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                              Webster City Federal
                                    BANCORP


<PAGE>


                       2002 ANNUAL REPORT TO STOCKHOLDERS
                          WEBSTER CITY FEDERAL BANCORP

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

                                Table of Contents

                                                                            Page

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

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

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

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

Independent Auditors' Report ................................................ 14

Consolidated Balance Sheets ................................................. 15

Consolidated Statements of Operations ....................................... 16

Consolidated Statements of Stockholders' Equity ............................. 17

Consolidated Statements of Cash Flows ....................................... 18

Notes to Consolidated Financial Statements .................................. 19

Stockholder Information ..................................................... 41

Directors and Executive Officers ............................................ 42


<PAGE>


                  [LETTERHEAD OF WEBSTER CITY FEDERAL BANCORP]


Dear Fellow Shareholders:

Webster City Federal Bancorp is pleased to report another excellent year. Net
income for 2002 increased by 20.8% to $.76 per diluted share or $1.4 million
compared to $.63 per diluted share or $1.2 million for 2001. Return on average
assets for 2002 was 1.43%.

The annual dividend payable to our shareholders for year 2002 was an attractive
$1.00 per share.

Average deposits increased by $1.8 million or 2.7% in 2002. The average balance
of outstanding loans for 2002 increased by $2.4 million or 3.3%. These factors
were very positive in view of the current economic climate and competitive
environment.

We continue to have a very strong capital position. This strength has served our
company well through the years. Combined with our high liquidity levels, we are
well positioned to take advantage of future opportunities.

Our mission remains the same - to be a highly profitable financial center
providing friendly, convenient service to all customers. We have a knowledgeable
staff and board who accomplish this through personal, convenient service in
person, by phone or online through our web site.

We will continue to explore opportunities to enhance the company for the benefit
of our shareholders.

Thank you for believing in our company as we do.

Sincerely,


/s/ Phyllis A. Murphy

Phyllis A. Murphy
President/Chief Executive Officer



                                       1
<PAGE>


Selected Consolidated Financial and Other Data

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

Selected Financial Condition Data

<TABLE>
<CAPTION>
                                                                     At December 31,
                                                 --------------------------------------------------------
                                                   2002        2001        2000        1999        1998
                                                 --------    --------    --------    --------    --------
                                                                      (In Thousands)
<S>                                              <C>         <C>         <C>         <C>         <C>
Total assets                                     $103,554    $102,361    $ 95,430    $ 94,525    $ 94,084
Loans receivable, net
    Real estate                                    69,510      70,031      63,381      58,592      53,084
    Consumer and other                              3,809       4,461       5,273       3,600       3,668
                                                 --------    --------    --------    --------    --------
    Total loans receivable, net                    73,319      74,492      69,104      62,192      56,752

Mortgage-backed securities                          2,684       4,205       6,025       7,806       9,987
Investments                                         7,697      10,189      11,518      14,916       9,899
Cash and cash equivalents                           5,252       9,183       6,251       4,986      13,187
Time Deposits in other financial institutions      10,892       1,399          --       2,585       2,265
Deposits                                           70,217      70,043      65,146      67,918      68,704
Stockholders' equity, substantially restricted     22,319      21,348      20,905      22,348      23,086

<CAPTION>
Summary of Operations

                                                                  Year Ended December 31,
                                                 --------------------------------------------------------
                                                   2002        2001        2000        1999        1998
                                                 --------    --------    --------    --------    --------
                                                     (In thousands, except earnings per share and cash
                                                      dividends per share amounts)
<S>                                              <C>         <C>         <C>         <C>         <C>
Interest income                                  $  6,652    $  6,713    $  6,702    $  6,410    $  6,646
Interest expense                                    2,736       3,465       3,301       3,010       3,339
                                                 --------    --------    --------    --------    --------
   Net interest income before provision
     for loan losses                                3,917       3,248       3,401       3,400       3,307
Provision for loan losses                              80          --          --          --          --
                                                 --------    --------    --------    --------    --------
   Net interest income after provision
     for loan losses                                3,837       3,248       3,401       3,400       3,307
                                                 --------    --------    --------    --------    --------
Non-interest income:
  Service charges and other fees                      218         258         181         162         188
  Other income                                        183         198         166          51          56
                                                 --------    --------    --------    --------    --------
   Total non-interest income
                                                      401         456         347         213         244
Non-interest expense:
  Salaries and employee benefits                    1,143       1,009         892         811         789
  Premises and equipment                              207         126         131         117          79
  Other real estate expenses, net                      22           6           1           2           2
  Advertising                                          29          30          27          29          27
  Federal deposit insurance premiums                   10          13          14          40          43
  Other                                               622         682         591         585         492
                                                 --------    --------    --------    --------    --------
    Total non-interest expense                      2,035       1,866       1,656       1,584       1,432
                                                 --------    --------    --------    --------    --------
Income before income taxes
                                                    2,203       1,838       2,092       2,029       2,119
Income tax expense                                    766         648         791         780         803
                                                 --------    --------    --------    --------    --------
  Net income                                     $  1,437    $  1,190    $  1,301    $  1,249    $  1,316
                                                 ========    ========    ========    ========    ========
Earnings per share - basic                       $   0.76    $   0.64    $   0.67    $   0.60    $   0.63
                                                 ========    ========    ========    ========    ========
Earnings per share - diluted                     $   0.76    $   0.63    $   0.67    $   0.60    $   0.62
                                                 ========    ========    ========    ========    ========
Cash dividends per share                         $   1.00    $   0.80    $   0.80    $   0.80    $   0.80
                                                 ========    ========    ========    ========    ========
</TABLE>


                                       2
<PAGE>

Financial Ratios and Other Data

<TABLE>
<CAPTION>
                                                                        At or for the Year Ended December 31,
                                                    -------------------------------------------------------------------------
                                                       2002            2001           2000            1999           1998
                                                    ------------    -----------    -----------     ------------    ----------
<S>                                                      <C>            <C>            <C>              <C>           <C>
Equity to assets at year end                             21.55%         20.85%         21.91%           23.64%        24.54%
Net interest spread                                       3.24%          2.42%          2.60%            2.61%         2.39%
Net interest margin                                       3.42%          3.44%          3.72%            3.72%         3.56%
Return on average assets                                  1.43%          1.23%          1.39%            1.39%         1.39%
Return on average equity                                  6.81%          5.80%          6.17%            5.49%         5.79%
Stockholders' equity to average assets ratio             22.19%         22.03%         22.40%           23.98%        24.36%
Non-interest income to average assets ratio               0.40%          0.48%          0.35%            0.22%         0.26%
Non-interest expense to average assets ratio              2.02%          1.93%          1.64%            1.69%         1.52%
Nonperforming loans to net loans                           .18%          1.30%          0.29%            0.01%         0.03%
Nonperforming assets to total assets                       .12%          1.00%          0.21%            0.01%         0.04%
Average interest-earning assets to
  average interest-bearing liabilities                  126.21%        128.02%        131.21%          133.80%       132.50%
Allowance for loan losses to
  net loans receivable                                    0.55%          0.51%          0.59%            0.61%         0.68%
Allowance for loan losses to
  nonperforming loans                                    397.1%         41.61%            N/M              N/M           N/M

Net interest income to non-interest expense             188.55%        174.03%        205.31%          214.71%       230.78%

Number of full service offices                                1              1              1                1             1

   N/M = Not Meaningful
</TABLE>


                                       3
<PAGE>

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

General

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

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

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

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

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


                                       4
<PAGE>

Comparison of Financial Condition

      Total assets increased $1.2 million, or 1.2%, to $103.6 million at
December 31, 2002 from $102.4 million at December 31, 2001. Deposits increased
by $174,200, or .3%, to $70.2 million at December 31, 2002 from $70.0 million at
December 31, 2001. Cash and cash equivalents decreased by $3.9 million, or
42.5%, to $5.3 million at December 31, 2002 from $9.2 million at December 31,
2001. The Company had time deposits of $10.9 million in other financial
institutions at the end of 2002. The reason for the decrease in cash was that
management was holding funds in cash at the end of 2001 in case interest rates
moved up. It was management's decision in 2002 to place those funds in other
financial institutions as short term investments in case interest rates rise in
the near future. Investments (other than mortgage-backed securities) decreased
$2.5 million, or 24.5%, to $7.7 million at December 31, 2002 from $10.2 million
at December 31, 2001. Net loans receivable decreased $1.2 million, or 1.6%, to
$73.3 million at December 31, 2002 from $74.5 million at December 31, 2001.
Mortgage-backed securities decreased $1.5 million, or 35.7%, to $2.7 million at
December 31, 2002 from $4.2 million at December 31, 2001, due to payments of
principal. There were no additional mortgage-backed securities purchased during
the year as management sought shorter-term securities in the lower market
interest rate environment.

      Stockholders' equity increased by $970,500, or 4.6%, to $22.3 million at
December 31, 2002 from $21.3 million at December 31, 2001. The increase in
stockholders' equity was due to net income of $1.4 million partially offset by
cash dividends of $730,638 paid to stockholders.

Results of Operations

      General. The earnings of the Company depend primarily on its level of net
interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of mortgage loans, home
equity loans, consumer loans, mortgage-backed securities, investment securities
and other investments, and the interest paid on interest-bearing liabilities,
consisting of savings deposits, FHLB advances and, to a lesser extent, public
funds. The Company had net income of $1.4 million for the year ended December
31, 2002 compared to $1.2 million, and $1.3 million, for the years ended
December 31, 2001, and 2000, respectively.

