1999 ANNUAL REPORT TO STOCKHOLDERS
                          WEBSTER CITY FEDERAL BANCORP

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



                                Table of Contents

                                                                           Page
                                                                            ----

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

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

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

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

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

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

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

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

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

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

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

Directors  and  Executive  Officers .....................................    39

<PAGE>
Dear Stockholders,


The  year of 1999  has been a good one for our  Company.  Webster  City  Federal
Savings Bank  completed  the  formation of Webster  City  Federal  Bancorp,  its
holding company, on July 1, 1999. The formation of the Bancorp has allowed us to
repurchase  common  stock in the market - an effective  use of our capital.  Our
first  10%  repurchase  was  completed  in early  November.  An  additional  10%
repurchase was announced in December of 1999.

Profitability  of the  Company  remained  strong  in 1999  with  net  income  of
$1,250,000 or $.60 per share. Return on average assets was 1.39%.

We continue to be a market leader in lending in the area.  Net loans  receivable
increased by 9.6% in 1999.  Non-performing  assets remained at the lowest levels
in our history at .01% of assets. Core deposits remained stable for the year.

With competition becoming stronger on both the deposit and lending sides, we are
confident  that with our strong  capital  position we will be able to meet those
challenges and use our capital to enhance our shareholder value.

Webster City Federal Bancorp and subsidiaries are community oriented. We believe
first-rate  customer service will continue to be important to the public, and we
intend to be the  best.  We are  proud of a staff  who does a  top-notch  job of
service. First-rate customer service will always be our priority.

We recognize the importance of using our capital position to enhance stockholder
value,  and will continue to explore our options to make the best  decisions for
all shareholders.

Thank you from the directors,  officers and staff for being a part of this great
company.



Sincerely,



/s/Phyllis A. Murphy
--------------------
Phyllis A. Murphy
President



                                       1
<PAGE>
Selected Consolidated Financial and Other Data

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

Selected Financial Condition Data

                                                                              At December 31,
                                                          -------------------------------------------------------
                                                            1999        1998        1997       1996        1995
                                                          -------     -------     -------     -------     -------
                                                                               (In Thousands)
<S>                                                       <C>         <C>         <C>         <C>         <C>
Total assets ........................................     $94,525     $94,084     $95,024     $93,810     $96,538
Loans receivable, net
    Real estate .....................................      58,592      53,084      50,431      49,876      49,350
    Consumer and other ..............................       3,600       3,668       3,891       4,277       3,981
                                                          -------     -------     -------     -------     -------
    Total loans receivable, net .....................      62,192      56,752      54,322      54,153      53,331

Mortgage-backed securities ..........................       7,806       9,987      14,923      18,579      17,418
Investments .........................................      14,916       9,899      16,637      14,957      16,933
Cash and cash equivalents ...........................       4,986      13,187       5,893       3,759       4,719
Deposits ............................................      67,918      68,704      71,527      70,952      73,877
Stockholders' equity, substantially restricted ......      22,348      23,086      22,350      21,769      21,502


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Summary of Operations

                                                                       Year Ended December 31,
                                                      --------------------------------------------------------
                                                        1999        1998        1997        1996        1995
                                                      -------     -------     -------     -------      -------
                                                            (Dollars in thousands, except earnings per share
                                                                  and cash dividends per share amounts)
<S>                                                   <C>         <C>         <C>         <C>          <C>
Interest income .................................     $ 6,410     $ 6,646     $ 6,740     $ 6,707      $ 6,687
Interest expense ................................       3,010       3,339       3,364       3,447        3,743
                                                      -------     -------     -------     -------      -------
   Net interest income before provision
     for loan losses ............................       3,400       3,307       3,376       3,260        2,944
Provision for loan losses .......................        --          --            40         125           15
                                                      -------     -------     -------     -------      -------
   Net interest income after provision
     for loan losses ............................       3,400       3,307       3,336       3,135        2,929
                                                      -------     -------     -------     -------      -------
Noninterest income:
  Service charges and other fees ................         162         188         157         159          148
  Other income ..................................          51          56          48          59           68
                                                      -------     -------     -------     -------      -------
   Total noninterest income .....................         213         244         205         218          216
Noninterest expense:
  Salaries and employee benefits ................         811         789         723         702          736
  Premises and equipment ........................         117          79          95          86          101
  Other real estate expenses, net ...............           2           2           5         (29)          12
  Advertising ...................................          29          27          28          31           28
  Federal deposit insurance premiums ............          40          43          36         170          172
 Special insurance assessment ...................        --          --          --           502         --
  Other .........................................         585         492         493         440          447
                                                      -------     -------     -------     -------      -------
    Total noninterest expense ...................       1,584       1,432       1,380       1,902        1,496
                                                      -------     -------     -------     -------      -------
Income before income taxes and accounting changes       2,029       2,119       2,161       1,451        1,649
Income tax expense ..............................         780         803         797         542          614
                                                      -------     -------     -------     -------      -------
  Net income ....................................     $ 1,249     $ 1,316     $ 1,364     $   909      $ 1,035
                                                      =======     =======     =======     =======      =======


Earnings per share - basic ......................     $  0.60     $  0.63     $  0.66     $  0.44      $  0.50
                                                      =======     =======     =======     =======      =======

Earnings per share - diluted ....................     $  0.60     $  0.62     $  0.65     $  0.44      $  0.50
                                                      =======     =======     =======     =======      =======

Cash dividends per share ........................     $  0.80     $  0.80     $  0.80     $  0.75      $  0.85
                                                      =======     =======     =======     =======      =======
</TABLE>

                                       2
<PAGE>
<TABLE>
<CAPTION>
Key Financial Ratios and Other Data

                                                          At or for the Year Ended December 31,
                                                -------------------------------------------------------
                                                 1999       1998         1997         1996        1995
                                                 ----       ----         ----         ----        ----
<S>                                             <C>        <C>          <C>          <C>         <C>
Equity to assets at year end                    23.64%     24.54%       23.52%       23.21%      22.27%
Net interest spread                              2.61%      2.39%        2.51%        2.39%       1.97%
Net interest margin                              3.72%      3.56%        3.65%        3.48%       3.08%
Return on average assets                         1.39%      1.39%        1.45%        0.95%       1.06%
Return on average equity                         5.71%      5.79%        6.19%        4.20%       4.86%
Stockholders' equity to average assets ratio    23.98%     24.36%       23.70%       22.71%      22.06%
Noninterest income to average assets ratrio      0.22%      0.26%        0.22%        0.24%       0.22%
Noninterest expense to average assets ratio      1.69%      1.52%        1.47%        2.00%       1.54%
Nonperforming loans to net loans                 0.01%      0.03%        0.00%        0.05%       1.18%
Nonperforming assets to total assets             0.01%      0.04%        0.06%        0.14%       0.74%
Average interest-earning assets to
  average interest-bearing liabiliti1ies       133.80%    132.50%      131.37%      129.77%      128.44%
Allowance for loan losses to
  net loans receivable                           0.61%      0.68%        0.71%        0.67%        0.83%
Allowance for loan losses to
  nonperforming loans                              N/M        N/M          N/M          N/M       70.77%

Net interest income to noninterest expense     214.71%    230.78%      248.26%      171.46%      196.79%

Number of full service offices                      1          1            1            1            1

</TABLE>

   N/M = Not Meaningful




                                       3
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


General

         Webster City Federal  Bancorp (the "Company") is a bank 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. In the holding company reorganization,  each outstanding
share of the Bank's common stock was  converted  into one share of the Company's
common  stock,  and each  stockholder  of the Bank  received the same  ownership
interest in the Company immediately following the holding company reorganization
as he or she had in the Bank immediately prior to that transaction.

           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 and to make consumer loans.

         The  Company's  current  business  strategy is to operate the Bank as a
well-capitalized,  profitable and  independent  community-oriented  savings bank
dedicated to providing  quality  customer  service.  Generally,  the Company has
sought to implement this strategy  primarily by using retail  deposits and, to a
lesser extent, public funds as its source of funds and maintaining a substantial
part of its assets in loans  secured  by one- to  four-family  residential  real
estate located in the Company's market area, home equity loans,  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 the its
interest-earning assets, consisting primarily of mortgage 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.  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.
<PAGE>
Comparison of Financial Condition

         Total assets increased  $441,400,  or .5%, to $94.5 million at December
31,  1999 from  $94.1  million at  December  31,  1998.  Deposits  decreased  by
$786,000,  or 11.4%, to $67.9 million at December 31, 1999 from $68.7 million at
December 31, 1998.  Cash and cash  equivalents  decreased  by $8.2  million,  or
62.2%,  to $5.0 million on December 31, 1999 from $13.2  million at December 31,
1998.  This was due to a number of investments  coming due in the latter part of
1998  that  were  reinvested  in  January  of  1999.   Investments  (other  than
mortgage-backed  securities)  increased $5.0 million, or 50.7%, to $14.9 million
at December 31, 1999 from $9.9 million at December 31, 1998. Net loans increased
$5.4 million,  or 9.6%, to $62.2 million at December 31, 1999 from $56.7 million
at December 31, 1998.  Mortgage-backed  securities  decreased  $2.2 million,  or
21.8%,  to $7.8 million at December 31, 1999 from $10.0  million at December 31,
1998.


