UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-----------------------------------
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- -------------------
Commission File Number 0-25342
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Wells Financial Corp.
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(Exact name of Registrant as Specified in Its Charter)
Minnesota 41-1799504
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization
53 1st Street S.W., P.O. Box 310, Wells MN 56097
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(Address of principal executive offices)
(507) 553-3151
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(Registrant's Telephone Number, including Area Code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. |X| Yes |_| No
The number of shares outstanding of each of the issuer's classes of common stock
as of November 6, 2000:
Class Outstanding
----- -----------
$.10 par value per share, common stock 1,254,332 Shares
WELLS FINANCIAL CORP. and SUBSIDIARY
------------------------------------
[OBJECT OMITTED]
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION: Page
------------------------------- ----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999
(Dollars in Thousands)
(Unaudited)
ASSETS
2000 1999
--------------------- --------------------------
Cash, including interest-bearing accounts
September 30, 2000 $2,924; December 31, 1999 $2,320 $ 4,227 $ 4,200
Certificates of deposit 200 400
Securities available for sale, at fair value 15,631 2,551
Securities held to maturity (approximate market value $15,090 at
December 31, 1999) - 15,559
Loans held for sale 1,557 521
Loans receivable, net 191,162 172,713
Accrued interest receivable 2,022 1,350
Income taxes receivable - 16
Foreclosed real estate 2 55
Premises and equipment 1,852 1,558
Other assets 865 913
--------------------- --------------------------
TOTAL ASSETS $ 217,518 $ 199,836
===================== ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 160,411 $ 156,984
Borrowed funds 32,500 17,000
Advances from borrowers for taxes and insurance 1,848 1,262
Income taxes:
Current 9 -
Deferred 657 763
Accrued interest payable 315 116
Accrued expenses and other liabilities 88 254
--------------------- --------------------------
TOTAL LIABILITIES 195,828 176,379
--------------------- --------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares
Authorized; none outstanding - -
Common stock, $.10 par value; authorized 7,000,000
shares; issued 2,187,500 shares 219 219
Additional paid in capital 16,991 16,939
Retained earnings, substantially restricted 18,844 18,189
Accumulated other comprehensive income 484 655
Unearned ESOP shares (326) (435)
Unearned compensation restricted stock awards (269) (27)
Treasury stock, at cost, 933,868 shares at September 30,
2000; 758,343 shares at December 31, 1999 (14,253) (12,083)
--------------------- --------------------------
TOTAL STOCKHOLDERS' EQUITY 21,690 23,457
--------------------- --------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 217,518 $ 199,836
===================== ==========================
(See Notes to Consolidated Financial Statements)
1
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- -------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- ----------------
Interest and dividend income Loans receivable:
First mortgage loans $ 2,967 $ 2,543 $ 8,496 $ 7,437
Consumer and other loans 850 691 2,374 2,001
Investment securities and other
interest bearing deposits 277 322 851 1,116
---------------- ------------------ ------------------- ----------------
Total interest income 4,094 3,556 11,721 10,554
---------------- ------------------ ------------------- ----------------
Interest Expense
Deposits 2,100 1,831 5,958 5,480
Borrowed funds 474 75 1,056 209
---------------- ------------------ ------------------- ----------------
Total interest expense 2,574 1,906 7,014 5,689
---------------- ------------------ ------------------- ----------------
Net interest income 1,520 1,650 4,707 4,865
Provision for loan losses - - - 27
---------------- ------------------ ------------------- ----------------
Net interest income after provision for
loan losses 1,520 1,650 4,707 4,838
---------------- ------------------ ------------------- ----------------
Noninterest income
Gain on sale of loans originated for sale 43 39 57 161
Loan origination and commitment fees 63 38 104 264
Loan servicing fees 100 101 301 295
Insurance commissions 106 92 291 254
Fees and service charges 114 99 315 334
Other 11 9 27 28
---------------- ------------------ ------------------- ----------------
Total noninterest income 437 378 1,095 1,336
---------------- ------------------ ------------------- ----------------
Noninterest expense
Compensation and benefits 612 637 1,865 1,816
Occupancy and equipment 199 185 633 589
SAIF deposit insurance premium 8 24 25 71
Data processing 86 77 270 256
Advertising 59 66 169 160
Other 235 292 727 842
---------------- ------------------ ------------------- ----------------
Total noninterest expense 1,199 1,281 3,689 3,734
---------------- ------------------ ------------------- ----------------
Income before taxes 758 747 2,113 2,440
Income tax expense 332 303 878 982
---------------- ------------------ ------------------- ----------------
Net Income $ 426 $ 444 $ 1,235 $ 1,458
================ ================== =================== ================
Earnings per share
Basic earnings per share $ 0.36 $ 0.30 $ 0.98 $ 0.96
================ ================== =================== ================
Diluted earnings per share $ 0.35 $ 0.29 $ 0.96 $ 0.94
================ ================== =================== ================