Average Balance Sheet

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

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                         --------------------------------------------------------------
                                                                    2002                              2001
                                                         ----------------------------    ------------------------------
                                                                           (Dollars in Thousands)
                                                                              Average                          Average
                                                          Average              Yield/    Average                Yield/
                                                          Balance   Interest   Cost      Balance    Interest    Cost
                                                         --------   --------  -------    -------    --------  --------
<S>                                                       <C>        <C>        <C>      <C>         <C>        <C>
Interest-earning assets:
   Loans receivable, net                                  $74,995    $5,674     7.57%    $72,620     $5,632     7.76%
   Mortgage-backed securities                               3,402       216     6.35%      5,033        344     6.83%
   Investment securities                                   10,246       542     5.29%      6,276        363     5.78%
   Other interest earning assets                            9,656       211     2.19%     10,959        373     3.40%
                                                         --------    ------   -------    -------     ------   -------
      Total interest-earning assets                        98,299     6,643     6.76%     94,888      6,712     7.07%
Other noninterest-earning assets                            2,269                          1,982
                                                         --------                        -------
      Total assets                                       $100,568                        $96,870
                                                         ========                        =======
Interest-bearing liabilities:
   Deposits                                                68,183     2,229     4.40%     66,338      3,019     4.40%
   Borrowings                                               9,700       507     5.23%      7,783        446     5.73%
                                                         --------    ------   -------    -------     ------   -------
      Total interest-bearing liabilities                   77,883     2,736     3.51%     74,121      3,465     4.67%
Noninterest-bearing liabilities                             1,580                          2,211
                                                         --------                        -------
      Total liabilities                                    79,463                         76,332
Stockholders' equity                                       21,105                         20,538
                                                         --------                        -------
      Total liabilities and stockholders' equity         $100,568                        $96,870
                                                         ========                        =======
Net interest income                                                  $3,907                          $3,247
                                                                     ======                          ======
Net interest rate spread                                                        3.24%                           2.40%
                                                                              =======                         =======
Net interest margin (1)                                                         3.97%                           3.42%
                                                                              =======                         =======
Ratio of average interest-earning assets to
   average interest-bearing liabilities                                       126.21%                         128.02%
                                                                              =======                         =======

<CAPTION>
                                                                Year Ended December 31,
                                                           --------------------------------
                                                                         2000
                                                           --------------------------------
                                                                (Dollars in Thousands)
                                                                                    Average
                                                            Average                  Yield/
                                                            Balance    Interest      Cost
                                                           ---------   --------     -------
<S>                                                         <C>          <C>          <C>
Interest-earning assets:
   Loans receivable, net                                    $66,222      $5,150       7.78%
   Mortgage-backed securities                                 6,741         464       6.88%
   Investment securities                                     14,643         875       5.98%
   Other interest earning assets                              3,779         213       5.64%
                                                            -------      ------     -------
      Total interest-earning assets                          91,385       6,702       7.33%
Other noninterest-earning assets                              1,954
                                                            -------
      Total assets                                          $93,339
                                                            =======
Interest-bearing liabilities:
   Deposits                                                  64,743       3,018       4.40%
   Borrowings                                                 4,909         283       5.76%
                                                            -------      ------     -------
      Total interest-bearing liabilities                     69,652       3,301       4.74%
Noninterest-bearing liabilities                               2,606
                                                            -------
      Total liabilities                                      72,258
Stockholders' equity                                         21,081
                                                            -------
      Total liabilities and stockholders' equity            $93,339
                                                            =======
Net interest income                                                      $3,401
                                                                         ======
Net interest rate spread                                                              2.59%
                                                                                    =======
Net interest margin (1)                                                               3.72%
                                                                                    =======
Ratio of average interest-earning assets to
   average interest-bearing liabilities                                             131.21%
                                                                                    =======
</TABLE>

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


                                       5
<PAGE>

Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                         ------------------------------------------------------------------------------------------
                                                         2002 vs 2001                                     2001 vs 2000
                                         ----------------------------------------------    ----------------------------------------
                                                 Increase/                                         Increase/
                                                (Decrease)                                         (Decrease)
                                                  Due to                    Total                    Due to                Total
                                         --------------------------        Increase        -------------------------      Increase
                                            Volume          Rate          (Decrease)          Volume         Rate        (Decrease)
                                         ------------    ----------    ----------------    -----------    ----------    -----------
                                                       (In Thousands)                                   (In Thousands)
<S>                                        <C>             <C>             <C>                <C>           <C>             <C>
Interest income:
   Investment securities                     212            ($32)           $180              ($484)         ($29)          ($513)
   Loans receivable, net                     182            (158)             24                498             2             500
   Mortgage-backed securities               (105)            (24)           (129)              (117)           (2)           (119)
   Other interest earning assets             (40)           (122)           (162)               272          (112)            160
                                           -----           -----           -----              -----         -----           -----
      Total interest-earning assets         $249           ($336)           ($87)              $169         ($141)            $28
                                           -----           -----           -----              -----         -----           -----
Interest-bearing liabilities:
   Deposits                                   82            (872)           (790)                73           (72)              1
   Borrowings                                103             (42)             61                165            (2)            163
                                           -----           -----           -----              -----         -----           -----
      Total interest-bearing
         liabilities                        $185           ($914)          ($729)              $238          ($74)           $164
                                           -----           -----           -----              -----         -----           -----
Net change in interest income:              $ 64            $578            $642               ($69)         ($67)          ($136)
                                           =====           =====           =====              =====         =====           =====
</TABLE>

Comparison of Operating Results for the Years Ended December 31, 2002 and
December 31, 2001.

      Interest Income. Total interest income decreased $60,300 or .9% to $6.7
million for the year ended December 31, 2002 from $6.7 million for the year
ended December 31, 2001. The decrease in interest income resulted primarily from
the decrease in market interest rates on interest-earning assets partially
offset by an increase in the volume of the Company's interest-earning assets.
Average interest-earning assets increased by $3.4 million to $98.3 million from
$94.5 million. The increase in average interest-earning assets resulted
primarily from an increase of $2.4 million, or 3.3%, in the average balance of
net loans receivable and an increase in the average balance in investment
securities of $4.0 million or 6.4% to $10.2 million for the year ended December
31, 2002 compared to $6.3 million for the year ended December 31, 2001, offset
by a decrease of $1.6 million or 31.8% in average balance of mortgage-backed
securities, and a $1.3 million, or 11.9%, decrease in the average balance of
other interest-earning assets, as management sought to stay liquid during this
time of falling interest rates.

      Interest income on loans receivable increased by $48,000, or .9%, to $5.7
million for the year ended December 31, 2002 from $5.6 million for the year
ended December 31, 2001. This increase in interest income was the result of a
net increase in average loans outstanding for 2002 as compared to 2001, due to
increased loan originations. The average yield on the loan portfolio decreased
to 7.57% for the year ended December 31, 2002 from 7.76% for the year ended
December 31, 2001. The Company's use of a lagging index for its adjustable rate
loans, as well as the lower rate environment, caused the overall yield on the
loan portfolio to decrease in 2002 compared to 2001. Interest income on
mortgage-backed securities decreased by $134,400, or 39.0%, to $209,500. This
decrease in interest income resulted from a decrease in average mortgage-backed
securities outstanding of $1.6 million, or 31.8% and a decrease in average yield
on mortgage-backed securities to 6.35% from 6.83% due to lower market interest
rates.

      Interest Expense. Total interest expense decreased by $729,000, or 21.0%,
to $2.7 million for the year ended


                                       6
<PAGE>

December 31, 2002 from $3.5 million for the year ended December 31, 2001. The
principal reason for the decrease in interest expense was a decrease in the
amount of interest paid on deposits during 2002 compared to 2001, due to a lower
interest rate environment in 2002 compared to 2001, offset by an increase of
$61,200 or 13.7% from $445,700 in 2001 to $506,900 in 2002 paid on borrowings at
the FHLB Bank. The average cost of borrowings decreased by 50 basis points to
5.23% for 2002 compared to 5.73% for 2001.

      Provision for Loan Losses. The Company maintains an allowance for loan
losses based upon management's evaluation of risks in the loan portfolio, the
Company's past loan loss experience, and current and expected future economic
conditions. The Company had $80,000 in provision for loan losses for the year
ended December 31, 2002, and no provision in the year ended December 31, 2001 or
2000. Management believes that it has maintained its allowance for loan losses
at a level that is adequate to provide for probable loan losses, although there
can be no assurance that such losses will not exceed estimated amounts.

A summary of the allowance for loan losses follows:

<TABLE>
<CAPTION>
                                                         December 31
                                             ---------------------------------
                                                2002        2001        2000
                                             ---------   ---------   ---------
<S>                                           <C>         <C>         <C>
                                              $378,188    $403,485    $382,403
    Balance beginning of year
    Charge offs:
         Residential                           (60,235)         --          --
         Auto loans                            (12,303)     (4,363)         --
         Other                                  (5,216)    (21,007)     (1,968)
                                              --------------------------------
                                               (77,754)    (25,370)     (1,968)
                                              --------------------------------
    Recoveries:
        Residential                                 --          --      22,500
        Other                                   23,574          74         550
                                              --------------------------------
                                                    --          --      23,050
                                              --------------------------------
    Net (charge-offs) recoveries               (54,180)    (25,296)     21,082
                                              --------------------------------
    Additions charged to operations             80,000          --          --
                                              --------------------------------
    Balance end of year                       $404,008    $378,188    $403,485
                                              ================================
    Ratio of net charge-offs during
    the period to average loans
    outstanding during the period                  .07%        .04%        .01%
                                              ================================

<CAPTION>
    The allocation of the allowance for loan losses follows:

                                                         December 31
                                             ---------------------------------
                                                2002        2001        2000
                                             ---------   ---------   ---------
<S>                                           <C>         <C>         <C>
    Balance at end of period applicable to

        Real Estate                           $363,599    $340,369    $363,137
        Consumer                                40,409      37,819      40,348
                                              --------------------------------
        Total                                 $404,008    $378,188    $403,485
                                              ================================
</TABLE>


                                       7
<PAGE>

      Net Interest Income. Net interest income increased by $668,700 or 20.6% to
$3.9 million for the year ended December 31, 2002 from $3.2 million for the year
ended December 31, 2001. The principal reason net interest income increased was
that the Company's interest rate spread increased to 3.24% for 2002 compared to
2.40% for 2001.

      Non-interest Income. Non-interest income decreased by $54,900, or 12.0%,
to $401,400 for the year ended December 31, 2002, from $456,300 for the same
period ended December 31, 2001. The decrease in non-interest income was due to
decreased fee income on loan originations and deposits.

