CAPTION>


  Weighted                                                                                             Percentage
   Average                                                                                              of Total
Interest Rate        Minimum Term        Checking and Savings Deposits       Amount       Balances      Deposits
-------------        ------------        -----------------------------       ------       --------      --------
                                                                                       (In Thousands)

<S>                                                                        <C>            <C>               <C>
   0.00%                 None             Noninterest-bearing checking     $     --       $  1,763          2.52%
   1.75                  None             NOW accounts                           --          8,261         11.80
   2.51                  None             Passbook                               --          4,634          6.62
   3.29                  None             Money market accounts               1,000          7,560         10.80

                                                                                   Certificates of Deposit

   2.65%                3 months          Fixed term, fixed rate           $  1,000       $    633           .91%
   3.31                 6 months          Fixed term, fixed rate              1,000          2,801          4.00
   3.54                 9 months          Fixed term, fixed rate              1,000          3,448          4.93
   4.70                12 months          Fixed term, fixed rate              1,000         14,986         21.40
   4.70                15 months          Fixed term, fixed rate              1,000          1,961          2.80
   4.55                18 months          Fixed term, fixed rate              1,000          2,519          3.60
   6.34                24 months          Fixed term, fixed rate              1,000         12,458         17.79
   4.80                30 months          Fixed term, fixed rate              1,000          1,162          1.66
   4.89                36 months          Fixed term, fixed rate              1,000          1,734          2.48
   4.50                48 months          Fixed term, fixed rate              1,000            959           1.37
   5.41             Over 48 months        Fixed term, fixed rate              1,000          5,164           7.38
                                                                                          -----------     ----------
                                                                                         $  70,042         100.00%
</TABLE>


                                       15
<PAGE>



     The  following  table  sets  forth the  change in dollar  amount of savings
deposits in the various types of savings accounts offered by the Company between
the dates indicated.

<TABLE>
<CAPTION>



                                                                   At December 31,
                              -------------------------------------------------------------------------------------------
                                            2001                          2000                          1999
                                     -------------------          --------------------          --------------------
                               Balance  Percent(1) Change(2)  Balance Percent(1) Change(2)   Balance  Percent(1) Change(2)
                               -------  ---------  ---------  ------- ---------- ---------   -------  ---------- ---------
                                                                 (In Thousands)
Noninterest-bearing
<S>                          <C>          <C>    <C>             <C>    <C>    <C>           <C>          <C>     <C>
  demand .................   $ 1,763      2.52%  $  1,003        760    1.32%  $  (132)      $   898      1.32%   $   586
NOW accounts .............     8,261     11.80        819      7,979   10.02     1,171         6,808     10.02        (61)
Passbooks ................     4,634      6.62        315      4,319    6.96      (411)        4,730      6.96        240
Money market accounts ....     7,560     10.80      1,537      6,023    8.89       (13)        6,036      8.89        140
Time deposits that mature:
  within 12 months .......    38,266     54.64     11,401     26,865   51.41    (8,052)       34,917     51.41      3,562
  within 12-36 months ....     7,149     10.21    (10,337)    17,486   20.01     3,809        13,587     20.01     (4,348)
  beyond 36 months .......     2,410      3.44        696      1,714    1.39       772           942      1.39       (905)
                             -------    ------   --------    -------  ------   -------       -------    ------    -------
     Total ...............   $70,042    100.00%  $  5,434    $65,146  100.00%  $(2,772)      $67,918    100.00%   $  (786)
                             =======    ======   ========    =======  ======   =======       =======    ======    =======

</TABLE>
                                            At December 31,
                               --------------------------------------
                                        1998               1997
                              -------------------  ------------------
                               Balance Percent(1)  Change(2) Balance
                               ------- ----------  -------- --------
                                         (In Thousands)

Noninterest-bearing
  demand .................   $   312    0.45%    $  (392)  $   704
NOW accounts .............     6,869   10.00         622     6,247
Passbooks ................     4,490    6.54         223     4,267
Money market accounts ....     5,896    8.58         466     5,430
Time deposits that mature:
  within 12 months .......    31,355   45.64      (2,277)   33,632
  within 12-36 months ....    17,935   26.10         121    17,814
  beyond 36 months .......     1,847    2.69      (1,586)    3,433
                             -------  ------     -------   -------
     Total ...............   $68,704  100.00%    $(2,823)  $71,527
                             =======  ======     =======   =======




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

(1)  Represents percentage of to tal deposits.

(2)  Represents increase (decrease) in balance from end of prior year.



                                       16
<PAGE>


     Time Deposit Rates. The following table sets forth the time deposits in the
Company classified by rates as of the dates indicated:

                                             Years Ended December 31,
                         -------------------------------------------------------
                               2001             2000                  1999
                               ----           ------                  ----
                                         (In Thousands)
Rate

2.00-3.99%..........    $  10,874
4.00-5.99%..........       26,835             $ 25,660            $   44,999
6.00-7.99%..........       10,116               20,405                 4,446
                        ---------             --------             ---------
                           47,825             $ 46,065             $  49,445
                        ==========             ========             =========


     Time  Deposit  Maturities.  The  following  table sets forth the amount and
maturities of time deposits at December 31, 2001.
<TABLE>
<CAPTION>

                                                                        Amount Due
                                          --------------------------------------------------------------------------------
                                          Less Than      1-2        2-3           3-4        4-5       After 5
                                           One Year     Years      Years         Years      Years       Years      Total
                                          ----------  ---------  ---------     ---------  ---------   ---------  ----------
                                                                      (In Thousands)
Rate

<C>   <C>                              <C>             <C>         <C>         <C>          <C>     <C>          <C>
2.00%-3.99%............................$    8,910      $1,145      $  819      $    --      $ --    $    --      $10,874
4.00%-5.99% ............................   19,285       5,959       1,591           --        --         --       26,835
6.00-7.99% .............................   10,071          45          --           --        --         --       10,116
                                           ------      ------      ------       -------    --------   --------   -------
                                          $38,266      $ 7,149    $ 2,410      $    --      $ --     $    --    $ 47,825
                                          =======     ========    ========     ========    ========  =========   ==========
</TABLE>


     Large Certificates of Deposit Maturities. The following table indicates the
amount of the  Company's  certificates  of deposit of  $100,000  or more by time
remaining  until  maturity at December  31,  2001.  This amount does not include
checking  and  savings   deposits  of  greater  than  $100,000,   which  totaled
approximately $4.4 million at December 31, 2001.

