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, 2001
------------------
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-25342
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Wells Financial Corp.
------------------------------------------------
(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 by |X| 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 October 30, 2001:
Class Outstanding
----- -----------
$.10 par value per share, common stock 1,165,101 Shares
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WELLS FINANCIAL CORP. and SUBSIDIARY
[LOGO 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 9-13
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
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WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 2001 and December 31, 2000
(Dollars in Thousands)
(Unaudited)
ASSETS
2001 2000
----------- ----------
Cash, including interest-bearing accounts
September 30, 2001 $16,516; December 31, 2000 $6,553 $ 17,643 $ 7,606
Certificates of deposit 200 200
Securities available for sale, at fair value 15,627 16,225
Loans held for sale 4,809 1,955
Loans receivable, net 179,058 191,137
Accrued interest receivable 2,036 1,910
Foreclosed real estate 168 54
Premises and equipment 1,834 1,833
Other assets 1,614 928
----------- ----------
TOTAL ASSETS $ 222,989 $ 221,848
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 173,388 $ 163,582
Borrowed funds 23,000 33,500
Advances from borrowers for taxes and insurance 1,970 1,228
Income taxes:
Current 378 52
Deferred 1,142 855
Accrued interest payable 274 129
Accrued expenses and other liabilities 241 161
----------- ----------
TOTAL LIABILITIES 200,393 199,507
----------- ----------
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 17,050 17,011
Retained earnings, substantially restricted 20,830 19,182
Accumulated other comprehensive income 876 698
Unearned ESOP shares (188) (290)
Unearned compensation restricted stock awards (145) (237)
Treasury stock, at cost (16,046) (14,242)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 22,596 22,341
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 222,989 $ 221,848
=========== ==========
(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,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Interest and dividend income Loans receivable:
First mortgage loans $ 2,948 $ 2,967 $ 8,910 $ 8,496
Consumer and other loans 913 850 2,702 2,374
Investment securities and other
interest bearing deposits 268 277 812 851
---------- ---------- ---------- ----------
Total interest income 4,129 4,094 12,424 11,721
---------- ---------- ---------- ----------
Interest Expense
Deposits 1,793 2,100 5,715 5,958
Borrowed funds 314 474 1,037 1,056
---------- ---------- ---------- ----------
Total interest expense 2,107 2,574 6,752 7,014
---------- ---------- ---------- ----------
Net interest income 2,022 1,520 5,672 4,707
Provision for loan losses 45 - 105 -
---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 1,977 1,520 5,567 4,707
---------- ---------- ---------- ----------
Noninterest income
Gain on sale of loans originated for sale 349 43 635 57
Loan origination and commitment fees 310 63 829 104
Loan servicing fees 118 100 330 301
Insurance commissions 111 106 310 291
Fees and service charges 176 114 460 315
Other 11 11 23 27
---------- ---------- ---------- ----------
Total noninterest income 1,075 437 2,587 1,095
---------- ---------- ---------- ----------
Noninterest expense
Compensation and benefits 711 612 2,195 1,865
Occupancy and equipment 204 199 654 633
Data processing 97 86 294 270
Advertising 51 59 142 169
Other 358 243 1,097 752
---------- ---------- ---------- ----------
Total noninterest expense 1,421 1,199 4,382 3,689
---------- ---------- ---------- ----------
Income before taxes 1,631 758 3,772 2,113
Income tax expense 672 332 1,569 878
---------- ---------- ---------- ----------
Net Income $ 959 $ 426 $ 2,203 $ 1,235
========== ========== ========== ==========
Earnings per share
Basic earnings per share $ 0.85 $ 0.36 $ 1.91 $ 0.98
========== ========== ========== ==========
Diluted earnings per share $ 0.81 $ 0.35 $ 1.83 $ 0.96
========== ========== ========== ==========
Weighted average number of common shares outstanding:
Basic 1,131,202 1,191,218 1,153,496 1,263,589
========== ========== ========== ==========
Diluted 1,184,441 1,205,200 1,203,838 1,289,338
========== ========== ========== ==========