      Non-interest Expense. Non-interest expense increased by $168,400, or 9.0%,
to $2.0 million for the year ended December 31, 2002 from $1.9 million for the
year ended December 31, 2001. Non-interest expense consists primarily of
salaries and employee benefits, premises and occupancy costs, furniture and
equipment expense, data processing expense, SAIF deposit insurance premiums and
stock related expenses. Salaries and employee benefits increased $134,400 or
13.3% to $1.1 million for the year ended December 31, 2002 compared to $1.0
million for the year ended December 2001. The increase was due to a $34,700
increase in the amount of contribution required to be made to the Bank's defined
benefit retirement plan. Premises and equipment increased $81,000 or 64.3% due
to increased depreciation taken on equipment and increased data processing
expenses. These increases were partially offset by a decline in other
miscellaneous expenses.

      Income Taxes. Income tax expense increased by $118,000, or 18.2%, to
$766,000 for the year ended December 31, 2002 from $648,000 for the same period
in 2001. The effective tax rate for 2002 was 34.8% compared to 35.3% for 2001.

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

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

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

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

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

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


                                       8
<PAGE>

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

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

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

Contractual Obligations and Commitments

      As disclosed in the Notes to Consolidated Financial Statements, the
Company has certain obligations and commitments to make future payments under
contract. At December 31, 2002, the aggregate contractual obligations and
commitments were as follows:

<TABLE>
<CAPTION>
                                                                          Payments Due by Period
---------------------------------------------------------------------------------------------------------------------------
Contractual Obligations                                    Less than           1-3              4-5             After 5
  (In Thousands)                            Total           1 Year            Years            Years             Years
-------------------------------------    -------------    ------------    --------------    -------------     -------------
<S>                                       <C>              <C>             <C>               <C>               <C>
Total borrowings                          $ 9,700          $ 1,500         $ 1,000           $ 1,000           $ 6,200

<CAPTION>
                                                       Amount of Commitment - Expiration by Period
---------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>             <C>               <C>               <C>
Commitments                                                Less than           1-3              4-5             After 5
  (In Thousands)                            Total           1 Year            Years            Years             Years
-------------------------------------    -------------    ------------    --------------    -------------     -------------

Commitment to lend                        $   272          $   272         $    --           $    --           $    --
</TABLE>

Market Risk Management

      Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk is comprised primarily of interest rate risk
resulting from its core banking activities of lending and deposit taking.
Interest rate risk is the risk that changes in market interest rates might
adversely affect the Company's net interest income or the economic value of its
portfolio of assets, liabilities, and off-balance sheet contracts. Management
continually develops and applies strategies to mitigate this risk. Management
does not believe that the Company's primary market risk exposure and how those
exposures were managed in 2002 have changed when compared to 2001. Market risk
limits have been established by the Board of Directors based on the Company's
tolerance for risk.

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

      The Company primarily relies on the OTS Net Portfolio Value Model (the
Model) to measure its susceptibility to interest rate changes. Net portfolio
value (NPV) is defined as the present value of expected net cash flows from
existing assets minus the present value of expected net cash flows from existing
liabilities plus or minus the present value of net expected cash


                                       9
<PAGE>

flows from existing off-balance sheet contracts, if any. The Model estimates the
current economic value of each type of asset, liability, and off-balance sheet
contract after various assumed instantaneous, parallel shifts in the Treasury
yield curve both upward and downward.

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

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

      The following table sets forth the present value estimates for major
categories of financial instruments of the Company at September 30, 2002, as
calculated by the OTS NPV Model. The table shows the present value of the
instruments under rate shock scenarios of -100 basis points to +300 basis points
in increments of 100 basis points. OTS has suppressed all model outputs
associated with the -300 bps scenario because of the abnormally low prevailing
interest rate environment. As illustrated in the table, the Company's NPV is
more sensitive in a rising rate scenario than in a falling rate scenario. As
market rates increase, the market value of the Company's large portfolio of
mortgage loans and securities declines significantly and prepayments slow. As
interest rates decrease, the market value of mortgage loans and mortgage-backed
securities increase less dramatically due to prepayment risk, periodic rate
caps, and other embedded options.

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

                Present Value Estimates by Interest Rate Scenario
                          Calculated at September 2002

<TABLE>
<CAPTION>
                                           -300 bp    -200 bp     -100 bp        0 bp      +100 bp      +200 bp      +300 bp
                                           -------    -------    --------    --------     --------     --------     --------
                                                                     (Dollars in Thousands)
<S>                                        <C>        <C>          <C>         <C>          <C>          <C>          <C>
      Financial Instrument:
      Mortgage loans and securities        $    --    $    --      81,484      80,173       78,446       75,828       73,006
      Non-mortgage loans                        --         --       3,067       3,030        2,993        2,957        2,922
      Cash, deposits and securities             --         --      18,527      18,341       18,137       17,932       17,730
      Other assets                              --         --       1,967       2,399        2,829        3,237        3,622
                                           -------    -------    --------    --------     --------     --------     --------
      Total assets                              --         --     105,925     104,823      103,280      100,820       98,134
                                           -------    -------    --------    --------     --------     --------     --------
      Deposits                                  --         --      69,624      68,894       68,184       67,491       66,816
      Borrowings                                --         --       3,698       3,623        3,551        3,482        3,415
      Other liabilities                         --         --       1,328       1,328        1,328        1,328        1,328
                                           -------    -------    --------    --------     --------     --------     --------
      Total liabilities                         --         --      82,128      80,986       79,936       78,966       78,065
      Commitments                                          --          28          17           (3)         (28)         (52)
                                           -------    -------    --------    --------     --------     --------     --------
      Net portfolio value                  $    --    $    --      23,825      23,854       23,341       21,826       20,017
                                           =======    =======    ========    ========     ========     ========     ========
      Net portfolio value ratio               0.00%      0.00%      22.49%      22.76%       22.60%       21.65%       20.40%
                                           =======    =======    ========    ========     ========     ========     ========
      NPV minimum board limit                 0.00%      0.00%      21.00%      20.00%       19.00%       18.00%       17.00%
                                           =======    =======    ========    ========     ========     ========     ========
</TABLE>


                                       10
<PAGE>

Liquidity and Capital Resources

      The Company adjusts its liquidity levels in order to meet funding needs of
deposit outflows, payment of real estate taxes on mortgage loans, repayment of
borrowings and loan commitments. The Company also adjusts liquidity as
appropriate to meet its asset and liability management objectives.

      The Company's primary sources of funds are deposits, amortization and
repayment of loans and mortgage-backed securities, maturities of investment
securities and other investments, and earnings and funds provided from
operations. While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions, and competition. The Company manages the pricing of its deposits to
maintain a desired deposit balance. In addition, the Company invests in
short-term interest-earning assets, which provide liquidity to meet lending
requirements. At December 31, 2002, $12.8 million, or 52.6%, of the Company's
investment portfolio (including cash, deposits in other financial institutions,
FHLB stock, and securities) was scheduled to mature in one year or less, $10.5
million, or 43.2%, was scheduled to mature in one to five years, and $1.0
million, or 4.1% was scheduled to mature in over five years. Assets qualifying
for liquidity outstanding at December 31, 2002 amounted to $17.3 million. For
additional information about cash flows from the Company's operating, financing,
and investing activities, see Statements of Cash Flows included in the
Consolidated Financial Statements.

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

      At December 31, 2002, the Company had core capital of $21.5 million, or
20.9% of adjusted total assets, which was approximately $17.4 million above the
minimum requirements of 4.0% of adjusted total assets in effect on that date. On
December 31, 2002, the Company had risk-based capital of $21.8 million
(including $21.5 million in core capital), or 44.6% of risk-weighted assets of
$48.9 million. This amount was $17.9 million above the 8% requirement in effect
on that date. The Company is presently in compliance with the fully phased-in
capital requirements.

      At December 31, 2002, the Company had outstanding loan commitments of
$272,300. This amount does not include $822,500 of the unfunded portion of loans
in process. Certificates of deposit scheduled to mature in less than one year as
of December 31, 2002, totaled $20.4 million. Based on prior experience,
management believes that a significant portion of such deposits will remain with
the Company.

Impact of Inflation and Changing Prices

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

Impact of New Accounting Standards

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


                                       11
<PAGE>

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

      In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the Company to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development, and/or normal use of the assets. The Company also records a
corresponding asset which is depreciated over the life of the asset. The Company
is required to adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No.
143 is not expected to have a material effect on the Company's financial
statements.

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

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses
on the extinguishment of debt to prohibit the classification of the gain or loss
as extraordinary, as the use of such extinguishments have become part of the
risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13
to require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of the Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 is not expected to have a material
effect on the Company's financial statements.

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The provisions
of this Statement are effective for exit and disposal activities that are
initiated after December 31, 2002. The effect of this Statement on the Company's
financial statements was not material.

      In October 2002, the FASB Statement No. 147 (FAS 147), Acquisitions of
Certain Financial Institutions, which amends Statement No. 72 (FAS 72),
Accounting for Certain Acquisitions of Banking or Thrift Institutions and no
longer requires the separate recognition and subsequent amortization of goodwill
that was originally required by FAS 72. FAS 147 also amend Statement No. 144
(FAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, to
include in its scope long-term customer-relationship intangible assets (such as
core deposit intangibles). The effects of implementation on the Company's
financial statements were immaterial.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57, and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 15, 2002.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures of booth annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements.


                                       12
<PAGE>

Safe Harbor Statement

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


                                       13
<PAGE>


                          Independent Auditors' Report

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

We have audited the accompanying consolidated balance sheets of Webster City
Federal Bancorp and subsidiaries (the Company) as of December 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Webster City Federal
Bancorp and subsidiaries as of December 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.