                                       4
<PAGE>
         Stockholders'  equity decreased by $738,000,  or 3.2%, to $22.3 million
at December 31, 1999 from $23.1  million at December  31, 1998.  The decrease in
stockholders' equity was due to net income of $1.2 million,  offset by dividends
of $751,500 being paid to the  stockholders  and the repurchase of 96,938 shares
of common stock for $1.5 million.

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,
mortgage-backed  securities,  interest-earning  deposits at other  institutions,
investment   securities  and  other  investments,   and  the  interest  paid  on
interest-bearing liabilities, which have consisted of savings deposits and, to a
lesser extent,  public funds. The Company had net income of $1.2 million for the
year ended December 31, 1999 compared to $1.3 million, and $1.4 million, for the
years ended December 31, 1998, and 1997, 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.
<PAGE>
<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                 ----------------------------------------------------------------------------------
                                                                  1999                                 1998
                                                 ----------------------------------------------------------------------------------
                                                                                       (Dollars in Thousands)
                                                 Yield/Rate                                 Average                          Average
                                                     at          Average                    Yield/    Average                Yield/
                                                 December 31,    Balance        Interest      Cost    Balance     Interest    Cost
                                                 ------------    -------        --------      ----    -------     --------     ----
<S>                                                 <C>          <C>            <C>         <C>      <C>          <C>         <C>
Interest-earning assets:
   Loans receivable, net                            7.68%        $58,312        $4,502      7.72%    $55,704      $4,309      7.74%
   Mortgage-backed securities                       6.68%          9,006           571      6.34%     12,313         856      6.95%
   Investment securties                             6.04%         15,183           924      6.09%     14,560         959      6.59%
   Other interest earning assets                    4.75%          8,670           413      4.76%     10,310         522      5.06%
                                                                 -------        ------               -------      ------
      Total interest-earning assets                               91,171         6,410      7.03%     92,887       6,646      7.15%
Other noninterest-earning assets                                   2,004                               1,887
                                                                 -------                             -------
      Total assets                                               $93,175                             $94,774
                                                                 =======                             =======
Interest-bearing liabilities:
   Deposits                                         4.29%         66,531         2,924      4.40%     68,701       3,270      4.76%
   Borrowings                                       5.55%          1,608            86      5.35%      1,401          69      4.93%
                                                                 -------        ------               -------      ------
      Total interest-bearing liabilities                          68,139         3,010      4.42%     70,102       3,339      4.76%
Noninterest-bearing liabilities                                    2,256                               1,946
                                                                 -------                             -------
      Total liabilities                                           70,395                              72,048
Stockholders' equity                                              22,780                              22,726
                                                                 -------                             -------
      Total liabilities and stockholders' equity                 $93,175                             $94,774
                                                                 =======                             =======
Net interest income                                                             $3,400                            $3,307
                                                                                ======                            ======
Net interest rate spread                                                                    2.61%                             2.39%
                                                                                          ======                            ======
Net interest margin (1)                                                                     3.72%                             3.56%
                                                                                          ======                            ======
Ratio of average interest-earning assets to
   average interest-bearing liabilities                                                   133.80%                           132.50%
                                                                                          ======                            ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                   1997
                                                     ------------------------------
                                                                             Average
                                                      Average                Yield/
                                                      Balance    Interest      Cost
                                                      -------    --------      ----
<S>                                                   <C>          <C>         <C>
Interest-earning assets:
   Loans receivable, net                              $54,058      $4,205      7.78%
   Mortgage-backed securities                          16,717       1,189      7.11%
   Investment securties                                15,536       1,026      6.60%
   Other interest earning assets                        6,116         320      5.23%
                                                      -------      ------
      Total interest-earning assets                    92,427       6,740      7.29%
Other noninterest-earning assets                        1,879
                                                      -------
      Total assets                                    $94,306
                                                      =======
Interest-bearing liabilities:
   Deposits                                            70,081       3,342      4.77%
   Borrowings                                             276          22      7.97%
                                                      -------      ------
      Total interest-bearing liabilities               70,357       3,364      4.78%
Noninterest-bearing liabilities                         1,893
                                                      -------
      Total liabilities                                72,250
Stockholders' equity                                   22,056
                                                      -------
      Total liabilities and stockholders' equity      $94,306
                                                      =======
Net interest income                                                $3,376
                                                                   ======
Net interest rate spread                                                       2.51%
                                                                             ======
Net interest margin (1)                                                        3.65%
                                                                             ======
Ratio of average interest-earning assets to
   average interest-bearing liabilities                                      131.37%
                                                                             ======

</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>
Rate/Volume Analysis
                                                                 Years Ended December 31,
                                            ---------------------------------------------------------------
                                                     1999 vs 1998                      1998 vs 1997
                                            ------------------------------    -----------------------------
                                                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 ...............     $  40      ($ 75)     ($ 35)     ($ 64)     ($  3)     ($ 67)
   Loans receivable, net ...............       201         (8)       193        127        (23)       104
   Mortgage-backed securities ..........      (215)       (70)      (285)      (307)       (26)      (333)
   Other interest earning assets .......       (79)       (30)      (109)       212        (10)       202
                                             -----      -----      -----      -----      -----      -----
      Total interest-earning assets ....     ($ 53)     ($183)     ($236)     ($ 32)     ($ 62)     ($ 94)
                                             -----      -----      -----      -----      -----      -----


Interest-bearing liabilities:
   Deposits ............................      (161)      (185)      (346)       (66)        (6)       (72)
   Borrowings ..........................       108        (91)        17         58        (11)        47
                                             -----      -----      -----      -----      -----      -----
      Total interest-bearing liabilities     ($ 53)     ($276)     ($329)     ($  8)     ($ 17)     ($ 25)
                                             -----      -----      -----      -----      -----      -----

Net change in interest income: .........     $   0      $  93      $  93      ($ 24)     ($ 45)     ($ 69)
                                             =====      =====      =====      =====      =====      =====
</TABLE>
                                       6
<PAGE>
Comparison  of  Operating  Results  for the Years  Ended  December  31, 1999 and
December 31, 1998.

         Interest Income. Total interest income decreased by $236,000,  or 3.6%,
to $6.4  million for the year ended  December 31, 1999 from $6.6 million for the
year ended December 31, 1998. The decrease in interest income resulted primarily
from the  decrease  in average  yield on the Bank's  interest-earning  assets to
7.03% from 7.15%.  Declining  market interest rates were the major causes of the
decrease in average yield on interest-earning  assets. Average  interest-earning
assets  decreased  by $1.7  million to $91.2  million  from $92.9  million.  The
decrease in average  interest-earning  assets resulted primarily from a decrease
of $3.3 million, or 26.9%, in the average balance of mortgage-backed  securities
and  a  decrease  of  $1.6  million  or  15.9%  in  average   balance  of  other
interest-earning  assets,  offset by a $2.6  million,  or 4.7%,  increase in the
average balance of net loans receivable.

         Interest  income on real estate and other loans  increased by $193,000,
or 4.5%, to $4.5 million for the year ended  December 31, 1999 from $4.3 million
for the year ended December 31, 1998.  This increase in interest  income was the
result of a net increase in average  loans  outstanding  for 1999 as compared to
1998,  due to  increased  loan  originations.  The  average  yield  on the  loan
portfolio decreased to 7.72% for the year ended December 31, 1999 from 7.74% for
the year ended  December  31,  1998.  The Company  uses a lagging  index for its
adjustable rate loans and this caused the overall yield on the loan portfolio to
decrease in 1999 compared to 1998. Refinancing of existing loans and lower rates
being  offered  on new loans  also  caused  the yield on our loan  portfolio  to
decline. Interest income on mortgage-backed securities decreased by $285,000, or
33.3%, to $571,300.  The decrease in interest income resulted from a decrease in
average  mortgage-backed  securities outstanding of $3.3 million, or 26.9% and a
decrease in average yield on mortgage-backed  securities to 6.34% from 6.95% due
to lower market interest rates.

         Interest  Expense.  Total interest  expense  decreased by $329,000,  or
9.8%, to $3.0 million for the year ended December 31, 1999 from $3.3 million for
the year ended  December  31,  1998.  The  principal  reason for the decrease in
interest  expense  was a decrease  in the  balance of average  deposits  of $2.1
million,  or 3.2%, to $66.5 million for year ended  December 31, 1999 from $68.7
million for year ended  December  31, 1998.  At the same time the average  rates
paid on  deposits  dropped  to 4.39%  from  4.76%  the prior  year.  Part of the
decrease in deposit  interest expense was offset by an increase in the Company's
borrowings. The Company borrowed an additional $2.0 million in October 1999 at a
rate of 5.55% which increased the Company's interest expense.

         Net Interest Income. Net interest income increased by $93,000, or 2.8%,
to $3.4 million for the year ended December 31, 1999,  from $3.3 million for the
year ended  December  31,  1998.  The  principal  reason for the increase in net
interest  income was an increase in the Company's  interest rate spread to 2.61%
from 2.39%,  and an increase in the Company's ratio of average  interest-earning
assets to average interest-bearing liabilities.

         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 no  provision  for loan losses for the year ended
December 31, 1999 or in 1998.  Management  believes that its provisions for loan
losses have 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.
<PAGE>
         Non-interest  Income.  Non-interest  income  decreased  by $31,000,  or
12.7%,  to $213,000 for the year ended December 31, 1999,  from $244,000 for the
same period ended December 31, 1998. The decrease in non-interest income was due
to decreased fees from loan activities.