Weighted average number of common shares outstanding:
Basic 1,191,218 1,471,337 1,263,589 1,518,562
================ ================== =================== ================
Diluted 1,205,200 1,508,291 1,289,338 1,555,940
================ ================== =================== ================
(See Notes to Consolidated Financial Statements)
2
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ -------------- ------------- -------------
Net Income $ 426 $ 444 $ 1,235 $ 1,458
Other comprehensive income:
Unrealized depreciation on
Securities available for sale (136) (144) (291) (298)
Income tax benefit 57 59 120 122
------------ -------------- ------------- -------------
Comprehensive income $ 347 $ 359 $ 1,064 $ 1,282
============ ============== ============= =============
(See Notes to Consolidated Financial Statements)
3
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2000
(Dollars in Thousands)
(Unaudited)
Unearned
Employee Unearned
Accumulated Stock Compensation
Additional Other Ownership Restricted Total
Common Paid-In Retained Comprehensive Plan Stock Treasury Stockholders'
Stock Capital Earnings Income Shares Awards Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 219 $ 16,939 $ 18,189 $ 655 $ (435) $ (27) $(12,083) $ 23,457
Net income for the nine months
ended September 30, 2000 - - 1,235 - - - - 1,235
Net change in unrealized
appreciation on securities
available for sale, net of
related deferred taxes - - - (171) - - - (171)
Treasury stock purchases - - - - - - (2,410) (2,410)
Award of MSBP shares - 8 - - - (248) 240 -
Amortization of unearned
compensation - - - - - 6 - 6
Dividends on common stock - - (580) - - - - (580)
Allocated employee stock
ownership plan shares - 44 - - 109 - - 153
------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 219 $ 16,991 $ 18,844 $ 484 $ (326) $ (269) $(14,253) $ 21,690
======================================================================================================
(See Notes to Consolidated Financial Statements)
4
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow
Nine Months Ended September 30, 2000 and 1999
(Dollars in Thousands)
(Unaudited)
2000 1999
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,235 $ 1,458
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses - 27
(Gain) loss on the sale of loans originated for sale 24 (119)
Compensation on allocation of ESOP shares 153 198
Amortization of restricted stock awards 6 33
Write-down of foreclosed real estate 3 -
Gain on disposal of equipment (12) -
Deferred income taxes 14 13
Depreciation and amortization on premises and equipment 207 185
Amortization of deferred loan origination fees (31) (124)
Amortization of excess servicing fees, mortgage servicing
rights and bond premiums and discounts 120 165
Loans originated for sale (11,629) (27,002)
Proceeds from the sale of loans originated for sale 10,599 32,577
Changes in assets and liabilities:
Accrued interest receivable (672) (656)
Other assets (92) (31)
Income taxes payable, current 9 (166)
Accrued expenses and other liabilities 34 178
-------------------- --------------------
Net cash provided by (used in) operating activities (32) 6,736
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (18,460) (12,987)
Purchase of certificates of deposit (200) (400)
Purchase of securities held to maturity - (11,230)
Purchase of securities available for sale (6,927) -
Proceeds from the maturities of certificates of deposit 400 500
Proceeds from the sale of securities available for sale 8,000 -
Proceeds from the maturities of securities held to maturity 1,120 1,183
Proceeds from the sale and redemption of foreclosed real estate 92 91
Purchase of premises and equipment (489) (287)
-------------------- --------------------
Net cash used in investment activities (16,464) (23,130)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 3,427 (1,180)
Net increase in advances from borrowers
for taxes and insurance 586 629
Proceeds from borrowed funds 33,800 -
Repayments on borrowed funds (18,300) 4,000
Purchase of treasury stock (2,410) (3,194)
Dividends on common stock (580) (701)
-------------------- --------------------
Net cash provided by (used in) financing activities 16,523 (466)
-------------------- --------------------
Net increase (decrease) in cash and cash equivalents 27 (16,840)
CASH:
Beginning 4,200 19,446
-------------------- --------------------
Ending $ 4,227 $ 2,606
==================== ====================
(See Notes to Consolidated Financial Statements)
5
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow (continued)
Nine Months Ended September 30, 2000 and 1999
(Dollars in Thousands)
(Unaudited
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest on deposits $ 5,964 $ 5,351
Interest on borrowed funds 1,031 207
Income taxes 834 995
==================== ====================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to foreclosed real estate $ 42 $ 98
Allocation of ESOP shares to participants 109 117
Net change in unrealized appreciation on securities available for sale (171) (176)
==================== ====================
(See Notes to Consolidated Financial Statements)
6
WELLS FINANCIAL CORP. and SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in thousands)
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The foregoing consolidated financial statements are unaudited. However,
in the opinion of management, all adjustments (which consist of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
statements have been included. Results for any interim period are not
necessarily indicative of results to be expected for the year. The interim
consolidated financial statements include the accounts of Wells Financial Corp.
