UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

  (Mark One)

      |X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934

                   For the fiscal year ended December 31, 2003

                                       OR

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

          For the transition period from ____________ to ______________

                          Commission File Number 0-631

                            WEBFINANCIAL CORPORATION
                            ------------------------
                 (Name of small business issuer in its charter)

                 Delaware                                        56-2043000
                 --------                                        ----------
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

    590 Madison Avenue, 32nd Floor
          New York, New York                                         10022
          ------------------                                         -----
(Address of principal executive offices)                          (Zip Code)

                    Issuer's telephone number: (212) 758-3232

       Securities registered under Section 12(b) of the Exchange Act: None

              Securities registered under Section 12(g) of the Act:

                     Common Stock, par value $.001 per share
                     ---------------------------------------
                                (Title of Class)

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      Issuer's revenues for its most recent fiscal year: $5,813,000

      Based upon the closing price of the registrant's Common Stock, $.001 par
value (the "Common Stock") on March 24, 2004, the aggregate market value of the
2,580,119 shares of Common Stock held by non-affiliates of the issuer was
$6,347,093. Solely for the purposes of this calculation, shares held by
directors and officers of the registrant have been excluded. Such exclusion
should not be deemed a determination or an admission by the issuer that all such
individuals are, in fact, affiliates of the issuer.

      As of March 29, 2004, 4,366,866 shares of the registrant's Common Stock
were issued and outstanding.

                    Documents incorporated by reference: None

    Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|



                                TABLE OF CONTENTS

                                       PART I                           Page No.
                                                                        --------

Item 1.   Description of Business                                          1

Item 2.   Description of Property                                          3

Item 3.   Legal Proceedings                                                3

Item 4.   Submission of Matters to a Vote of Security Holders              3

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters         4

Item 6.   Management's Discussion and Analysis or Plan of Operation        4

Item 7.   Financial Statements                                             9

Item 8.   Changes In and Disagreements With Accountants on Accounting
          and Financial Disclosure                                         9

Item 8A.  Controls and Procedures                                          10

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act                11

Item 10.  Executive Compensation                                           14

Item 11.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                  15

Item 12.  Certain Relationships and Related Transactions                   16

Item 13.  Exhibits and Reports on Form 8-K                                 17

Item 14.  Principal Accountant Fees and Services                           17

Signatures

Exhibit Index



PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

      WebFinancial Corporation (formerly Rose's Holdings, Inc. and referred to
herein as the "Company"), was incorporated in 1997 to act as a holding company
for Rose's Stores, Inc., an operator of general merchandise discount stores. On
December 2, 1997, the Company sold all of the outstanding capital stock of Roses
Stores, Inc.

      On August 31, 1998, the Company acquired, through WebFinancial Holdings
Corporation ("WebFinancial Holdings") a wholly-owned subsidiary of the Company,
90% of the outstanding common stock of WebBank, a Utah industrial loan
corporation, pursuant to an assignment from Praxis Investment Advisers, LLC
("PIA") of a stock purchase agreement, between PIA and Block Financial
Corporation ("Block"), relating to the purchase by PIA of all of the issued and
outstanding shares of common stock of WebBank. Pursuant to the assignment, the
Company paid Block $5,071,000 (including $288,000 of acquisition costs) for the
shares of WebBank's common stock.

      On August 31, 1998, the Company formed Praxis Investment Advisers, Inc.
("Praxis") and together with WebFinancial Holdings and Andrew Winokur, the
holder of the 10% of Praxis not owned by the Company, entered into a management
agreement. The management agreement provided that Praxis could make
recommendations to and consult with the management and board of directors of
WebBank about the deployment of WebBank's capital, the development of its
business lines, its acquisition of assets and its distributions to its
stockholders. During 2000, the Company significantly reduced the level of
operations of Praxis and terminated the management agreement.

      On May 26, 1999, the Company formed a wholly owned subsidiary,
WebFinancial Government Lending, Inc., to hold and service U.S. Department of
Agriculture loans. In April 2000, WebFinancial Government Lending transferred
the majority of its loan portfolio to WebBank in exchange for 28% of WebBank's
common stock. WebFinancial Government Lending has not actively engaged in loan
originations since that time.

      The principal executive offices of the Company are located at 590 Madison
Avenue, 32nd Floor, New York, New York 10022. The Company's telephone number is
(212) 758-3232.

BUSINESS

      The Company, through its operating subsidiaries, operates in niche banking
markets. WebBank provides commercial and consumer specialty finance
transactions. WebBank is authorized by the Federal Deposit Insurance Act to
charge interest (including periodic rates, late fees and prepayment fees)
allowed by Utah law on loans made to borrowers who reside in most states of the
country. Any inconsistent state law limits are preempted by federal law, except
for loans made in states that have opted out of the preemption (i.e., Iowa and
Puerto Rico). WebBank is a small, business oriented institution insured by the
Federal Deposit Insurance Corporation ("FDIC") and examined and regulated by the
FDIC and the State of Utah Department of Financial Institutions.

      Part of the business plan of WebBank represents a non-traditional approach
to generating growth within the context of the regulatory standards of safety
and soundness. Prudent business goals and protection of WebBank's charter are
the key elements of the Company's business strategy for WebBank. Pursuant to
this strategy, WebBank has focused on several lines of business as described
below:

      o     ACCOUNTS RECEIVABLE FACTORING. At December 31, 2003, accounts
            receivable factoring constituted WebBank's principal line of
            business. Factoring is a form of collateral-based commercial lending
            in which companies sell their receivables to a lender, principally
            to secure working capital. The receivables are paid directly to the
            lender. WebBank is engaged in accounts receivable factoring
            utilizing a sourcing and servicing company. The Company has
            announced that a notice of termination has been issued with respect
            to a certain accounts receivable factoring arrangement, with the
            termination to be effective in May 2004, and that another accounts
            receivable program was terminated in February 2004. The accounts
            receivable factoring arrangement that is scheduled to be terminated
            effective May 2004 generated revenue and income in fiscal 2002 and
            2003 which accounted for (a) substantially all of the revenue and
            income generated by our accounts receivable factoring operating
            segment for those years, and (b) a significant part of the income
            and revenue of the Company for those years. It is possible that the
            May 2004 termination may not take effect as provided in the
            termination notice and the arrangement may continue. The Company
            believes that the termination of the two accounts receivable
            factoring arrangements will have a significant adverse effect on its
            net income during 2004. In the event of the scheduled May 2004
            termination, accounts receivable factoring will no longer be, at
            that time, WebBank's principal line of business and there can be no
            assurance that the Company will be able to successfully enter into a
            replacement arrangement or arrangements. WebBank is currently
            considering potential options to remain in the accounts receivable
            factoring business.


                                       1


      o     PRIVATE LABEL STUDENT LENDING. This is a secondary product line in
            which WebBank is involved. It is an alternative to federally
            subsidized student loan programs. A third party sourcing company is
            engaged to source these loans. WebBank provides funding to the
            students and sells the loans to the third party shortly after
            origination of each loan. The third party sourcing company engaged
            to source private label student loans on behalf of WebBank has given
            notice to WebBank that it will not renew the arrangement.
            Consequently, this arrangement will terminate at the conclusion of
            its current term on May 31, 2004. See "Note 20 - Subsequent Events"
            to our Consolidated Financial Statements. This product represented
            2.6% and 3.9% of the Company's revenues in 2003 and 2002,
            respectively.

      o     ELECTIVE MEDICAL AND DENTAL TREATMENT LENDING. This is another
            secondary product line. It is a form of unsecured consumer lending
            that allows customers to finance elective surgery or other
            treatments not covered under traditional health insurance plans. A
            third party company is engaged to source these loans. WebBank
            provides funding to the patients and sells the loans to the third
            party shortly after origination of each loan.

      o     USDA BUSINESS AND INDUSTRY (B&I) LENDING. This is a commercial loan
            product of which 70% to 90% is guaranteed by the full faith and
            credit of the Federal government. The loan program is administered
            by the United States Department of Agriculture to assist businesses
            located in rural areas (under 50,000 population) to promote
            industrial modernization and job creation. Originations of new B&I
            loans were discontinued by WebBank in 2001. However, WebBank
            continues to service loans in its existing portfolio and for several
            other investors. If the accounts receivable factoring arrangement is
            terminated in May 2004 as described above, the collection of the
            remaining B&I Loans in WebBank's existing portfolio would
            temporarily become WeBank's principal line of business.

      The Company continues to evaluate its different business lines and
consider various alternatives to maximize the aggregate value of its businesses
and increase stockholder value, including seeking acquisitions and/or merger
transactions, as well as product line extensions, additions and/or divestitures.
No firm commitments have been realized and no binding letters of intent have
been signed at this time. There can be no assurance that the Company will be
able to accomplish any of these alternatives and be profitable.

COMPETITION

      The banking and financial services industry is highly competitive. The
increasingly competitive environment is primarily attributable to changes in
regulation, changes in technology and product delivery systems, and the
accelerating pace of consolidation among financial services providers. The
Company competes for loans, deposits, and customers with other commercial banks,
thrift institutions, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions, and
other nonbank financial service providers. Many of these competitors are much
larger in total assets and capitalization, have greater access to capital
markets and offer a broader range of financial services than the Company.

REGULATION

      WebBank is regulated by Federal and state banking agencies including the
FDIC and the State of Utah Department of Financial Institutions. As a result,
WebBank is subject to various regulatory capital requirements administered by
the Federal and state banking agencies. Failure to meet minimum capital
requirements can result in the initiation of certain actions by regulators that,
if undertaken, could have a direct material effect on WebBank's and the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, WebBank must meet specific
capital guidelines that involve quantitative measures of WebBank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. WebBank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Management believes that, as of December 31,
2003, WebBank met all capital adequacy requirements to which it is subject.

EMPLOYMENT

      As of March 29, 2004, the Company had 5 employees, all of whom were
full-time employees. The Company believes that its employee relations are
satisfactory. Steel Partners, Ltd., an entity controlled by the Company's
Chairman of the Board and Chief Executive Officer, provides certain management,
consulting and advisory services to the Company pursuant to a Management
Agreement. James Henderson, the Company's President and Chief Operating Officer,
provides management, accounting and financial services to WebBank pursuant to an
Employee Allocation Agreement between WebBank and Steel Partners, Ltd. See
"Certain Relationships and Related Transactions."


                                       2


ITEM 2. DESCRIPTION OF PROPERTY

      The Company occupies office space located at 590 Madison Avenue, 32nd
Floor, New York, New York 10022 pursuant to a Management Agreement with Steel
Partners, Ltd. See "Certain Relationships and Related Transactions." The Company
has the non-exclusive right to use the office space along with Steel Partners,
Ltd. and several other entities.

      On March 20, 2000, WebBank entered into a lease for 4,630 square feet of
headquarters office space in Salt Lake City, Utah. The term of the lease runs
through March 19, 2005.

      The Company believes that the above facilities are adequate for its
current needs and that suitable additional space will be available as required.

ITEM 3. LEGAL PROCEEDINGS

      In January 2000, Andrew Winokur, a former executive officer, director and
stockholder of Praxis Investment Advisors, Inc. ("Praxis"), one of the Company's
subsidiaries, filed a lawsuit in the Superior Court of the State of California,
County of Napa. The lawsuit alleges that Praxis breached its employment
agreement with Mr. Winokur. The lawsuit also asserts claims for interference
with contract and unjust enrichment based upon his alleged wrongful termination.
The lawsuit seeks damages of an unspecified amount and compliance by Praxis with
the termination pay-out provisions in Mr. Winokur's employment agreement.

      On March 4, 2002, the lawsuit was submitted to binding arbitration. The
panel found no breach of contract and no intentional interference with Mr.
Winokur's contractual rights. However, the panel found that Mr. Winokur was
entitled to the termination pay-out provision in his employment agreement. Under
this provision, Mr. Winokur could potentially be entitled to receive certain
compensation based on (i) an investment bank valuation of WebBank, if the
Company accepts such valuation, or (ii) the proceeds of a sale of WebBank, if
the Company rejects such valuation. While Mr. Winokur would not be entitled to
receive any compensation in the event that the sale does not exceed a
predetermined amount as provided in the employment agreement, which amount is
defined as the amount of capital invested by the stockholders of Praxis and
WebBank in such companies, plus a cumulative annual rate of return of ten
percent as of the date of sale, the Company may be forced to sell WebBank if the
sale price exceeds such predetermined amount, even if the Company does not want
to sell WebBank. In addition, if the sale price of WebBank exceeds the
predetermined amount but is less than the investment bank valuation of WebBank,
the Company may be required to sell WebBank at less than its value. The Company
does not have any alternative financing plans to make this payment in the event
such payment is required.

      At the present time, Mr. Winokur has ceased to participate in the process
of valuing WebBank. However, since there may be no time limitation on Mr.
Winokur's claim, the valuation process may proceed in the future and if the
Company is required to make a payment, its business could be harmed.

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

      On December 18, 2003, the Company held its Annual Meeting of Shareholders
for the year ended December 31, 2002 whereby the shareholders (a) elected five
(5) directors and (b) ratified the appointment of Grant Thornton LLP as
independent accountants of the Company for the fiscal year ended December 31,
2003. The vote on such matters was as follows:

(a)   Election of Directors:

                                                  For              Withheld
                                                  ---              --------
      Warren G. Lichtenstein                   3,417,107            36,441
      Jack L. Howard                           3,414,856            38,692
      Howard Mileaf                            3,416,607            36,941
      Joseph L. Mullen                         3,417,038            36,510
      Mark E. Schwarz                          3,417,107            36,441


                                       3


(b)   Ratification of Appointment of Independent Accountants:

                For                  Against                  Abstain
                ---                  -------                  -------
             3,421,842               31,000                     706

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The Company's Common Stock is listed on the NASDAQ SmallCap Market under
the symbol "WEFN." The table below sets forth the high and low sales prices of
the Common Stock for the periods indicated on the NASDAQ SmallCap Market.

                                   Year Ended                  Year Ended
                                December 31, 2003           December 31, 2002
                                High          Low          High           Low
                                ----          ---          ----           ---
1st Quarter                    $ 2.70       $ 1.73        $ 2.67         $ 2.05
2nd Quarter                    $ 2.63       $ 1.70        $ 2.40         $ 1.30
3rd Quarter                    $ 2.85       $ 2.00        $ 2.28         $ 1.31
4th Quarter                    $ 2.70       $ 2.10        $ 2.71         $ 1.56

      As of March 9, 2004, there were 463 holders of record of the Company's
Common Stock.

      The Company paid no cash dividends on its Common Stock during the last two
fiscal years. The Company intends to retain any future earnings for working
capital needs and to finance potential future acquisitions and presently does
not intend to pay cash dividends on its Common Stock for the foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002.