         Non-interest  Expense.  Non-interest expense increased by $150,700,  or
10.5%,  to $1.6  million for the year ended  December 31, 1999 from $1.4 million
for the year ended December 31, 1998. 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.  Compensation and benefit costs increased due to salary
increases  and the Bank  paying off its ESOP loan of  approximately  $159,000 on
June 30, 1999.

         Income  Taxes.  Income tax expense  decreased by $23,000,  or 2.9%,  to
$780,000 for the year ended  December 31, 1999 from $803,000 for the same period
in 1998. The effective tax rate for 1999 was 38.4% compared to 37.9% in 1998.

                                       7
<PAGE>
Comparison  of  Operating  Results  for the Years  Ended  December  31, 1998 and
December 31, 1997.

         Interest Income.  Total interest income decreased by $94,000,  or 1.4%,
to $6.6  million for the year ended  December 31, 1998 from $6.7 million for the
year ended December 31, 1997. The decrease in interest income resulted primarily
from the  decrease  in average  yield on the Bank's  interest-earning  assets to
7.15% from 7.29%.  Primarily declining market interest rates caused the decrease
in average yield on interest-earning  assets.  Average  interest-earning  assets
increased by $.5 million to $92.9  million from $92.4  million.  The increase in
average  interest-earning  assets  resulted  primarily  from an increase of $4.2
million,  or 68.6%,  in the average  balance of other  interest-earning  assets,
offset by a $4.4 million, or 26.4%, decrease in mortgage-backed securities.

         Interest  income on real estate and other loans  increased by $104,000,
or 2.5%, to $4.3 million for the year ended  December 31, 1998 from $4.2 million
for the year ended December 31, 1997.  This increase in interest  income was the
result of a net increase in average  loans  outstanding  for 1998 as compared to
1997,  due to  increased  loan  originations.  The  average  yield  on the  loan
portfolio decreased to 7.74% for the year ended December 31, 1998 from 7.78% for
the year  ended  December  31,  1997.  The Bank  uses a  lagging  index  for its
adjustable rate loans and this caused the overall yield on the loan portfolio to
decrease in 1998 compared to 1997. Refinancing of existing loans and lower rates
being  offered  on new loans  also  caused  the yield on our loan  portfolio  to
decline. Interest income on mortgage-backed securities decreased by $333,000, or
28.0%, to $.9 million.  The decrease in interest income resulted from a decrease
in average mortgage-backed  securities outstanding of $4.4 million, or 26.4% and
a decrease in average  yield on  mortgage-backed  securities to 6.95% from 7.11%
due to lower market interest rates.

         Interest Expense.  Total interest expense decreased by $25,000, or .7%,
to $3.3  million for the year ended  December 31, 1998 from $3.4 million for the
year ended December 31, 1997. The principal  reason for the decrease in interest
expense was a decrease in the balance of average  deposits of $1.4  million,  or
2.0%, to $68.7  million for year ended  December 31, 1998 from $70.1 million for
year  ended  December  31,  1997.  At the same time the  average  rates  paid on
deposits  dropped to 4.76% from 4.77% the prior  year.  Part of the  decrease in
deposit interest expense was offset by an increase in the Bank's borrowings. The
Bank  borrowed  $1.2 million in January of 1998 at 4.79%,  which  increased  the
Bank's interest expense by $55,000.

         Net Interest Income. Net interest income decreased by $69,000, or 2.1%,
to $3.3 million for the year ended December 31, 1998,  from $3.4 million for the
year ended  December  31,  1997.  The  principal  reason for the decrease in net
interest  income was a decrease in the Bank's interest rate spread to 2.39% from
2.51%, and a decrease in the Bank's ratio of average  interest-earning assets to
average interest-bearing liabilities.

         Provision  for Loan Losses.  The Bank  maintains an allowance  for loan
losses based upon  management's  evaluation of risks in the loan portfolio,  the
Bank's  past loan loss  experience,  and current and  expected  future  economic
conditions.  The  Bank  had no  provision  for loan  losses  for the year  ended
December  31, 1998 down from $40,000 for the year ended  December 31, 1997.  The
decrease was due to fewer  charge-offs  and fewer  delinquencies  in total loans
receivable outstanding for the year ended December 31, 1998. Management believes
that its  provisions  for loan losses have  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.
<PAGE>
         Non interest  Income.  Non  interest  income  increased by $39,000,  or
19.0%,  to $244,000 for the year ended December 31, 1998,  from $205,000 for the
same period ended December 31, 1997. The increase in non interest income was due
to increased fees from loan activities.

         Non interest  Expense.  Non interest expense  increased by $54,000,  or
3.9%, to $1.4 million for the year ended December 31, 1998 from $1.4 million for
the year ended December 31, 1997.  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.  Compensation and benefit costs increased, due to salary
increases and the Bank adding two additional employees late in the year.

         Income  Taxes.  Income tax  expense  increased  by $6,000,  or .8%,  to
$803,000 for the year ended  December 31, 1998 from $797,000 for the same period
in 1997. The effective tax rate for 1998 was 37.9% compared to 36.9% in 1997.



                                       8
<PAGE>
Asset and Liability Management-Interest Rate Sensitivity Analysis

         The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of  interest-earning  assets
maturing  or  repricing  within  a  specific  time  period  and  the  amount  of
interest-bearing  liabilities  maturing or repricing  within that time period. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive  liabilities.  A gap is considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
amount of interest rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to  positively  affect net interest  income.  Similarly,
during a period  of  falling  interest  rates,  a  negative  gap  would  tend to
positively  affect  net  interest  income  while a  positive  gap would  tend to
adversely affect net interest income.

         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.

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 1999 have changed when compared to 1998. Market risk limits have
been established by the Board of Directors based on the Company's  tolerance for
risk.

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  assest
minus the present  value of expected  net cash flows from  existing  liabilities
plus or minus  the  present  value of net  expected  cash  flows  from  existing
off-balance  sheet contracts.  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.
<PAGE>
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 December 31, 1999, as calculated by
the OTS NPV Model.  The table shows the present value of the  instruments  under
rate shock  scenarios of -300 basis points to +300 basis points in increments of
100 basis  points.  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.

                                       9
<PAGE>
Actual changes in market value will differ from estimated  changes in this table
due to various risks and uncertainties.

<TABLE>
<CAPTION>

                                     Present Value Estimates by Interest Rate Scenario
                                                Calculated at September 1999


                                   -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     $68,542       67,498       66,434       65,075        63,408        61,604        59,754
Non-mortgage loans ..........       3,536        3,483        3,432        3,382         3,334         3,286         3,240
Cash, deposits and securities      20,360       20,285       20,194       19,725        19,226        18,750        18,295
Other assets ................       1,612        1,891        2,232        2,661         3,078         3,469         3,836
Total assets ................      94,050       93,157       92,292       90,843        89,046        87,109        85,125
Deposits ....................      67,912       67,425       66,949       66,484        66,030        65,586        65,152
Borrowings ..................       1,202        1,201        1,200        1,199         1,198         1,197         1,196
Other liabilities ...........       1,158        1,158        1,158        1,158         1,158         1,158         1,158
Total liabilities ...........      70,272       69,784       69,307       68,841        68,386        67,941        67,506
Commitments .................          51           37           21           (3)          (32)          (62)          (91)
Net portfolio value .........     $23,829       23,410       23,006       21,999        20,628        19,106        17,528
Net portfolio value ratio ...       25.34%       25.13%       24.93%       24.22%        23.17%        21.94%        20.59%
NPV minimum board limit .....       24.00%       23.00%       22.00%       21.00%        20.00%        19.00%        18.00%

</TABLE>
Liquidity and Capital Resources

         The Company is required to maintain  minimum levels of liquid assets as
defined by OTS  regulations.  This  requirement,  which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term  borrowings.  The Company's  liquidity ratio averaged
28.58% during the month of December 1999.  Liquidity  ratios  averaged 28.6% for
the three months ended  December 31,  1999.  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
prepayment  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
<PAGE>
requirements.  At December 31, 1999,  $7.4 million,  or 35.5%,  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,  $12.5
million,  or 59.7%,  was  scheduled  to mature  in one to five  years,  and $1.0
million or 5.0%, was scheduled to mature in over five years.  Assets  qualifying
for liquidity  outstanding at December 31, 1999 amounted to $20.1  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.


                                       10
<PAGE>
         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, 1999, the Company had core capital of $21.5 million, or
22.7% of adjusted total assets,  which was approximately $17.7 million above the
minimum  requirements  of 4.0%, of adjusted total assets in effect on that date.
On  December  31,  1999,  the Company had  risk-based  capital of $21.9  million
(including  $21.5  million in  risk-based  capital),  or 50.1% of  risk-weighted
assets of $43.7 million.  This amount was $18.4 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, 1999, the Company had outstanding  loan  commitments of
$405,000. This amount does not include the unfunded portion of loans in process.
Certificates of deposit scheduled to mature in less than one year as of December
31, 1999, totaled $34.9 million. Based on prior experience,  management believes
that a significant portion of such deposits will remain with the Company.