(Company), its subsidiary, Wells Federal Bank (Bank), and the Bank's
subsidiaries, Greater Minnesota Mortgage, Inc. and Wells Insurance Agency, Inc.
NOTE 2. REGULATORY CAPITAL
The following table presents the Bank's regulatory capital amounts and
percents at September 30, 2000 and December 31, 1999.
September 30, 2000 December 31, 1999
Amount Percent Amount Percent
----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Tier 1 (Core) Capital
Required $ 8,559 4.00% $ 7,754 4.00%
Actual 17,561 8.21% 16,865 8.70%
Excess 9,002 4.21% 9,111 4.70%
Risk-based Capital
Required 11,431 8.00% 10,154 8.00%
Actual 18,407 12.88% 17,722 13.96%
Excess 6,976 4.88% 7,568 5.96%
7
WELLS FINANCIAL CORP. and SUBSIDIARY
Notes to consolidated Financial Statements Continued
(Unaudited)
NOTE 3. EARNINGS PER SHARE
Earnings per share are calculated and presented in accordance with FASB
Statement No. 128, Earnings per Share. The Statement requires the presentation
of earnings per share by all entities that have common stock or potential common
stock, such as options, warrants and convertible securities, outstanding that
trade in a public market. Those entities that have only common stock outstanding
are required to present basic earnings per-share amounts. All other entities are
required to present basic and diluted earnings per-share amounts. Diluted
per-share amounts assume the conversion, exercise or issuance of all potential
common stock instruments unless the effect is to reduce a loss or increase the
income per common share from continuing operations.
A reconciliation of the common stock share amounts used in the
calculation of basic and diluted earnings per share is presented in the
following chart.
Number of Shares
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------ --------------------------------------
Basic EPS 1,191,218 1,471,337 1,263,589 1,518,562
Effect of dilutive securities:
Stock options 13,982 36,954 25,749 37,378
------------------------------------ ------------------------------------
Diluted EPS 1,205,200 1,508,291 1,289,338 1,555,940
==================================== ====================================
NOTE 4. SELECTED FINANCIAL DATA
For the nine months ended
September 30,
2000 1999
-----------------------------------
Return on assets
(ratio of net income to average total assets) (1) 0.79% 1.01%
Return on equity
(ratio of net income to average equity) (1) 7.37% 7.74%
Equity to assets ratio
(ratio of average equity to average total assets) 10.73% 13.04%
Net interest margin
(ratio of net interest income to average interest earning assets) (1) 3.10% 3.45%
(1) Net income and net interest income have been annualized.
8
WELLS FINANCIAL CORP. and SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
And Results of Operations
General:
Wells Financial Corp. (Company) was incorporated under the laws of the
State of Minnesota in December 1994 for the purpose of owning all of the
outstanding stock of Wells Federal Bank, fsb (Bank) issued in the mutual to
stock conversion of the Bank. On April 11, 1995, the conversion was completed
and $8.4 million of the net proceeds from the sale of the stock were provided to
the Bank in exchange for all of the Bank's stock. The consolidated financial
statements included herein are for the Company, the Bank and the Bank's wholly
owned subsidiaries, Greater Minnesota Mortgage, Inc. and Wells Insurance Agency,
Inc.
The income of the Company is derived primarily from the operations of
the Bank and the Bank's subsidiaries, and to a lesser degree from interest
income from securities and certificates of deposit with other banks. The Bank's
net income is primarily dependent upon the difference (or spread) between the
average yield earned on loans, investments and mortgage-backed securities and
the average rate paid on deposits and borrowings, as well as the relative
amounts of such assets and liabilities. The interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. Net income is also affected by, among other things,
provision for loan losses, gains on the sale of interest earning assets, service
charges, servicing fees, subsidiary activities, operating expenses, and income
taxes.