                                             KPMG LLP

Des Moines, Iowa
January 17, 2003


                                       14
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                   Assets                                         2002                 2001
                                                                              -------------       -------------
<S>                                                                          <C>                     <C>
Cash and cash equivalents                                                    $   5,251,946           9,183,215
Time deposits in other financial institutions                                   10,892,000           1,399,000
Securities available-for-sale (note 2)                                           7,697,110          10,188,900
Securities held-to-maturity (market value of $3,646,401
      in 2002 and $4,654,121 in 2001) (note 2)                                   3,553,789           4,574,354
Loans receivable, net (notes 3, 4, and 7)                                       73,319,065          74,492,269
Federal Home Loan Bank (FHLB) stock, at cost                                       704,900             613,200
Office property and equipment, net (note 5)                                        726,135             882,238
Deferred taxes on income (note 8)                                                  242,000             189,000
Accrued interest receivable (notes 2 and 3)                                        630,779             568,569
Prepaid expenses and other assets                                                  536,457             270,618
                                                                             -------------       -------------
                                                                             $ 103,554,181         102,361,363
                                                                             =============       =============
                      Liabilities and Stockholders' Equity

Deposits (note 6)                                                            $  70,216,797          70,042,590
FHLB advances (note 7)                                                           9,700,000           9,700,000
Advance payments by borrowers for taxes and insurance                              306,386             338,167
Accrued interest payable (note 6)                                                   42,491              53,454
Current income taxes payable (note 8)                                               83,374              84,414
Accrued expenses and other liabilities (note 9)                                    886,331             794,438
                                                                             -------------       -------------
               Total liabilities                                                81,235,379          81,013,063
                                                                             -------------       -------------
Stockholders' equity (note 10):
      Serial preferred stock, $0.10 par value
          Authorized 10,000,000 shares; issued none                                     --                  --
      Common stock, $0.10 par value. Authorized 20,000,000 shares;
          issued 2,150,611 and 1,888,373 shares outstanding in 2002,
          and authorized 20,000,000 shares, 2,133,386 issued and
          1,871,515 outstanding in 2001                                            215,061             213,339
      Additional paid-in capital                                                 9,467,295           9,242,996
      Retained earnings, substantially restricted                               16,456,391          15,749,736
      Unrealized gain on securities available-for-sale                              60,994              23,168
      Treasury stock, 262,238 shares in 2002 and 2001, respectively             (3,880,939)         (3,880,939)
                                                                             -------------       -------------
               Total stockholders' equity                                       22,318,802          21,348,300

Commitments and contingencies (notes 3 and 13)
                                                                             -------------       -------------
               Total liabilities and stockholders' equity                    $ 103,554,181         102,361,363
                                                                             =============       =============
</TABLE>

See accompanying notes to consolidated financial statements


                                       15
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                      Consolidated Statements of Operations

                  Years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                          2002            2001            2000
                                                       ----------      ----------      ----------
<S>                                                    <C>              <C>             <C>
Interest income:
      Loans receivable                                 $5,680,253       5,632,220       5,149,323
      Mortgage-backed and related securities              209,508         343,953         464,265
      Investment securities                               551,526         363,564         875,385
      Other interest earning assets                       210,937         372,775         213,131
                                                       ----------      ----------      ----------
              Total interest income                     6,652,224       6,712,512       6,702,104
                                                       ----------      ----------      ----------
Interest expense:
      Deposits (note 6)                                 2,228,773       3,018,904       3,018,113
      FHLB advances (note 7)                              506,894         445,726         282,746
                                                       ----------      ----------      ----------
              Total interest expense                    2,735,667       3,464,630       3,300,859
                                                       ----------      ----------      ----------
              Net interest income                       3,916,557       3,247,882       3,401,245

Provision for losses on loans (note 4)                     80,000              --              --
                                                       ----------      ----------      ----------
              Net interest income after provision
                  for losses on loans                   3,836,557       3,247,882       3,401,245
                                                       ----------      ----------      ----------
Noninterest income:
      Fees and service charges                            218,928         258,423         181,329
      Gain on sale of securities                               --              --          18,500
      Other                                               182,504         197,870         147,233
                                                       ----------      ----------      ----------
              Total noninterest income                    401,432         456,293         347,062
                                                       ----------      ----------      ----------
Noninterest expense:
      Compensation, payroll taxes,
          and employee benefits (note 9)                1,143,193       1,008,798         891,530
      Advertising                                          28,995          29,622          26,678
      Office property and equipment                       207,666         126,593         131,331
      Federal insurance premiums                           10,214          12,749          13,985
      Data processing services                            161,336         132,739         119,071
      Other real estate expenses, net                      22,237           6,487             993
      Other                                               461,054         549,288         473,089
                                                       ----------      ----------      ----------
              Total noninterest expense                 2,034,695       1,866,276       1,656,677
                                                       ----------      ----------      ----------
              Earnings before taxes on income           2,203,294       1,837,899       2,091,630

Taxes on income (note 8)                                  766,000         648,000         791,000
                                                       ----------      ----------      ----------
              Net earnings                             $1,437,294       1,189,899       1,300,630
                                                       ==========      ==========      ==========
Earnings per share - basic (note 1)                    $     0.76            0.64            0.67
Earnings per share - diluted (note 1)                        0.76            0.63            0.67
</TABLE>

See accompanying notes to consolidated financial statements.

                                       16
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                                                                       Additional
                                                          Common         Treasury        paid-in
                                                          stock           stock          capital
                                                        -----------    -----------     -----------
<S>                                                     <C>             <C>              <C>
Balance at December 31, 1999                            $   212,222     (1,476,326)      9,093,681

Comprehensive income:
    Net income                                                   --             --              --
    Unrealized loss on securities available-for-sale             --             --              --
    Less: reclassification adjustment for realized
       gains included in net income, net of tax                  --             --              --
                                                        -----------    -----------     -----------
            Total comprehensive income                           --             --              --
                                                        -----------    -----------     -----------
Repurchase of common stock (142,400 shares)                      --     (2,071,250)             --
Dividends paid on common stock                                   --             --              --
                                                        -----------    -----------     -----------
Balance at December 31, 2000                                212,222     (3,547,576)      9,093,681

Comprehensive income:
    Net income                                                   --             --              --
    Unrealized gain on securities available-for-sale             --             --              --
                                                        -----------    -----------     -----------
            Total comprehensive income                           --             --              --
                                                        -----------    -----------     -----------
Exercise of options (11,170 shares)                           1,117             --         149,315
Repurchase of common stock (23,100 shares)                       --       (333,363)             --
Dividends paid on common stock                                   --             --              --
                                                        -----------    -----------     -----------
Balance at December 31, 2001                            $   213,339     (3,880,939)      9,242,996

Comprehensive income:
    Net income                                                   --             --              --
    Unrealized gain on securities available-for-sale             --             --              --
    Less: reclassification adjustment for realized
       gains included in net income, net of tax                  --             --              --
                                                        -----------    -----------     -----------
            Total comprehensive income                           --             --              --
                                                        -----------    -----------     -----------
Exercise of options (19,316 shares)                           1,722             --         224,299
Dividends paid on common stock                                   --             --              --
                                                        -----------    -----------     -----------
Balance at December 31, 2002                            $   215,061     (3,880,939)      9,467,295
                                                        ===========    ===========     ===========

<CAPTION>
                                                                         Accumulated
                                                                            other
                                                          Retained      comprehensive
                                                          earnings      income (loss)       Total
                                                         -----------    -------------    -----------
<S>                                                       <C>                 <C>         <C>
Balance at December 31, 1999                              14,518,728              --      22,348,305

Comprehensive income:
    Net income                                             1,300,630              --       1,300,630
    Unrealized loss on securities available-for-sale              --         (22,623)        (22,623)
    Less: reclassification adjustment for realized
       gains included in net income, net of tax                   --         (12,210)        (12,210)
                                                         -----------     -----------     -----------
            Total comprehensive income                     1,300,630         (34,833)      1,265,797
                                                         -----------     -----------     -----------
Repurchase of common stock (142,400 shares)                       --              --      (2,071,250)
Dividends paid on common stock                              (637,948)             --        (637,948)
                                                         -----------     -----------     -----------
Balance at December 31, 2000                              15,181,410         (34,833)     20,904,904

Comprehensive income:
    Net income                                             1,189,899              --       1,189,899
    Unrealized gain on securities available-for-sale              --          58,001          58,001
                                                         -----------     -----------     -----------
            Total comprehensive income                     1,189,899          58,001       1,247,900
                                                         -----------     -----------     -----------
Exercise of options (11,170 shares)                               --              --         150,432
Repurchase of common stock (23,100 shares)                        --              --        (333,363)
Dividends paid on common stock                              (621,573)             --        (621,573)
                                                         -----------     -----------     -----------
Balance at December 31, 2001                              15,749,736          23,168      21,348,300