      At December 31, 2003, accounts receivable factoring constituted WebBank's
principal line of business. WebBank is engaged in accounts receivable factoring
utilizing a sourcing and servicing company. We have announced that a notice of
termination has been issued with respect to a certain accounts receivable
factoring arrangement, with the termination to be effective in May 2004, and
that another accounts receivable program was terminated in February 2004. The
accounts receivable factoring arrangement that is scheduled to be terminated
effective May 2004 generated revenue and income in fiscal 2002 and 2003 which
accounted for (a) substantially all of the revenue and income generated by our
accounts receivable factoring operating segment for those years, and (b) a
significant part of the income and revenue of the Company for those years. It is
possible that the May 2004 termination may not take effect as provided in the
termination notice and the arrangement may continue. We believe that the
termination of the two accounts receivable factoring arrangements will have a
significant adverse effect on our net income during 2004. We expect that if the
May 2004 termination becomes effective during the second quarter of 2004,
WebBank will (a) not generate any gain or loss from the May 2004 termination as
the sourcing and servicing company has elected to purchase the portfolio of
accounts receivable at WebBank's net book value, and (b) generate approximately
$5.9 million of cash as a result of the sale of the portfolio. It is also
anticipated that the cash generated by the subject termination will be used to
retire Certificates of Deposit as they mature.

      Net income was $2,109,000, or $.48 per common share, for the year ended
December 31, 2003, compared to net income of $459,000, or $.11 per common share,
for the year ended December 31, 2002. A summary of comparative changes in the
major components of net income between the two years is provided below.

      INTEREST INCOME. Interest income increased by $1,543,000, or 57%, from
2002 to 2003. This increase was primarily due to a $1,771,000, or 124%, increase
in interest and fees from purchased factoring receivables. Interest and fee
income on the loan portfolio decreased by $220,000, or 20%.

      The majority of the increase in interest income occurred at WebBank. In
January 2002, WebBank began a new accounts receivable factoring program (the
"Factoring Program"). The Factoring Program resulted in an average balance of
outstanding purchased factoring receivables of $2,976,000 with an average yield
of 45.2% and interest income of $1,345,000 during 2002. Later in 2002, the
Company also began purchasing participations in factoring accounts receivable,
generating interest income of $84,000 for the year. In 2003, the average balance
of outstanding purchased factoring receivables from the Factoring Program was
$6,221,000 with an average yield of 49.7% and interest income of $2,984,000. The
Company continued to purchase participations in factoring accounts receivable
during 2003, generating interest income of $216,000 for the year. As discussed
above, the factoring program included two factoring agreements that have been
terminated.

                                       4


      The decrease in interest and fees on the loan portfolio was due to a
decrease  in  average  balances of loans at WebBank from $10,378,000 in 2002 to
$8,034,000 in 2003. WebBank discontinued originations of commercial loans in
2001.

      INTEREST EXPENSE. Interest expense remained approximately the same from
2002 to 2003. All of the Company's interest expense was incurred by WebBank
during both years. Although WebBank's average deposits increased from
$12,501,000 in 2002 to $13,333,000 in 2003, the average interest rate paid on
those deposits decreased from 2.70% to 2.50%.

      PROVISION FOR CREDIT LOSSES. The credit loss provision increased from a
credit of $(60,000) in 2002 to a provision of $394,000 in 2003. The primary
reason for the increase was a higher level of charge offs in the Factoring
Program. During 2003, a total of $600,000 of factored receivables were charged
off versus $0 in 2002. The increased provision for credit losses was required to
restore the allowance for credit losses to an adequate level following the
charge offs in 2003. Additionally, amortization and pay downs of commercial
loans reduced the amount needed to replenish the allowance for credit losses in
2003 and created a $60,000 credit loss credit in 2002.

      NONINTEREST INCOME. Noninterest income increased from $1,161,000 in 2002
to $1,580,000 in 2003, a change of $419,000, or 36%. Most of the increase was
due to gains on sale of equity securities by the Company. In 2003, a gain on
securities of $891,000 at WebFinancial Corporation was partially offset by a
loss on sale of other assets of $80,000 at WebBank. In 2002, a gain on sale of
securities at WebFinancial Corporation of $318,000 was supplemented by a gain on
sale of other assets of $90,000 at WebBank.

      Miscellaneous income decreased from $441,000 in 2002 to $275,000 in 2003.
The primary difference between years was a $112,000 recovery in 2002 of a
security written off in a prior year.

      NONINTEREST EXPENSES. Noninterest expense increased from $3,096,000 in
2002 to $3,623,000 in 2003, a change of $527,000, or 17%. The primary reasons
for the increase were a $334,000 loss on impairment of securities
available-for-sale in 2003 and a $268,000 increase between years in management
and broker fees incurred in the Factoring Program.

      INCOME TAXES. Income tax benefits of $(756,000) and $(10,000) were
recorded in 2003 and 2002, respectively. During 2003, the Company reduced its
valuation reserve for a deferred tax asset by $1,302,000 resulting in a deferred
tax benefit of $(757,000) offset by a current tax provision of $1,000. In 2002,
the Company recorded a current tax benefit of $(10,000).

LIQUIDITY AND CAPITAL RESOURCES

      At December 31, 2003 and December 31, 2002, the Company's cash and cash
equivalents totaled $7,245,000 and $6,546,000, respectively. The cash balances
at December 31, 2003 and December 31, 2002 included liquidity to fund expected
growth in purchased receivables. However, notices of termination have been given
with respect to two agreements included in the factoring program and, based on
the terms of the factoring agreements, the other parties to the factoring
agreements have the right to purchase the Company's current portfolio of
purchased receivables. One party purchased approximately $500,000 of the
factoring portfolio in February 2004. The Company used the proceeds to reduce
outstanding certificates of deposit. If the remainder of the receivables are
purchased, the Company also intends to use those funds to reduce the outstanding
certificates of deposit as they mature. Funding for WebBank is obtained
primarily from certificates of deposit obtained through brokers and from a
$500,000 unsecured line of credit with a local correspondent bank. Management
believes that the Company's current cash and cash equivalent balances, expected
operating cash inflows, and WebBank borrowing sources are adequate to meet the
Company's liquidity needs through at least the next 12 months.

      The Company recently filed a registration statement with the Securities
and Exchange Commission in order to offer shares of common stock to holders of
subscription rights who choose to exercise those rights. Only holders of record
of Company common stock as of March 19, 2004 will be eligible to participate in
the rights offering. The purpose of this offering is to raise up to $10,000,000
to be used for additional working capital for the Company's business and general
corporate purposes.

      The Company and Steel Partners, Ltd., an entity controlled by the
Company's Chairman, devote significant time to exploration of potential
acquisition and other business opportunities. There can be no assurance that the
Company will be able to acquire an additional business, or that such business
will be profitable. In order to finance an acquisition, the Company may be
required to incur or assume indebtedness or issue securities.

OFF-BALANCE SHEET ARRANGEMENTS

      The Company is a party to financial instruments with off-balance sheet
risk. In the normal course of business, these financial instruments include
commitments to extend credit in the form of loans or through letters of credit.


                                       5


Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized on the balance sheet. The Company's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit is represented by the
contractual amount of those instruments. Commitments to extend credit are
agreements to lend to a customer, provided there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since certain of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Company uses the same credit policy in making commitments and
conditional obligations as they do for on-balance sheet instruments. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary upon extension of credit, is based
on management's credit evaluation of the borrower. At December 31, 2003 and
2002, the Company had no undisbursed commercial loan commitments or consumer
credit card loan commitments. For the same periods, the Company's undisbursed
accounts receivable factoring commitments totaled approximately $8,138,000 and
$6,382,000, respectively. Notices of termination have been issued with respect
to certain accounts receivable factoring and service arrangements. See "Risk
Factors - Our business could be harmed if a certain accounts receivable
factoring and servicing arrangement terminates" and "Note 20 - Subsequent
Events" to our Consolidated Financial Statements.

CRITICAL ACCOUNTING ISSUES

ALLOWANCE FOR CREDIT LOSSES

      Management utilizes a comprehensive loan grading system to determine risk
potential in its loan portfolio. Determination of the allowance is inherently
subjective as it requires significant estimates, including the amounts and
timing of expected future cash flows on impaired loans, estimated losses on
pools of homogeneous loans based on historical loss experience, and
consideration of current economic trends, all of which may be susceptible to
significant change. See Notes 1, 3 and 4 of the Notes to Consolidated Financial
Statements for a description of the methodology used by the Company to determine
the required allowance for credit losses, a discussion of risks associated with
the process, and additional information regarding the allowance and associated
provision.

EQUITY SECURITIES AVAILABLE FOR SALE

      The Company, both directly and through its WebBank subsidiary, has
investments in equity securities. Available-for-sale securities are recorded at
fair value. Unrealized holding gains or losses on available-for-sale securities
are excluded from earnings and reported, until realized, in accumulated other
comprehensive income (loss) as a separate component of stockholders' equity. A
decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Determination of whether a decline in market value is other than temporary may
be subjective because it requires significant estimates of the projected
financial condition of the issuer, of the industry in which the issuer operates,
and of local, regional, and national economies. See Notes 1 and 2 of the Notes
to Consolidated Financial Statements for a description of the methodology used
by the Company to determine the cost and fair value of equity securities
available for sale.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In April 2003, the FASB issued SFAS No. 149, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 149 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
improves financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and should be applied
prospectively. The Company adopted SFAS No. 149 with no material impact on its
financial condition or results of operations for the year ended December 31,
2003.

      In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 improves financial reporting by establishing standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity.


                                       6


SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company adopted SFAS No. 150
with no material impact on its financial condition or results of operations for
the year ended December 31, 2003.

      The Bank adopted Emerging Issues Task Force (EITF) 03-1, "The Meaning of
Other than Temporary Impairment and Its Application to Certain Investments," as
of December 31, 2003. EITF 03-1 includes certain disclosures regarding
quantitative and qualitative disclosures for investment securities accounted for
under FAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," that are impaired at the balance sheet date, but an
other-than-temporary impairment has not been recognized. The disclosure requires
a table of securities which have unrealized losses as of the reporting date,
distinguished between securities which have been in a continuous unrealized loss
position for 12 months or more and less than 12 months. The table is to include
aggregate unrealized losses and fair value of securities whose fair value are
below book value as of the reporting date. Additional information, in narrative
form, is required that provides sufficient information to allow financial
statement users to understand the quantitative disclosures and the information
that the investor considered in reaching the conclusion that the impairments are
not other than temporary. At December 31, 2003, the Company did not have any
unrealized losses on investment securities.

                           FORWARD-LOOKING STATEMENTS

THE FOLLOWING IMPORTANT FACTORS, AMONG OTHERS, COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY FORWARD-LOOKING STATEMENTS MADE IN
THIS ANNUAL REPORT ON FORM 10-KSB AND PRESENTED ELSEWHERE BY MANAGEMENT. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. A NUMBER OF
UNCERTAINTIES EXIST THAT COULD AFFECT THE COMPANY'S FUTURE OPERATING RESULTS,
INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC CONDITIONS, CHANGES IN INTEREST
RATES, THE COMPANY'S ABILITY TO ATTRACT DEPOSITS, AND THE COMPANY'S ABILITY TO
CONTROL COSTS. BECAUSE OF THESE AND OTHER FACTORS, PAST FINANCIAL PERFORMANCE
SHOULD NOT BE CONSIDERED AN INDICATION OF FUTURE PERFORMANCE. THE COMPANY'S
FUTURE OPERATING RESULTS MAY VARY SIGNIFICANTLY. INVESTORS SHOULD NOT USE
HISTORICAL TRENDS TO ANTICIPATE FUTURE RESULTS AND SHOULD BE AWARE THAT THE
TRADING PRICE OF THE COMPANY'S COMMON STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS
IN RESPONSE TO QUARTERLY VARIATIONS IN OPERATING RESULTS AND OTHER FACTORS,
INCLUDING THOSE DISCUSSED BELOW.

RISK FACTORS

      The following paragraphs discuss certain factors that may affect the
Company's financial condition and operations and should be considered in
evaluating us. For the purposes of the following paragraphs, unless the context
otherwise requires, the terms "we," "us" and "our" refer to WebFinancial
Corporation.

CHANGES IN INTEREST RATES COULD HAVE A NEGATIVE EFFECT ON OUR OPERATING RESULTS.

      Our earnings depend substantially on "rate differentials," which are the
differences between the rates we earn on loans, securities and other earning
assets, and the interest rates we pay on deposits and other borrowings. These
rates are highly sensitive to many factors which are beyond our control,
including general economic conditions and the policies of various governmental
and regulatory authorities. Changes in interest rates impact the level of loans,
deposits and investments, the credit profile of existing loans, the rates
received on loans and securities and the rates paid on deposits and borrowings.
Significant fluctuations in interest rates may adversely affect our financial
condition and results of operations.

SIGNIFICANT NEW LAWS OR CHANGES IN EXISTING LAWS OR MONETARY POLICY AFFECTING
THE BANKING INDUSTRY COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR RESULTS OF
OPERATIONS.

      Our banking subsidiary, WebBank, is subject to extensive government
regulation and supervision under various state and federal laws, rules and
regulations, primarily under the rules and regulations of the FDIC and the State
of Utah Department of Financial Institutions. These laws and regulations are
designed primarily to protect depositors, borrowers, and the Bank Insurance Fund
of the FDIC. WebBank's regulators maintain significant authority to impose
requirements on WebBank's operations, such as limiting its activities or
mandating that it hold increased capital. For example, WebBank's regulators
recently required WebBank to obtain the prior non-objection of the FDIC and Utah
Department of Financial Institutions before developing new lines of activity or
expanding existing lines of activity, as well as before making changes to its
board of directors or senior executive officers. Objections to WebBank's lines
of business, enactment of significant new laws, changes in existing laws or
repeals of existing laws may cause WebBank's results to change materially. In
addition, federal monetary policy, particularly as implemented through the
Federal Reserve System, such as changes in interest rates, could affect
WebBank's financial condition. Changes in interest rates can affect the number
of loans WebBank originates, as well as the value of its loans and other
interest-earning assets and the ability to realize gains on the sale of those
assets and liabilities. Prevailing interest rates also affect the extent to
which borrowers prepay loans owned by WebBank. When interest rates increase,
borrowers are less likely to prepay their loans, and vice versa. WebBank may be
required to invest funds generated by prepayments at less favorable interest
rates. Increases in interest rates could hurt the ability of borrowers who have
loans with floating interest rates to meet their increased payment obligations.
If those borrowers were not able to make their payments, then WebBank could
suffer losses, and its level of performing assets would decline.


                                       7


OUR BUSINESS COULD BE HARMED IF A CERTAIN ACCOUNTS RECEIVABLE FACTORING AND
SERVICING ARRANGEMENT TERMINATES.