The Bank has eight full service offices located in Faribault, Martin,
Blue Earth, Nicollet, Freeborn and Steele Counties, Minnesota.
The Company may from time to time make written or oral "forward-looking
statements" including statements contained in this report and in other
communications by the Company which are made in good faith pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements, such as statements of the Company's plans,
objectives, estimates and intentions, involve risks and uncertainties and are
subject to change based on various important factors (some of which are beyond
the Company's control). The following factors, among others, could cause the
Company's financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking
statements: the strength of the United States economy in general and the
strength of the local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System, inflation, interest rate, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of the products and services by users, including
the features, pricing and quality compared to competitor's products and
services; the willingness of users to substitute competitors' products and
services for the Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
acquisitions; changes in consumer spending and savings habits; and the success
of the Company at managing the risks involved in the foregoing.
9
Comparison of Financial Condition at September 30, 2000 and December 31, 1999:
Total assets increased by $17,682,000, from $199,836,000 at December
31, 1999 to $217,518,000 at September 30, 2000 primarily due to an increase of
$18,449,000 in the loan portfolio. The increase in the loan portfolio was
primarily due to increases in loans secured by single family dwellings, loans
secured by farm real estate and home equity loans. Interest rates on mortgage
loans increased during the last half of 1999 and first half of 2000 which was
the basis for management's decision to retain almost all of the mortgage loans
the Company originated during those periods. During the third quarter of 2000,
management decided to sell almost all of the one to four family mortgage loans
originated during the third quarter due to decreases in interest rates and to
help the Company maintain its interest rate risk goals. Also during the third
quarter of 2000, management elected to reclassify all of the Company's
held-to-maturity securities to available-for-sale and to sell some of the lower
yielding securities. This is the reason for the $15.6 million decrease in
securities held-to-maturity and the $13.1 million increase in securities
available-for-sale.
In accordance with the Bank's internal classification of assets policy,
management evaluates the loan portfolio on a quarterly basis to identify and
determine the adequacy of the allowance for loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, estimated value of any
underlying collateral, and current economic conditions. As of September 30, 2000
and December 31, 1999 the balances in the allowance for loan losses and the
allowance for loan losses as a percentage of total loans were $846,000 and
$857,000 and 0.44% and 0.49%, respectively.
Activity in the Company's allowance for loan losses for the nine months
ended September 30, 2000 and 1999 is summarized as follows:
2000 1999
---------------------------------------------
Balance on January 1, $ 856,692 852,557
Provision for loan losses - 27,000
Charge-offs (30,515) (37,223)
Recoveries 20,072 15,874
---------------------- ------------------
Balance on September 30, $ 846,249 $ 858,208
====================== ==================
Loans on which the accrual of interest has been discontinued amounted
to $179,000 and $111,000 at September 30, 2000 and December 31, 1999,
respectively. The effect of nonaccrual loans was not significant to the results
of operations. The Company includes all loans considered impaired under FASB
Statement No. 114 in nonaccrual loans. The amount of impaired loans was not
material at September 30, 2000 and December 31, 1999.
Liabilities increased by $19,449,000, from $176,379,000 at December 31,
1999 to $195,828,000 at September 30, 2000. This increase is primarily due to a
$15,500,000 increase in borrowed funds and a $3,427,000 increase in deposits,
which were used to fund loan growth.
Equity decreased by $1,767,000 from $23,457,000 at December 31, 1999 to
$21,690,000 at September 30, 2000. The decrease in equity was primarily the
result of net income for the first nine months of 2000 of $1,235,000 being
offset by the payment of $580,000 in cash dividends and by the repurchase of
198,100 shares of treasury stock at a total cost of $2,410,000. On October 17,
2000, the Board of Directors of the Company declared a $0.16 per share cash
dividend to be paid on November 13, 2000 to the stockholders of record on
October 31, 2000. Subject to the Company's earnings and capital, it is the
current intention of the Company to continue to pay regular quarterly cash
dividends.
10
Comparison of Operating Results for the Three and Nine-Month Periods Ended
September 30, 2000 and September 30, 1999.