Impact of Inflation and Changing Prices

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

Impact of New Accounting Standards

         SFAS  133,   "Accounting   for  Derivative   Instruments   and  Hedging
Activities,"  and  SFAS  137  will be  effective  for the  Company  for the year
beginning  January 1, 2001.  Management is evaluating the impact the adoption of
SFAS  133 and  SFAS  137  will  have  on the  Company's  consolidated  financial
statements. The Company expects to adopt SFAS No. 133 and 137 when required.

Impact of Year 2000 Compliance

         The Board of Directors was aware of the  potential  risk that Year 2000
posed for the Company and had  assigned an  individual  to establish a Year 2000
formal project plan, which was developed and adopted by the Company. Testing and
contingency  plans were also  developed and adopted by the Company,  and testing
procedures were also implemented.

         The  Company's  contingency  plans  included two  components,  business
remediation and business resumption. The business remediation plan was developed
to mitigate the risk associated with the failure to successfully complete system
<PAGE>
renovation,  validation or  implementation of the Company's Year 2000 readiness.
This plan pertained to mission-critical  systems developed in-house,  by outside
software vendors, and by third-party service providers.  The business resumption
plan was designed to be  implemented  in the event there was a system failure at
critical dates.

         The Company did not feel that with all of its  planning  and testing as
well as having  contingency  plans in place they would experience any major Year
2000  problems  at the end of the  year.  The  Company  did not  experience  any
problems at year-end  nor have we  experienced  a problem on any of the critical
dates  identified  as potential  problems  during the first  quarter of the year
2000.

                                       11
<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 Bank's filings with the Securities Exchange Commission.



                                       12
<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 as of December 31, 1999 and 1998, 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,  1999.  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  generally  accepted  auditing
     standards.  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, 1999 and 1998, and
     the results of their  operations and their cash flows for each of the years
     in the  three-year  period  ended  December 31, 1999,  in  conformity  with
     generally accepted accounting principles.

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

     Des Moines, Iowa
     January 21, 2000



                                       13
<PAGE>
<TABLE>
<CAPTION>
                                   WEBSTER CITY FEDERAL BANCORP
                                         AND SUBSIDIARIES
                                    Consolidated Balance Sheets
                                    December 31, 1999 and 1998

                                Assets                                 1999              1998
                                                                   ------------      ------------
<S>                                                                <C>                 <C>
Cash and cash equivalents ....................................     $  4,986,099        13,186,836
Time deposits in other financial institutions ................        2,585,000         2,265,000
Securities held-to-maturity (market value of $22,129,444
    in 1999 and $20,064,845 in 1998) (note 2) ................       22,721,595        19,886,768
Loans receivable, net (notes 3 and 4) ........................       62,192,330        56,751,506
Real estate, net (note 5) ....................................             --              22,460
Federal Home Loan Bank (FHLB) stock, at cost .................          613,200           613,200
Office property and equipment, net (note 6) ..................          485,085           496,356
Deferred taxes on income (note 9) ............................          156,000           137,000
Accrued interest receivable (notes 2 and 3) ..................          761,267           663,648
Prepaid expenses and other assets ............................           24,513            60,954
                                                                   ------------      ------------

                                                                   $ 94,525,089        94,083,728
                                                                   ============      ============
                  Liabilities and Stockholders' Equity

Deposits (note 7) ............................................     $ 67,918,202        68,703,588
FHLB advance (note 8) ........................................        3,200,000         1,200,000
Advance payments by borrowers for taxes and insurance ........          274,377           219,583
Employee stock ownership plan (ESOP) borrowing (note 10) .....             --             159,064
Accrued interest payable (note 7) ............................          122,212           110,393
Current income taxes payable (note 9) ........................           27,458            51,554
Accrued expenses and other liabilities (note 10) .............          634,535           553,811
                                                                   ------------      ------------

             Total liabilities ...............................       72,176,784        70,997,993
                                                                   ------------      ------------
Stockholders' equity (note 11):
    Serial preferred stock, $.10 par value;
      authorized 10,000,000 shares, none issued ..............             --                --
    Common stock, $.10 par value; authorized
      20,000,000 shares, 2,122,216 and 2,115,990
      issued and outstanding in 1999 and 1998, respectively ..          212,222           211,599
    Additional paid-in capital ...............................        9,093,681         9,012,687
    Retained earnings, substantially restricted ..............       14,518,728        14,020,513
    Unearned ESOP shares .....................................             --            (159,064)
    Treasury stock, 96,938 shares ............................       (1,476,326)             --
                                                                   ------------      ------------

             Total stockholders' equity ......................       22,348,305        23,085,735
                                                                   ------------      ------------
Commitments and contingencies (notes 3 and 14)

             Total liabilities and stockholders' equity ......     $ 94,525,089        94,083,728
                                                                   ============      ============
</TABLE>
See accompanying notes to consolidated financial statements.

                                       14
<PAGE>
<TABLE>
<CAPTION>
                                         WEBSTER CITY FEDERAL BANCORP
                                               AND SUBSIDIARIES
                                     Consolidated Statements of Operations
                                 Years ended December 31, 1999, 1998, and 1997

                                                                        1999           1998            1997
                                                                     ----------     ----------     ----------
<S>                                                                  <C>             <C>            <C>
Interest income:
    Loans receivable ...........................................     $4,502,081      4,309,340      4,204,675
    Mortgage-backed and related securities .....................        571,316        856,476      1,189,466
    Investment securities ......................................        923,589        959,443      1,026,097
    Other interest earning assets ..............................        413,440        521,092        319,872
                                                                     ----------     ----------     ----------

             Total interest income .............................      6,410,426      6,646,351      6,740,110
                                                                     ----------     ----------     ----------

Interest expense:
    Deposits (note 7) ..........................................      2,924,174      3,269,914      3,341,865
    FHLB advance (note 8) ......................................         80,699         54,766           --
    ESOP loan interest (note 10) ...............................          5,086         14,182         22,246
                                                                     ----------     ----------     ----------

             Total interest expense ............................      3,009,959      3,338,862      3,364,111
                                                                     ----------     ----------     ----------

             Net interest income ...............................      3,400,467      3,307,489      3,375,999

Provision for losses on loans (note 4) .........................           --             --           40,000
                                                                     ----------     ----------     ----------

            Net interest income after provision
               for losses on loans .............................      3,400,467      3,307,489      3,335,999
                                                                     ----------     ----------     ----------

Noninterest income:
    Fees and service charges ...................................        162,211        188,123        157,242
    Other ......................................................         50,929         56,296         47,707
                                                                     ----------     ----------     ----------

            Total noninterest income ...........................        213,140        244,419        204,949
                                                                     ----------     ----------     ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                  <C>             <C>            <C>
Noninterest expense:
    Compensation, payroll taxes, and employee benefits (note 10)        810,858        789,227        723,497
    Advertising ................................................         28,712         27,346         28,209
    Office property and equipment ..............................        117,286         79,250         94,816
    Federal insurance premiums .................................         39,832         43,012         35,672
    Data processing services ...................................        113,219        101,780        100,430
    Other real estate expenses, net ............................          1,654          2,049          4,882
    Other ......................................................        472,365        390,516        392,064
                                                                     ----------     ----------     ----------

             Total noninterest expense .........................      1,583,926      1,433,180      1,379,570
                                                                     ----------     ----------     ----------

             Earnings before taxes on income ...................      2,029,681      2,118,728      2,161,378

Taxes on income (note 9) .......................................        780,000        803,000        797,000
                                                                     ----------     ----------     ----------

             Net earnings ......................................     $1,249,681      1,315,728      1,364,378
                                                                     ==========     ==========     ==========

Earnings per share - basic (note 1) ............................     $     0.60           0.63           0.66
                                                                     ==========     ==========     ==========

Earnings per share - diluted (note 1) ..........................     $     0.60           0.62           0.65
                                                                     ==========     ==========     ==========

</TABLE>

See accompanying notes to consolidated financial statements.


                                       15
<PAGE>
<TABLE>
<CAPTION>
                                                   WEBSTER CITY FEDERAL BANCORP
                                                         AND SUBSIDIARIES
                                          Consolidated Statements of Stockholders' Equity
                                                    December 31, 1999 and 1998

                                                                           Additional                    Unearned
                                                Common      Treasury         paid-in       Retained         ESOP
                                                stock          Stock         capital       earnings        shares        Total
                                             -----------   -----------    -----------   -----------    -----------    -----------
<S>                                          <C>            <C>             <C>          <C>              <C>          <C>
Balance at December 31, 1996 .............   $   210,000          --        8,780,686    13,089,481       (311,467)    21,768,700

Net earnings .............................          --            --             --       1,364,378           --        1,364,378
Exercise of options (9,383 shares) .......           938          --          114,870          --             --          115,808
Stock appreciation of allocated
    ESOP shares ..........................          --            --           17,100          --             --           17,100
Principal reduction ......................          --            --             --            --           74,984         74,984
Dividends paid on common stock ...........          --            --             --        (990,666)          --         (990,666)
                                             -----------   -----------    -----------   -----------    -----------    -----------

Balance at December 31, 1997 .............       210,938          --        8,912,656    13,463,193       (236,483)    22,350,304

Net earnings .............................          --            --             --       1,315,728           --        1,315,728
Exercise of options (6,610 shares) .......           661          --           61,177          --             --           61,838
Stock appreciation of allocated
    ESOP shares ..........................          --            --           38,854          --             --           38,854
Principal reduction ......................          --            --             --            --           77,419         77,419
Dividends paid on common stock ...........          --            --             --        (758,408)          --         (758,408)
                                             -----------   -----------    -----------   -----------    -----------    -----------

Balance at December 31, 1998 .............       211,599          --        9,012,687    14,020,513       (159,064)    23,085,735

Net earnings .............................          --            --             --       1,249,681           --        1,249,681
Exercise of options (6,229 shares) .......           623          --           71,933          --             --           72,556
Stock appreciation of allocated
    ESOP shares ..........................          --            --            9,061          --             --            9,061
Principal reduction ......................          --            --             --            --          159,064        159,064
Repurchase of common stock (96,938 shares)          --      (1,476,326)          --            --             --       (1,476,326)
Dividends paid on common stock ...........          --            --             --        (751,466)          --         (751,466)
                                             -----------   -----------    -----------   -----------    -----------    -----------

Balance at December 31, 1999 .............   $   212,222    (1,476,326)     9,093,681    14,518,728           --       22,348,305
                                             ===========   ===========    ===========   ===========    ===========    ===========

</TABLE>
See accompanying notes to consolidated financial statements.