                                                           Certificates
         Maturity Period                                    of Deposit
                                                          (In Thousands)

         Three months or less...............                 $   529
         Three through six months...........                   2,726
         Six through twelve months..........                   1,444
         Over twelve months.................                     953
                                                             -------
              Total.........................                 $ 5,652
                                                             =======



     Change in  Deposits.  The  following  table  sets  forth  changes  in total
deposits of the Company for the periods indicated:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                         ------------------------------------
                                                             2001        2000         1999
                                                          --------   ---------    ---------
                                                                      (In Thousands)

<S>                                                       <C>        <C>            <C>
Deposits ..............................................   $135,208   $143,551$      117,534
Withdrawals ...........................................    131,100     148,031      119,630
                                                          --------   ---------    ---------
Net increase (decrease) before interest credited ......      4,108      (4,480)      (2,096)
Interest credited .....................................      1,326       1,249        1,310
                                                          --------   ---------    ---------
  Net increase (decrease) increase in deposits ........   $  5,434   $  (3,231)   $    (786)
                                                          ========   =========    =========
</TABLE>



                                       17
<PAGE>


Borrowings

     Deposits are the Company's  primary  source of funds.  The Company may also
obtain funds from the FHLB. FHLB advances are  collateralized by selected assets
of the Company. Advances from the FHLB are secured by the Company's stock in the
FHLB  and a  portion  of the  Company's  first  mortgage  loans  and  investment
securities.  Historically,  the Company has rarely used borrowed  funds,  but at
December 31, 2001, the Company had $9.7 million in borrowed funds.

     The FHLB  functions  as a central  reserve  bank  providing  credit for the
Company and other member savings associations and financial  institutions.  As a
member,  the  Company  is  required  to own  capital  stock  in the  FHLB and is
authorized  to apply for  advances on the  security of such stock and certain of
its  home  mortgages  and  other  assets   (principally,   securities  that  are
obligations of, or guaranteed by, the United States) provided certain  standards
related to creditworthiness have been met. Advances are made pursuant to several
different  programs.  Each credit program has its own interest rate and range of
maturities.  Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of a member institution's net worth or on the
FHLB's assessment of the institution's creditworthiness.

The following table sets forth certain information  regarding  borrowings by the
Company at the dates indicated`

                                                 Year Ended December 31,
                                             ---------------------------
                  .
                                                2001    2000    1999
                                                ----  ------   -----

Weighted average rate paid on FHLB advance...  5.73%   5.76%   5.26%
Rate paid on ESOP Borrowings.................   N/A     N/A    6.75%
----------------
N/A: Not applicable


                                       18
<PAGE>


                                   During the Year Ended December 31,
                               --------------------------------------

                                       2001      2000      1999
                                    --------   --------- ---------
                                        (Dollars in Thousands)

Maximum amount of FHLB Advance
   outstanding at any month ......   $9,700    $8,200    $3,200

Approximate average FHLB advance
  outstanding ....................    7,783     4,908     1,533

Approximate weighted average rate
  paid on FHLB advance ...........     5.73%     5.76%     5.26%

Approximate average ESOP borrowing
  outstanding ....................      N/A       N/A        75

Approximate weighted average rate
 Paid on ESOP borrowing ..........      N/A       N/A      6.75%
-------------------------------

N/A: Not applicable




Employees

     As of December  31,  2001,  the Company  had 24  full-time  and 4 part-time
employees,  none of whom is  represented  by a collective  bargaining  unit. The
Company considers its relationship with its employees to be good.



                           REGULATION AND SUPERVISION

     As a federally  chartered  SAIF-insured  savings  association,  the Bank is
subject to examination,  supervision and extensive regulation by the OTS and the
FDIC. The Bank is a member of the Federal Home Loan Bank ("FHLB")  system.  This
regulation and supervision  establishes a comprehensive  framework of activities
in which an institution can engage and is intended  primarily for the protection
of the insurance fund and depositors.  The Bank also is subject to regulation by
the Board of  Governors  of the Federal  Reserve  System (the  "Federal  Reserve
Board") governing  reserves to be maintained  against deposits and certain other
matters. The OTS examines the Bank and prepares reports for the consideration of
the Bank's  Board of  Directors  on any  deficiencies  that they may find in the
Bank's  operations.  The  FDIC  also  examines  the  Bank  in  its  role  as the
administrator  of the SAIF.  The Bank's  relationship  with its  depositors  and
borrowers  also is  regulated  to a great  extent by both federal and state laws
especially in such matters as the ownership of savings accounts and the form and
content of the  Bank's  mortgage  documents.  Any  changes  in such  regulation,
whether by the FDIC,  OTS or Congress,  could have a material  adverse impact on
the Company and the Bank and their operations.

     The  description  of statutory  provisions  and  regulations  applicable to
savings  associations  set  forth  herein  does  not  purport  to be a  complete
description of such statutes and regulations and their effect on the Bank.



                                       19
<PAGE>


Federal Regulation of Savings Institutions

     Impact of the  Gramm-Leach-Bliley  Act The Gramm-Leach-Bliley Act (the "GLB
Act"),  establishes  a  comprehensive  framework  to permit  affiliations  among
commercial  banks,  insurance  companies  and  securities  firms.  The  GLB  Act
restricts  the  powers  of new  unitary  savings  and loan  association  holding
companies.  Unitary  savings and loan  holding  companies  in  existence or with
applications  filed with the OTS on or before May 4, 1999,  such as the Company,
retain their  authority  under the prior law. All other unitary savings and loan
holding companies are limited to financially related activities  permissible for
bank holding companies, as defined under the GLB Act. The GLB Act also prohibits
non-financial  companies from acquiring  grandfathered  unitary savings and loan
association holding companies.