Comprehensive income:
    Net income                                             1,437,294              --       1,437,294
    Unrealized gain on securities available-for-sale              --          37,826          37,826
    Less: reclassification adjustment for realized
       gains included in net income, net of tax                   --              --              --
                                                         -----------     -----------     -----------
            Total comprehensive income                     1,437,294          37,826       1,475,120
                                                         -----------     -----------     -----------
Exercise of options (19,316 shares)                               --              --         226,021
Dividends paid on common stock                              (730,639)             --        (730,639)
                                                         -----------     -----------     -----------
Balance at December 31, 2002                              16,456,391          60,994      22,318,802
                                                         ===========     ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       17
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                        Years ended 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                              2002           2001             2000
                                                                          -----------     -----------     -----------
<S>                                                                       <C>               <C>             <C>
Cash flows from operating activities:
     Net earnings                                                         $ 1,437,294       1,189,899       1,300,630
                                                                          -----------     -----------     -----------
     Adjustments to reconcile net earnings to
         net cash provided by operating activities:
            Depreciation and amortization                                     210,262          65,236          90,874
            Provision for losses on loans                                      80,000              --              --
            Loss on sale of fixed assets                                        8,745              --              --
            Change in:
                Accrued interest receivable                                   (62,210)        101,810          90,888
                Prepaid expenses and other assets                            (275,506)        (70,636)       (160,358)
                Accrued interest payable                                      (10,963)          2,599         (71,357)
                Accrued expenses and other liabilities                         91,893          73,280          86,623
                Accrued taxes on income                                        25,265           2,310          44,661
                Deferred taxes on income                                      (78,000)        (14,000)        (29,000)
                                                                          -----------     -----------     -----------
                   Total adjustments                                          (10,514)        160,599          52,331
                                                                          -----------     -----------     -----------
                   Net cash provided by operating activities                1,426,780       1,350,498       1,352,961
                                                                          -----------     -----------     -----------
Cash flows from investing activities:
     Proceeds from maturity of time deposits in other financial
         institutions                                                              --              --       2,585,000
     Proceeds from the maturity of investment securities
         available-for-sale                                                 6,500,000              --              --
     Proceeds from sales of securities available-for-sale                          --       9,550,000       2,996,700
     Purchase of investment securities available-for-sale                  (3,983,275)     (8,155,235)             --
     Purchase of investment securities held to maturity                      (500,000)             --              --
     Purchase of time deposits                                             (9,493,000)     (1,399,000)             --
     Principal collected on mortgage-backed securities                      1,509,229       1,806,728       1,766,477
     Net change in loans receivable                                         1,092,469      (5,387,668)     (6,904,897)
     Purchase of FHLB stock                                                   (91,700)             --              --
     Purchase of office property and equipment                                 (3,275)       (438,477)        (92,432)
                                                                          -----------     -----------     -----------
                   Net cash (used in) provided by investing activities     (4,969,552)     (4,023,652)        350,848
                                                                          -----------     -----------     -----------
Cash flows from financing activities:
     Net change in deposits                                                   174,207       4,896,781      (2,772,393)
     Net (decrease) increase in advance payments
         by borrowers for taxes and insurance                                 (31,781)         21,401          42,389
     Proceeds from FHLB advance                                                    --       1,500,000       5,000,000
     Repurchase of common stock                                                    --        (333,363)     (2,071,250)
     Proceeds on stock options                                                199,716         142,417              --
     Dividends paid                                                          (730,639)       (621,573)       (637,948)
                                                                          -----------     -----------     -----------
                   Net cash provided by (used in) financing activities       (388,497)      5,605,663        (439,202)
                                                                          -----------     -----------     -----------
                   Net increase (decrease) in cash and cash
                       equivalents                                         (3,931,269)      2,932,509       1,264,607

Cash and cash equivalents at beginning of year                              9,183,215       6,250,706       4,986,099
                                                                          -----------     -----------     -----------
Cash and cash equivalents at end of year                                  $ 5,251,946       9,183,215       6,250,706
                                                                          ===========     ===========     ===========
Supplemental disclosures of cash flow information:
     Cash paid during the year for:
         Interest                                                         $ 2,815,388       3,462,031       3,372,216
         Taxes on income                                                      852,477         659,846         744,483
     Transfer of securities held-to-maturity to available-for-sale                 --              --      14,548,897
</TABLE>

See accompanying notes to consolidated financial statements.


                                       18
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

(1)   Summary of Significant Accounting Policies and Practices

      (a)   Description of Business

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

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

      (b)   Principles of Consolidation

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

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

      (c)   Earnings Per Share Computations

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

            Earnings per share-basic for 2002 is computed using the 1,881,784
            weighted average common shares outstanding for the year, net of
            262,238 weighted average treasury shares and divided into the net
            earnings of $1,437,294. Earnings per share-diluted for 2002 is
            computed using the 1,881,784

                                                                     (Continued)


                                       19
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

            weighted average common shares outstanding and adding the dilutive
            effect of stock options totaling 3,450 shares and divided into the
            net earnings of $1,437,294.

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

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

      (d)   Stock Option Plan

            The Company applies the intrinsic-value-based method of accounting
            prescribed by Accounting Principles Board (APB) Opinion No. 25,
            Accounting for Stock Issued to Employees, and related
            interpretations including FASB Interpretation No. 44, Accounting for
            Certain Transactions involving Stock Compensation, an interpretation
            of APB Opinion No. 25, issued in March 2000, the account for its
            fixed-plan stock options. Under this method, compensation expense is
            recorded on the date of grant only if the current market price of
            the underlying stock exceeds the exercise price. SFAS No. 123,
            Accounting for Stock-Based Compensation, established accounting and
            disclosure requirements using a fair-value-based method of
            accounting for stock-based employee compensation plans. As allowed
            by SFAS No. 123, the Company has elected to continue to apply the
            intrinsic-value-based method of accounting described above, and has
            adopted only the disclosure requirements of SFAS No. 123. The
            following table illustrates the effect on net income if the
            fair-value-based method had been applied to all outstanding and
            unvested awards in each period.

<TABLE>
<CAPTION>
                                                2002             2001           2000
                                           -------------    -------------    ----------
<S>                                        <C>                  <C>           <C>
Net income, as reported                    $   1,437,294        1,189,899     1,300,630
Add stock-based employee
      compensation expense included in
      reported net income, net of tax                 --               --            --
Deduct total stock-based employee
      compensation expense determined
      under fair-value-based method for
      all rewards, net of tax                         --               --       (21,934)
                                           -------------    -------------    ----------
                      Pro forma            $   1,437,294        1,189,899     1,278,696
                                           =============    =============    ==========
Earnings per
      share - basic      As reported       $        0.76             0.64          0.67
                         Pro forma                  0.76             0.64          0.66
Earnings per
      share - diluted    As reported       $        0.76             0.63          0.67
                         Pro forma                  0.76             0.63          0.66
</TABLE>

                                                                     (Continued)


                                       20
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

            Pro forma net earnings reflect options granted in 1996. The impact
            of calculating compensation cost for stock options under SFAS 148 is
            reflected in the pro forma net income amounts presented above over
            the options' vesting period which was three years. There were no
            options granted in 2002, 2001, and 2000.

      (e)   Cash and Cash Equivalents

            For the purpose of reporting cash flows, the Company includes cash
            and due from other financial institutions and time deposits in other
            financial institutions with original maturities of three months or
            less in cash and cash equivalents. Included as cash equivalents at
            December 31, 2002 and 2001, were interest-bearing deposits totaling
            $5,084,384 and $8,859,353, respectively.

      (f)   Securities

            Investment securities are classified based on the Company's intended
            holding period. Securities which the Company has the ability and
            positive intent to hold to maturity are classified as
            held-to-maturity. Securities held principally for the purpose of
            near-term sales are classified as trading. Securities which may be
            sold prior to maturity to meet liquidity needs, to respond to market
            changes, or to adjust the Company's asset-liability position are
            classified as available-for-sale. At December 31, 2002 and 2001, the
            Bank had no trading securities.

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

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

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

      (g)   Allowance for Losses on Loans

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

                                                                     (Continued)


                                       21
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

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

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

      (h)   Loan Origination Fees and Related Costs

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

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

      (i)   Financial Instruments with Off-Balance Sheet Risk

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

      (j)   Office Property and Equipment

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

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

                                                                     (Continued)


                                       22
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      (k)   Taxes on Income

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

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

      (l)   Stock Option Plan

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

      (m)   Fair Value of Financial Instruments

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

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

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

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

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

                                                                     (Continued)


                                       23
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

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

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

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

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

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

      (n)   Effect of New Financial Accounting Standards

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

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

                                                                     (Continued)


                                       24
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

            In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
            Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the
            Company to record the fair value of an asset retirement obligation
            as a liability in the period in which it incurs a legal obligation
            associated with the retirement of tangible long-lived assets that
            result from the acquisition, construction, development, and/or
            normal use of the assets. The Company also records a corresponding
            asset which is depreciated over the life of the asset. The Company
            is required to adopt SFAS No. 143 on January 1, 2003. The adoption
            of SFAS No. 143 did not have a material effect on the Company's
            financial statements.

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

            In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
            Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
            and Technical Corrections. SFAS No. 145 amends existing guidance on
            reporting gains and losses on the extinguishment of debt to prohibit
            the classification of the gain or loss as extraordinary, as the use
            of such extinguishments have become part of the risk management
            strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
            require sale-leaseback accounting for certain lease modifications
            that have economic effects similar to sale-leaseback transactions.
            The provisions of the Statement related to the rescission of the
            Statement No. 4 are applied in fiscal years beginning after May 15,
            2002. Earlier application of these provisions is encouraged. The
            provisions of the Statement related to Statement No. 13 were
            effective for transactions occurring after May 15, 2002, with early
            application encouraged. The adoption of SFAS No. 145 did not have a
            material effect on the Company's financial statements.

            In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
            Associated with Exit or Disposal Activities. This Statement
            addresses financial accounting and reporting for costs associated
            with exit or disposal activities and nullifies Emerging Issues Task
            Force (EITF) Issue No. 94-3, Liability Recognition for Certain
            Employee Termination Benefits and Other Costs to Exit an Activity
            (including Certain Costs Incurred in a Restructuring). The
            provisions of this Statement are effective for exit and disposal
            activities that are initiated after December 31, 2002. The effect of
            this Statement is not material.

            In October 2002, the FASB Statement No. 147 (FAS 147), Acquisitions
            of Certain Financial Institutions, which amends Statement No. 72
            (FAS 72), Accounting for Certain Acquisitions of Banking or Thrift
            Institutions and no longer requires the separate recognition and
            subsequent amortization of goodwill that was originally required by
            FAS 72. FAS 147 also amend Statement No. 144 (FAS 144), Accounting
            for the Impairment or Disposal of Long-Lived Assets, to include in
            its scope long-term customer-relationship intangible assets (such as
            core deposit intangibles). The effects of implementation were
            immaterial.

                                                                     (Continued)


                                       25
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

            In November 2002, the FASB issued Interpretation No. 45, Guarantor's
            Accounting and Disclosure Requirements for Guarantees, Including
            Indirect Guarantees of Indebtedness to Others, an interpretation of
            FASB Statements No. 5, 57, and 107 and a rescission of FASB
            Interpretation No. 34. This Interpretation elaborates on the
            disclosures to be made by a guarantor in its interim and annual
            financial statements about its obligations under guarantees issued.
            The Interpretation also clarifies that a guarantor is required to
            recognize, at inception of a guarantee, a liability for the fair
            value of the obligation undertaken. The initial recognition and
            measurement provisions of the Interpretation are applicable to
            guarantees issued or modified after December 31, 2002 and are not
            expected to have a material effect on the Company's financial
            statements. The disclosure requirements are effective for financial
            statements of interim and annual periods ending after December 15,
            2002 and are included in the notes to these consolidated financial
            statements.