                                       16
<PAGE>
<TABLE>
<CAPTION>
                                                   WEBSTER CITY FEDERAL BANCORP
                                                         AND SUBSIDIARIES
                                               Consolidated Statements of Cash Flows
                                                 Years ended 1999, 1998, and 1997




                                                                                   1999             1998            1997
                                                                                ------------     ------------     ------------
<S>                                                                            <C>                 <C>              <C>
Cash flows from operating activities:
    Net earnings ..........................................................    $  1,249,681        1,315,728        1,364,378
                                                                               ------------     ------------     ------------

    Adjustments  to  reconcile  net  earnings to net cash
      provided by operating activities:
        Depreciation ......................................................          51,890           36,210           46,790
        Amortization of fees and discounts, net ...........................           5,692            5,612          (42,315)
        Provision for losses on loans .....................................            --               --             40,000
        Gain on sale of real estate, net ..................................            --             (3,227)          (3,739)
        Earned but unallocated shares of ESOP .............................         159,064           77,419           74,984
        Stock appreciation of allocated ESOP shares .......................           9,061           38,854           17,100
        (Increase) decrease in accrued interest receivable ................         (97,619)           5,289            2,033
        Decrease (increase) in prepaid expenses and other assets ..........          36,441          (16,393)          13,544
        Increase in accrued interest payable ..............................          11,819            2,029           26,732
        Increase in accrued expenses and other liabilities ................          80,724           48,083           48,496
        (Decrease) increase in accrued taxes on income ....................         (24,096)          (9,549)          89,954
        Increase in deferred taxes on income ..............................         (19,000)         (48,000)         (38,000)
                                                                               ------------     ------------     ------------

             Total adjustments ............................................         213,976          136,327          275,579
                                                                               ------------     ------------     ------------

             Net cash provided by operating activities ....................       1,463,657        1,452,055        1,639,957
                                                                               ------------     ------------     ------------

Cash flows from investing activities:
    Proceeds from maturity of time deposits in other financial institutions       3,111,000        1,085,000        1,850,000
    Proceeds from the maturity of investment securities ...................       4,900,000       16,650,000        7,000,000
    Purchase of investment securities .....................................      (9,905,814)      (9,902,281)      (8,632,453)
    Purchase of time deposits .............................................      (3,431,000)      (2,265,000)      (2,800,000)
    Principal collected on mortgage-backed securities .....................       3,226,586        4,905,638        3,637,996
    Purchase of mortgage-backed securities ................................      (1,070,487)            --               --
    Net change in loans receivable ........................................      (5,431,628)      (2,488,656)        (256,688)
    Proceeds from the sale of real estate .................................          22,460          113,967          105,194
    Purchase of office property and equipment .............................         (40,619)          (9,990)         (31,682)
    Proceeds on sale of FHLB stock ........................................            --            166,300             --
                                                                               ------------     ------------     ------------

             Net cash (used in) provided by investing activities ..........      (8,619,502)       8,254,978          872,367
                                                                               ------------     ------------     ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                            <C>                 <C>              <C>
Cash flows from financing activities:
    Net change in deposits ................................................        (785,386)      (2,823,575)         575,419
    Net (decrease) increase in advance payments by
      borrowers for taxes and insurance ...................................          54,794          (15,485)          (3,928)
    Proceeds from FHLB advance ............................................       2,000,000        1,200,000             --
    Repurchase of common stock ............................................      (1,476,326)            --               --
    ESOP costs ............................................................        (159,064)         (77,419)         (74,984)
    Proceeds on stock options .............................................          72,556           61,838          115,808
    Dividends paid ........................................................        (751,466)        (758,408)        (990,666)
                                                                               ------------     ------------     ------------

             Net cash used in financing activities ........................      (1,044,892)      (2,413,049)        (378,351)
                                                                               ------------     ------------     ------------

             Net (decrease) increase in cash and cash equivalents .........      (8,200,737)       7,293,984        2,133,973

Cash and cash equivalents at beginning of year ............................      13,186,836        5,892,852        3,758,879
                                                                               ------------     ------------     ------------

Cash and cash equivalents at end of year ..................................    $  4,986,099       13,186,836        5,892,852
                                                                               ============     ============     ============

Supplemental  disclosures  of cash flow  information:
  Cash paid during the year for:
      Interest ............................................................    $  2,998,140        3,336,833        3,337,379
      Taxes on income .....................................................         821,582          861,066          744,430
    Transfers from loans to real estate acquired through foreclosure ......            --               --             59,282
    Loan originated to facilitate sale of real estate .....................            --             73,918             --
                                                                               ============     ============     ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       17
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


  (1)   Summary of Significant Accounting Policies and Practices

        Description of Business

        Webster City Federal Bancorp (the Company) and its  subsidiary,  Webster
        City Federal  Savings Bank (the Bank,) conduct  operations from a single
        office 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.

        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  55% of the  Company's
        capital  stock is  owned  by WCF  Financial  M.H.C.,  a  mutual  holding
        company.  The remaining  45% of the Company's  capital stock is owned by
        the general public.

        Principles of Consolidation

        The consolidated  financial  statements  include the accounts of Webster
        City Federal Bancorp,  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  generally  accepted  accounting  principles.   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.

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


                                       18                            (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        Earnings  per  share-basic  for 1998 is  computed  using  the  2,092,818
        weighted-average common shares outstanding for the year, which is net of
        20,127  weighted-average  unearned  ESOP shares and divided into the net
        earnings of $1,315,728.  Earnings per share-diluted for 1998 is computed
        using the  2,092,818  weighted-average  common  shares  outstanding  and
        adding the dilutive  effect of stock options  totaling 17,828 shares and
        divided into the net earnings of $1,315,728.

        Earnings  per  share-basic  for 1997 is  computed  using  the  2,075,850
        weighted-average common shares outstanding for the year, which is net of
        26,313  weighted-average  unearned  ESOP shares and divided into the net
        earnings of $1,364,378.  Earnings per share-diluted for 1997 is computed
        using the  2,075,850  weighted-average  common  shares  outstanding  and
        adding the dilutive  effect of stock options  totaling 16,288 shares and
        divided into the net earnings of $1,364,378.

        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, 1999 and 1998, were  interest-bearing  deposits totaling  $4,239,112
        and $12,906,270, respectively.

        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, 1999 and 1998,  the Bank had no trading  securities  or
        securities available-for-sale.

        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.

        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
<PAGE>
        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.


                                       19                            (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        Allowance for Losses on Loans

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

        Accrued  interest  receivable on loans which become more than 90 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
        90 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.

        Real Estate

        Real estate is carried at the lower of cost or fair value less estimated
        costs of disposition. When a property is acquired through foreclosure or
        a loan is considered impaired,  any excess of the loan balance over fair
        value of the property plus disposition costs is charged to the allowance
        for losses on loans.  Costs relating to the  development and improvement
        of  property  are  capitalized,  whereas  those  relating to holding the
        property are charged to expense. When circumstances  indicate additional
        loss on the  property,  a direct  charge to the  provision for losses on
        real  estate  is  made,  and the real  estate  is  recorded  net of such
        provision.

        Loan Origination Fees and Related Costs

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

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

                                       20                            (Continued)

<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        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.

        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 10 to 50 years for the
        office  building  and  improvements  and 5 to 25  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.

        Taxes on Income

        The Company and its subsidiaries  file  consolidated  federal income tax
        returns.  Federal taxes on income are allocated  based on taxable income
        or loss included in the consolidated return. For state tax purposes, the
        Bank files a franchise tax return and the Company and Bank's  subsidiary
        files a consolidated corporate income tax return.

        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.

        Stock Option Plan

        The Company  provides  pro forma net income 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.

                                       21                            (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL BANCORP
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        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:

              Cash and Cash  Equivalents  and Time  Deposits in Other  Financial
              Institutions

              The carrying amount is a reasonable estimate of fair value.

              Investment Securities

              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.

              Mortgage-Backed and Related Securities

              The fair  value  of  mortgage-backed  and  related  securities  is
              estimated  based on bid prices  published in financial  newspapers
              and bid quotations received from securities dealers.