     The Company does not believe that the GLB Act will have a material  adverse
affect upon its operations in the near term.  However, to the extent the GLB Act
permits  banks,  securities  firms and  insurance  companies to  affiliate,  the
financial  services industry may experience  further  consolidation.  This could
result in a growing number of larger financial  institutions  that offer a wider
variety of financial  services  than the Company  currently  offers and that can
aggressively compete in the markets the Company currently serves.

     Business Activities. The activities of savings institutions are governed by
federal law. The federal  banking  statutes  (1)  restrict the  solicitation  of
brokered   deposits   by  savings   institutions   that  are   troubled  or  not
well-capitalized,  (2) prohibit the  acquisition  of any corporate debt security
that is not rated in one of the four highest rating categories, (3) restrict the
aggregate  amount of loans secured by  non-residential  real estate  property to
400% of capital,  (4) permit savings and loan holding companies to acquire up to
5% of the voting shares of  non-subsidiary  savings  institutions or savings and
loan  holding  companies  without  prior  approval,  and (5) permit bank holding
companies to acquire healthy savings institutions.

     Loans  to  One  Borrower.  Under  federal  law,  savings  institutions  are
generally  subject to the  national  bank  limits on loans to one  borrower or a
related  group  of  borrowers.  Generally,  this  limit  is 15%  of  the  Bank's
unimpaired  capital and surplus on an unsecured basis. An additional  amount may
be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured
by readily marketable collateral, which is defined to include certain securities
and bullion,  but  generally  does not include real estate.  The Bank's  maximum
loans-to-one-borrower  limit  was $1.5  million  at  December  31,  2001.  As of
December 31, 2001,  the Bank was in  compliance  with its  loans-to-one-borrower
limitations.

     Qualified Thrift Lender Test. Federal law requires savings  institutions to
meet a qualified  thrift  lender  ("QTL")  test.  Under the QTL test,  a savings
association  is  required to  maintain  at least 65% of its  "portfolio  assets"
(total assets less (i) specified  liquid assets up to 20% of total assets,  (ii)
intangibles, including goodwill, and (iii) the value of property used to conduct
business)  in certain  "qualified  thrift  investments,"  primarily  residential
mortgages and related investments, including certain mortgage-backed and related
securities  on a monthly  average  basis in 9 out of every 12 months.  A savings
association  that fails the QTL test must  either  convert to a bank  charter or
operate under certain restrictions. As of December 31, 2001, the Bank maintained
97.3% of its portfolio  assets in qualified thrift  investments and,  therefore,
met the QTL test.

     Capital  Distributions.  OTS regulations  govern capital  distributions  by
federal savings banks, which include cash dividends, stock repurchases and other
transactions  charged to the capital  account of a savings  bank. A savings bank
must file an application  for OTS approval of a capital  distribution  if either
(1) the total capital  distributions for the applicable calendar year exceed the
sum of the  savings  bank's  net  income  for that year to date plus the  bank's
retained net income for the preceding two years,  (2) the savings bank would not
be  at  least  adequately  capitalized  following  the  distribution,   (3)  the
distribution  would  violate any  applicable  statue,  regulation,  agreement or
OTS-imposed  condition,  or (4) the savings bank is not  eligible for  expedited
treatment  of its filings.  If an  application  is not  required to be filed,  a
savings  bank which is a  subsidiary  of a holding  company,  as well as certain
other  savings  banks,  must still  file a notice  with the OTS at least 30 days
before  the  board of  directors  declares  a  dividend  or  approves  a capital
distribution. The Company has declared and paid dividends of $1.0 million during
the year ended December 31, 2001.



                                       20
<PAGE>


     Liquidity.  The Bank is required to  maintain an average  daily  balance of
specified  liquid assets equal to a monthly average of not less than a specified
percentage of its net withdrawable  deposit accounts plus borrowings  payable in
one year or less. This liquidity requirement is currently 4%. The Bank's average
liquidity ratio for December 2001 was 30.0%,  which exceeded the then applicable
requirements.  The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.

     Assessments.  Savings  institutions  are required by OTS  regulation to pay
assessments  to  the  OTS  to  fund  the  operations  of the  OTS.  The  general
assessment,   paid  on  a  semi-annual  basis,  is  computed  upon  the  savings
institution's consolidated total assets, as reported in the institution's latest
quarterly  thrift  financial  report.  Based on assets at December 31, 2001, the
Bank was required to pay a semi-annual assessment of approximately $15,500.

     Community  Reinvestment  Act and Fair Lending Laws.  Federal  savings banks
have  a  responsibility  under  the  Community   Reinvestment  Act  and  related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their communities, including low-and moderate-income neighborhoods. In addition,
the Equal Credit  Opportunity Act and the Fair Housing Act prohibit lenders from
discriminating  in their  lending  practices  on the  basis  of  characteristics
specified  in those  statutes.  An  institution's  failure  to  comply  with the
provisions  of the Community  Reinvestment  Act could,  at a minimum,  result in
regulatory restrictions on its activities,  and failure to comply with the Equal
Credit  Opportunity  Act and the Fair  Housing Act could  result in  enforcement
actions by the Office of Thrift Supervision, as well as other federal regulatory
agencies  and the  Department  of Justice.  The Bank  received a  "satisfactory"
Community  Reinvestment Act rating under the current Community  Reinvestment Act
regulations  in its most  recent  federal  examination  by the  Office of Thrift
Supervision.