            In December 2002, the FASB issued SFAS No. 148, Accounting for
            Stock-Based Compensation - Transition and Disclosure, an amendment
            of FASB Statement No. 123. This Statement amends FASB Statement No.
            123, Accounting for Stock-Based Compensation, to provide alternative
            methods of transition for a voluntary change to the fair value
            method of accounting for stock-based employee compensation. In
            addition, this Statement amends the disclosure requirements of
            Statement No. 123 to require prominent disclosures of booth annual
            and interim financial statements. Certain of the disclosure
            modifications are required for fiscal years ending after December
            15, 2002 and are included in the notes to these consolidated
            financial statements.

(2)   Securities Available-for-Sale and Held-to-Maturity

      Securities available-for-sale at December 31, 2002 and 2001 were as
      follows:

<TABLE>
<CAPTION>
                                                Gross         Gross         Estimated
                               Amortized     unrealized     unrealized        fair
           Description            cost          gains         losses          value
      --------------------    -----------    -----------    -----------    -----------
<S>                           <C>                 <C>            <C>        <C>
      2002:
            U.S. agency
                securities    $ 2,000,000         31,600             --      2,031,600
            Corporate           5,600,000         72,110          6,600      5,665,510
                              -----------    -----------    -----------    -----------
                              $ 7,600,000        103,710          6,600      7,697,110
                              ===========    ===========    ===========    ===========
      2001:
            U.S. agency
                securities    $ 5,000,000         93,400             --      5,093,400
            Corporate           5,155,235          4,000         63,735      5,095,500
                              -----------    -----------    -----------    -----------
                              $10,155,235         97,400         63,735     10,188,900
                              ===========    ===========    ===========    ===========
</TABLE>

                                                                     (Continued)


                                       26
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      Securities held-to-maturity at December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                            Gross        Gross
                                            Amortized    unrealized    unrealized     Estimated
          Description                          cost         gains        losses      fair value
------------------------------------       ----------    ----------    ----------    ----------
<S>                                        <C>               <C>           <C>        <C>
2002:
      Municipal bonds                      $  869,860         1,620            --       871,480
      Mortgage-backed
          securities:
              Federal National
                  Mortgage
                  Association
                  (FNMA)                      731,227        31,433           681       761,979
              Government
                  National Mortgage
                  Association               1,373,280        14,548         1,943     1,385,885
                  (GNMA)
              Federal Home Loan
                  Mortgage
                  Corporation
                  (FHLMC)                     579,422        49,090         1,455       627,057
                                           ----------    ----------    ----------    ----------
                                           $3,553,789        96,691         4,079     3,646,401
                                           ==========    ==========    ==========    ==========
2001:
      Municipal bonds                      $  369,294         2,186            --       371,480
      Mortgage-backed
          securities:
              FNMA                          1,101,885         9,631           923     1,110,593
              GNMA                          2,064,025        15,103         9,129     2,069,999
              FHLMC                         1,039,150        65,726         2,827     1,102,049
                                           ----------    ----------    ----------    ----------
                                           $4,574,354        92,646        12,879     4,654,121
                                           ==========    ==========    ==========    ==========
</TABLE>

                                                                     (Continued)


                                       27
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      The amortized cost and estimated fair value of securities held-to-maturity
      and securities available-for-sale at December 31, 2002 are shown below by
      contractual maturity. Expected maturities will differ from contractual
      maturities because borrowers may have the right to call or prepay
      obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                           Held-to-Maturity           Available-for-Sale
                                       ------------------------    ------------------------
                                        Amortized    Estimated     Amortized      Estimated
                                          cost       fair value      cost        fair value
                                       ----------    ----------    ----------    ----------
<S>                                    <C>            <C>           <C>           <C>
      Due in one year or less          $       --            --     2,000,000     2,015,400
      Due after one year
            through five years            369,860       371,480     4,600,000     4,653,310
      Due after five years,
            but less than ten years            --            --     1,000,000     1,028,400
      Due after ten years                 500,000       500,000            --            --
      Mortgage-backed and
            related securities          2,683,929     2,774,921            --            --
                                       ----------    ----------    ----------    ----------
                                       $3,553,789     3,646,401     7,600,000     7,697,110
                                       ==========    ==========    ==========    ==========
</TABLE>

      There were no sales of securities held-to-maturity during the years ended
      December 31, 2002, 2001, and 2000. Proceeds from the sale of securities
      available-for-sale during 2000 totaled $2,996,700 and resulted in gross
      realized gains of $18,500 and gross realized losses of $0.

      At December 31, 2002 and 2001, accrued interest receivable for securities
      available-for-sale and securities held-to-maturity totaled $136,724 and
      $143,589, respectively.

                                                                     (Continued)


                                       28
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

(3)   Loans Receivable

      At December 31, 2002 and 2001, loans receivable consisted of the
      following:

                                                        2002           2001
                                                    ------------   ------------
      Real estate loans:
            One- to four-family residential         $ 62,445,031     62,109,087
            Multifamily residential and other          3,912,000      4,963,000
            Home equity                                4,326,979      4,729,799
                                                    ------------   ------------
                                                      70,684,010     71,801,886
                                                    ------------   ------------
      Consumer and other loans:
            Automobile                                 1,994,000      2,362,000
            Home improvement                             767,659      1,123,443
            Loans on savings deposits                    320,096        255,395
            Other                                        726,796        720,287
                                                    ------------   ------------
                                                       3,808,551      4,461,125
                                                    ------------   ------------
      Real estate sold on contract                        53,136         61,595
                                                    ------------   ------------
                  Total loans receivable              74,545,697     76,324,606

      Premium on loans purchased                             232            966
      Unearned discount on loans purchased                  (387)        (6,071)
      Loans in process                                  (822,469)    (1,449,044)
      Allowance for losses on loans                     (404,008)      (378,188)
                                                    ------------   ------------
                                                    $ 73,319,065     74,492,269
                                                    ============   ============

      Accrued interest receivable on loans receivable was $432,812 and $424,980
      at December 31, 2002 and 2001, respectively.

      The Company originates residential and commercial real estate loans and
      other consumer loans, primarily in its Hamilton County, Iowa market area
      and adjacent counties. In addition, the Company has purchased residential
      loans, primarily in Iowa, Texas, and, Colorado. At December 31, 2002,
      approximately $2.1 million of the Company's loans were secured by
      properties in Texas and Colorado. Although the Company has a diversified
      loan portfolio, a substantial portion of its borrowers' ability to repay
      their loans is dependent upon economic conditions in the Company's market
      area.

      Loans with interest more than ninety days in arrears, defined as impaired
      and carried on nonaccrual status, amounted to $101,759 and $908,863 at
      December 31, 2002 and 2001, respectively. There were no specific reserves
      relating to these loans. The average balances of nonaccrual loans for the
      years ended December 31, 2002 and 2001 were $410,389 and $47,835,
      respectively. For the years ended December 31, 2002 and 2001, interest
      income, which would have been recorded under the original terms of the
      loans, was approximately $25,538 and $23,711, respectively.

      At December 31, 2002, the Company had commitments to buy or fund fixed
      rate loans totaling $272,300. There were no commitments to sell loans.

                                                                     (Continued)


                                       29
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      Loan customers of the Company include certain executive officers and
      directors and their related interests and associates. All loans to this
      group were made in the ordinary course of business at prevailing terms and
      conditions. Such loans at December 31, 2002 and 2001 amounted to $423,903
      and $826,415, respectively. During the year ended December 31, 2002,
      $257,925 of new loans were made and repayments totaled $660,437.

(4)   Allowance for Losses on Loans

      A summary of the allowance for losses on loans follows:

                                                     December 31
                                          -------------------------------------
                                             2002         2001           2000
                                          ---------     ---------     ---------

      Balance at beginning of year        $ 378,188       403,484       382,402

      Provision for losses                   80,000            --            --
      Charge-offs                           (77,754)      (25,370)       (1,968)
      Recoveries                             23,574            74        23,050
                                          ---------     ---------     ---------
      Balance at end of year              $ 404,008       378,188       403,484
                                          =========     =========     =========

(5)   Office Property and Equipment

      At December 31, 2002 and 2001, the cost and accumulated depreciation of
      office property and equipment were as follows:

                                                        2002             2001
                                                    -----------      -----------
      Land                                          $   125,746          125,746
      Office building and improvements                  998,111        1,016,180
      Furniture, fixtures, and equipment                511,202          667,113
                                                    -----------      -----------
                                                      1,635,059        1,809,039
      Less accumulated depreciation                     908,924          926,801
                                                    -----------      -----------
                                                    $   726,135          882,238
                                                    ===========      ===========

(6)   Deposits

      At December 31, 2002 and 2001, deposits are summarized as follows:

                                                        2002             2001
                                                    -----------      -----------
      Passbook                                      $ 4,871,174        4,633,636
      Money market plus                               7,824,633        7,559,363
      Noninterest-bearing checking                    1,766,688        1,763,289
      NOW                                             7,952,036        8,261,056
      Certificates of deposit                        47,802,266       47,825,246
                                                    -----------      -----------
                                                    $70,216,797       70,042,590
                                                    ===========      ===========

                                                                     (Continued)


                                       30
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      The aggregate amount of certificates of deposit with a minimum
      denomination of $100,000 was approximately $6,184,727 and $5,651,638 at
      December 31, 2002 and 2001, respectively.