      At December 31, 2003, accounts receivable factoring constituted WebBank's
principal line of business. We have announced that a notice of termination has
been issued with respect to a certain accounts receivable factoring arrangement,
with the termination to be effective in May 2004, and that another accounts
receivable program was terminated in February 2004. The accounts receivable
factoring arrangement that is scheduled to be terminated effective May 2004
generated revenue and income in fiscal 2002 and 2003 which accounted for (a)
substantially all of the revenue and income generated by our accounts receivable
factoring operating segment for those years, and (b) a significant part of the
income and revenue of the Company for those years. It is possible that the May
2004 termination may not take effect as provided in the termination notice and
the arrangement may continue. However, in the event of termination, there can be
no assurance that we will be able to successfully enter into a replacement
arrangement or arrangements. We believe that the termination of the two accounts
receivable factoring arrangements will have a significant adverse effect on our
net income during 2004.

WE FACE SUBSTANTIAL COMPETITION IN OUR INDUSTRY SECTOR FROM BANKING AND
FINANCIAL INSTITUTIONS THAT HAVE LARGER AND GREATER FINANCIAL AND MARKETING
CAPABILITIES, WHICH MAY HINDER OUR ABILITY TO COMPETE SUCCESSFULLY.

      The banking and financial services businesses in our lines of business are
highly competitive. The increasingly competitive environment is a result of
changes in regulation, changes in technology and product delivery systems, and
the accelerating pace of consolidation among financial services providers. We
compete with many different banking and financial institutions, including:

      o     commercial and savings banks and savings and loan associations;
      o     credit unions;
      o     finance companies;
      o     brokerage and investment banking firms; and
      o     asset-based non-bank lenders.

      These entities may be branches or subsidiaries of much larger
organizations affiliated with statewide, regional or national banking companies,
and as a result may have greater resources and lower cost of funds. There can be
no assurance that we will be able to compete effectively in the future.

WE COULD SUSTAIN LOSSES IF WE INCORRECTLY ASSESS THE CREDITWORTHINESS OF
BORROWERS, GUARANTORS OR RELATED PARTIES.

      Our earnings are significantly affected by our ability to properly
originate, underwrite and service loans. We could sustain losses if our
borrowers, guarantors or related parties fail to perform in accordance with the
terms of their loans. We have adopted underwriting and credit monitoring
procedures and credit policies, including the establishment and review of the
allowance for credit losses, that management believes are appropriate to
minimize this risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying our credit portfolio. These policies and
procedures, however, may not prevent unexpected losses that could hurt our
business and financial condition.

WE ARE SUBJECT TO CREDIT AND INTEREST RATE RISK IN EXCESS OF AN AMOUNT
RECOGNIZED ON OUR BALANCE SHEET.

      We are a party to financial instruments with off-balance sheet risk. In
the normal course of business, these financial instruments include commitments
to extend credit in the form of loans or through letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized on the balance sheet. Our exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual
amount of those instruments. Commitments to extend credit are agreements to lend
to a customer, provided there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since certain of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. We use


                                       8


the same credit policy in making commitments and conditional obligations as we
do for on-balance sheet instruments. We evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit evaluation
of the borrower. At December 31, 2003 and 2002, we had no undisbursed commercial
loan commitments or consumer credit card loan commitments. For the same periods,
our undisbursed accounts receivable factoring commitments totaled approximately
$8,138,000 and $6,382,000, respectively.

WE MAY EXPAND INTO NEW NON-BANKING ACTIVITIES, WHICH WOULD EXPOSE US TO RISKS
ASSOCIATED WITH NEW BUSINESSES.

      We continue to consider new business opportunities, both bank-related and
otherwise. We believe that an acquisition can help create value for shareholders
through increased growth, as well as the utilization of our net operating
losses. Accordingly, we may expand our operations into new non-banking
activities in the future. Although we have experience in providing bank-related
services, this expertise may not assist us in expansion into non-banking
activities. As a result, we may be exposed to risks associated with new
businesses, such as (1) a lack of market and product knowledge or awareness of
other industry related matters and (2) an inability to attract and retain
qualified employees with experience in these non-banking activities.

OUR BUSINESS COULD BE HARMED IF THERE IS A NON-FAVORABLE RESOLUTION TO THE LEGAL
PROCEEDING COMMENCED AGAINST US BY ANDREW WINOKUR.

      In January 2000, Andrew Winokur, a former executive officer, director and
stockholder of Praxis Investment Advisors, Inc., one of our subsidiaries, filed
a lawsuit in the Superior Court of the State of California, County of Napa. The
lawsuit alleges that Praxis breached its employment agreement with Mr. Winokur.
The lawsuit also asserts claims for interference with contract and unjust
enrichment based upon his alleged wrongful termination. The lawsuit seeks
damages of an unspecified amount and compliance by Praxis with the termination
pay-out provisions in Mr. Winokur's employment agreement.

      On March 4, 2002, the lawsuit was submitted to binding arbitration. The
panel found no breach of contract and no intentional interference with Mr.
Winokur's contractual rights. However, the panel found that Mr. Winokur was
entitled to the termination pay-out provision in his employment agreement. Under
this provision, Mr. Winokur could potentially be entitled to receive certain
compensation based on (i) an investment bank valuation of WebBank, if we accept
such valuation, or (ii) the proceeds of a sale of WebBank, if we reject such
valuation. While Mr. Winokur would not be entitled to receive any compensation
in the event that the sale does not exceed a predetermined amount as provided in
the employment agreement, which amount is defined as the amount of capital
invested by the stockholders of Praxis and WebBank in such companies, plus a
cumulative annual rate of return of ten percent as of the date of sale, we may
be forced to sell WebBank if the sale price exceeds such predetermined amount,
even if we do not want to sell WebBank. In addition, if the sale price of
WebBank exceeds the predetermined amount but is less than the investment bank
valuation of WebBank, we may be required to sell WebBank at less than its value.
We do not have any alternative financing plans to make this payment in the event
such payment is required.

      At the present time, Mr. Winokur has ceased to participate in the process
of valuing WebBank. However, since there may be no time limitation on Mr.
Winokur's claim, the valuation process may proceed in the future and if we are
required to make a payment, our business could be harmed.

ITEM 7. FINANCIAL STATEMENTS

      See the Company's Consolidated Financial Statements beginning on page F-1.

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

      None.


                                       9


ITEM 8A. CONTROLS AND PROCEDURES

      Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934, such as this Form 10-KSB, is reported
in accordance with the Securities and Exchange Commission's rules. Disclosure
controls are also designed with the objective of ensuring that such information
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer as appropriate to allow timely decisions
regarding required disclosure.

      As of the end of the period covered by this Form 10-KSB, the Company
carried out an evaluation under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Securities Exchange Act
Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
in the Company's periodic SEC filings. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.

      Certifications of the Chief Executive Officer and Chief Financial Officer
regarding, among other items, disclosure controls and procedures are included as
exhibits to this Form 10-KSB.


                                       10


PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS

      The following sets forth the name, present principal occupation,
employment and material occupations, positions, offices and employments for the
past five years and ages as of March 29, 2004, for the directors of the Company.
Members of the Board of Directors are elected at the annual meetings of
stockholders and serve until their respective successors shall have been duly
elected and qualified.

NAME AND AGE                    OCCUPATION AND OTHER DIRECTORSHIPS
------------                    ----------------------------------

Warren G. Lichtenstein (38)     Mr. Lichtenstein has served as a director of the
(term expires 2004)             Company since 1996 and as Chairman and Chief
                                Executive Officer of the Company since December
                                1997. He also served as President of the Company
                                from December 1997 through December 2003. Mr.
                                Lichtenstein has served as the Chairman of the
                                Board, Secretary and the Managing Member of
                                Steel Partners, L.L.C., the general partner of
                                Steel Partners II, L.P. ("Steel") since January
                                1, 1996. Prior to such time, Mr. Lichtenstein
                                was the Chairman and a director of Steel
                                Partners, Ltd. ("Old Ltd."), the general partner
                                of Steel Partners Associates, L.P., which was
                                the general partner of Steel, from 1993 until
                                prior to January 1, 1996. Mr. Lichtenstein was
                                the acquisition/risk arbitrage analyst at
                                Ballantrae Partners, L.P., a private investment
                                partnership formed to invest in risk arbitrage,
                                special situations and undervalued companies,
                                from 1988 to 1990. Mr. Lichtenstein has served
                                as a director and the Chief Executive Officer of
                                Gateway Industries, Inc. ("Gateway"), a provider
                                of database development and Web site design and
                                development services, since 1994 and as Chairman
                                of the Board since 1995. He has served as a
                                director of SL Industries, Inc. ("SL"), a
                                designer and producer of proprietary advanced
                                systems and equipment for the power and data
                                quality industry, from 1993 to 1997 and since
                                January 2002. He has served as the Chairman of
                                the Board and Chief Executive Officer of SL
                                since February 2002. Mr. Lichtenstein has served
                                as a Director and the President and Chief
                                Executive Officer of Steel Partners, Ltd. ("New
                                Ltd."), a management and advisory company that
                                provides management services to Steel and other
                                affiliates of Steel, since June 1999 and as its
                                Secretary and Treasurer from May 2001 to
                                December 2003. Mr. Lichtenstein served as
                                President of an entity previously known as Steel
                                Partners Services, Ltd. ("SPS"), a management
                                and advisory company, from October 1999 through
                                March 2002. SPS provided management services to
                                Steel and other affiliates of Steel until March
                                2002, when New Ltd. acquired the rights to
                                provide certain management services from SPS. He
                                has also served as Chairman of the Board of
                                Directors of Caribbean Fertilizer Group Ltd.
                                ("Caribbean Fertilizer"), a private company
                                engaged in the production of agricultural
                                products in Puerto Rico and Jamaica, since June
                                2000. Mr. Lichtenstein is also a director of the
                                following other publicly held companies: Layne
                                Christensen Company, a provider of products and
                                services for the water, mineral, construction
                                and energy markets, and United Industrial
                                Corporation ("UIC"), a designer and producer of
                                defense, training, transportation and energy
                                systems. He also serves as Chairman of the Board
                                of UIC.


                                       11


Jack L. Howard (42)             Mr. Howard has served as a director of the
(term expires 2004)             Company since 1996 and Vice President since
                                December 1997. From December 1997 to May 2000,
                                Mr. Howard served as Secretary, Treasurer and
                                Chief Financial Officer of the Company. For more
                                than the past five years, Mr. Howard has been a
                                principal of Mutual Securities, Inc., a
                                registered broker-dealer. He served as Vice
                                President of Gateway since December 2001 and as
                                a director since May 1994. Mr. Howard is a
                                director of Pubco Corporation, a manufacturer
                                and distributor of printing supplies and
                                construction equipment.

Joseph L. Mullen (57)           Mr. Mullen has served as a director of the
(term expires 2004)             Company since 1995. Since January 1994, Mr.
                                Mullen has served as Managing Partner of Li
                                Moran International, a management consulting
                                company, and has functioned as a senior officer
                                overseeing the merchandise and marketing
                                departments for such companies as Leewards
                                Creative Crafts Inc., Office Depot of Warsaw,
                                Poland, and Camelot Music.

Mark E. Schwarz (43)            Mr. Schwarz has served as a director of the
(term expires 2004)             Company since July 2001. He has served as the
                                general partner, directly or through entities
                                which he controls, of Newcastle Partners, L.P.,
                                a private investment firm, since 1993. Mr.
                                Schwarz was Vice President and Manager of
                                Sandera Capital, L.L.C., a private investment
                                firm affiliated with Hunt Financial Group,
                                L.L.C., a Dallas-based investment firm
                                associated with the Lamar Hunt family ("Hunt"),
                                from 1995 to September 1999 and a securities
                                analyst and portfolio Manager for SCM Advisors,
                                L.L.C., formerly a Hunt-affiliated registered
                                investment advisor, from May 1993 to 1996. Mr.
                                Schwarz currently serves as a director of the
                                following companies: SL; Nashua Corporation, a
                                specialty paper, label, and printing supplies
                                manufacturer; Bell Industries, Inc., a provider
                                of computer systems and services; and Pizza Inn,
                                Inc., a franchisor and operator of pizza
                                restaurants. Mr. Schwarz has served as a
                                director and Chief Executive Officer and
                                President of Geoworks Corporation, an entity
                                with no significant business operations, since
                                May 2003. Mr. Schwarz has also served as
                                Chairman of the Board of Directors of Hallmark
                                Financial Services, Inc., a property and
                                casualty insurance holding company, since
                                October 2001, and as its Chief Executive Officer
                                since January 2003. From October 1998 through
                                April 1999, Mr. Schwarz served as a director of
                                Aydin Corporation ("Aydin"), a defense
                                electronics manufacturer.

Howard Mileaf (67)              Mr. Mileaf has served as a director of the
(term expires 2004)             Company since December 2002. He has been a
                                director of Neuberger Berman Mutual Funds since
                                1985. Mr. Mileaf has served as a director of WHX
                                Corporation ("WHX"), a NYSE listed holding
                                company, since August 2002. From May 1993 to
                                December 2001, Mr. Mileaf served as Vice
                                President and General Counsel of WHX.

EXECUTIVE OFFICERS

      The following sets forth the name, present principal occupation,
employment and material occupations, positions, offices and employments for the
past five years and ages as of March 29, 2004, for the executive officers of the
Company, who are not also directors of the Company.

NAME AND AGE                    OCCUPATION AND OTHER DIRECTORSHIPS
------------                    ----------------------------------

Glen M. Kassan (60)             Mr. Kassan has served as Vice President, Chief
                                Financial Officer and Secretary of the Company
                                since June 2000. He has served as Executive Vice
                                President of New Ltd. since March 2002. Mr.
                                Kassan served as Executive Vice President of SPS
                                from June 2001 through March 2002 and Vice
                                President from October 1999 through May 2001. He
                                has also served as Vice Chairman of the Board of
                                Directors of Caribbean Fertilizer since June
                                2000. Mr. Kassan is a director and has served as
                                President of SL since January 2002 and February
                                2002, respectively. From 1997 to 1998, Mr.
                                Kassan served as Chairman and Chief Executive
                                Officer of Long Term Care Services, Inc., a
                                privately owned healthcare services company
                                which Mr. Kassan co-founded in 1994 and
                                initially served as Vice Chairman and Chief
                                Financial Officer. Mr. Kassan is currently a
                                director of UIC. .