              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.

              FHLB Stock

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

              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.

                                       22                            (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL BANCORP
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


              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.

              FHLB Advance

              The  fair  value of the FHLB  advance  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.

              ESOP Borrowing

              The fair value of the ESOP  borrowing  is based on the  discounted
              value of the cash  flows  using  the  current  interest  rate on a
              similar type of borrowing.

              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.

              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.
<PAGE>
        Effect of New Financial Accounting Standards

        Statement of Financial  Accounting  Standard (SFAS) 133,  Accounting for
        Derivative  Instruments  and  Hedging  Activities,  and  SFAS  No.  137,
        Accounting for Derivative  Instruments and Hedging Activities - Deferral
        of FASB  Statement  No. 133,  will be effective  for the Company for the
        year beginning January 1, 2001.  Management is evaluating the impact the
        adoption  of SFAS 133 will  have on the  Bank's  consolidated  financial
        statements. The Company expects to adopt SFAS 133 and 137 when required.


                                       23                            (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


  (2)   Securities Held-to-maturity

              Securities held-to-maturity at December 31, 1999 and 1998, were as
              follows:

<TABLE>
<CAPTION>
                                                          Gross         Gross       Estimated
                                       Amortized       unrealized     unrealized      fair
               Description                cost            gains         losses        value
               -----------                ----            -----         ------        -----
<S>                                   <C>                  <C>          <C>         <C>
1999:
    U.S. agency securities .......    $14,547,903          1,202        535,275     14,013,830
    Municipal bonds ..............        368,163           --           15,800        352,363
    Mortgage-backed securities:
      Federal National Mortgage
        Association (FNMA) .......      2,244,933          3,720         48,999      2,199,654
      Government National Mortgage
        Association (GNMA) .......      3,552,250         12,044         50,710      3,513,584
      Federal Home Loan Mortgage
        Corporation (FHLMC) ......      2,008,346         85,043         43,376      2,050,013
                                      -----------    -----------    -----------    -----------

                                      $22,721,595        102,009        694,160     22,129,444
                                      ===========    ===========    ===========    ===========

1998:
    U.S. agency securities .......    $ 9,899,361         86,185          5,300      9,980,246
    Mortgage-backed securities:
      FNMA .......................      2,290,650         30,656            494      2,320,812
      GNMA .......................      4,649,153         14,658         63,579      4,600,232
      FHLMC ......................      3,047,604        132,332         16,381      3,163,555
                                      -----------    -----------    -----------    -----------

                                      $19,886,768        263,831         85,754     20,064,845
                                      ===========    ===========    ===========    ===========

</TABLE>

        The   amortized   cost  and   estimated   fair   value   of   securities
        held-to-maturity  at December 31, 1999,  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.

<PAGE>
<TABLE>
<CAPTION>
                                                    Amortized         Estimated
                                                       cost           fair value
                                                     -----------      -----------
<S>                                                 <C>               <C>
Due in 1 year or less ........................      $      --               --
Due after 1 year through 5 years .............       13,497,903       13,021,055
Due after 5 years, but less than 10 years ....        1,418,163        1,345,138
Mortgage-backed and related securities .......        7,805,529        7,763,251
                                                    -----------      -----------

                                                    $22,721,595       22,129,444
                                                    ===========      ===========

</TABLE>
                                        24                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        There  were no sales of  securities  held-to-maturity  during  the years
        ended December 31, 1999, 1998, and 1997.

        At  December  31,  1999  and  1998,  accrued  interest   receivable  for
        securities held-to-maturity totaled $391,205 and $309,719, respectively.

  (3)   Loans Receivable

        At  December  31,  1999 and  1998,  loans  receivable  consisted  of the
        following:

<TABLE>
<CAPTION>
                                                     1999               1998
                                                ------------       ------------
<S>                                             <C>                  <C>
Real estate loans:
    One- to four-family residential ......      $ 50,419,973         44,046,913
    Multifamily residential and other ....         5,248,000          5,960,374
    Home equity ..........................         4,141,657          4,346,663
                                                ------------       ------------

                                                  59,809,630         54,353,950
                                                ------------       ------------
Consumer and other loans:
    Automobile ...........................         1,682,000          1,535,628
    Home improvement .....................         1,083,439            963,075
    Loans on savings deposits ............           248,158            416,802
    Other ................................           587,492            752,391
                                                ------------       ------------

                                                   3,601,089          3,667,896
                                                ------------       ------------

Real estate sold on contract .............           100,235            128,322
                                                ------------       ------------

      Total loans receivable .............        63,510,954         58,150,168

Premium on loans purchased ...............             5,865             11,441
Unearned discount on loans purchased .....           (19,917)           (25,980)
Loans in process .........................          (922,170)          (998,935)
Allowance for losses on loans ............          (382,402)          (385,188)
                                                ------------       ------------

                                                $ 62,192,330         56,751,506
                                                ============       ============
</TABLE>
<PAGE>
        Accrued  interest  receivable  on  loans  receivable  was  $354,009  and
        $353,929 at December 31, 1999 and 1998, respectively.

        The Company  grants  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, 1999, approximately $5.3 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.


                                        25                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        Loans with  interest  more than 90 days in arrears,  defined as impaired
        and carried on nonaccrual status,  amounted to $-0- at December 31, 1999
        and 1998.  The  allowance  for loan  losses  related to these loans were
        $-0-.  The  average  balances  of  nonaccrual  loans for the years ended
        December 31, 1999 and 1998, were $23,084 and $26,058,  respectively. For
        the years ended December 31, 1999 and 1998, interest income, which would
        have  been  recorded  under  the  original  terms  of  the  loans,   was
        approximately $1,628 and $500, respectively, with $1,628 interest income
        actually recorded.

        At December 31, 1998,  the Company had  commitments to buy or fund loans
        of  approximately  $405,000,  including three fixed rate  commitments at
        December 31, 1999,  totaling  $232,350 at an 8.25% interest rate.  There
        were no commitments to sell loans.

        Loan customers of the Company  include  certain  executive  officers and
        directors and their related interests and associates.  All loans to this
        group were made in the ordinary  course of business at prevailing  terms
        and  conditions.  Such loans at December 31, 1999 and 1998,  amounted to
        $714,958 and $649,830, respectively.  During the year ended December 31,
        1998, $187,406 of new loans were made and repayments totaled $122,278.

  (4)   Allowance for Losses on Loans

        A summary of the allowance for losses on loans follows:

<TABLE>
<CAPTION>
                                                     December 31
                                         --------------------------------------
                                            1999         1998          1997
                                         -----------  -----------   -----------
<S>                                    <C>               <C>           <C>
Balance at beginning of year           $    385,188      385,149       358,578

Provision for losses                             --           --        40,000
Charge-offs                                  (9,264)        (725)      (14,703)
Recoveries                                    6,478          764         1,274
                                         -----------  -----------   -----------

Balance at end of year                 $    382,402      385,188       385,149
                                         ===========  ===========   ===========

</TABLE>
  (5)   Real Estate

        At  December  31,  1999 and  1998,  real  estate  consisted  of $-0- and
        $22,460, respectively, of real estate acquired through foreclosure.


                                        26                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


  (6)   Office Property and Equipment

        At December 31, 1999 and 1998, the cost and accumulated  depreciation of
        office property and equipment were as follows:

<TABLE>
<CAPTION>
                                                       1999               1998
                                                     ----------       ----------
<S>                                                 <C>               <C>
Land .......................................        $  125,746           125,746
Office building and improvements ...........           741,403           728,249
Furniture, fixtures, and equipment .........           409,376           381,910
                                                    ----------        ----------

                                                     1,276,525         1,235,905

Less accumulated depreciation ..............           791,440           739,549
                                                    ----------        ----------

                                                    $  485,085           496,356
                                                    ==========        ==========
</TABLE>
  (7)   Deposits

        At December 31, 1999 and 1998, deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                      1999               1998
                                                  -----------        -----------
<S>                                               <C>                  <C>
Passbook .................................        $ 4,730,437          4,490,441
Money market plus ........................          6,035,983          5,895,738
Noninterest-bearing checking .............          1,882,406            311,158
NOW ......................................          5,824,154          6,868,800
Certificates of deposit ..................         49,445,222         51,137,451
                                                  -----------        -----------

                                                  $67,918,202         68,703,588
                                                  ===========        ===========
</TABLE>

        The  aggregate   amount  of  certificates  of  deposit  with  a  minimum
        denomination of $100,000 was approximately  $7,116,565 and $8,225,000 at
        December 31, 1999 and 1998, respectively.
<PAGE>
        At December  31, 1999,  the  scheduled  maturities  of  certificates  of
        deposit were as follows:


                         2000                         $   34,916,588
                         2001                              8,524,708
                         2002                              3,030,518
                         2003                              2,031,673
                         2004 and thereafter                 941,735
                                                      --------------

                                                      $   49,445,222
                                                      ==============

                                        27                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        Interests  expense on deposits  for the years ended  December  31, 1999,
        1998, and 1997, is summarized as follows:

<TABLE>
<CAPTION>
                                         1999             1998            1997
                                      ----------      ----------      ----------
<S>                                   <C>             <C>             <C>
Passbook .......................      $  105,367         123,280         112,407
Money market plus and NOW ......         303,713         292,420         275,239
Certificates of deposit ........       2,515,094       2,854,214       2,954,219
                                      ----------      ----------      ----------

                                      $2,924,174       3,269,914       3,341,865
                                      ==========      ==========      ==========
</TABLE>
        Public funds  amounted to  approximately  $3,427,000  and  $8,225,000 at
        December 31, 1999 and 1998, respectively.