     Transactions  with  Related  Parties.  The  Bank's  authority  to engage in
transactions  with related  parties or  "affiliates" or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the  aggregate  amount of  transactions  with any  individual
affiliate to 10% of the capital and surplus of the savings  institution and also
limits the aggregate  amount of  transactions  with all affiliates to 20% of the
savings institution's capital and surplus.  Certain transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from  affiliates is generally
prohibited.  Section 23B provides  that certain  transactions  with  affiliates,
including loans and asset purchases,  must be on terms and under  circumstances,
including  credit  standards,  that  are  substantially  the same or at least as
favorable to the  institution  as those  prevailing  at the time for  comparable
transactions with non-affiliated  companies.  In addition,  savings institutions
are prohibited  from lending to any affiliate that is engaged in activities that
are not  permissible for bank holding  companies and no savings  institution may
purchase the securities of any affiliate other than a subsidiary.

     The Bank's authority to extend credit to executive officers,  directors and
10% stockholders,  as well as entities  controlled by such persons, is currently
governed by Sections  22(g) and 22(h) of the FRA, and  Regulation O  thereunder.
Among other  things,  these  regulations  require such loans to be made on terms
substantially  the same as those offered to unaffiliated  individuals and do not
involve  more  than the  normal  risk of  repayment.  Regulation  O also  places
individual and aggregate limits on the amount of loans the Bank may make to such
persons based,  in part, on the Bank's capital  position,  and requires  certain
approval  procedures  to be  followed.  At December  31,  2001,  the Bank was in
compliance with the regulations.

     Enforcement.  OTS  has  primary  enforcement  responsibility  over  savings
institutions  and has the  authority  to bring  enforcement  action  against all
"institution-related   parties,"  including  stockholders,  and  any  attorneys,
appraisers and accountants  who knowingly or recklessly  participate in wrongful
action  likely to have an  adverse  effect  on an  insured  institution.  Formal
enforcement  action may range from the issuance of a capital  directive or cease
and desist order to removal of officers  and/or  directors of the  institutions,
receivership,  conservator ship or the termination of deposit  insurance.  Civil
penalties cover a wide range of violations and actions,  and range up to $25,000
per day, unless a finding of reckless disregard is made, in which case penalties
may be as high as $1 million  per day.  Criminal  penalties  for most  financial
institution  crimes include fines of up to $1 million and imprisonment for up to
30 years.  The FDIC has the  authority  to recommend to the Director of OTS that
enforcement action be taken with respect to a particular savings institution. If
action is not taken by the Director,  the FDIC has authority to take such action
under certain circumstances.



                                       21
<PAGE>


     Standards  for Safety and  Soundness.  The federal  banking  agencies  have
adopted  regulations that set forth the safety and soundness  standards that the
federal  banking  agencies  use to  identify  and  address  problems  at insured
depository  institutions before capital becomes impaired.  The standards address
internal  controls  and  information  systems;  internal  audit  system;  credit
underwriting; loan documentation; interest rate risk exposure; asset growth; and
compensation,  fees and benefits.  If the  appropriate  federal  banking  agency
determines  that an  institution  fails to meet any standard  prescribed  by the
Guidelines,  the agency may require the  institution  to submit to the agency an
acceptable  plan to  achieve  compliance  with  the  standard.  The  regulations
establish  deadlines for the  submission and review of such safety and soundness
compliance plans.

     Capital Requirements.  The Office of Thrift Supervision capital regulations
require federal savings banks to meet three minimum  capital  standards:  a 1.5%
tangible capital ratio; a 4% leverage ratio (3% for  institutions  receiving the
highest rating on the CAMELS rating system); and an 8% risk-based capital ratio.
In  addition,  the  prompt  corrective  action  standards  discussed  below also
establish,  in effect,  a minimum 2% tangible  capital  standard,  a 4% leverage
ratio (3% for  institutions  receiving the highest CAMELS rating),  and together
with the risk-based  capital  standard  itself,  a 4% Tier 1 risk-based  capital
standard.  Institutions  must generally  deduct from capital  investments in and
loans  to  subsidiaries   engaged  in  activities  as  principal  that  are  not
permissible for a national bank.

     The  risk-based  capital  standards  for federal  savings banks require the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and  supplementary  capital)  to  risk-weighted  assets  of at  least  4% and 8%
respectively.  In determining the amount of  risk-weighted  assets,  all assets,
including certain  off-balance  sheet assets,  are multiplied by a risk-weighted
factor of 0% to 100%,  assigned  by the  Office of  Thrift  Supervision  capital
regulation based on the risks believed inherent in the type of asset. Core (tier
1)  capital  is  defined  as common  stockholders'  equity  (including  retained
earnings),  certain non-cumulative perpetual preferred stock and related surplus
and minority  interests in equity  accounts of consolidated  subsidiaries,  less
intangible  assets other than certain mortgage  servicing rights and credit card
relationships.   The  components  of  supplementary  capital  currently  include
cumulative  preferred stock,  long-term  perpetual  preferred  stock,  mandatory
convertible securities,  subordinated debt and intermediate preferred stock, the
allowance  for  loan  and  lease  losses  limited  to  a  maximum  of  1.25%  of
risk-weighted  assets,  and up to 45% of unrealized gains on  available-for-sale
equity  securities with readily  determinable fair market values.  Overall,  the
amount of supplementary capital included as part of total capital may not exceed
100% of core capital.

     The capital  regulations  also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from capital for purposes of calculating their risk-based capital
requirements.  For the  present  time,  the  Office  of Thrift  Supervision  has
deferred  implementation  of the interest rate risk capital charge.  At December
31, 2001 the Bank met each of its capital requirements.