                                       12


James R. Henderson (46)         Mr. Henderson has served as President and Chief
                                Operating Officer of the Company since December
                                2003, and was the Vice President of Operations
                                of the Company from September 2000 through
                                December 2003. He has also served as a director
                                of the WebBank subsidiary since March 2002 and a
                                director and Chief Operating Officer of
                                WebFinancial Holdings since January 2000. Mr.
                                Henderson has served as a Vice President of New
                                Ltd. since March 2002. Mr. Henderson served as a
                                Vice President of SPS from August 1999 through
                                March 2002. He has also served as President of
                                Gateway since December 2001. Mr. Henderson
                                served as a director and acting Chief Executive
                                Officer of ECC International Corp., a
                                manufacturer and marketer of computer controlled
                                simulators for training personnel to perform
                                maintenance and operator procedures on military
                                weapons, from December 1999 and July 2002,
                                respectively, until September 2003. He has
                                served as a director of SL since January 2002.
                                He has also served as a director of Del Global
                                Technologies Corp., a designer and manufacturer
                                of medical imaging and diagnostic systems, since
                                November 2003. From January 2001 to August 2001,
                                Mr. Henderson served as President of MDM
                                Technologies, Inc., a direct mail and marketing
                                company that was principally controlled by the
                                Company's Chief Executive Officer and Chairman.
                                From 1996 to July 1999, Mr. Henderson was
                                employed in various positions with Aydin, which
                                included a tenure as President and Chief
                                Operating Officer from October 1998 to June
                                1999. Prior to his employment with Aydin, Mr.
                                Henderson was employed as an executive with
                                UNISYS Corporation, an e-business solutions
                                provider.

AUDIT COMMITTEE FINANCIAL EXPERT

      The Board of Directors has an established audit committee comprised of
Howard Mileaf, Joseph L. Mullen, and Mark E. Schwarz. The Board has determined
that Howard Mileaf has the requisite education, background and experience to be
considered an audit committee "financial expert" as that term is defined by the
Securities and Exchange Commission and is "independent" as the term is used in
Item 7(d) (3) (iv) of Schedule 14A under the Securities Exchange Act of 1934, as
amended.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 2003, there was compliance with
all Section 16(a) filing requirements applicable to officers, directors, and
greater-than 10% stockholders.


                                       13


CODE OF CONDUCT AND ETHICS

      The Company has adopted a Code of Conduct and Ethics that applies to the
Company's principal executive officer, principal financial officer, and other
persons performing similar functions. A copy of the Code of Conduct and Ethics
has been filed as an exhibit to this Annual Report.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

      The following table sets forth information concerning the compensation
paid by the Company during the fiscal years ended December 31, 2003, 2002 and
2001 to the Company's Chief Executive Officer. No other executive officer of the
Company received annual compensation in excess of $100,000 during the fiscal
year ended December 31, 2003.

                                                                                        LONG-TERM
                                                   ANNUAL COMPENSATION                 COMPENSATION
                                                                                        SECURITIES            ALL OTHER
                                         Fiscal                                         UNDERLYING          COMPENSATION
                                          Year           SALARY          BONUS($)       OPTIONS(#)             ($)(1)
                                          ----           ------          --------       ----------             ------



Warren Lichtenstein, Chairman and          2003            --              --               --                310,000
Chief Executive Officer
                                           2002            --              --               --                310,000
                                           2001            --              --               --                310,000

----------
(1)   Represents aggregate management fees earned by New Ltd. (for 2003 and for
      a portion of 2002) and SPS (for a portion of 2002), entities controlled by
      Warren Lichtenstein, from the Company. For information relating to the
      management functions performed by such entities, see "Certain
      Relationships and Related Transactions."

STOCK OPTIONS

      None of the Company's executive officers were granted any options during
the fiscal year ended December 31, 2003, nor did Mr. Lichtenstein hold any stock
options as of December 31, 2003.

EMPLOYMENT AGREEMENTS

      The Company currently has no employment agreements, compensatory plans, or
arrangements with any executive officer.

DIRECTOR COMPENSATION

      The Board of Directors has authorized the payment to each of the Company's
non-employee directors a retainer fee of $3,000 per quarter in cash for his
services as a director during 2003 and meeting fees of $1,000 per meeting of the
Board and $500 per meeting of a committee of the Board ($375 to the extent such
committee meeting is held on the same day as a Board meeting) during 2003
pursuant to the terms of the Long Term Stock Incentive Plan (the "Plan").
Pursuant to Plan, the three non-employee directors entitled to such fees elected
to receive their fees in stock options in lieu of cash, with exercise prices
based on the market price of the Common Stock on the date of grant. Officers,
who are directors, do not receive annual or per meeting compensation. Howard
Mileaf, as chairman of the audit committee, receives chairmanship fees of $2,500
per quarter. During 2003, the Company's non-employee directors were also paid
$10,000 each for their review of the registration statement prepared by the
Company in connection with its subscription rights offering.


                                       14


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      The following table sets forth information as of March 9, 2004 regarding
the beneficial ownership of the Common Stock by each person known by the Company
to own beneficially more than 5% of the Common Stock, by each director of the
Company, the Chief Executive Officer, and by all directors and executive
officers as a group.

                                           Amount and
                                           Nature of
                                           Beneficial
Name and Address                          Ownership (1)      Percentage of Class
----------------                          -------------      -------------------

Warren G. Lichtenstein                    1,739,845  (2)            39.8%
c/o Steel Partners II, L.P.
590 Madison Avenue, 32nd Floor
New York, New York  10022

Steel Partners II, L.P.                   1,737,345                 39.8%
590 Madison Avenue, 32nd Floor
New York, New York  10022

Jack L. Howard                               42,617  (3)              *
c/o Mutual Securities, Inc.
590 Madison Avenue, 32nd Floor
New York, New York 10022

Joseph L. Mullen                             15,962  (4)              *
c/o LiMoran International, Inc.
611 Broadway, Suite 722
New York, New York  10012

Mark E. Schwarz                              10,344  (5)              *
c/o Newcastle Capital Management, L.P.
300 Crescent Court, Suite 1110
Dallas, Texas 75201

Howard Mileaf                                   955  (6)              *
64 Brookdale Court
Highland Park, New Jersey  08904

All directors and executive officers      1,859,723  (7)            41.9%
as a group (seven persons)

----------
*Less than 1%

(1)   A person is deemed to be the beneficial owner of voting securities that
      can be acquired by such person within 60 days after March 9, 2004 upon the
      exercise of options, warrants or convertible securities. Each beneficial
      owner's percentage ownership is determined by assuming that options,
      warrants or convertible securities that are held by such person (but not
      those held by any other person) and that are currently exercisable (i.e.,
      that are exercisable within 60 days after March 9, 2004) have been
      exercised. Unless otherwise noted, we believe that all persons named in
      the table have sole voting and investment power with respect to all shares
      beneficially owned by them.

(2)   Consists of (i) 2,500 shares of common stock owned directly by Mr.
      Lichtenstein; and (ii) 1,737,345 shares of common stock owned by Steel
      Partners II, L.P., which is also separately listed in the security
      ownership table. As the sole managing member of the general partner of
      Steel, Mr. Lichtenstein has sole voting and investment power over the
      1,737,345 shares owned by Steel. Mr. Lichtenstein disclaims beneficial
      ownership of the shares of common stock owned by Steel except to the
      extent of his pecuniary interest therein.


                                       15


(3)   Consists of (i) 36,417 shares of common stock owned directly by Mr.
      Howard; (ii) 3,000 shares of common stock owned by Mr. Howard in joint
      tenancy with his spouse; and (iii) 3,200 shares of common stock owned by
      JL Howard, Inc., a California corporation controlled by Mr. Howard. Mr.
      Howard and his spouse have shared voting and investment power over the
      3,000 shares owned in joint tenancy and the 3,200 shares owned by JL
      Howard, Inc.

(4)   Consists of (i) 4,285 shares of common stock; and (ii) 11,677 shares of
      common stock issuable upon the exercise of options within 60 days of March
      9, 2004 granted to Mr. Mullen.

(5)   Consists of 10,344 shares of common stock issuable upon the exercise of
      options within 60 days of March 9, 2004 granted to Mr. Schwarz.

(6)   Consists of 955 shares of common stock issuable upon the exercise of
      options within 60 days of March 9, 2004 granted to Mr. Mileaf.

(7)   Consists of the shares and options held by the directors and executive
      officers named in this security ownership table and 50,000 shares of
      common stock issuable upon the exercise of options within 60 days of March
      9, 2004 held by executive officers who are not specifically named in this
      security ownership table.

Equity Compensation Plan Information

                                                                                     Number of securities
                                                                                    remaining available for
                                                                                     future issuance under
                                                                                      equity compensation
                              Number of securities to       Weighted-average           plans (excluding
                              be issued upon exercise       exercise price of       securities reflected in
                              of outstanding options       outstanding options             column (a))
      Plan Category                     (a)                        (b)                        (c)
      -------------                     ---                        ---                        ---

Equity compensation plans             92,976                      $4.48                     902,774
approved by security
holders (1)

Equity compensation plans                0                        $0.00                        0
not approved by security
holders

Total                                 92,976                      $4.48                     902,774

(1)   Consists of the Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Pursuant to a management agreement (the "Management Agreement"), approved
by a majority of the Company's disinterested directors, between the Company and
SPS (and subsequently assigned to New Ltd.). New Ltd. provides the Company with
office space and certain management, consulting and advisory services. The
Management Agreement is automatically renewable on an annual basis unless
terminated by either party, for any reason, upon at least 60 days written notice
prior to the end of the year and may be terminated by either party upon 30 days
prior written notice to the other party. The Management Agreement also provides
that the Company shall indemnify, save and hold SPS harmless from and against
any obligation, liability, cost or damage resulting from SPS's actions under the
terms of the Management Agreement, except to the extent occasioned by gross
negligence or willful misconduct of SPS's officers, directors or employees.

      Pursuant to an employee allocation agreement (the "Employee Allocation
Agreement") between WebBank and SPS (and subsequently assigned to New Ltd.), Jim
Henderson, an employee of New Ltd. and executive officer of the Company,
performs services in the area of management, accounting and finances and such
other services as are reasonably requested by WebBank. The Employee Allocation
Agreement will continue in force until terminated by either of the parties upon
30 days written notice.


                                       16


      Prior to March 26, 2002, the original counterparty to both the Management
Agreement and the Employee Allocation Agreement was SPS. As of March 26, 2002,
the Management Agreement and the Employee Allocation Agreement described above
were assigned by SPS to New Ltd. and the employees of SPS became employees of
New Ltd. Warren Lichtenstein, the Company's President and Chief Executive
Officer, is an affiliate of New Ltd. based on his ownership of New Ltd.,
directly and through Steel, and by virtue of his positions as Chairman,
President and Chief Executive Officer of New Ltd. Mr. Lichtenstein is the sole
managing member of the general partner of Steel. Mr. Lichtenstein disclaims
beneficial ownership of the shares of Common Stock of New Ltd. owned by Steel
(except to the extent of his pecuniary interest in such shares of Common Stock).

      In consideration of the services rendered under the Management Agreement,
New Ltd. charges the Company a fixed monthly fee totaling $310,000 per annum,
adjustable annually upon agreement of the Company and New Ltd. In consideration
of the services provided under the Employee Allocation Agreement, New Ltd.
charges WebBank $100,000 per annum. The fees payable by WebBank are included in
the fees payable by the Company under the Management Agreement. The Company
believes that the cost of obtaining the type and quality of services rendered by
New Ltd. under the Management Agreement and Employee Allocation Agreement is no
less favorable than the cost at which the Company and WebBank, respectively
could obtain from unaffiliated entities.

      During the fiscal year ended December 31, 2003, New Ltd. billed fees with
respect to fiscal 2003 of $310,000 to the Company for services rendered under
the Management Agreement. Included in these fees was $100,000 paid by WebBank
for services rendered under the Employee Allocation Agreement. During the fiscal
year ended December 31, 2002, New Ltd. and SPS billed fees with respect to
fiscal 2002 of $232,000 and $77,500 respectively to the Company for services
rendered under the Management Agreement. Included in these fees were $100,000
paid by WebBank for services rendered under the Employee Allocation Agreement.

      Pursuant to a sourcing and servicing agreement (the "Rockland Agreement")
between WebBank and Rockland Credit Finance LLC ("Rockland"), Rockland performs
both sourcing and servicing functions on behalf of WebBank related to WebBank's
accounts receivable factoring program. During 2003, Rockland was paid $255,000
in cash management fees and earned $1,019,000 in total management fees under the
terms of the Rockland Agreement. During 2002, Rockland was paid $56,000 in cash
management fees and earned $571,000 in total management fees under the terms of
the Rockland Agreement. Management fees are paid quarterly and accrued monthly
by WebBank. A notice of termination has been issued with respect to the Rockland
accounts receivable factoring and service arrangement. See "Risk Factors - Our
business could be harmed if a certain accounts receivable factoring and
servicing arrangement terminates" and "Note 20 - Subsequent Events" to the
Company's Consolidated Financial Statements.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   EXHIBITS:

      See Exhibit Index immediately following the signature page.

(b)   REPORTS ON FORM 8-K FILED DURING THE FOURTH QUARTER OF THE PERIOD COVERED
      BY THIS REPORT:

      None

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES:

      The aggregate fees billed for each of the last two fiscal years of 2003
and 2002 for professional services rendered by Grant Thornton LLP for the audit
of the annual financial statements of the Company and its subsidiary WebBank and
the review of the financial statements included in the Company's Forms 10-QSB
for such fiscal years were approximately $140,000 and $66,000, respectively.


                                       17


AUDIT-RELATED FEES:

      The aggregate fees billed for each of the last two fiscal years of 2003
and 2002 for assurance and related services rendered by Grant Thornton LLP were
approximately $0 and $2,700, respectively. The services rendered in 2002
involved review of internal control procedures.

TAX FEES:

      The aggregate fees billed for each of the last two fiscal years of 2003
and 2002 for professional services rendered by Grant Thornton LLP for tax
compliance, tax advice and tax planning for the Company and its subsidiary
WebBank were approximately $9,000 and $7,400, respectively.

ALL OTHER FEES:

      No fees were billed for each of the last two fiscal years of 2003 and 2002
for products and services of Grant Thornton LLP, other than the services
reported above.

      The Audit Committee approves in advance any and all audit services,
including audit engagement fees and terms, and non-audit services provided to
the Company by its independent auditors (subject to the de minimus exception for
non-audit services contained in Section 10A(i)(1)(B) of the Securities Exchange
Act of 1934, as amended), all as required by applicable law or listing
standards. The independent auditors and the Company's management are required to
periodically report to the Audit Committee the extent of services provided by
the independent auditors and the fees associated with these services.


                                       18


                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date: March 29, 2004                      WEBFINANCIAL CORPORATION


                                          By: /s/ Warren G. Lichtenstein
                                              ----------------------------------
                                              Warren G. Lichtenstein
                                              President, Chief Executive Officer

                                POWER OF ATTORNEY

      WebFinancial Corporation and each of the undersigned do hereby appoint
Warren G. Lichtenstein and Jack L. Howard, and each of them singly, its or his
true and lawful attorney to execute on behalf of WebFinancial Corporation and
the undersigned any and all amendments to this Annual Report on Form 10-KSB and
to file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission; each of such attorneys
shall have the power to act hereunder with or without the other.