Net Income. Net income decreased by $18,000 and $223,000, or 4.1% and
15.3% for the three and nine-months ended September 30, 2000, respectively, when
compared to the same periods during 1999. The decrease in net income for the
third quarter of 2000 when compared to the third quarter of 1999 was primarily
due to a $130,000 decrease in net interest income being partially offset by a
$59,000 increase in noninterest income and a $82,000 decrease in noninterest
expense. The decrease in net income for the nine months ended September 30, 2000
when compared to the same period in 1999 resulted from decreases of $158,000 and
$241,000 in net interest income and noninterest income, respectively.
Interest Income. Interest income from the loan portfolio increased by
$583,000 and $1,432,000, or 18.0% and 15.2%, for the three and nine-month
periods ended September 30, 2000, respectively, when compared to the same
periods in 1999. During the last half of 1999 and the first nine months of 2000,
the Company's loan portfolio increased due, primarily, to an increase in home
equity loans and real estate loans secured by farmland and, as described above,
an increase in loans secured by one to four family dwellings. This resulted in
an increase in the average balance of the loan portfolio during the first nine
months of 2000 when compared to the same period in 1999. This is the primary
reason for the increase in interest income from the Company's loan portfolio. To
a lesser degree, an increase in the interest rates on the Company's loan
portfolio also contributed to the increase in interest income. Partially
offsetting the increase in interest income from the loan portfolio was a $45,000
and $265,000 decrease in interest income from investment securities and interest
bearing deposits during the three and nine months ended September 30, 2000,
respectively, when compared to the same periods in 1999. The decrease in
interest income from investment securities and interest bearing deposits
resulted from the use of cash that was held in interest bearing deposits during
the first half of 1999 to fund loan growth and to purchase treasury stock.
Interest Expense. Total interest expense increased by $668,000 and
$1,325,000, or 35.0% and 23.3%, for the three and nine-month periods ended
September 30, 2000 when compared to the same periods in 1999. The increase in
interest was primarily due to an increase in the average amount of borrowed
funds and deposits during the first nine months of 2000 when compared to the
first nine months of 1999. To a lesser extent, an overall increase in the cost
of deposits and borrowed funds during the nine-months ended September 30, 2000
contributed to the increase in interest expense.
Net Interest income. Net interest income decreased by $130,000 and
$158,000, for the three and nine-month periods ended September 30, 2000,
respectively, when compared to the same periods in 1999 due to the changes in
interest income and interest expense described above.
Provision for loan losses. The provision for loan losses decreased by
$27,000 for the nine-month period ended September 30, 2000, respectively, when
compared to the same period in 1999. Management evaluates the quality of the
loan portfolio on a quarterly basis to identify and determine the adequacy of
the allowance for loan loss. Based on these continuing reviews, management
believes no provision for loan losses are necessary at this time. While the
Company maintains its allowance for loan losses at a level that is considered to
be adequate to provide for potential losses, there can be no assurance that
further additions will not be made to the loss allowance and that losses will
not exceed estimated amounts.
11
Noninterest Income. Noninterest income decreased by $241,000 for the
nine-months ended September 30, 2000 when compared to the same period in 1999
primarily due to decreases of $160,000 and $104,000 in loan origination and
commitment fees and the gain on loans originated for sale, respectively. Due to
low interest rates on residential mortgage loans during the first quarter and
beginning of the second quarter of 1999, the Company originated and sold to the
secondary market a larger volume of loans during that period when compared to
the same period in 2000 resulting in decreases in loan origination and
commitment fees and the gain on sale of loans originated for sale in 2000.
During the third quarter of 2000, the Company sold almost all of the residential
mortgage loans that were originated during that period. This resulted in an
increase of $25,000 in loan origination and commitment fees during the third
quarter of 2000 when compared to the third quarter of 1999 and was the primary
reason for the $59,000 increase in noninterest income. Also contributing to the
increase in noninterest income were increases of $15,000 and $14,000 in fees and
service charges and insurance commissions, respectively.
Noninterest Expense. Noninterest expense decreased by $82,000 and
$45,000 for the three and nine-month periods ended September 30, 2000 when
compared to the same periods in 1999. These decreases were primarily due to
decreases in other noninterest expense resulting from decreases in the
amortization of mortgage servicing rights.
Income Tax Expense. Income tax expense increased by $29,000 and
decreased by $104,000 for the three and nine-month periods ended September 30,
2000 when compared to the same periods in 1999. The increase for the third
quarter was the result of an increase in income before income taxes for the
quarter ended September 30, 2000 when compared to the same quarter in 1999. The
decrease in income tax expense for the nine-months ended September 30, 2000
resulted from a decrease in net income before taxes for that period when
compared to the same period in 1999.