(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,
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
Net Income $ 959 $ 426 $ 2,203 $ 1,235
Other comprehensive income:
Unrealized appreciation (depreciation) on
securities available for sale 143 (136) 301 (291)
Income tax benefit (expense) (59) 57 (123) 120
------- ------- ------- -------
Comprehensive income $ 1,043 $ 347 $ 2,381 $ 1,064
======= ======= ======= =======
(See Notes to Consolidated Financial Statements)
3
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2001
(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, 2000 $ 219 $ 17,011 $ 19,182 $ 698 $ (290) $ (237) $(14,242) $ 22,341
Net income for the
nine months ended
September 30, 2001 - - 2,203 - - - - 2,203
Net change in
unrealized
appreciation on
securities
available for
sale, net of
related deferred
taxes - - - 178 - - - 178
Treasury stock
purchases - - - - - - (2,006) (2,006)
Options exercised - (58) - - - - 202 144
Amortization of
unearned
compensation - - - - - 92 - 92
Dividends on
common stock - - (555) - - - - (555)
Allocated employee
stock ownership
plan shares - 97 - - 102 - - 199
--------------------------------------------------------------------------------------------
Balance
September 30, 2001 $ 219 $ 17,050 $ 20,830 $ 876 $ (188) $ (145) $(16,046) $ 22,596
================================================================================================
(See Notes to Consolidated Financial Statements)
4
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000
(Dollars in Thousands)
(Unaudited)
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,203 $ 1,235
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for loan losses 105 -
(Gain) on the sale of loans originated for sale (635) 24
Compensation on allocation of ESOP shares 199 153
Amortization of restricted stock awards 92 6
Loss on the sale of foreclosed real estate -
Write-down of foreclosed real estate - 3
Gain on disposal of equipment - (12)
Deferred income taxes 165 14
Depreciation and amortization on premises and equipment 181 207
Amortization of deferred loan origination fees (53) (31)
Amortization of excess servicing fees, mortgage servicing
rights and bond premiums and discounts 243 120
Loans originated for sale (69,372) (11,629)
Proceeds from the sale of loans originated for sale 66,327 10,599
Changes in assets and liabilities:
Accrued interest receivable (126) (672)
Other assets (100) (92)
Income taxes payable, current 326 9
Accrued expenses and other liabilities 225 34
-------- --------
Net cash used in operating activities (220) (32)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans $ 11,916 $(18,460)
Purchase of certificates of deposit (1,500) (200)
Purchase of securities available for sale (6,462) (6,927)
Proceeds from the maturities of certificates of deposit 1,500 400
Proceeds from the maturities of securities available for sale 7,357 8,000
Proceeds from the maturities of securities held to maturity - 1,120
Proceeds from the sale and redemption of foreclosed real estate - 92
Purchase of premises and equipment (182) (489)
Investment in foreclosed real estate (3) -
Net cash provided by (used in) investing activities 12,626 (16,464)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 9,806 $ 3,427
Net increase in advances from borrowers
for taxes and insurance 742 586
Options exercised 144 -
Proceeds from borrowed funds - 33,800
Repayments on borrowed funds (10,500) (18,300)
Purchase of treasury stock (2,006) (2,410)
Dividends on common stock (555) (580)
-------- --------
Net cash provided by (used in) financing activities (2,369) 16,523
-------- --------
Net increase in cash and cash equivalents 10,037 27
CASH AND CASH EQUIVALENTS:
Beginning 7,606 4,200
-------- --------
Ending $ 17,643 $ 4,227
======== ========
(See Notes to Consolidated Financial Statements)
5
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Nine Months Ended September 30, 2001 and 2000
(Dollars in Thousands)
(Unaudited)
2001 2000
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest on deposits $ 5,539 $ 5,964
Interest on borrowed funds 1,068 1,031
Income taxes 1,079 834
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to foreclosed real estate $ 111 $ 42
Allocation of ESOP shares to participants 102 109
Net change in unrealized appreciation on
securities available for sale 178 (171)
======= =======
(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, 2001 and December 31, 2000.