      In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the date indicated.

Signature                                                     Date
---------                                                     ----


By: /s/ Warren G. Lichtenstein                                March 29, 2004
    ----------------------------------------                  --------------
Warren G. Lichtenstein, President,                            Date
Chief Executive Officer and Director
(Principal Executive Officer)


By: /s/ Glen M. Kassan                                        March 29, 2004
    ----------------------------------------                  --------------
Glen M. Kassan                                                Date
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


By: /s/ Jack L. Howard                                        March 29, 2004
    ----------------------------------------                  --------------
Jack L. Howard, Director                                      Date


By: /s/ Howard Mileaf                                         March 29, 2004
    ----------------------------------------                  --------------
Howard Mileaf, Director                                       Date


By:                                                           March 29, 2004
    ----------------------------------------                  --------------
Joseph L. Mullen, Director                                    Date


By: /s/ Mark E. Schwarz                                       March 29, 2004
    ----------------------------------------                  --------------
Mark E. Schwarz, Director                                     Date



                                  EXHIBIT INDEX

3.1      Amended and Restated Certificate of Incorporation, - Incorporated by
         reference to Exhibit 3.1 to Registration Statement on Form S-3 filed
         October 10, 2003.

3.2      Certificate of Amendment of Certificate of Incorporation - Incorporated
         by reference to Exhibit 3.2 to Registration Statement on Form S-3 filed
         October 10, 2003.

3.3      By-laws - Incorporated by reference to Exhibit I-5 to Registration
         Statement on Form 8-A12G filed March 27, 1995.

10.1     Stock Purchase Agreement, dated January 20, 1998, by and between Praxis
         Investment Advisors, Inc. and Block Financial Corporation -
         Incorporated by reference to Exhibit 1 to Quarterly Report on Form 10-Q
         filed September 17, 1998.

10.2     Form of Subscription and Stockholders Agreement, dated August 31, 1998,
         by and among Andrew Winokur, Rose's International, Inc., WebBank
         Corporation, Praxis Investment Advisors, Inc. and Rose's Holdings, Inc.
         - Incorporated by reference to Exhibit 2 to Quarterly Report on Form
         10-Q filed September 17, 1998.

10.3     Form of Assignment, Transfer and Delegation Agreement, dated July 1998,
         by and among Praxis Investment Advisors, LLC, Andrew Winokur and Rose's
         International, Inc. - Incorporated by reference to Exhibit 3 to
         Quarterly Report on Form 10-Q filed September 17, 1998.

10.4     Form of Employment Agreement, dated July 1998, by and among Praxis
         Investment Advisors, Inc. and Andrew Winokur - Incorporated by
         reference to Exhibit 4 to Quarterly Report on Form 10-Q filed September
         17, 1998.

10.5     Form of Management Agreement, dated 1998, by and among Rose's
         International, Inc., Andrew Winokur, and Praxis Investment Advisors,
         Inc. - Incorporated by reference to Exhibit 5 to Quarterly Report on
         Form 10-Q filed September 17, 1998.

10.6     Rose's Holdings, Inc. Long Term Incentive Plan - Incorporated by
         reference to Appendix of Definitive Proxy Statement on Schedule 14A
         filed December 6, 1998.

*10.7    Management Agreement, dated as of January 2000, between WebFinancial
         Corporation and Steel Partners Services, Ltd.

*14.1    Code of Conduct and Ethics.

21.1     Subsidiaries of Registrant (WebFinancial Holdings Corporation; WebBank;
         WebFinancial Government Lending, Inc.; Praxis Investment Advisors,
         Inc.; and Web Film Finance, Inc.)

*23.1    Consent of Grant Thornton LLP.

*31.1    Certification of Chief Executive Officer pursuant to Section 302 of The
         Sarbanes-Oxley Act of 2002.

*31.2    Certification of Chief Financial Officer pursuant to Section 302 of The
         Sarbanes-Oxley Act of 2002.

*32.1    Certification of Chief Executive Officer pursuant to Section 906 of The
         Sarbanes-Oxley Act of 2002.

*32.2    Certification of Chief Financial Officer pursuant to Section 906 of The
         Sarbanes-Oxley Act of 2002.

* Filed herewith.



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Report on Consolidated Financial Statements...............      F-2

Report of Independent Certified Public Accountants.....................      F-3

Consolidated Statements of Financial Condition.........................      F-4

Consolidated Statements of Earnings....................................      F-6

Consolidated Statement of Stockholders' Equity.........................      F-8

Consolidated Statements of Cash Flows..................................      F-9

Notes to Consolidated Financial Statements.............................     F-11


                                      F-1


            MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

The consolidated financial statements on the following pages have been prepared
by management in conformity with generally accepted accounting principles.
Management is responsible for the reliability and fairness of the financial
statements and other financial information included herein.

To meet its responsibilities with respect to financial information, management
maintains and enforces internal accounting policies, procedures and controls
which are designed to provide reasonable assurance that assets are safeguarded
and that transactions are properly recorded and executed in accordance with
management's authorization. Management believes that the Company's accounting
controls provide reasonable, but not absolute, assurance that errors or
irregularities which could be material to the financial statements are prevented
or would be detected within a timely period by Company personnel in the normal
course of performing their assigned functions. The concept of reasonable
assurance is based on the recognition that the cost of controls should not
exceed the expected benefits.

The responsibility of our independent auditors, Grant Thornton LLP, is to
conduct their audit in accordance with auditing standards generally accepted in
the United States of America. In carrying out this responsibility, they planned
and performed their audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether caused by error
or fraud.

The Audit Committee of the Board of Directors met three times with management
and Grant Thornton LLP to discuss auditing and financial matters and to assure
that each is carrying out its responsibilities. Grant Thornton LLP has full and
free access to the Audit Committee and met with it by telephone, with and
without management being present, to discuss the results of their audit and
their opinions on the quality of financial reporting.


By: /s/ Warren G. Lichtenstein
    --------------------------------------------
    Warren G. Lichtenstein
    President and Chief Executive Officer
    (Principal Executive Officer)


By: /s/ Glen M. Kassan
    --------------------------------------------
    Glen M. Kassan
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)


                                      F-2


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
WebFinancial Corporation

We have audited the accompanying consolidated statements of financial condition
of WebFinancial Corporation and subsidiaries as of December 31, 2003 and 2002
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
WebFinancial Corporation and subsidiaries as of December 31, 2003 and 2002, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.


/s/ Grant Thornton LLP
Salt Lake City, Utah
March 16, 2004


                                      F-3


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    (Amounts in thousands except share data)

                                                            DECEMBER 31,   DECEMBER 31,
                                                               2003           2002
                                                               ----           ----
ASSETS
  Cash and due from banks                                    $     15       $    152
  Interest bearing deposits in other banks                      6,265          2,697
  Federal funds sold                                              965          3,697
                                                             --------       --------
    Total cash and cash equivalents                             7,245          6,546

  Investment securities (note 2)
    Held-to-maturity (estimated fair value of $49 and $20
       at December 31, 2003 and 2002)                              48             19
    Available-for-sale                                            324          1,722
                                                             --------       --------
       Total investment securities                                472          1,741

  Loans, net (note 3)                                           8,819         11,826
   Purchased receivables (note 3)
    Accounts receivable factoring                               7,352          4,622
    Other                                                         268            479
  Allowance for credit losses (note 4)                         (1,302)        (1,526)
                                                             --------       --------
       Total loans, net                                        15,137         15,401

  Foreclosed assets                                               200             36
  Premises and equipment, net (note 8)                             15             41
  Accrued interest receivable                                     244            259
  Goodwill                                                      1,380          1,380
  Deferred tax asset (note 12)                                    757             --
  Other assets (note 16)                                        1,098            761
                                                             --------       --------

                                                             $ 26,448       $ 26,165
                                                             ========       ========

                                   (continued)


                                      F-4


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (continued)
                    (Amounts in thousands except share data)

LIABILITIES AND STOCKHOLDERS' EQUITY
   Deposits:
     Non interest-bearing demand                                       $    206     $    668
     NOW/MMA accounts                                                       347          680
     Certificates of deposit (note 6)                                    11,364       12,272
                                                                       --------     --------
   Total deposits                                                        11,917       13,620

   Other liabilities                                                        377          919
                                                                       --------     --------
   Total liabilities before minority interests                           12,294       14,539

   Minority interests                                                       463          356
   Commitments and contingencies (notes 7, 11 and 14)                        --           --

   Stockholders' Equity (notes 2, 10, and 15)
     Preferred stock, 10,000,000 shares authorized, none issued              --           --
     Common stock, 50,000,000 shares authorized;
        $.001 par value, 4,366,866 shares issued and outstanding at
        December 31, 2003 and at December 31, 2002                            4            4
     Paid-in capital                                                     36,606       36,606
     Accumulated deficit                                                (22,974)     (25,083)
     Accumulated other comprehensive income (loss)                           55         (257)
                                                                       --------     --------

   Total stockholders' equity                                            13,691       11,270
                                                                       --------     --------

                                                                       $ 26,448     $ 26,165
                                                                       ========     ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-5


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (Amounts in thousands except share data)

                                                             YEAR ENDED      YEAR ENDED
                                                            DECEMBER 31,    DECEMBER 31,
                                                                2003            2002
                                                                ----            ----
Interest income
   Loans, including fees                                      $   858         $ 1,078
   Purchased receivables
        Accounts receivable factoring                           3,200           1,429
        Other                                                      32              63
   Interest bearing deposits in other banks                        17              53
   Federal funds sold                                              42              28
   Investment securities                                           84              39
                                                              -------         -------
        Total interest income                                   4,233           2,690

Interest expense
   Deposits                                                       336             334
   Federal funds purchased                                         --               1
                                                              -------         -------
           Total interest expense                                 336             335

           Net interest income before provision
           (credit) for credit losses                           3,897           2,355

Provision (credit) for credit losses (note 4)                     394             (60)
                                                              -------         -------

           Net interest income after provision
           (credit) for credit losses                           3,503           2,415

Noninterest income
   Gain on sale of assets                                         811             318
   Fee income                                                     494             402
   Miscellaneous income (note 17)                                 275             441
                                                              -------         -------
        Total noninterest income                                1,580           1,161

Noninterest expenses (note 5)
   Salaries, wages, and benefits                                  996             949
   Professional and legal fees                                    441             504
   Accounts receivable factoring management
        and broker fees                                           867             599
   Other management fees - related party                          310             310
   Loss on impairment of securities available-for-sale            334              --
   Other general and administrative                               675             734
                                                              -------         -------
        Total noninterest expenses                              3,623           3,096
                                                              -------         -------

           Operating income                                     1,460             480

Income tax benefit (note 12)                                     (756)            (10)
                                                              -------         -------

Income before minority interest                                 2,216             490

(Income) attributable to minority interests                      (107)            (31)
                                                              -------         -------

        Net income                                            $ 2,109         $   459
                                                              =======         =======

                                   (continued)


                                      F-6


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF EARNINGS (continued)
                    (Amounts in thousands except share data)

                                                YEAR ENDED           YEAR ENDED
                                               DECEMBER 31,         DECEMBER 31,
                                                   2003                 2002
                                                   ----                 ----

Income per common share:
   Basic                                      $         .48        $         .11
   Diluted                                    $         .48        $         .11

Weighted average number of common shares:
   Basic                                          4,366,866            4,366,866
   Diluted                                        4,368,165            4,367,142

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-7


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

               Years Ended December 31, 2003 and December 31, 2002
                    (Amounts in thousands except share data)


                                                                                               ACCUMULATED
                                          COMMON STOCK                                            OTHER            TOTAL
                                          ------------            PAID-IN      ACCUMULATED    COMPREHENSIVE    STOCKHOLDERS'
                                     SHARES         AMOUNT        CAPITAL        DEFICIT      INCOME (LOSS)       EQUITY
                                     ------         ------        -------        -------      -------------       ------
Balance at January 1, 2002         4,366,866      $       4      $  36,606      $ (25,542)      $       2       $  11,070

Comprehensive income :
     Net income                           --             --             --            459              --             459
     Unrealized holding loss
     arising during period,
     net of tax                           --             --             --             --            (259)           (259)
                                   ---------      ---------      ---------      ---------       ---------       ---------
Total comprehensive income                --             --             --            459            (259)            200
                                   ---------      ---------      ---------      ---------       ---------       ---------

Balance at December 31, 2002       4,366,866              4         36,606        (25,083)           (257)         11,270

Comprehensive income :
    Net income                            --             --             --          2,109              --           2,109
    Unrealized holding gain
    arising during period,
    net of tax                            --             --             --             --             312             312
                                   ---------      ---------      ---------      ---------       ---------       ---------
Total comprehensive income                --             --             --          2,109             312           2,421
                                   ---------      ---------      ---------      ---------       ---------       ---------

Balance at December 31, 2003       4,366,866      $       4      $  36,606      $ (22,974)      $      55       $  13,691
                                   =========      =========      =========      =========       =========       =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-8


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                                                      YEAR ENDED      YEAR ENDED
                                                                     DECEMBER 31,    DECEMBER 31,
                                                                         2003            2002
                                                                         ----            ----
Cash flows from operating activities:
Net income from operations                                             $ 2,109         $   459
Adjustments to reconcile net loss to net cash
   provided by operating activities:
        Minority interest                                                  107              31
        Provision (credit) for credit losses                               394             (60)
        Depreciation                                                        21              37
        Abandonment of premises and equipment                                5              --
        Gain on sale of securities available-for-sale                     (891)             --
        Loss on impairment of securities available-for-sale                334              --
        Gain on sale of loans                                              (24)             --
        (Gain) loss on sale of foreclosed assets                           104             (90)
        Write down of foreclosed assets                                     20              29
        Accretion of deferred loan fees, net                              (123)           (118)
        Amortization of other assets                                         7              15
        Amortization of servicing assets                                    45              35
        Deferred tax asset                                                (757)             --
   Change in operating assets and liabilities:
        Accrued interest receivable                                         15            (205)
        Other assets                                                      (389)             88
        Other liabilities                                                 (542)            750
                                                                       -------         -------

           Net cash provided by
           operating activities                                            435             971
                                                                       -------         -------

Cash flows from investing activities:
   Purchase of securities held-to-maturity                                 (40)             --
   Principal payments received on securities held-to-maturity               11               6
   Purchase of securities available-for-sale                            (2,675)         (2,571)
   Sales of securities available-for-sale                                2,641             694
   Principal payments received on securities available-for-sale          2,302             158
   Sale of SBA loans                                                       558              --
   Loans originated and principal collections, net                       2,357             463
   Purchased accounts receivable factoring originated
        and principal collections, net                                  (3,330)         (4,622)
   Purchased other receivables originated and
        principal collections, net                                         211            (479)
   Purchase of premises and equipment                                       --              (3)
   Proceeds (settlement adjustments) from sale
        of foreclosed assets                                               (68)            528
                                                                       -------         -------

           Net cash provided by (used in)
           investing activities                                          1,967          (5,826)
                                                                       -------         -------

                                   (continued)


                                      F-9


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                                                            YEAR ENDED      YEAR ENDED
                                                           DECEMBER 31,    DECEMBER 31,
                                                               2003            2002
                                                               ----            ----

Cash flows from financing activities:
   Net increase (decrease) in demand deposits                   (462)            593
   Net increase (decrease) in NOW/MMA accounts                  (333)            661
   Net increase (decrease) in certificates of deposit           (908)          5,052

Net cash provided by (used in) financing activities           (1,703)          6,306
                                                             -------         -------

Net increase in cash and cash equivalents                        699           1,451

Cash and cash equivalents at beginning of year                 6,546           5,095
                                                             -------         -------

Cash and cash equivalents at end of year                     $ 7,245         $ 6,546
                                                             =======         =======

Supplemental disclosure of cash flow information:
   Cash paid for interest                                    $   402         $   273
   Cash paid for (refunded from) income taxes                      2             (10)

Supplemental disclosure of additional non-cash
   activities:

At December 31, 2003, the Company had a balance of net unrealized gains on
securities of $55, which is shown in accumulated other comprehensive income
(loss) on the balance sheet. As a result, accumulated other comprehensive income
(loss) was increased by $312. At December 31, 2002, the Company had a balance of
net unrealized losses on securities of $(257), which is shown in accumulated
other comprehensive income (loss) on the balance sheet. As a result, accumulated
other comprehensive income (loss) was decreased by $(259).