12
Non-performing Assets. The following table sets forth the amounts and
categories of non-performing assets at September 30, 2000 and December 31, 1999.
September 30, 2000 December 31, 1999
------------------------------------------------
(Dollars in Thousands)
Non-accruing loans
One to four family real estate $ 115 $ -
Agricultural real estate - 32
Consumer 64 79
-------------------- ------------------------
Total $ 179 $ 111
-------------------- ------------------------
Accruing loans which are contractually
Past due 90 days or more
One to four family real estate $ 115 $ 10
Commercial real estate - -
-------------------- ------------------------
Total $ 115 $ 10
-------------------- ------------------------
Total non-accrual and accruing loans
past due 90 days or more $ 294 $ 121
==================== ========================
Repossessed and non-performing assets
Repossessed property $ 2 $ 55
Other non-performing assets - -
-------------------- ------------------------
Total repossessed and non-performing assets $ 2 $ 55
-------------------- ------------------------
Total non-performing assets $ 296 $ 176
==================== ========================
Total non-accrual and accruing loans
past due 90 days or more to net loans 0.15% 0.07%
==================== ========================
Total non-accrual and accruing loans
past due 90 days or more to total assets 0.14% 0.06%
==================== ========================
Total nonperforming assets to total assets 0.14% 0.09%
==================== ========================
Financial Standards Board Statement No. 114, Accounting by Creditors
for Impairment of a Loan, and Statement No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures, require that impaired
loans within the scope of these Statements be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate; or as a practical expedient, either at the loan's observable market price
or the fair value of the collateral if the loan is collateral dependent. At
September 30, 2000 and December 31, 1999, the value of loans that would be
classified as impaired under these Statements is considered to be immaterial.
13
Liquidity and Capital Resources:
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of US Government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings association maintain liquid
assets of not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. At September 30,
2000, the Bank's liquidity, as measured for regulatory purposes, was 6.44%. The
Bank adjusts liquidity as appropriate to meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, borrowed funds,
amortization and prepayment of loans, maturities of investment securities and
funds provided from operations. While scheduled loan repayments are a relatively
predictable source of funds, deposit flows and loan prepayments are
significantly influenced by general interest rates, economic conditions and
competition. If needed, the Bank's source of funds can be supplemented by
wholesale funds obtained through additional advances from the Federal Home Loan
Bank system. The Bank invests excess funds in overnight deposits, which not only
serve as liquidity, but also earn interest income until funds are needed to meet
required loan funding.
In 1999 and 2000, the Company approved stock buy back programs. The
Company bought 223,003 shares of its common stock during 1999 and 198,100 shares
of its common stock during the first half of 2000 completing these stock buy
back programs.
The Company paid cash dividends of $0.15 per share on February 11,
2000, May 12, 2000 and August 11, 2000. The Company declared a cash dividend of
$0.16 per share payable on November 13, 2000 to stockholders of record on
October 31, 2000. Subject to the Company's earnings and capital, it is the
current intention of the Company to continue to pay regular quarterly cash
dividends.
Savings institutions like the Bank are required to meet prescribed
regulatory capital requirements. If a requirement is not met, regulatory
authorities may take legal or administrative actions, including restrictions on
growth or operations or, in extreme cases, seizure. Institutions not in
compliance may apply for an exemption from the requirements and submit a
recapitalization plan. At September 30, 2000, the Bank met all current capital
requirements.
The Office of Thrift Supervision (OTS) has adopted a core capital
requirement for savings institutions comparable to the requirement for national
banks. The OTS core capital requirement for the Bank is 4% of adjusted assets
for thrifts that receive the highest supervisory rating for safety and
soundness. The Bank had core capital of 8.21% at September 30, 2000.
14
WELLS FINANCIAL CORP. and SUBSIDIARIES
September 30, 2000
FORM 10-QSB
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other information
-----------------
None
Item 6. Exhibits and Reports of Form 8-K
--------------------------------
a. Exhibits:
27 - Financial data schedule
b. No reports on Form 8-K were filed
No other information is required to be filed under Part II of the form
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLS FINANCIAL CORP.
By: /s/ Lawrence H. Kruse Date: November 6, 2000
------------------------------------- ----------------
Lawrence H. Kruse
President and Chief Executive Officer
By: /s/ James D. Moll Date: November 6, 2000
------------------------------------- ----------------
James D. Moll
Treasurer and Principal Financial
& Accounting Officer