        At December  31,  1999 and 1998,  accrued  interest  payable on deposits
        totaled $122,212 and $110,393, respectively.

  (8)   Advance from Federal Home Loan Bank (FHLB)

        At December 31, 1999, the Bank has one FHLB advance totaling $3,200,000.
        The advance requires  monthly  interest  payments at a rate of 5.55% and
        has a maturity  date of October 26,  2009.  FHLB may call the advance in
        whole on October 25, 2000,  at par and quarterly  thereafter.  Principal
        payment is due at maturity.

        The advance from the FHLB is 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.

                                        28                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


  (9)   Taxes on Income

        Taxes on income were comprised as follows:

<TABLE>
<CAPTION>
                              1999                                      1998
            -------------------------------------     -------------------------------------
             Federal        State          Total       Federal        State          Total
            ---------     ---------     ---------     ---------     ---------     ---------

<S>         <C>             <C>           <C>           <C>           <C>           <C>
Current     $ 691,000       108,000       799,000       737,000       114,000       851,000
Deferred      (16,000)       (3,000)      (19,000)      (42,000)       (6,000)      (48,000)
            ---------     ---------     ---------     ---------     ---------     ---------

            $ 675,000       105,000       780,000       695,000       108,000       803,000
            =========     =========     =========     =========     =========     =========
<CAPTION>
                                               1997
                              -------------------------------------
                               Federal        State         Total
                              ---------     ---------     ---------
<S>                           <C>             <C>           <C>
                  Current     $ 723,000       112,000       835,000
                  Deferred      (33,000)       (5,000)      (38,000)
                              ---------     ---------     ---------

                              $ 690,000       107,000       797,000
                              =========     =========     =========
</TABLE>
        Taxes on income differ from the amounts computed by applying the federal
        income  tax  rate of 34% to  earnings  before  taxes on  income  for the
        following reasons, expressed in percentages:
<TABLE>
<CAPTION>
                                                                     December 31
                                                          ---------------------------------
                                                            1999         1998         1997
                                                          --------     -------      -------
<S>                                                        <C>         <C>          <C>
Federal income tax rate                                      34.0 %      34.0         34.0
Items affecting federal income tax rate:
    State taxes on income, net of federal benefit             3.3         3.3          3.3
    Other                                                     1.1         0.6         (0.4)
                                                          --------     -------      -------

                                                             38.4 %      37.9         36.9
                                                          ========     =======      =======
</TABLE>
                                        29                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

        The tax effects of temporary  differences  that give rise to significant
        portions of deferred tax assets and deferred tax liabilities at December
        31, 1999 and 1998, are presented below:

<TABLE>
<CAPTION>
                                                         1999            1998
                                                      ---------       ---------
<S>                                                   <C>             <C>
Deferred tax assets:
    Deferred directors' fees ...................      $ 215,000         193,000
    General bad debt allowance .................        140,000         140,000
                                                      ---------       ---------

             Gross deferred tax assets .........        355,000         333,000

    Less valuation allowance ...................           --              --
                                                      ---------       ---------

             Net deferred tax assets ...........        355,000         333,000
                                                      ---------       ---------

Deferred tax liabilities:
    Deferred loan fees .........................       (108,000)        (97,000)
    FHLB stock dividends .......................        (74,000)        (74,000)
    Tax bad debt reserve .......................         (7,000)        (11,000)
    Accrual to cash conversion for
      interest income on certain loans .........         (9,000)        (10,000)
    Other ......................................         (1,000)         (4,000)
                                                      ---------       ---------

             Gross deferred tax liabilities ....       (199,000)       (196,000)
                                                      ---------       ---------

             Net deferred tax asset ............      $ 156,000         137,000
                                                      =========       =========

</TABLE>
 (10)   Benefit Plans

        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, 1998,  the date of the latest  actuarial  valuation,  the
        book and market  values of the fund assets  exceeded the value of vested
        benefits in the aggregate.  In accordance with FIRF's instructions,  the
        Bank did not make any contributions to the plan in 1999, 1998, or 1997.

                                        30                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        ESOP

        All employees  meeting the age and service  requirements are eligible to
        participate in the ESOP  established in August 1994 in conjunction  with
        the  reorganization.  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 $161,894,  $102,304,  and $80,550;  for the years ended
        December 31, 1999,  1998, and 1997,  respectively.  The Holding  Company
        paid the balance of the ESOP loan during 1999.  Interest  expense on the
        ESOP's  borrowing for the years ended December 31, 1999, 1998, and 1997,
        was $5,086,  $14,182, and $22,246,  respectively.  At December 31, 1998,
        20,127  shares  were  unearned.  On January 1, 1999 and 1998,  6,588 and
        6,186 shares, respectively,  were released for allocation. The remaining
        shares were released from  allocation when the loan was paid on June 30,
        1999. The fair value of the unallocated shares at December 31, 1998, was
        approximately $322,000.

        Deferred Compensation

        The Company has deferred compensation  agreements with certain directors
        and at December 31, 1999 and 1998, had accrued deferred  compensation of
        $575,448 and  $516,844,  respectively.  Directors'  fees  deferred  were
        $29,400, $27,750, and $27,500 for 1999, 1998, and 1997, respectively.

        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.  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,  1999 and 1998,  there were  14,250  additional  shares
        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.

                                        31                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


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

<TABLE>
<CAPTION>
                                                        1999            1998           1997
                                                     ----------      ---------      ---------

<S>                                                  <C>             <C>            <C>
Net earnings                        As reported      $1,249,681      1,315,728      1,364,378
                                    Pro forma         1,221,679      1,282,002      1,329,386
                                                     ==========      =========      =========

Earnings per share - basic          As reported      $     0.60           0.63           0.66
                                    Pro forma              0.59           0.61           0.64
                                                     ==========      =========      =========

Earnings per share - diluted        As reported      $     0.60           0.62           0.65
                                    Pro forma              0.58           0.60           0.63
                                                     ==========      =========      =========

</TABLE>
        Pro forma net earnings  reflects only options  granted in 1996. The full
        impact of calculating compensation cost for stock options under SFAS 123
        is not  reflected in the pro forma net income  amounts  presented  above
        because  compensation cost is reflected over the options' vesting period
        of three years. There were no options granted in 1999, 1998, or 1997.

        Stock option activity during the periods indicated was as follows:

<TABLE>
<CAPTION>

                                         1999                          1998                         1997
                                 -----------------------     ------------------------      ----------------------
                                  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      56,837      $   12.75        66,167      $   12.75       80,750      $   12.75
Granted ....................        --               --           --              --          --              --
Exercised ..................      (6,226)         12.75        (9,330)         12.75       (9,833)         12.75
Expired ....................        --               --           --              --       (4,750)         12.75
                                  ------      ---------        ------      ---------       ------      ---------

Balance at end of year .....      50,611          12.75        56,837          12.75       66,167          12.75
                                  ======          =====        ======          =====       ======          =====
</TABLE>
<PAGE>

        At December 31, 1999, the exercise price and weighted-average  remaining
        contractual  life of  outstanding  options  was $12.75  and 6.33  years,
        respectively.

                                       32                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


(11)    Stockholders' Equity

        Stock Holding Company Reorganization

        On July 1, 1999, the board of directors of Webster City Federal  Savings
        Bank  adopted  a plan of  reorganization  to  create a  two-tier  mutual
        holding  company  structure  with the  establishment  of a Webster  City
        Federal Bancorp, a stock holding company parent of the Bank. Pursuant to
        the  reorganization,  each share of Webster  City  Federal  Savings Bank
        stock held by the existing  stockholders of the Bank was exchanged for a
        share of common stock of Webster City Federal  Bancorp.  Upon completion
        of the reorganization,  Webster City Federal Bancorp owns 100 percent of
        the Bank. Fifty-five percent of Webster City Federal Bancorp is owned by
        WCF Financial,  M.H.C., a mutual holding company and 45 percent is owned
        by outside investors.

        Common Stock Repurchase

        The Company repurchased 96,938 shares of common stock during 1999. These
        shares are recorded at cost in the Consolidated Balance Sheet.

        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, 1999 and
        1998.