During 2003, the Company wrote off premises and equipment with a cost of $18 and
accumulated depreciation of $13, and during 2002, the Company wrote off $192 of
fully depreciated assets.

During 2003 and 2002, the Company acquired foreclosed assets of $220 and $54,
respectively, in lieu of loan payments.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      F-10


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Years Ended December 31, 2003 and December 31, 2002
           (All numbers except shares and per share data in thousands)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION--The consolidated financial statements include the financial
statements of WebFinancial Corporation and its subsidiaries: WebFinancial
Holdings Corporation ("Holdings"), WebBank ("WebBank"), Praxis Investment
Advisers, Inc. ("Praxis"), WebFinancial Government Lending, Inc. ("Lending"),
and Web Film Financial, Inc. ("Film"), collectively referred to as the Company.
WebFinancial Corporation owns 93 percent of WebBank and an unconsolidated
individual owns 7 percent of WebBank. WebBank is a Utah-chartered industrial
loan corporation, and is subject to comprehensive regulation, examination, and
supervision by the Federal Deposit Insurance Corporation ("FDIC"), and the State
of Utah Department of Financial Institutions. WebBank provides commercial and
consumer specialty finance services. Lending was organized to provide U.S.
Department of Agriculture loan originations, sales and servicing. Film was
organized to finance the production and distribution of a motion picture. Both
Film and Praxis are inactive. All significant intercompany balances have been
eliminated in consolidation.

BASIS OF PRESENTATION AND USE OF ESTIMATES--The preparation of consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. A
material estimate that is particularly susceptible to significant change in the
near-term relates to the determination of the allowance for credit losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
credit losses and the valuation of real estate, management obtains independent
appraisals for significant properties.

CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash and
noninterest bearing deposits in depository institutions, plus interest-bearing
deposits with banks and investments in cash management funds. The Company
considers all highly liquid debt instruments with maturities of three months or
less when purchased to be cash equivalents. Cash equivalents are stated at cost,
which approximates market.

INCOME PER SHARE--Basic income per common share is calculated by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted income per common share reflects the maximum dilutive effect of
common stock issuable upon exercise of stock options and stock warrants.

INVESTMENT SECURITIES--The Company classifies its securities as either
available-for-sale or held-to-maturity. Held-to-maturity securities are those
debt securities that the Company has the ability and intent to hold until
maturity. All other securities not included in held-to-maturity are classified
as available-for-sale.

Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Available-for-sale
securities are recorded at fair value. Unrealized holding gains or losses on
available-for-sale securities are excluded from earnings and reported, until
realized, in accumulated other comprehensive income (loss) as a separate
component of stockholders' equity. A decline in the market value of any
available-for-sale or held-to-maturity security below cost that is deemed other
than temporary is charged to earnings resulting in the establishment of a new
cost basis for the security. Premiums and discounts are amortized or accreted
over the life of the related security as an adjustment to the yield using the
effective-interest method. Dividend and interest income is recognized when
earned. Realized gains and losses for securities classified as
available-for-sale or held-to-maturity are included in earnings and are derived
using the specific-identification method.

LOANS AND PURCHASED RECEIVABLES--The Company, through WebBank, grants mortgage,
commercial and consumer loans to customers. Loans that management has the intent
and ability to hold for the foreseeable future or until maturity or pay-off
generally are reported at their outstanding unpaid principal balances adjusted
for charge-offs, the allowance for loan losses, and any deferred fees or costs
on originated loans. Interest income is accrued on the unpaid principal balance.
Loan origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on commercial loans is discontinued at the time the loan
is 90 days delinquent unless the credit is well-secured and in process of
collection. Credit card loans and other personal loans are typically charged off
no later than 180 days past due. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is
considered doubtful.


                                      F-11


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All interest accrued but not collected for loans that are placed on nonaccrual
or charged-off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.

WebBank purchases receivable balances from customers at a discounted rate. The
receivables to be purchased from any given customer are determined using
WebBank's credit granting policies. Receivable purchases have full recourse to
the customer and are accounted for as a purchase under the guidelines of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards No. 140.

Purchased receivables that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-off or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.

In February 2004, various agreements regarding purchased receivables were
canceled. See Note 20 for additional information.

The Company has originated loans to customers under a United States Department
of Agriculture ("USDA") program that generally provides for USDA guarantees of
70 percent to 90 percent of each loan. The Company sold the guaranteed portion
of each loan to a third party and retained the unguaranteed portion in its own
portfolio. Loans held-for-sale are carried at the lower of cost or estimated
market value in the aggregate.

The Company is required to retain a minimum of five percent of each USDA loan
sold and to service the loan for the investor. Based on the specific loan sale
agreement that the Company enters into with the investor, the difference between
the yield on the loan and the yield paid to the buyer is the servicing fee.
Loans serviced for others approximated $28,194 and $36,263 at December 31, 2003
and 2002, respectively. These loans are not included in the accompanying
statements of financial condition. Fees earned for servicing loans for others
are reported as income when the related loan payments are collected, less
amortization of the servicing asset. Loan servicing costs are charged to expense
as incurred.

CREDIT RELATED FINANCIAL INSTRUMENTS--In the ordinary course of business, the
Company has entered into commitments to extend credit, including commitments
under accounts receivable factoring and credit card arrangements. Such financial
instruments are recorded when they are funded.

LOAN IMPAIRMENT--A loan is considered impaired when, based on current
information and events, it is probable that the Bank will be unable to collect
the scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan basis for
commercial loans by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is secured by collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer and finance receivables for impairment disclosures.

ALLOWANCE FOR CREDIT LOSSES--The allowance for credit losses is established as
losses are estimated to have occurred through a provision for credit losses
charged to earnings. Credit losses are charged against the allowance when
management believes the uncollectibility of a loan or receivable balance is
confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for credit losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
amounts due in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

The allowance for purchased receivable losses, which is included with the
allowance for credit losses, is increased by charges to income and decreased by
charge offs (net recoveries). Management's periodic evaluation of the adequacy
of the allowance is based on the Company's past purchased receivables loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the debtor's ability to repay, the estimated value of any underlying
collateral and current economic conditions. Purchased receivables are charged
off when they are 90 days contractually past due, at which time the Company may
enforce the recourse agreement to collect from the customer the remaining
outstanding balances.

                                      F-12


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NONACCRUAL LOANS--Accrual of interest is discontinued on a loan when the loan is
90 days past due or when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful. Interest income on
nonaccrual loans is credited to income only to the extent interest payments are
received. Loans are restored to accrual of interest when delinquent payments are
received in full. Additionally, the Company uses the cost recovery accounting
method to recognize interest income on impaired loans.

PREMISES AND EQUIPMENT--Premises and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation of premises and
equipment is computed by the straight-line method over estimated useful lives
from one to five years for book purposes and accelerated methods for tax
purposes. Leasehold improvements are amortized over the terms of the related
leases or the estimated useful lives of the improvements, whichever is shorter.
Useful lives of leasehold improvements are between three and five years. Normal
recurring repair and maintenance costs are expensed as incurred.

INCOME TAXES--The Company uses the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and deferred tax
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 and operating loss and tax credit
carryforwards. Deferred tax assets and deferred tax 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 deferred tax liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

GOODWILL--The Company evaluates their goodwill for impairment at least annually
at a reporting unit level. The Company completed its annual evaluation of
impairment of goodwill and determined that no impairment exists at December 31,
2003 or 2002.

FORECLOSED ASSETS--Assets acquired through, or in lieu of, loan foreclosures are
held for sale and initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, periodic valuations
are performed and the asset is carried at the lower of the carrying amount or
fair value, less cost to sell. Revenue and expenses from operations and changes
in the valuation allowance are included in net expenses from foreclosed assets.

TRANSFERS OF FINANCIAL ASSETS--Transfers of financial assets are accounted for
as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Company (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets held and used is measured by a comparison of the
carrying amount of the asset to future undiscounted net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of their carrying amount or fair value less cost to
sell.

COMPREHENSIVE INCOME (LOSS)--Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on securities available for sale, are reported as a separate component of
the equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.


                                      F-13


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of other comprehensive income and related tax effects are as
follows:

                                                         Year ended December 31,
                                                         -----------------------
                                                          2003            2002
                                                          ----            ----
Unrealized holding gains (losses)  on
    available-for-sale securities                        $ 869           $(259)
Gain on sale of securities in net income                  (891)             --
Reclassification adjustment-loss included
    in net income                                          334              --
Net unrealized holding gains (losses)                      312            (259)
Tax effect                                                  --              --
                                                         -----           -----
Net-of-tax amount                                        $ 312           $(259)
                                                         =====           =====

STOCK-BASED COMPENSATION--The Company has applied the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123" for the years ended 2003 and 2002. Issued in December 2002,
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock Based Compensation" to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock based compensation. As permitted by
SFAS No. 148, the Company is allowed to continue to measure compensation cost
for those plans using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plan have no intrinsic value at the grant date, and under
Opinion No. 25 no compensation cost is recognized for them. The Company has
elected to continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided pro forma disclosures of net income and earnings per share
and other disclosures, as if the fair value based method of accounting had been
applied. The pro forma disclosures include the effects of all awards granted on
or after January 1, 1995. (See Note 10.)

The following table illustrates the effect on net earnings and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No.123, as amended by SFAS No. 148 to stock based compensation (amounts in
thousands except per share amounts):

                                                                 Year ended     Year ended
                                                                December 31,   December 31,
                                                                    2003           2002
                                                                    ----           ----
      Net income                          As reported           $    2,109     $      459
      Total stock-based employee
      compensation expense
      determined under fair value based
      method for all awards net of
      related tax effects                                               --            (30)
                                                                ----------     ----------
                                          Pro forma             $    2,109     $      429
                                                                ==========     ==========
      Basic and diluted
      net income per share                As reported           $      .48     $      .11

                                          Pro forma             $      .48     $      .10

There were no options granted in 2003. For 2002, in determining the pro forma
amounts shown in the preceding table, the fair value of each option grant was
estimated on the date of the grant using the Black-Scholes option pricing model
with weighted average assumptions for the year ended December 31, 2002 which
include a risk-free interest rate of 4.0 percent, expected dividend yield of 0
percent, expected lives of 5 years, and expected volatility of 69 percent. No
options were granted to non-employees for services during the year ended
December 31, 2002.


                                      F-14


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECLASSIFICATION--Certain immaterial amounts as of and for the year ended
December 31, 2001 and the year ended December 31, 2002 have been reclassified to
conform with the 2003 presentation.

NEW ACCOUNTING PRONOUNCEMENTS - In April 2003, the FASB issued SFAS No. 149,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 improves financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly. SFAS No.
149 is effective for contracts entered into or modified after June 30, 2003 and
should be applied prospectively. The Company adopted SFAS No. 149 with no
material impact on its financial condition or results of operations for the year
ended December 31, 2003.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
improves financial reporting by establishing standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
adopted SFAS No. 150 with no material impact on its financial condition or
results of operations for the year ended December 31, 2003.

The Bank adopted Emerging Issues Task Force (EITF) 03-1, "The Meaning of Other
than Temporary Impairment and Its Application to Certain Investments," as of
December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative
and qualitative disclosures for investment securities accounted for under FAS
115, "Accounting for Certain Investments in Debt and Equity Securities," that
are impaired at the balance sheet date, but an other-than-temporary impairment
has not been recognized. The disclosure requires a table of securities which
have unrealized losses as of the reporting date, distinguished between
securities which have been in a continuous unrealized loss position for 12
months or more and less than 12 months. The table is to include aggregate
unrealized losses and fair value of securities whose fair value are below book
value as of the reporting date. Additional information, in narrative form, is
required that provides sufficient information to allow financial statement users
to understand the quantitative disclosures and the information that the investor
considered in reaching the conclusion that the impairments are not other than
temporary. At December 31, 2003, the Company did not have any unrealized losses
on investment securities.