The following  table sets forth the Bank's actual and required  capital  amounts
and ratios as of December 31, 2001.
<TABLE>
<CAPTION>

                                                        For capital           To be well capitalized
                                                        adequacy              under prompt corrective
                                   Actual               purposes              action provisions
                           -----------------------------------------------------------------------
                             Amount    Percent         Amount   Percent        Amount     Percent
                             ------    -------         ------   -------        ------     -------

<S>                         <C>          <C>         <C>          <C>        <C>            <C>
Tangible capital            $20,632,000  20.2%       $1,532,000   1.5%       $       --       --%
Tier I (core) capital        20,632,000  20.2         4,085,000   4.0         5,106,000      5.0
Risk based capital           20,875,000  36.9         4,530,000   8.0         5,663,000     10.0
Tier I risk-based capital    20,632,000  36.4                --    --         3,398,000      6.0
</TABLE>

Federal Home Loan Bank System

     The Bank is a member of the Federal Home Loan Bank  ("FHLB") of Des Moines,
which is one of the 12  regional  FHLBs.  As a member of the  FHLB,  the Bank is
required to purchase and  maintain  stock in the FHLB of Des Moines in an amount
equal to the greater of 1% of its aggregate unpaid  residential  mortgage loans,
home purchase


                                       22
<PAGE>


contracts or similar  obligations  at the  beginning of each year, or 1/20th (or
such greater  fraction as established by the FHLB) of outstanding FHLB advances.
At  December  31,  2001  the Bank  had  $613,200  in FHLB  stock,  which  was in
compliance with this requirement.  In past years the Bank has received dividends
on its FHLB stock.  Dividends for the year ended and at December 31, 2001,  were
4.45% and 4.00%  respectively.  Certain  provisions  of  FIRREA  require  all 12
Federal Home Loan Banks to provide  financial  assistance  for the resolution of
troubled savings  associations and to contribute to affordable  housing programs
through  direct loans or interest  subsidies on advances  targeted for community
investment and low- and  moderate-income  housing projects.  These contributions
could cause rates on the FHLB  advances to increase and could  affect  adversely
the level of FHLB dividends paid and the value of FHLB stock in the future.

Prompt Corrective Regulatory Action

     Under the OTS Prompt Corrective Action regulations,  the OTS is required to
take certain  supervisory  actions against  undercapitalized  institutions,  the
severity  of which  depends  upon the  institution's  degree of  capitalization.
Generally,  a savings institution that has total risk-based capital of less than
8.0% or a leverage  ratio or a Tier 1 core capital  ratio that is less than 4.0%
is  considered  to be  undercapitalized.  A savings  institution  that has total
risk-based  capital less than 6.0%, a Tier 1 core  risk-based  capital  ratio of
less than 3.0% or a leverage  ratio that is less than 3.0% is  considered  to be
"significantly  undercapitalized"  and a savings institution that has a tangible
capital to assets  ratio equal to or less than 2.0% is deemed to be  "critically
undercapitalized."  The banking  regulator  is required to appoint a receiver or
conservator  for an  institution  that  is  "critically  undercapitalized."  The
regulation also provides that a capital  restoration plan must be filed with the
OTS  within  45  days of the  date an  institution  receives  notice  that it is
"undercapitalized,"     "significantly    undercapitalized"    or    "critically
undercapitalized."  In addition,  numerous mandatory  supervisory actions become
immediately  applicable  to the  institution,  including,  but not  limited  to,
restrictions  on  growth,  investment  activities,  capital  distributions,  and
affiliate  transactions.  The  OTS  could  also  take  any  one of a  number  of
discretionary supervisory actions, including the issuance of a capital directive
and the replacement of senior executive officers and directors.


Federal Reserve System

     The Federal  Reserve Board  regulations  require  savings  institutions  to
maintain   non-interest-earning  reserves  against  their  transaction  accounts
(primarily NOW and regular  checking  accounts).  The Bank is in compliance with
the  foregoing  requirements.  The  balances  maintained  to  meet  the  reserve
requirements  imposed by the FRB may be used to satisfy  liquidity  requirements
imposed by the OTS.


Holding Company Regulation

     General.  WCF  Financial,  M.H.C.  which owns the majority of the Company's
common  stock   outstanding   (the  "Holding   Company")  and  the  Company  are
non-diversified mutual savings and loan holding companies.  As such, the Holding
Company  and the  Company  are  registered  with the OTS and are  subject to OTS
regulations,  examinations, supervision and reporting requirements. In addition,
the OTS has  enforcement  authority over the Holding Company and the Company and
their non-savings institution  subsidiaries.  Among other things, this authority
permits the OTS to restrict or prohibit  activities  that are determined to be a
serious risk to the subsidiary savings institution.

     The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company  controlling  savings  institutions in
more than one state,  subject to two exceptions:  (i) the approval of interstate
supervisory  acquisitions  by savings and loan holding  companies,  and (ii) the
acquisition  of a savings  institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions.

     Federal law  prohibits a savings and loan  holding  company  including  the
Holding Company and the Company,  directly or indirectly, or through one or more
subsidiaries,  from acquiring  another  savings  institution or holding  company
thereof,  without  prior  written  approval  of the OTS. It also  prohibits  the
acquisition  or  retention  of,  with  certain



                                       23
<PAGE>


exceptions,   more  than  5%  of  a  non-subsidiary   savings   institution,   a
non-subsidiary   holding  company,  or  a  non-subsidiary   company  engaged  in
activities  other than those permitted by federal law; or acquiring or retaining
control  of  an  institution  that  is  not  federally  insured.  In  evaluating
applications by holding companies to acquire savings institutions,  the OTS must
consider the financial and managerial resources, future prospects of the company
and  institution  involved,  the  effect of the  acquisition  on the risk to the
insurance  fund,  the  convenience  and needs of the community  and  competitive
factors.

     Federal  law  generally  provides  that no  "person,"  acting  directly  or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a  federally-insured
savings  institution  without  giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove of the proposed  acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things,  that (i) the acquisition would substantially  lessen competition;  (ii)
the financial  condition of the acquiring  person might jeopardize the financial
stability  of  the  savings  institution  or  prejudice  the  interests  of  its
depositors;  or (iii) the  competency,  experience or integrity of the acquiring
person or the proposed  management  personnel  indicates that it would not be in
the  interest  of the  depositors  or the  public to permit the  acquisition  of
control by such person.