        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, 1999
        and 1998.
                                        33                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998


        The Bank's actual and required capital amounts and ratios as of December
        31, 1999, were as follows:

<TABLE>
<CAPTION>

                                                                                                         To be well
                                                                              For capital              capitalized under
                                                                               adequacy                prompt corrective
                                                    Actual                     purposes                action provisions
                                         --------------------------    ------------------------    -------------------------
                                             Amount        Percent      Amount         Percent         Amount        Percent
                                             ------        -------      ------         -------         ------        -------
<S>                                      <C>                <C>        <C>                <C>      <C>                <C>
Tangible capital                         $                        %    $                      %    $                       %
    Consolidated                           22,348,000         22.8      1,418,000          1.5        n/a               n/a
    Webster City Federal Savings Bank      21,511,000         22.7      1,420,000          1.5        n/a               n/a
Tier I leverage (core) capital
    Consolidated                           22,348,000         22.8      3,780,000          4.0       4,725,000          5.0
    Webster City Federal Savings Bank      21,511,000         22.7      3,786,000          4.0       4,732,000          5.0
Risk based capital
    Consolidated                           22,730,000         52.0      3,496,000          8.0       4,730,000         10.0
    Webster City Federal Savings Bank      21,893,000         50.1      3,496,000          8.0       4,370,000         10.0
Tier I risk-based capital
    Consolidated                           22,348,000         51.1       n/a               n/a       2,622,000          6.0
    Webster City Federal Savings Bank      21,511,000         49.2       n/a               n/a       2,622,000          6.0
                                         ============        =====     ==========         ====     ===========        =====

</TABLE>
        At December 31, 1999 and 1998,  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. The Bank's retained earnings at December 31, 1999 and 1998,
        were  substantially  restricted  because  of the effect of these tax bad
        debt reserves.

        Dividends and Restrictions Thereon

        The board of  directors  of the Bank  declared and paid two 20(cent) per
        share dividends  during the first and second quarters of 1999. The board
        of  directors  of the Company  declared  and paid two 20(cent) per share
        dividends during the third and fourth quarters of 1999.

        The Holding  Company  waived its right to receive the dividend  declared
        and paid on all four of the 20(cent)  dividends during the year. The OTS
        required  that  the  retained  earnings  of the  Bank be  restricted  by
        $920,000, the amount of the 1999 waived dividends. Cumulative restricted
        retained  earnings at  December  31,  1999,  for waived  dividends  were
        $4,312,500.
<PAGE>
        The board of directors of the Bank  declared and paid four  20(cent) per
        share dividends in 1998.

        The Holding  Company  waived its right to receive the dividend  declared
        and paid on all four of the 20(cent)  dividends during the year. The OTS
        required  that  the  retained  earnings  of the  Bank be  restricted  by
        $920,000, the amount of the 1998 waived dividends. Cumulative restricted
        retained  earnings at  December  31,  1998,  for waived  dividends  were
        $3,392,500.

        The board of directors of the Bank  declared and paid four  20(cent) per
        share dividends in 1997.

        The Holding  Company  waived its right to receive the dividend  declared
        and paid on all but 50,000  shares of the first two 20(cent)  dividends.
        It received its entire dividend on the third 20(cent)  dividend declared
        and paid and waived its right to receive  the fourth  20(cent)  dividend
        declared and paid.  The OTS required  that the retained  earnings of the
        Bank be restricted by $670,000, the amount of the 1997 waived dividends.
        Cumulative  restricted retained earnings at December 31, 1997 for waived
        dividends were $2,472,500.

                                        34                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

        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.

(12)    Fair Value of Financial Instruments

        The  estimated  fair  values  of  Company's  financial  instruments  (as
        described in note 1) at December 31, 1999 and 1998, were as follows:

<TABLE>
<CAPTION>
                                                1999                            1998
                                    ---------------------------      --------------------------
                                      Carrying           Fair          Carrying           Fair
                                        amount           value           amount           value
                                    -----------       ---------      ----------      ----------
<S>                                 <C>               <C>            <C>             <C>
Financial assets:
    Cash and cash equivalents .     $ 4,986,099       4,986,099      13,186,836      13,186,836
    Time deposits in other
      financial institutions ..       2,585,000       2,585,000       2,265,000       2,265,000
    Securities held-to-maturity      22,721,595      22,129,444      19,886,768      20,064,845
    Loans receivable, net .....      62,192,330      57,722,978      56,751,506      57,179,537
    FHLB stock ................         613,200         613,200         613,200         613,200
    Accrued interest receivable         761,267         761,267         663,648         663,648

Financial liabilities:
    Deposits ..................      67,918,202      68,094,360      68,703,588      69,392,150
    FHLB Advance ..............       3,200,000       2,848,656       1,200,000
    ESOP borrowing ............            --              --           159,064         160,120
    Accrued interest payable ..         122,212         122,212         110,393         110,393
                                    ===========     ===========     ===========     ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                      Notional        Unrealized       Notional     Unrealized
                                       Amount        gain (loss)        Amount      gain (loss)
                                    -----------     -----------     -----------     -----------
<S>                                 <C>             <C>             <C>             <C>
Off  balance sheet instrument -
    Commitments to extend credit .  $   405,000              --         770,000              --
                                    ===========     ===========     ===========     ===========

</TABLE>
                                         35                          (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

(13)    Parent Company Only Financial Statements
<TABLE>
<CAPTION>
                             Condensed Balance Sheet

                                December 31, 1999

                                                                        1999
                                                                   -------------
<S>                                                                <C>
Cash and cash equivalents ...................................      $    837,260
Investment in subsidiary ....................................        21,511,045
                                                                   ------------

             Total assets ...................................      $ 22,348,305
                                                                   ============

Stockholders' equity:
    Common stock ............................................      $    212,222
    Additional paid-in capital ..............................         9,093,681
    Retained earnings .......................................        14,518,728
    Treasury stock ..........................................        (1,476,326)
                                                                   ------------

             Total stockholders' equity .....................        22,348,305
                                                                   ------------

             Total liabilities and stockholders' equity .....      $ 22,348,305
                                                                   ============

<CAPTION>
                         Condensed Statement of Operations

                      For the Year Ended December 31, 1999
                                                                        1999
                                                                    ------------
<S>                                                                 <C>
Dividend income ...........................................         $ 3,082,125
Interest income ...........................................                 250
Equity in undistributed earnings of subsidiary ............          (1,775,022)
Noninterest expenses ......................................             (57,672)
                                                                    -----------
             Net earnings before income
               tax expense ................................           1,249,681

Income tax expense ........................................                --
                                                                    -----------

             Net earnings .................................         $ 1,249,681
                                                                    ===========
</TABLE>
                                        36                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL Bancorp
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                        Condensed Statement of Cash Flows

                      For the Year Ended December 31, 1999


                                                                       1999
                                                                    -----------
<S>                                                                 <C>
Operating activities:
    Net earnings ............................................       $ 1,249,681
    Equity in undistributed earnings of subsidiary ..........         1,775,022
                                                                    -----------

             Net cash provided by operating activities ......         3,024,703
                                                                    -----------

Financing activities:
    Repurchase of common stock ..............................        (1,476,326)
    Proceeds on stock options ...............................            40,349
    Dividends paid ..........................................          (751,466)
                                                                    -----------

             Net cash used in
               financing activities .........................        (2,187,443)

             Net increase in cash
               and cash equivalents .........................           837,260

Cash and cash equivalents at beginning of period ............              --
                                                                    -----------

Cash and cash equivalents at end of period ..................       $   837,260
                                                                    ===========
</TABLE>

 (14)   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.

                                        37                           (Continued)
<PAGE>
                          WEBSTER CITY FEDERAL BANCORP
                             STOCKHOLDER INFORMATION



ANNUAL MEETING

         The  Annual  Meeting  of  Stockholders  will  be  held  at  1:00  p.m.,
Wednesday,  April 19, 2000, 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 29,  2000,  the Company had 228  shareholders  of record
(which does not include approximately 250 shareholders whose stock is in nominee
or "street" name) and 1,940,781 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>
                                    1999             1998
                                  Dividend        Dividend         Fiscal Year 1999         Fiscal Year 1998
                                    Paid             Paid            Low      High             Low      High
                                    ----             ----            ---      ----             ---      ----
<S>                                 <C>             <C>             <C>      <C>              <C>      <C>
         First quarter ........     $.20            $.20            $14.75   $16.85           $20.00   $21.25
         Second quarter .......     $.20            $.20            $13.75   $15.50           $18.25   $21.75
         Third quarter ........     $.20            $.20            $13.75   $15.75           $12.50   $18.50
         Fourth quarter .......     $.20            $.20            $12.75   $15.63           $14.25   $17.00
</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, 1999 with the Securities 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.

                                       38
<PAGE>
                          WEBSTER CITY FEDERAL BANCORP
                             STOCKHOLDER INFORMATION



COMPANY AND BANK ADDRESS

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


DIRECTORS OF THE BOARD

Ellis S. Swon
         Chairman of the Board;
Our Executive Officer
         Retired President and Chief Executive Officer
         of Webster City Federal Savings Bank

Dr. Carroll E. Haynes
         Retired Dentist

Dennis J. Tasler
         President and Chief Executive Officer
         of Tasler Pallet & EPS, Inc.

Donald I. Newman
         Retired President and Chief Executive Officer
         of Webster City Federal Savings Bank

Phyllis A. Murphy
         President and Chief Executive Officer
          of Webster City Federal Savings Bank


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

William J. Biggins
         Vice President

Jeffrey C. Kluver
         Vice President

Kathie R. Highland
         Vice President and Secretary

<PAGE>


INDEPENDENT AUDITORS

 KPMG LLP
 2500 Ruan Center
 Des Moines, Iowa 50309

CORPORATE COUNSEL

 Bottorff Law Firm
 913 Seneca Street
 Webster City, Iowa 50595

SPECIAL COUNSEL

 Luse Lehman Gorman Pomerenk & Schick
 5335 Wisconsin Ave NW, Suite 400
 Washington, DC  20015

                                       39