2.    INVESTMENT SECURITIES

The amortized cost and fair value of securities, with gross unrealized gains and
losses are summarized as follows:

                                                                          DECEMBER 31, 2003

                                                                          HELD-TO-MATURITY
                                                   ---------------------------------------------------------------
                                                                       GROSS             GROSS           ESTIMATED
                                                    AMORTIZED       UNREALIZED        UNREALIZED           FAIR
                                                      COST             GAINS            LOSSES             VALUE
                                                   ----------       ----------        ----------        ----------
Collateralized mortgage backed securities          $        8       $        1        $       --        $        9

State and municipal securities                             40               --                --                40
                                                   ----------       ----------        ----------        ----------
                                                   $       48       $        1        $       --        $       49
                                                   ==========       ==========        ==========        ==========

                                                                         AVAILABLE-FOR-SALE
                                                   ---------------------------------------------------------------
                                                                       GROSS             GROSS           ESTIMATED
                                                    AMORTIZED       UNREALIZED        UNREALIZED           FAIR
                                                      COST             GAINS            LOSSES             VALUE
                                                   ----------       ----------        ----------        ----------

Collateralized mortgage backed securities          $       66       $       --        $       --        $       66

Equity securities                                         203               55                --               258
                                                   ----------       ----------        ----------        ----------

                                                   $      269       $       55        $       --        $      324
                                                   ==========       ==========        ==========        ==========


                                      F-15


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                           DECEMBER 31, 2002

                                                                           HELD-TO-MATURITY
                                                   ---------------------------------------------------------------
                                                                       GROSS            GROSS            ESTIMATED
                                                    AMORTIZED       UNREALIZED        UNREALIZED           FAIR
                                                      COST             GAINS            LOSSES             VALUE
                                                   ----------       ----------        ----------        ----------

Collateralized mortgage backed securities          $       19       $        1        $       --        $       20
                                                   ==========       ==========        ==========        ==========

                                                                         AVAILABLE-FOR-SALE
                                                   ---------------------------------------------------------------
                                                                       GROSS             GROSS           ESTIMATED
                                                    AMORTIZED       UNREALIZED        UNREALIZED            FAIR
                                                      COST             GAINS            LOSSES             VALUE
                                                   ----------       ----------        ----------        ----------

Collateralized mortgage backed securities          $      103       $       --        $       --        $      103

Equity securities                                       1,878               --              (259)            1,619
                                                   ----------       ----------        ----------        ----------

                                                   $    1,981       $       --        $     (259)       $    1,722
                                                   ==========       ==========        ==========        ==========

The amortized cost and estimated market value of investment securities at
December 31, 2003, by contractual maturity, are shown below. The contractual
maturity of collateralized mortgage backed securities and equity are
indeterminable or not applicable. Expected maturities may differ from
contractual maturities because borrowers have the right to prepay obligations
with or without penalties.

                                                         HELD-TO-MATURITY                   AVAILABLE-FOR-SALE
                                                   ---------------------------        ----------------------------
                                                                    ESTIMATED                            ESTIMATED
                                                    AMORTIZED          FAIR            AMORTIZED           FAIR
                                                      COST            VALUE              COST              VALUE
                                                   ----------       ----------        ----------        ----------
Due after one year through five years              $       40       $       40        $       --        $       --
Mortgage-backed securities not due at a
single maturity date, maturing through 2024                 8                8                66                66
                                                   ----------       ----------        ----------        ----------
                                                   $       48       $       48        $       66        $       66
                                                   ==========       ==========        ==========        ==========

No individual securities were in an unrealized loss position at December 31,
2003.

Proceeds from maturities, calls, and principal payments of securities classified
as available-for-sale were $2,302 in 2003 and $158 in 2002. Proceeds from sale
of securities available-for-sale were $2,641 in 2003 and $694 in 2002. Gross
realized gains on the sales were $891 in 2003 and $0 in 2002 and gross realized
losses on the sales were $0 in 2003 and $0 in 2002 based on the "specific
identification method."

3.    LOANS

Loans and purchased receivables at December 31, 2003 and 2002 are summarized as
follows:

                                              2003         2002
                                           --------     --------
      Commercial loans                     $  8,823     $ 11,872
      Installment loans                          89          168
      Deferred income                           (93)        (214)
      Purchased receivables
          Accounts receivable factoring       7,352        4,622
          Other                                 268          479
                                           --------     --------
                                           $ 16,439     $ 16,927
                                           ========     ========


                                      F-16


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans to fifteen customers comprise approximately 55 percent of total loans at
December 31, 2003. At December 31, 2003, $268 of the loans in the portfolio had
a fixed interest rate ($479 at December 31, 2002) and $89 of the Company's loans
were unsecured ($168 at December 31, 2002). The ability of the borrowers to
repay their obligations is dependent upon economic conditions within their
respective regions as well as the financial condition of the borrowers.

The Company had $1,251 and $1,171 of loans on which the accrual of interest has
been discontinued or reduced at December 31, 2003 and 2002, respectively. If
income on those loans had been accrued, such income would have approximated $111
and $150 for 2003 and 2002, respectively.

The following is a summary of information pertaining to impaired loans:

                                                           2003           2002
                                                           ----           ----
Impaired loans without a valuation allowance             $    --        $    --
Impaired loans with a valuation allowance                  1,251          1,171
                                                         -------        -------
Total impaired loans                                     $ 1,251        $ 1,171
                                                         =======        =======
Valuation allowance related to impaired loans            $   622        $   483

The valuation allowance for impaired loans is included in the allowance for
credit losses in Note 4.

                                                           2003           2002
                                                           ----           ----
Average investment in impaired loans                     $ 1,119        $ 1,453
Interest income accrued on impaired loans                $    --        $    --
Interest income recognized on a cash basis
   on impaired loans                                     $    17        $    36

4.    ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is summarized as follows:

                                                           2003           2002
                                                         -------        -------
Beginning balance                                        $ 1,526        $ 1,972
Additions:
    Provision (credit) for credit losses                     394            (60)
    Recoveries                                                --             --
Deduction-loan charge-offs                                  (618)          (386)
                                                         -------        -------
Ending balance                                           $ 1,302        $ 1,526
                                                         =======        =======

The Company considers the allowance for credit losses adequate to cover losses
inherent in loans, loan commitments and purchased receivables at December 31,
2003. However, no assurance can be given that the Company will not, in any
particular period, sustain credit losses that are sizable in relation to the
amount reserved, or that subsequent evaluations of the loan portfolio, in light
of the factors then prevailing, including economic conditions and the Company's
ongoing examination process and that of its regulators, will not require
significant increases in the allowance for credit losses. It is at least
reasonably possible that a material change in the allowance for credit losses
will occur in the near term.

5.    RELATED PARTY TRANSACTIONS

Pursuant to a management agreement (the "Management Agreement"), approved by a
majority of the Company's disinterested directors, between the Company and an
entity formerly known as Steel Partners Services, Ltd. ("SPS") (and subsequently
assigned to Steel Partners, Ltd. ("New Ltd.")), New Ltd. provides the Company
with office space and certain management, consulting and advisory services. The
Management Agreement is automatically renewable on an annual basis unless
terminated by either party, for any reason, upon at least 60 days written
notice. The Management Agreement also provides that the Company shall indemnify,
save and hold SPS harmless from and against any obligation, liability, cost or
damage resulting from SPS's actions under the terms of the Management Agreement,
except to the extent occasioned by gross negligence or willful misconduct of
SPS's officers, directors or employees.

Pursuant to an employee allocation agreement (the "Employee Allocation
Agreement") between WebBank and SPS (and subsequently assigned to New Ltd.), Jim
Henderson, an employee of New Ltd. and executive officer of the Company,


                                      F-17


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

performs services in the area of management, accounting and finances and such
other services as are reasonably requested by WebBank. The Employee Allocation
Agreement will continue in force until terminated by either of the parties upon
30 days written notice.

Prior to March 26, 2002, the original counterparty to both the Management
Agreement and the Employee Allocation Agreement was SPS. As of March 26, 2002,
the Management Agreement and the Employee Allocation Agreement described above
were assigned by SPS to New Ltd. and the employees of SPS became employees of
New Ltd. Warren Lichtenstein, the Company's President and Chief Executive
Officer, is an affiliate of New Ltd. based on his ownership of New Ltd.,
directly and through Steel Partners II, L.P. ("Steel"), and by virtue of his
positions as Chairman, President and Chief Executive Officer of New Ltd. Mr.
Lichtenstein is the sole managing member of the general partner of Steel. Mr.
Lichtenstein disclaims beneficial ownership of the shares of Common Stock of New
Ltd. owned by Steel (except to the extent of his pecuniary interest in such
shares of Common Stock).

In consideration of the services rendered under the Management Agreement, New
Ltd. charges the Company a fixed monthly fee totaling $310,000 per annum,
adjustable annually upon agreement of the Company and New Ltd. In consideration
of the services provided under the Employee Allocation Agreement, New Ltd.
charges WebBank $100,000 per annum. The fees payable by WebBank are included in
the fees payable by the Company under the Management Agreement. The Company
believes that the cost of obtaining the type and quality of services rendered by
New Ltd. under the Management Agreement and Employee Allocation Agreement is no
less favorable than the cost at which the Company and WebBank, respectively
could obtain from unaffiliated entities.

During the fiscal year ended December 31, 2003, New Ltd. billed fees with
respect to fiscal 2003 of $310,000 to the Company for services rendered under
the Management Agreement. Included in these fees was $100,000 paid by WebBank
for services rendered under the Employee Allocation Agreement. During the fiscal
year ended December 31, 2002, New Ltd. and SPS billed fees with respect to
fiscal 2002 of $232,000 and $77,500 respectively to the Company for services
rendered under the Management Agreement. Included in these fees were $100,000
paid by WebBank for services rendered under the Employee Allocation Agreement.

Pursuant to a sourcing and servicing agreement (the "Rockland Agreement")
between WebBank and Rockland Credit Finance LLC ("Rockland"), Rockland performs
both sourcing and servicing functions on behalf of WebBank related to WebBank's
accounts receivable factoring program. During 2003, Rockland was paid $255,000
in cash management fees and earned $1,019,000 in total management fees under the
terms of the Rockland Agreement. During 2002, Rockland was paid $56,000 in cash
management fees and earned $571,000 in total management fees under the terms of
the Rockland Agreement. Management fees are paid quarterly and accrued monthly
by WebBank. Subsequent to year end 2003, WebBank gave Rockland notice of
termination of their Sourcing and Servicing Agreement (see "Note 20 - Subsequent
Events").

6.    CERTIFICATES OF DEPOSIT

      Certificates of deposit at December 31, 2003 and 2002 are summarized as
follows:

                                                      WEIGHTED                    WEIGHTED
                                                      AVERAGE                     AVERAGE
                                                        RATE            2003        RATE            2002
                                                      --------       ---------    -------        ---------
      Certificates of deposit greater than $100         1.96%        $  11,364      2.90%        $  12,272
      Other certificates of deposit                       --                --        --                 1
                                                                     ---------                   ---------
                                                        1.96%        $  11,364      2.90%        $  12,272
                                                                     =========                   =========


                                      F-18


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of certificates of deposit as of December 31, 2003 are as follows:

      Year ending December 31,
      ------------------------

                2004                                         $  6,265

                2005
                                                                5,099
                                                             --------

                                                             $ 11,364
                                                             ========

7.    SHORT-TERM BORROWINGS

In April 2002, WebBank obtained a secured federal funds line of credit for $500
with a commercial bank. The interest rate approximated the federal funds rate.
The security consisted of WebBank's investment portfolio of mortgage backed
securities. The secured federal funds line of credit was not used in 2002. In
March 2003, the secured line of credit was replaced by an unsecured federal
funds line of credit for the same amount with the same bank. Neither the secured
or unsecured lines of credit were used in 2003.

8.    PREMISES AND EQUIPMENT

Premises and equipment at December 31, are summarized as follows:

                                                            2003        2002
                                                            ----        ----
      Leasehold improvements                              $    39     $    39
      Furniture and equipment                                  69          87
                                                          -------     -------

                                                              108         126
      Less accumulated depreciation and amortization           93          85
                                                          -------     -------

                                                          $    15     $    41
                                                          =======     =======

9.    INCOME PER SHARE

The following data was used in computing earnings per share:

                                                                      Year ended
                                                                  2003            2002
                                                              ----------      ----------
Income available to common shareholders                       $    2,109      $      459
                                                              ----------      ----------

                            Basic
Shares
    Common shares outstanding entire period                    4,366,866       4,366,866
    Weighted average common shares:
       Issued during period                                           --              --
       Canceled during period                                         --              --
                                                              ----------      ----------

Weighted average common shares outstanding during period
       -basic                                                  4,366,866       4,366,866
                                                              ==========      ==========
Income per share - basic                                      $      .48      $      .11
                                                              ==========      ==========

                           Diluted
Shares
Weighted average common shares outstanding during period
       -basic                                                  4,366,866       4,366,866
Dilutive effect on in-the-money stock options                      1,299             276
                                                              ----------      ----------
Weighted average common share outstanding during period
       -diluted                                                4,368,165       4,367,142
                                                              ==========      ==========
Income per common share - diluted                             $      .48      $      .11
                                                              ==========      ==========


                                      F-19


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.   STOCK OPTIONS AND WARRANTS

The Board of Directors of the Company, at its meeting on September 2, 1998,
approved the merger of all previous stock incentive plans into the new stock
option plan (the Merged Plan). At the annual meeting held November 4, 1998, the
shareholders approved the merger and certain amendments to the Merged Plan.
Approved were the grants of certain stock-based incentives and other equity
interests to employees, directors, and consultants. A maximum of 1,000,000
shares may be issued under the Merged Plan. The options are vested according to
varied schedules, exercisable when vested, and expire five years from the date
of issuance. At December 31, 2003, there were 902,774 options remaining in the
Merged Plan available for granting.

The following table summarizes stock option activity:

                                      Year ended                    Year ended
                                  December 31, 2003             December 31, 2002

                                             Weighted-                      Weighted-
                                Number        average         Number         average
                              of shares      exercise       of shares       exercise
                              (1,000's)        price        (1,000's)         price
                              ------------------------      -------------------------
Options outstanding at
  beginning of year              468           $3.98           469           $4.02

Options granted                   --           $  --            15           $2.14

Options cancelled               (375)          $3.86           (16)          $3.41

Options exercised                 --              --            --              --
                              ------                        ------

Options outstanding at
  end of year                     93           $4.48           468           $3.98
                              ======                        ======

Options exercisable at
  end of year                     93           $4.48           464           $3.99

Weighted-average fair
  value of options granted
  during the year (all at
  market)                                      $  --                         $1.27


                                      F-20


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about stock options with fixed terms
outstanding at December 31, 2003:

                                                Options outstanding                   Options exercisable
                                                -------------------                   -------------------
                         Number             Weighted                               Number
                       outstanding          average            Weighted          exercisable          Weighted
    Range of           (000's) at          remaining            average           (000's) at           average
    Exercise          December 31,        contractual          exercise          December 31,         exercise
     Prices               2003           life in years         price ($)             2003             price ($)
     ------               ----           -------------         ---------             ----             ---------
$ 1.500 to 2.549           13                 3.6                1.97                 13                1.97
$ 2.550 to 3.440           35                 1.8                3.25                 35                3.25
$ 3.441 to 5.130           20                  .1                5.13                 20                5.13
$ 6.471 to 7.000           25                  .8                7.00                 25                7.00
                         ----                                                       ----
                           93                                                         93
                         ====                                                       ====

11.   EMPLOYEE BENEFIT PLAN AND INCENTIVE PROGRAM

WebBank has a 401(k) profit sharing plan, covering employees who meet age and
service requirements. Plan participants vest ratably and are fully vested after
five years of service. WebBank matches employee contributions up to five percent
of covered compensation at two hundred percent of the employee's contribution.
Contributions to the plan amounted to approximately $22 and $37 for the years
ended December 31, 2003 and 2002, respectively.