     Restrictions  Applicable to Mutual Holding  Companies.  Pursuant to federal
law and OTS regulations and policy, a mutual holding company such as the Holding
Company,  and a mid-tier holding company,  such as the Company may engage in the
following activities: (i) investing in the stock of a savings association;  (ii)
acquiring a mutual  association  through the merger of such  association  into a
savings  association  subsidiary of such holding  company or an interim  savings
association  subsidiary of such holding company; (iii) merging with or acquiring
another holding  company;  one of whose  subsidiaries is a savings  association;
(iv)  investing in a  corporation,  the capital  stock of which is available for
purchase  by a savings  association  under  federal  law or under the law of any
state where the subsidiary savings  association or associations share their home
offices;  (v)  furnishing  or  performing  management  services  for  a  savings
association  subsidiary of such company;  (vi) holding,  managing or liquidating
assets  owned or  acquired  from a savings  subsidiary  of such  company;  (vii)
holding  or  managing  properties  used or  occupied  by a  savings  association
subsidiary of such company properties used or occupied by a savings  association
subsidiary of such company;  (viii) acting as trustee under deeds of trust; (ix)
any other  activity  (A) that the Federal  Reserve  Board,  by  regulation,  has
determined to be permissible  for bank holding  companies  under Section 4(c) of
the Bank  Holding  Company  Act of 1956,  unless the  Director,  by  regulation,
prohibits or limits any such activity for savings and loan holding companies; or
(B) in which multiple  savings and loan holding  companies  were  authorized (by
regulation) to directly engage on March 5, 1987; and (x) purchasing, holding, or
disposing of stock acquired in connection with a qualified stock issuance if the
purchase of such stock by such savings and loan  holding  company is approved by
the  Director.  If a mutual  holding  company  acquires or merges  with  another
holding company,  the holding company acquired or the holding company  resulting
from such  merger  or  acquisition  may only  invest  in  assets  and  engage in
activities  listed in (i)  through  (x) above,  and has a period of two years to
cease  any   non-conforming   activities   and  divest  of  any   non-conforming
investments.

         Waiver of Dividends. OTS regulations require the Holding Company, which
owns the majority of the Company's common stock, to notify the OTS of any
proposed waiver of its right to receive dividends. It is the OTS' recent
practice to review dividend waiver notices on a case-by-case basis, and, in
general, not object to any such waiver if: (i) the mutual holding company's
board of directors determines that such waiver is consistent with such
directors' fiduciary duties to the mutual holding company's members; (ii) for as
long as the subsidiary is controlled by the mutual holding company, the dollar
amount of dividends waived by the mutual holding company are considered as a
restriction on the retained earnings of the subsidiary, which restriction, if
material, is disclosed in the public financial statements of the subsidiary as a
note to the financial statements; (iii) the amount of any dividend waived by the
mutual holding company is available for declaration as a dividend solely to the
mutual holding company, and, in accordance with SFAS 5, where the subsidiary
determines that the payment of such dividend to the mutual holding company is
probable, an appropriate dollar amount is recorded as a liability; (iv) the
amount of any waived dividend is considered as having been paid by the
subsidiary (and the subsidiary's capital ratios adjusted accordingly) in
evaluating any proposed dividend under OTS capital distribution regulations; and
(v) in the event the mutual holding company converts to stock form, the
appraisal submitted to the OTS in connection with the conversion application
takes into account the aggregate amount of the dividends waived by the mutual
holding company.



                                       24
<PAGE>


     Conversion of the Mutual  Holding  Company to Stock Form.  OTS  regulations
permit  the  Holding  Company  to  convert  from the mutual to the stock form of
ownership (a "Conversion Transaction"). There can be no assurance when, if ever,
a Conversion  Transaction will occur. In a Conversion  Transaction a new holding
company  would be formed  as the  successor  to the  Company  (the "New  Holding
Company"),  the Holding  Company's  corporate  existence  would end, and certain
depositors  of the Bank would  receive  the right to  subscribe  for  additional
shares of the New Holding Company.  In a Conversion  Transaction,  each share of
Common Stock held by the Company's public stockholders ("Minority Shareholders")
would be automatically  converted into a number of shares of common stock of the
New Holding  Company  determined  pursuant an exchange  ratio that  ensures that
after the  Conversion  Transaction,  subject to any  adjustment  to reflect  the
receipt  of cash in lieu of  fractional  shares,  the  percentage  of the  to-be
outstanding shares of the New Holding Company issued to Minority Stockholders in
exchange  for  their  Common  Stock  would  be equal  to the  percentage  of the
outstanding  shares of Common  Stock held by Minority  Stockholders  immediately
prior to the Conversion Transaction.

Insurance of Accounts and Regulation by the FDIC

     The  Company is a member of the SAIF,  which is  administered  by the FDIC.
Deposits are insured up to applicable  limits by the FDIC and such  insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC  imposes  deposit  insurance  premiums  and is  authorized  to  conduct
examinations of and to require reporting by FDIC-insured  institutions.  It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by  regulation or order to pose a serious risk to the FDIC.  The FDIC
also  has  the  authority  to  initiate   enforcement  actions  against  savings
institutions,  after giving the OTS an opportunity to take such action,  and may
terminate  the deposit  insurance  if it  determines  that the  institution  has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

     The  FDIC's  SAIF  deposit  insurance   premiums  are  assessed  through  a
risk-based  system under which all insured  depository  institutions  are placed
into one of nine categories and assessed insurance  premiums,  ranging from .23%
to .67%  of  deposits,  based  upon  their  level  of  capital  and  supervisory
evaluation. Under the system, institutions classified as well capitalized (i.e.,
a core  capital  ratio of at least  5%,  a ratio  of Tier 1 or core  capital  to
risk-weighted  assets  ("Tier  1  risk-based  capital")  of at  least  6%  and a
risk-based  capital ratio of at least 10%) and considered healthy pay the lowest
premium while institutions that are less than adequately capitalized (i.e., core
or Tier 1  risk-based  capital  ratios of less than 4% or a  risk-based  capital
ratio of less than 8%) and considered of substantial supervisory concern pay the
highest premium. Risk classification of all insured institutions will be made by
the FDIC for each semi-annual assessment period.