      At December 31, 2002, the scheduled maturities of certificates of deposit
      were as follows:

                       2003                          $20,420,193
                       2004                            8,259,816
                       2005                           16,464,691
                       2006                              822,097
                       2007                            1,823,509
                       Thereafter                         11,960
                                                     -----------
                                                     $47,802,266
                                                     ===========

      Interest expense on deposits for the years ended December 31, 2002, 2001,
      and 2000 is summarized as follows:

                                             2002          2001          2000
                                          ----------    ----------    ----------
      Passbook                            $   35,679        73,236       111,190
      Money market plus and NOW              196,590       290,319       355,930
      Certificates of deposit              1,996,504     2,655,349     2,550,993
                                          ----------    ----------    ----------
                                          $2,228,773     3,018,904     3,018,113
                                          ==========    ==========    ==========

      Public funds amounted to approximately $2,202,000 and $1,451,000 at
      December 31, 2002 and 2001, respectively.

      At December 31, 2002 and 2001, accrued interest payable on deposits
      totaled $42,491 and $53,454, respectively.

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

      The following is a summary of advances from FHLB at December 31, 2002 and
      2001:

<TABLE>
<CAPTION>
             FHLB of Des Moines                  Fixed
          Maturity in fiscal year               interest
            ending December 31                    rate         2002           2001
         --------------------------------       ---------   ----------    ----------
<S>                                               <C>       <C>            <C>
         2003                                     3.63%     $1,500,000     1,500,000
         2005                                     4.78       1,000,000     1,000,000
         2006                                     5.09       1,000,000     1,000,000
         2009 (callable March 1, 2003)            5.55       3,200,000     3,200,000
         2010 (callable March 9, 2003)            5.64       3,000,000     3,000,000
                                                            ----------    ----------
                                                            $9,700,000     9,700,000
                                                            ==========    ==========
</TABLE>

                                                                     (Continued)


                                       31
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

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

(8)   Taxes on Income

      Taxes on income were comprised as follows:

                                                           2002
                                          -------------------------------------
                                           Federal         State         Total
                                          ---------       -------       -------
      Current                             $ 727,000       117,000       844,000
      Deferred                              (68,000)      (10,000)      (78,000)
                                          ---------       -------       -------
                                          $ 659,000       107,000       766,000
                                          =========       =======       =======

                                                           2001
                                          -------------------------------------
                                           Federal         State         Total
                                          ---------       -------       -------
      Current                             $ 573,000        89,000       662,000
      Deferred                              (12,000)       (2,000)      (14,000)
                                          ---------       -------       -------
                                          $ 561,000        87,000       648,000
                                          =========       =======       =======

                                                           2000
                                          -------------------------------------
                                           Federal         State         Total
                                          ---------       -------       -------

      Current                             $ 710,000       110,000       820,000
      Deferred                              (25,000)       (4,000)      (29,000)
                                          ---------       -------       -------
                                          $ 685,000       106,000       791,000
                                          =========       =======       =======

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

                                                              December 31
                                                        -----------------------
                                                        2002      2001     2000
                                                        ----      ----     ----
      Federal income tax rate                           34.0%     34.0     34.0
      Items affecting federal income tax rate:
            State taxes on income, net of federal
                benefit                                  3.3       3.3      3.3
            Tax-exempt income                           (0.3)       --       --
            State apportionment                         (2.2)     (2.0)      --
            Other                                         --        --      0.5
                                                        ----      ----     ----
                                                        34.8%     35.3     37.8
                                                        ====      ====     ====

                                                                     (Continued)


                                       32
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and deferred tax liabilities at December
      31, 2002 and 2001 are presented below:

<TABLE>
<CAPTION>
                                                                2002           2001
                                                              ---------     ---------
<S>                                                           <C>             <C>
      Deferred tax assets:
            Deferred directors' fees                          $ 273,000       266,000
            General bad debt allowance                          151,000       140,000
            Other                                                 2,000            --
                                                              ---------     ---------
                            Gross deferred tax assets           426,000       406,000

            Less valuation allowance                                 --            --
                                                              ---------     ---------
                            Net deferred tax assets             426,000       406,000
                                                              ---------     ---------
      Deferred tax liabilities:
            Deferred loan fees                                  (74,000)     (120,000)
            FHLB stock dividends                                (74,000)      (74,000)
            Securities available-for-sale                       (35,000)      (10,000)
            Other                                                (1,000)      (13,000)
                                                              ---------     ---------
                            Gross deferred tax liabilities     (184,000)     (217,000)
                                                              ---------     ---------
                            Net deferred tax asset            $ 242,000       189,000
                                                              =========     =========
</TABLE>

      Based upon the Company's level of historical taxable income and
      anticipated future taxable income over the periods which the deferred tax
      assets are deductible, management believes it is more likely than not the
      Company will realize the benefits of these deductible differences.

      At December 31, 2002 and 2001, the Bank had federal income tax bad debt
      reserves of approximately $2,430,000, which constitute allocations to bad
      debt reserves for federal income tax purposes for which no provision for
      taxes on income had been made. If such allocations are charged for other
      than bad debt losses, taxable income is created to the extent of the
      charges.

(9)   Benefit Plans

      (a)   Retirement Plan

            The Bank is a participant in the Financial Institutions Retirement
            Fund (FIRF), and substantially all of its officers and employees are
            covered by the retirement plan. FIRF does not segregate the assets,
            liabilities, or costs by participating employer. According to FIRF's
            administrators, as of June 30, 2002 and 2001, the date of the latest
            actuarial valuation, the Bank made a contribution of $67,446 and
            $27,474 to the plan in 2002 and 2001, respectively. The Bank did not
            make any contribution to the plan in 2000.

                                                                     (Continued)


                                       33
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      (b)   ESOP

            All employees meeting the age and service requirements are eligible
            to participate in the ESOP established in August 1994. Contributions
            made by the Company to the ESOP are allocated to participants by a
            formula based on compensation. Participant benefits become 100%
            vested after five years of service. ESOP expense was $0 for the
            years ended December 31, 2002, 2001, and 2000, respectively.

      (c)   Deferred Compensation

            The Company has deferred compensation agreements with certain
            directors, and at December 31, 2002 and 2001 had accrued deferred
            compensation of $731,192 and $712,532, respectively. Directors' fees
            deferred were $21,100, $25,500, and $29,700 for 2002, 2001, and
            2000, respectively.

      (d)   Stock Option Plan

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

            At December 31, 2002 and 2001, there were 14,250 additional options
            available for grant under the Plan. The per share weighted average
            fair value of stock options granted during 1996 was $2.00 on the
            date of grant using the Black Scholes option-pricing model, with the
            following weighted average assumptions: expected dividend yield of
            6.27%, expected volatility of 22%, risk-free interest rate of 6.37%,
            and an expected life of six years.

            Stock option activity during the periods indicated was as follows:

<TABLE>
<CAPTION>
                                               2002                       2001                    2000
                                       ----------------------    ----------------------  ---------------------
                                         Number      Exercise      Number      Exercise    Number     Exercise
                                       of shares      price      of shares       price   of shares     price
                                       ---------     --------    ---------     --------  ---------    --------
<S>                                     <C>           <C>         <C>           <C>        <C>         <C>
      Balance at beginning of year       39,441       $12.75       50,611       $12.75     50,611      $12.75
      Granted                                --           --           --           --         --          --
      Exercised                         (19,316)       12.75      (11,170)       12.75         --          --
      Expired                                --           --           --           --         --          --
                                        -------                   -------                  ------
      Balance at end of year             20,125       $12.75       39,441       $12.75     50,611      $12.75
                                        =======                   =======                  ======
</TABLE>

      At December 31, 2002, the exercise price and weighted average remaining
      contractual life of outstanding options was $12.75 and 3.33 years,
      respectively.

                                                                     (Continued)


                                       34
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

(10)  Stockholders' Equity

      (a)   Common Stock Repurchase

            The Company repurchased 0 and 23,100 shares of common stock during
            2002 and 2001, respectively. These shares are recorded at cost in
            Treasury Stock in the consolidated balance sheet.

      (b)   Regulatory Capital Requirements

            The Financial Institution Reform, Recovery and Enforcement Act of
            1989 (FIRREA) and the capital regulations of the Office of Thrift
            Supervision (OTS) promulgated thereunder require institutions to
            have a minimum 3% core capital ratio and a minimum 8% risk-based
            capital ratio. These capital standards set forth in the capital
            regulations must generally be no less stringent than the capital
            standards applicable to national banks. FIRREA also specifies the
            required ratio of housing-related assets in order to qualify as a
            savings institution. The Company and Bank met the regulatory capital
            requirements at December 31, 2002 and 2001.

            The Federal Deposit Insurance Corporation Improvement Act of 1991
            (FDICIA) established additional capital requirements which require
            regulatory action against depository institutions in one of the
            undercapitalized categories defined in implementing regulations.
            Institutions, such as the Bank, which are defined as well
            capitalized, must generally have a leverage capital (core) ratio of
            at least 5%, a tier 1 risk-based capital ratio of at least 6%, and a
            total risk-based capital ratio of at least 10%. FDICIA also provides
            for increased supervision by federal regulatory agencies, increased
            reporting requirements for insured depository institutions, and
            other changes in the legal and regulatory environment for such
            institutions. The Company and Bank met the regulatory capital
            requirements at December 31, 2002 and 2001.