12.   INCOME TAXES

Income taxes (benefit) expense consist of the following:

                                                 2003                2002
                                                 ----                ----
      Current                                   $   1               $ (10)
      Deferred                                   (757)                 --
                                                -----               -----
                                                $(756)              $ (10)
                                                =====               =====

A reconciliation of income taxes (benefit) expense computed at the federal
statutory rate of 34% is as follows:

                                                   2003             2002
                                                   ----             ----
      Federal income taxes                       $   496          $   163
      State income taxes                              48               16
      Change in valuation allowance               (1,302)            (179)
      Other                                            2              (10)
                                                 -------          -------
                                                 $  (756)         $   (10)
                                                 =======          =======

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities were as follows:

                                                  December 31,   December 31,
                                                      2003           2002
                                                      ----           ----
      Deferred tax assets:
           Net operating loss carry forward         $14,559        $15,029
           Accrued vacation                              17              8
           Allowance for loan losses                    486            569
           Premises and equipment                        33             34
                                                    -------        -------
              Total deferred tax assets              15,095         15,640
              Less valuation allowance               14,338         15,640
                                                    -------        -------
      Net deferred tax asset                        $   757        $    --
                                                    =======        =======

The net change in the total valuation allowance for the year ended December 31,
2003 was a decrease of $1,302.


                                      F-21


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2003, the Company had net operating loss carry forwards of
approximately $39,033 that are scheduled to expire from 2009 through 2021. The
Company has treated such net operating losses incurred prior to April 28, 1995,
when there was a material change in ownership of a 5% shareholder, in accordance
with Section 382(l)(5) of the Internal Revenue Code. As a result, there is
approximately $19,000 in net operating losses incurred prior to April 28, 1995
as well as $20,033 incurred subsequent to April 28, 1995 available as
carryovers. All net operating losses may be subject to certain limitations on
utilization.

13.   DISCLOSURES ABOUT THE FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying value for short-term financial instruments that mature or reprice
frequently at market rates approximates fair value. Such financial instruments
include: cash and cash equivalents, accrued interest receivable, demand
deposits, accounts payable and accrued expenses, time certificates of deposit
and short term borrowing. The difference between the fair market value and the
carrying value for loans and investment securities is not considered significant
to the financial statements.

14.   COMMITMENTS AND CONTINGENCIES

Leases

The Company leased office space in one building in 2003 and 2002 under operating
lease agreements. Rental expense for the years ended December 31, 2003 and 2002
were $107and $127, respectively. Future minimum lease payments by year are as
follows:

      Year ending December 31,
                  2004                                          $    107
                  2005                                                27
               Thereafter                                             --
                                                                --------
                                                                $    134
                                                                ========

CREDIT-RELATED FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance sheet risk. In
the normal course of business, these financial instruments include commitments
to extend credit in the form of loans or through letters of credit. Those
instruments involve to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized on the balance sheet. The contract
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company the same
credit policy in making commitments and conditional obligations as it does for
on-balance sheet instruments.

At December 31, 2003 and 2002, the Company's undisbursed commercial loan
commitments totaled $0. For the same periods, the Company's undisbursed consumer
credit card loan commitments totaled $0. For the same periods, the Company's
undisbursed accounts receivable factoring commitments totaled approximately
$8,138 and $6,382, respectively.

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

LITIGATION

      In January 2000, Andrew Winokur, a former executive officer, director and
stockholder of Praxis Investment Advisors, Inc. ("Praxis"), one of the Company's
subsidiaries, filed a lawsuit in the Superior Court of the State of California,
County of Napa. The lawsuit alleges that Praxis breached its employment


                                      F-22


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

agreement with Mr. Winokur. The lawsuit also asserts claims for interference
with contract and unjust enrichment based upon his alleged wrongful termination.
The lawsuit seeks damages of an unspecified amount and compliance by Praxis with
the termination pay-out provisions in Mr. Winokur's employment agreement.

      On March 4, 2002, the lawsuit was submitted to binding arbitration. The
panel found no breach of contract and no intentional interference with Mr.
Winokur's contractual rights. However, the panel found that Mr. Winokur was
entitled to the termination pay-out provision in his employment agreement. Under
this provision, Mr. Winokur could potentially be entitled to receive certain
compensation based on (i) an investment bank valuation of WebBank, if the
Company accepts such valuation, or (ii) the proceeds of a sale of WebBank, if
the Company rejects such valuation. While Mr. Winokur would not be entitled to
receive any compensation in the event that the sale does not exceed a
predetermined amount as provided in the employment agreement, which amount is
defined as the amount of capital invested by the stockholders of Praxis and
WebBank in such companies, plus a cumulative annual rate of return of ten
percent as of the date of sale, the Company may be forced to sell WebBank if the
sale price exceeds such predetermined amount, even if the Company does not want
to sell WebBank. In addition, if the sale price of WebBank exceeds the
predetermined amount but is less than the investment bank valuation of WebBank,
the Company may be required to sell WebBank at less than its value. The Company
does not have any alternative financing plans to make this payment in the event
such payment is required.

      At the present time, Mr. Winokur has ceased to participate in the process
of valuing WebBank. However, since there may be no time limitation on Mr.
Winokur's claim, the valuation process may proceed in the future and if the
Company is required to make a payment, its business could be harmed.

15.   REGULATORY REQUIREMENTS

WebBank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average quarterly assets (as defined).
Management believes, as of December 31, 2003 that the Bank meets all capital
adequacy requirements to which it is subject.

As of December 31, 2003, based on the applicable capital adequacy regulations,
the Bank is categorized as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the Bank must
maintain minimum total risk based, Tier I risk based, and Tier I leverage ratios
as set forth in the following tables. There are no conditions or events that
management believes have changed the Bank's category.

Capital amounts and ratios are summarized as follows (in thousands):

                                                                     WELL CAPITALIZED            MINIMUM CAPITAL
                                                ACTUAL                 REQUIREMENT                 REQUIREMENT
                                       -----------------------   ------------------------    ------------------------
                                         AMOUNT        RATIO         AMOUNT       RATIO         AMOUNT       RATIO
                                       ----------   ----------   ------------   ---------    ----------    ----------
      As of
      December 31, 2003:

      Total Capital (Tier 1 + Tier
      2) to risk weighted assets      $    5,774      30.9%     $      1,867    >=10.0%     $     1,494     >=8.0%

      Tier I Capital to risk
      weighted assets                 $    5,529      29.6%     $      1,120     >=6.0%     $       747     >=4.0%

      Tier I Capital to average
      assets (Leverage Ratio)         $    5,529      31.9%     $        867     >=5.0%     $       694     >=4.0%


                                      F-23


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     WELL CAPITALIZED            MINIMUM CAPITAL
                                                ACTUAL                 REQUIREMENT                 REQUIREMENT
                                       -----------------------   ------------------------    ------------------------
                                         AMOUNT        RATIO         AMOUNT       RATIO         AMOUNT       RATIO
                                       ----------   ----------   ------------   ---------    ----------    ----------
      As of
      December 31, 2002:

      Total Capital (Tier 1 + Tier
      2) to risk weighted assets      $    4,227      30.1%     $      1,404    >=10.0%     $     1,123     >=8.0%

      Tier I Capital to risk
      weighted assets                 $    4,036      28.8%     $        843     >=6.0%     $       562     >=4.0%

      Tier I Capital to average
      assets (Leverage Ratio)         $    4,036      21.8%     $        928     >=5.0%     $       742     >=4.0%

16.   SERVICING ASSETS AND LIABILITIES

In connection with certain businesses in which the Company sells originated or
purchased loans with servicing retained, servicing assets or liabilities are
recorded based on the relative fair value of the servicing rights on the date
the loans are sold. Servicing assets and liabilities are amortized in proportion
to and over the period of estimated net servicing income and expense. At
December 31, 2003 and 2002, net servicing assets, which are included in other
assets, were $31 and $99, respectively. Servicing assets are periodically
evaluated for impairment based on the fair value of those assets. During 2003
and 2002, the Company recorded no additional servicing assets, and recorded $45
and $35 of amortization, respectively.

17.   MISCELLANEOUS INCOME

Miscellaneous income for the year ended December 31, is summarized as follows:

                                                            2003        2002
                                                            ----        ----

      Loan servicing fees                                 $    221    $    215
      Gain in sale of foreclosed assets                         --          90
      Recovery of prior year security write-off                 --         112
      Other                                                     54          24
                                                          --------    --------
                                                          $    275    $    441
                                                          ========    ========

18.   OPERATING SEGMENT INFORMATION

Operating segments represent components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.

The Company evaluates segment performance internally based on lines of business
and the operating segments are so defined. The Company has identified two
operating segments. The first is the accounts receivable factoring program
operated by WebBank. The second operating segment, termed "other," includes
commercial lending, fee for services, and investment activities. Income
generated from investments in factoring receivables by Company entities other
than WebBank is included in the "other" operating segment. For the years ended
December 31, 2003 and 2002, factoring income earned by entities other than
WebBank was $216 and $84, respectively. Subsequent to year end 2003, several
events occurred to modify the nature of the accounts receivable factoring
program (see "Note 20 - Subsequent Events").


                                      F-24


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of selected operating segment information for the
years ended December 31, 2003 and 2002. Prior to 2002, the Company did not
evaluate its financial performance based on distinct operating segments. The
information represents operating results as if the segments were operated on a
stand alone basis. However, the results do not reflect a full allocation of
costs based on the current structure of the entities, and thus the results might
not be comparable to like information from other companies.

                                                          Accounts
                                                         Receivable                          Consolidated
                                                          Factoring          Other              Company
                                                          ---------          -----              -------
                        2003
                        ----
Income Statement Information (Annual):
Net interest income after provision for credit              $2,178           $1,325             $3,503
losses
Noninterest income                                              20            1,560              1,580
Noninterest expense                                          1,110            2,513              3,623
                                                            ------          -------            -------
Operating income                                             1,088              372              1,460
Income taxes (benefit)                                          --            (756)              (756)
Income attributable to minority interest                        --            (107)              (107)
                                                            ------          -------            -------
Net income                                                  $1,088           $1,021             $2,109

Balance Sheet Information (As of December 31):
Total assets                                                $8,076          $18,372            $26,448
Net loans and leases                                        $7,028           $8,109            $15,137
Deposits                                                    $6,697           $5,220            $11,917

                                                          Accounts
                                                         Receivable                          Consolidated
                                                          Factoring          Other             Company
                                                          ---------          -----             -------
                        2002
                        ----
Income Statement Information (Annual):
Net interest income after provision for credit              $1,155           $1,260             $2,415
losses
Noninterest income                                              --            1,161              1,161
Noninterest expense                                            748            2,348              3,096
                                                            ------          -------            -------
Operating income                                               407               73                480
Income taxes (benefit)                                          --             (10)               (10)
Income attributable to minority interest                        --              (31)              (31)
                                                            ------          -------            -------
Net income                                                    $407             $ 52               $459

Balance Sheet Information (As of December 31):
Total assets                                                $7,415          $18,750            $26,165
Net loans and leases                                        $5,081          $10,320            $15,401
Deposits                                                    $7,195           $6,425            $13,620

19.   QUARTERLY FINANCIAL DATA (Unaudited)

                                                                      Quarter Ended
                                                                      -------------
                                        March 31, 2003       June 30, 2003     September 30, 2003      December 31, 2003
                                        --------------       -------------     ------------------      -----------------
$(000) except per share

Net interest income after
provisions for credit losses               $   876              $ 1,070              $ 1,133               $   424
Noninterest income                             235                  399                  128                   818
Noninterest expenses                           879                  887                1,320                   537
Net income (loss)                              214                  564                  (79)                1,410
Net income (loss) per share -
basic and diluted                              .05                  .13                 (.02)                  .32
Common stock prices:
   High                                       2.70                 2.63                 2.75                  2.70
   Low                                        1.73                 1.70                 2.10                  2.10


                                      F-25


                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                      Quarter Ended
                                                                      -------------
                                        March 31, 2002       June 30, 2002       September 30, 2002    December 31, 2002
                                        --------------       -------------       ------------------    -----------------
$(000) except per share

Net interest income after
provisions for credit losses               $   322              $   672              $   675               $   746
Noninterest income                             199                  161                  166                   635
Noninterest expenses                           805                  846                  688                   757
Net income (loss)                             (276)                   8                  116                   611
Net income (loss) per share -
basic and diluted                             (.06)                 .00                  .03                   .14
Common stock prices:
   High                                       2.59                 2.37                 2.28                  2.71
   Low                                        2.05                 1.34                 1.43                  1.56

20.   SUBSEQUENT EVENTS

On February 20, 2004, WebBank gave notice of termination of a Sourcing and
Servicing Agreement and an Employment Agreement to one of the two factoring
companies providing accounts receivable factoring services to WebBank. On March
1, 2004, that factoring company acknowledged receipt of the termination notice
and, under the terms of the Sourcing and Servicing Agreement, gave notice to
WebBank that the factoring company would exercise its option to purchase the
existing portfolio of accounts receivable from WebBank at book value on May 12,
2004. The accounts receivable factoring arrangement generated revenue and income
in fiscal 2002 and 2003 which accounted for (a) substantially all of the revenue
and income generated by the Company's accounts receivable factoring operating
segment for those years, and (b) a significant part of the income and revenue of
the Company for those years. It is possible that this termination may not take
effect as provided in the termination notice and the arrangement may continue.
However, in the event of termination, there can be no assurance that the Company
will be able to successfully enter into a replacement arrangement or
arrangements. WebBank expects that if the May 2004 termination becomes effective
during the second quarter of 2004, WebBank will (a) not generate any gain or
loss on such termination as the sourcing and servicing company has elected to
purchase the portfolio of accounts receivable at WebBank's net book value, and
(b) generate approximately $5.9 million of cash as a result of the sale of the
portfolio. WebBank also anticipates that the cash generated by the May 2004
termination will be used to retire Certificates of Deposit as they mature.

Under a Termination Agreement dated February 27, 2004, WebBank and the second of
two companies providing accounts receivable factoring services to WebBank,
agreed to the termination of a Sourcing and Servicing Agreement and an
Employment Agreement between the parties. Under the terms of that Termination
Agreement, the accounts receivable factoring services company purchased a
portfolio of accounts receivable from WebBank at book value on March 2, 2004.
Note 18 of the Notes to Consolidated Financial Statements shows the income and
expenses attributable to the Company's Accounts Receivable Factoring operating
segment, all of which were generated by the two accounts receivable factoring
arrangements described above. Neither of these arrangements was in effect during
2001. The Company believes that the termination of the two accounts receivable
factoring arrangements will have a significant adverse affect on its net income
during 2004.

On February 23, 2004, the third party sourcing company engaged to source private
label student loans on behalf of WebBank gave notice to WebBank that it would
not renew the Loan Sale Agreement and Loan Program Agreement between the two
parties. Consequently, those agreements will terminate at the conclusion of
their current term on May 31, 2004. The pretax income generated by the
terminated private label student loan program generated revenue of $150 for each
of the years 2003 and 2002.