     The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it  determines  that the  reserve  ratio of the  SAIF  will be less  than the
designated  reserve  ratio of 1.25% of SAIF insured  deposits.  In setting these
increased  assessments,  the FDIC must seek to restore the reserve ratio to that
designated  reserve  level,  or such higher  reserve ratio as established by the
FDIC.  The FDIC may also impose  special  assessments  on SAIF  members to repay
amounts  borrowed from the United States Treasury or for any other reason deemed
necessary  by the FDIC.  The Company  anticipates  that its ongoing  annual SAIF
premiums will be approximately $12,900.



Federal Securities Law

     Shares of the  Company's  common  stock are  registered  with the SEC under
Section 12(g) of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act").  The Company is also  subject to the proxy  rules,  tender  offer  rules,
insider  trading  restrictions,   annual  and  periodic  reporting,   and  other
requirements of the Exchange Act.



                                       25
<PAGE>


                           FEDERAL AND STATE TAXATION

Federal Taxation

     For federal income tax purposes,  the Company and its  subsidiaries  file a
consolidated  federal  income tax return on a calendar  year basis.  The Holding
Company is not permitted to file a  consolidated  federal income tax return with
the Company.  Thus,  the Holding  Company  files a separate  federal  income tax
return on a calendar year basis.

     The  Holding  Company  and the  Company are subject to the rules of federal
income taxation generally  applicable to corporations under the Internal Revenue
Code of 1986, as amended (the "Code").

     As a result of the enactment of the Small  Business Job  Protection  Act of
1996,  all savings banks and savings  associations  will be able to convert to a
commercial bank charter, diversify their lending, or be merged into a commercial
bank  without  having to  recapture  any of their  pre-1998 tax bad debt reserve
accumulations.  Any post-1987 reserves will be subject to recapture,  regardless
of whether  or not a  particular  thrift  intends to  convert  its  charter,  be
acquired,  or diversify its activities.  The recapture tax on post-1987 reserves
is assessed in equal  installments  over the six year period  beginning in 1996.
However,  if a thrift meets a minimum level of mortgage  lending test (i.e.,  if
the thrift's level of mortgage  lending activity  (re-financing  and home equity
loans do not count) is equal to or exceeds its average mortgage lending activity
for the six years preceding 1996,  adjusted for inflation),  then the thrift may
suspend its tax bad debt  recapture for the 1996 and 1997 tax years.  At June 30
2000, the Bank had a balance of  approximately  $800,000 of bad debt reserves in
retained income that would be recaptured under this legislation.

     Savings  institutions  such as Bank that meet  certain  definitional  tests
relating  to the  composition  of assets  and other  prescribed  by the Code are
permitted to establish reserves for bad debts and to make annual additions which
may,  within  specified  formula  limits,  be taken as a deduction  in computing
taxable  income  for  federal  income tax  purposes.  The amount of the bad debt
reserve deduction is computed under the experience method.

     If a savings  institution ceases to qualify as a "bank" (as defined in Code
Section 581) for bad debt purposes or converts to a credit  union,  the pre-1988
reserves and the  supplemental  reserves  are restored to income  ratably over a
six-year  period,  beginning in the tax year the savings  institution  no longer
qualifies as a bank. The pre-1988  reserves are also subject to recapture in the
case of certain excess distributions  including distributions on liquidation and
dissolution and redemptions of shareholders.

     In addition to the regular income tax the Company is generally subject to a
minimum tax calculation.  An alternative minimum tax is imposed at a minimum tax
rate  of 20% on  alternative  minimum  taxable  income,  which  is the  sum of a
corporation's  regular  taxable  income  (which  certain  adjustments)  and  tax
preference items, less any available  exemption.  The alternative minimum tax is
imposed to the extent it exceeds  Company's regular income tax and net operating
losses can offset no more than 90% of alternative minimum income.

     The Company is accounting for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The liability method accounts for deferred income
taxes by applying  the enacted  statutory  rates in effect at the balance  sheet
date to  differences  between  the  book  cost and the tax  cost of  assets  and
liabilities.  The resulting  deferred tax liabilities and assets are adjusted to
reflect changes in tax laws.  SFAS 109 was implemented by the Company  effective
January 1, 1993.

     The Company has not been  audited by the  Internal  Revenue  Service or the
State of Iowa within the past five years.


                                       26
<PAGE>


Iowa Taxation

     The Company  files an Iowa  corporate  tax  return,  the Bank files an Iowa
franchise tax return,  and the Bank's  subsidiary  files an Iowa corporation tax
return on a calendar year basis. The Holding Company files an Iowa corporate tax
return on a calendar year basis.

     The State of Iowa  imposes a tax on the Iowa  franchise  taxable  income of
savings  institutions  at the  rate of 5%.  Iowa  franchise  taxable  income  is
generally  similar to federal taxable income except that interest from state and
municipal  obligations  is  taxable,  and no  deduction  is  allowed  for  state
franchise  taxes.  The  state  corporation  income  tax  ranges  from  6% to 12%
depending upon Iowa corporation taxable income. Interest from federal securities
is not taxable for purposes of the Iowa corporation income tax.

ITEM 2.           PROPERTIES

     (a)  The Company  conducts its business  through two facilities  located in
Webster  City,  Hamilton  County,  Iowa.  Webster City  Federal  Savings Bank is
located at 820 Des Moines Street.  Security Title and Abstract,  Inc, is located
at 730 Second Street.  At December 31, 2001, the net book value of the Company's
property and equipment was $882,238.

     (b)  Investment Policies.  For a description of the Company's policies (all
of which may be changed  without a vote of the Company's  security  holders) and
the  limitations  on the  percentage  of assets which may be invested in any one
investment,  or type of  investment  with  respect to: (1)  investments  in real
estate or interests in real estate;  (2)  investments in real estate  mortgages;
and (3) securities of or interests in persons  primarily  engaged in real estate
activities, reference is made hereunder to the information presented above under
"Item 1. Description of Business."