                                                                     (Continued)


                                       35
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

      The Company's and the Bank's actual and required capital amounts (in
      thousands) and ratios as of December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                                                     2002
                                                       ------------------------------------------------------------------
                                                                                                           To be well-
                                                                                  For capital           capitalized under
                                                                                    adequacy            prompt corrective
                                                            Actual                  purposes            action provisions
                                                       ------------------       -----------------      ------------------
                                                       Amount     Percent       Amount    Percent      Amount     Percent
                                                       ------     -------       ------    -------      ------     -------
<S>                                                    <C>          <C>        <C>           <C>       <C>         <C>
      Tangible capital:
            Consolidated                               $22,258      21.5%      $ 1,552       1.5%      $   N/A       N/A%
            Webster City Federal Savings Bank           21,530      20.9         1,545       1.5           N/A       N/A
      Tier 1 leverage (core) capital:
            Consolidated                                22,258      21.5         4,140       4.0         5,175       5.0
            Webster City Federal Savings Bank           21,530      20.9         4,154       4.0         5,148       5.0
      Risk-based capital:
            Consolidated                                22,527      41.4         4,356       8.0         5,446      10.0
            Webster City Federal Savings Bank           21,799      44.6         3,912       8.0         4,870      10.0
      Tier 1 risk-based capital:
            Consolidated                                22,258      40.9           N/A       N/A         3,267       6.0
            Webster City Federal Savings Bank           21,530      44.0           N/A       N/A         2,934       6.0

<CAPTION>
                                                                                     2001
                                                       ------------------------------------------------------------------
                                                                                                           To be well-
                                                                                  For capital           capitalized under
                                                                                    adequacy            prompt corrective
                                                            Actual                  purposes            action provisions
                                                       ------------------       -----------------      ------------------
                                                       Amount     Percent       Amount    Percent      Amount     Percent
                                                       ------     -------       ------    -------      ------     -------
<S>                                                    <C>          <C>        <C>           <C>       <C>         <C>
      Tangible capital:
            Consolidated                               $21,193      20.7%      $ 1,535       1.5%      $   N/A       N/A%
            Webster City Federal Savings Bank           20,632      20.2         1,532       1.5           N/A       N/A
      Tier 1 leverage (core) capital:
            Consolidated                                21,193      20.7         4,093       4.0         5,116       5.0
            Webster City Federal Savings Bank           20,632      20.2         4,085       4.0         5,106       5.0
      Risk-based capital:
            Consolidated                                21,436      37.8         4,537       8.0         5,672      10.0
            Webster City Federal Savings Bank           20,875      36.9         4,530       8.0         5,663      10.0
      Tier 1 risk-based capital:
            Consolidated                                21,193      37.4           N/A       N/A         3,403       6.0
            Webster City Federal Savings Bank           20,632      36.4           N/A       N/A         3,398       6.0
</TABLE>

      (c)   Dividends and Restrictions Thereon

            The board of directors of the Company declared and paid four
            25(cent) per share dividends in 2002.

            The Holding Company waived its right to receive the dividends
            declared and paid during 2002.

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

                                                                     (Continued)


                                       36
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

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

                                                                     (Continued)


                                       37
<PAGE>


                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

(11)  Fair Value of Financial Instruments

      The estimated fair values of Company's financial instruments (as described
      in note 1) at December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                   2002                               2001
                                        ----------------------------       ---------------------------
                                         Carrying            Fair           Carrying           Fair
                                          amount             value           amount            value
                                        -----------       ----------       ----------       ----------
<S>                                     <C>               <C>              <C>              <C>
      Financial assets:
            Cash and cash
                equivalents             $ 5,251,946        5,251,946        9,183,215        9,183,215
            Time deposits in
                other financial
                institutions             10,892,000       10,892,000        1,399,000        1,399,000
            Securities
                available-for-sale        7,697,110        7,697,110       10,188,900       10,188,900
            Securities
                held-to-maturity          3,553,789        3,646,401        4,574,354        4,654,121
            Loans receivable, net        73,319,065       72,329,258       74,492,269       74,806,150
            FHLB stock                      704,900          704,900          613,200          613,200
            Accrued interest
                receivable                  630,779          630,779          568,569          568,569
      Financial liabilities:
            Deposits                     70,216,797       70,574,954       70,042,590       70,760,304
            FHLB advances                 9,700,000       10,613,000        9,700,000        8,884,267
            Accrued interest
                payable                      42,491           42,491           53,454           53,454

<CAPTION>
                                         Notional        Unrealized         Notional       Unrealized
                                          Amount         gain (loss)         Amount        gain (loss)
                                        -----------      -----------       ----------      -----------
<S>                                     <C>                       <C>         <C>                   <C>
      Off-balance sheet
            instrument:
                Commitments to
                    extend credit       $   272,300               --          401,500               --
</TABLE>

                                                                     (Continued)


                                       38
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

(12)  Parent Company Only Financial Statements

                            Condensed Balance Sheets

                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                             2002               2001
                                                                         ------------       ------------
<S>                                                                      <C>                  <C>
      Cash and cash equivalents                                          $    100,419            459,223
      Investment in subsidiaries                                           21,941,131         20,890,314
      Other assets                                                            281,333                 --
                                                                         ------------       ------------
                  Total assets                                           $ 22,322,883         21,349,537
                                                                         ============       ============
      Liabilities:
            Accrued expenses                                             $      4,081              1,237
                                                                         ------------       ------------
      Stockholders' equity:
            Common stock                                                      215,061            213,339
            Additional paid-in capital                                      9,467,295          9,242,996
            Retained earnings                                              16,456,391         15,749,736
            Unrealized gain (loss) on securities available-for-sale            60,994             23,168
            Treasury stock                                                 (3,880,939)        (3,880,939)
                                                                         ------------       ------------
                  Total stockholders' equity                               22,318,802         21,348,300
                                                                         ------------       ------------
                  Total liabilities and stockholders' equity             $ 22,322,883         21,349,537
                                                                         ============       ============
</TABLE>

                       Condensed Statements of Operations

                  Years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                             2002              2001              2000
                                                          -----------       -----------       -----------
<S>                                                       <C>                 <C>              <C>
      Dividend income                                     $   500,000         1,000,000         2,500,000
      Interest income                                              --                61                59
      Equity in undistributed earnings of
            subsidiaries                                      978,671           232,922        (1,128,205)
      Noninterest expenses                                    (66,377)          (73,084)          (96,224)
                                                          -----------       -----------       -----------
                  Earnings before income tax
                    expense                                 1,412,294         1,159,899         1,275,630

      Income tax benefit                                      (25,000)          (30,000)          (25,000)
                                                          -----------       -----------       -----------
                  Net earnings                            $ 1,437,294         1,189,899         1,300,630
                                                          ===========       ===========       ===========
</TABLE>

                                                                     (Continued)


                                       39
<PAGE>

                  WEBSTER CITY FEDERAL BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001, and 2000

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                            2002               2001              2000
                                                         -----------       -----------       -----------
<S>                                                      <C>                 <C>              <C>
      Operating activities:
            Net earnings                                 $ 1,437,294         1,189,899         1,300,630
            Change in prepaid expenses                        (1,333)               --                --
            Change in accrued expenses                        19,828            (3,304)           12,556
            Equity in undistributed earnings of
                subsidiaries                              (1,003,671)         (232,922)        1,128,205
                                                         -----------       -----------       -----------
                      Net cash provided by
                          operating activities               452,118           953,673         2,441,391
                                                         -----------       -----------       -----------
      Investing activities:
            Investment in subsidiary                              --                --          (251,384)
            Purchase of investment                          (280,000)               --                --
                                                         -----------       -----------       -----------
                      Net cash used in investing            (280,000)               --          (251,384)
      Financing activities:
            Repurchase of common stock                            --          (333,363)       (2,071,250)
            Proceeds on stock options                        199,716           142,417                --
            Dividends paid                                  (730,638)         (621,573)         (637,948)
                                                         -----------       -----------       -----------
                      Net cash used in financing
                          activities                        (530,922)         (812,519)       (2,709,198)
                                                         -----------       -----------       -----------
                      Net increase (decrease) in
                          cash and cash equivalents         (358,804)          141,154          (519,191)

      Cash and cash equivalents at beginning of
            year                                             459,223           318,069           837,260
                                                         -----------       -----------       -----------
      Cash and cash equivalents at end of year           $   100,419           459,223           318,069
                                                         ===========       ===========       ===========
</TABLE>

(13)  Contingencies

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

      The Company has no obligations under guarantees.


                                       40
<PAGE>

                          WEBSTER CITY FEDERAL BANCORP
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

      The Annual Meeting of Stockholders will be held at 1:00 p.m., Wednesday,
April 16, 2003, at the main office of the Company located at 820 Des Moines
Street, Webster City, Iowa.

STOCK INFORMATION

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

      As of February 28, 2002, the Company had 214 shareholders of record (which
does not include approximately 250 shareholders whose stock is in nominee or
"street" name) and 1,888,376 shares of common stock outstanding.

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

<TABLE>
<CAPTION>
                             2002        2001
                           Dividend    Dividend         Fiscal Year 2002          Fiscal Year 2001
                             Paid        Paid            Low      High             Low      High
                             ----        ----            ---      ----             ---      ----
<S>                          <C>         <C>             <C>      <C>              <C>      <C>
      First quarter ........ $.25        $.20            $16.00   $17.00           $14.00   $14.87
      Second quarter ....... $.25        $.20            $16.31   $ 1950           $13.75   $14.90
      Third quarter ........ $.25        $.20            $16.85   $19.50           $14.00   $17.00
      Fourth quarter ....... $.25        $.25            $17.10   $19.39           $15.25   $16.75
</TABLE>

STOCKHOLDER AND GENERAL INQUIRIES                    TRANSFER AGENT

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

ANNUAL AND OTHER REPORTS

      The Company is required to file an annual report on Form 10-KSB for its
year ended December 31, 2002 with the Securities and Exchange Commission. Copies
of the Form 10-KSB, annual report and the Company's Quarterly Reports may be
obtained without charge by contacting Phyllis A. Murphy, President and Chief
Executive Officer, Webster City Federal Bancorp, 820 Des Moines Street, P.O. Box
638, Webster City, Iowa 50595-0638, (515) 832-3071.


                                       41
<PAGE>

                          WEBSTER CITY FEDERAL BANCORP
                             STOCKHOLDER INFORMATION
<TABLE>
<S>                                              <C>
COMPANY AND BANK ADDRESS

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

DIRECTORS OF THE BOARD

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

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

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

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


WEBSTER CITY FEDERAL SAVINGS BANK EXECUTIVE OFFICERS

Phyllis A. Murphy
      President and Chief Executive Officer

Stephen L. Mourlam
      Executive Vice President and Chief Financial Officer

Kyle R. Swon
      Senior Vice President and Chief Lending Officer

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


                                       42
<PAGE>

                   [LOGO]                 Webster City Federal
                                                BANCORP

                820 DES MOINES STREET o WEBSTER CITY, IOWA 50595