     (c)  Description  of Real Estate and Operating  Data. Not  Applicable;  the
book value of each of the Company's properties is less than 10% of the Company's
total consolidated assets at December 31, 2001.

ITEM 3.           LEGAL PROCEEDINGS
                  -----------------

     The  Company  is  periodically  involved  in claims and  lawsuits  that are
incident to the Company's business. As of December 31, 2001, the Company was not
involved in any material claim or lawsuit.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

     No matters  were  submitted  during  the  fourth  quarter of the year ended
December 31, 2001 to a vote of security holders.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
         ------------------------------------------------
         STOCKHOLDER MATTERS
         -------------------

     For information  concerning the market for the Company's  common stock, the
section captioned "Stockholder Information--Stock Listing" and "--Price Range of
Common Stock and Dividends Paid" of the Company's  Annual Report to Stockholders
for the Year Ended  December 31, 2001 (the "Annual Report to  Stockholders")  is
incorporated herein by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         -------------------------------------------------
         CONDITION AND RESULTS OF OPERATIONS
         -----------------------------------

     The  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.


                                       27
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS
         --------------------

     Pages  13-38 of the  Company's  2001  Annual  Report  to  Stockholders  are
incorporated herein by reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ------------------------------------------------
          ACCOUNTING AND FINANCIAL DISCLOSURE
          -----------------------------------

     There were no changes in or disagreements with accountants in the Company's
accounting and financial disclosure during 2001.

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
         -----------------------------------------------

     Information  concerning Directors of the Company and concerning  compliance
with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein
by reference from the Company's  definitive Proxy Statement dated March 15, 2001
(the  "Proxy   Statement"),   specifically  the  section   captioned   "Proposal
I--Election of Directors.

     The following  table sets forth  information as of December 31, 2001,  with
respect to the executive officers of the Company.

Name                  Age    Occupation
----                  ---    ----------

Phyllis A. Murphy     51    President and Chief Executive Officer

Stephen L. Mourlam    49    Executive Vice President and Chief Financial Officer

Kyle R. Swon          40    Senior Vice President and Chief Lending Officer

ITEM 10. EXECUTIVE COMPENSATION
        -----------------------

     Information  concerning  executive  compensation is incorporated  herein by
reference  from  the  Company's  Proxy  Statement,   specifically  the  sections
captioned   "Proposal   I--Election   of   Directors--Executive   Compensation,"
"--Directors' Compensation," and "--Benefits."

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
        ------------------------------------------------
         AND MANAGEMENT
         --------------

     Information  concerning security ownership of certain owners and management
is  incorporated  herein  by  reference  from  the  Company's  Proxy  Statement,
specifically  the section  captioned  "Voting  Securities and Principal  Holders
Thereof."

ITEM 12. CERTAIN TRANSACTIONS
        ---------------------

     Information  concerning  relationships  and  transactions  is  incorporated
herein by reference from page 9 of the Company's Proxy Statement.



                                       28
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
        ---------------------------------

         (a)      Exhibits

               3.1    Federal  Stock  Charter of Webster  City  Federal  Bancorp
                      (Incorporated by reference to Exhibit 3.1 of the Company's
                      Form 8-KSB as filed on July 1, 1999.

               3.2    Bylaws of Webster City Federal  Bancorp  (Incorporated  by
                      reference  to Exhibit 3.2 of the  Company's  Form 8-KSB as
                      filed on July 1, 1999.

               4      Common Stock  Certificate of the Company  (Incorporated by
                      reference  to Exhibit 4 of the  Company's  Form 8-KSB,  as
                      filed on July 1, 1999.

               10.1.A Severance  Agreement,  as amended between the Company, the
                      Bank and Phyllis A. Murphy,  President and Chief Executive
                      Officer.

               10.1.B Severance  Agreement,  as amended between the Company, the
                      Bank and Stephen L. Mourlam,  Executive Vice President and
                      Chief Financial Officer.

               101.C  Severance  Agreement,  as amended between the Company, the
                      Bank and Kyle R. Swon,  Senior  Vice  President  and Chief
                      Lending Officer.

               13     2001 Annual Report to Stockholders

21       Subsidiaries of the Registrant


(b)      Reports on Form 8-K:
         -------------------

     The  Registrant  filed no  Current  Report on Form 8-K  during  the  fourth
quarter of 2001.


                                       29
<PAGE>




                                   SIGNATURES

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

                             WEBSTER CITY FEDERAL BANCORP


Date:  March 21, 2002         By:  /s/Phyllis A. Murphy
                                  ------------------------
                                   Phyllis A. Murphy
                                   President and Chief Executive Officer

     Pursuant to the  requirements  of the  Securities  Exchange  of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


<S>  <C>                                              <C>
By:  /s/ Phyllis A. Murphy                             By: /s/Stephen L. Mourlam
     -----------------------------------------         -------------------------------------------
     Phyllis A. Murphy, President, Chief               Stephen L. Mourlam, Executive Vice President
     Executive Officer and Director                    and Director
     (Principal Executive Officer)                     (Principal Financial and Accounting Officer)

     Date:  March 21, 2002                             Date: March 21, 2002



By:  /s/ Dr. Carroll E. Haynes                         By: /s/ Donald I. Newman
     -----------------------------------------         ------------------------
     Dr. Carroll E. Haynes, Chairman of the Board      Donald I. Newman, Director

     Date:  March 21, 2002                             Date: March 21, 2002


By:  /s/ Dennis J. Tasler                              By: /s/ Dr. Leo Moriarty
     -----------------------------------------         -------------------------
     Dennis J. Tasler, Director                        Dr. Leo Moriarty, Director

     Date:  March 21, 2002                             Date: March 21, 2002


By:    /s/ Kyle R. Swon
       -------------------
       Kyle R. Swon, Senior Vice President and Director

       Date: March 21, 2002



</TABLE>

                                       30