September 30, 2001 December 31, 2000
Amount Percent Amount Percent
-------------------------------------------------------------------
Tier 1 (Core) Capital
Required $ 8,778 4.00% $ 8,715 4.00%
Actual 18,385 8.38% 17,812 8.17%
Excess 9,607 4.38% 9,097 4.17%
Risk-based Capital
Required 11,726 8.00% 11,572 8.00%
Actual 19,279 13.15% 18,645 12.89%
Excess 7,553 5.15% 7,073 4.89%
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,
--------------------------------------------------
2001 2000 2001 2000
------------------------ -----------------------
Basic EPS 1,131,202 1,191,218 1,153,496 1,263,589
Effect of dilutive securities:
Stock options 53,239 13,982 50,342 25,749
------------------------ -----------------------
Diluted EPS 1,184,441 1,205,200 1,203,838 1,289,338
======================== =======================
NOTE 4. SELECTED FINANCIAL DATA
For the nine months ended
September 30,
2001 2000
-------------------------
Return on assets
(ratio of net income to average total assets) (1) 1.3% 0.79%
Return on equity
(ratio of net income to average equity) (1) 13.4% 7.37%
Equity to assets ratio
(ratio of average equity to average total assets) 9.96% 10.73%
Net interest margin
(ratio of net interest income to average interest earning assets) (1) 3.61% 3.10%
(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, 2001 and December 31, 2000:
Total assets increased by $1,141,000, from $221,848,000 at December 31,
2000 to $222,989,000 at September 30, 2001. Loans receivable and loans held for
sale decreased by $9,225,000 from December 31, 2000 to September 30, 2001. Due
to lower interest rates on residential mortgages, management elected to sell the
majority of the residential loans originated during the first nine months of
2001 to the secondary market. Included in the loans that were originated and
sold during the first nine months of 2001 were loans from the Company's mortgage
loan portfolio that were refinanced resulting in the decrease in loans
receivable and loans held for sale. Cash, including interest-bearing accounts,
increased by $10,037,000. This increase resulted from the refinancing activity
of the Company's loan portfolio described above and from cash provided by
operations.
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, 2001
and December 31, 2000 the balances in the allowance for loan losses and the
allowance for loan losses as a percentage of total loans were $894,000 and
$833,000 and 0.49% and 0.43%, respectively.
Activity in the Company's allowance for loan losses for the nine months
ended September 30, 2001 and 2000 is summarized as follows:
2001 2000
--------- ---------
Balance on January 1, $ 833,248 $ 856,692
Provision for loan losses 105,000 -
Charge-offs (59,904) (30,515)
Recoveries 15,824 20,072
--------- ---------
Balance on September 30, $ 894,168 $ 846,249
========= =========
Loans on which the accrual of interest has been discontinued amounted
to $772,000 and $363,000 at September 30, 2001 and December 31, 2000,
respectively. The increase in nonaccrual loans was due to changes in local
economic conditions. 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, 2001 and December 31, 2000.
Liabilities increased by $886,000, from $199,507,000 at December 31,
2000 to $200,393,000 at September 30, 2001. This increase is primarily due to
increases of $9,806,000, $742,000 and $613,000 in deposits, advances from
borrowers for taxes and insurance and income taxes, respectively, being offset
by a $10,500,000 decrease in borrowed funds.
Equity increased by $255,000 from $22,341,000 at December 31, 2000 to
$22,596,000 at September 30, 2001. The increase in equity was primarily the
result of net income for the first nine months of 2001 of $2,203,000 and the
amortization of Employee Stock Ownership Plan shares and restricted stock awards
being offset by the payment of $555,000 in cash dividends and by the repurchase
of 116,140 shares of treasury stock at a total cost of $2,006,000. On October
16, 2001, the Board of Directors of the Company declared a $0.16 per share cash
dividend to be paid on November 12, 2001 to the stockholders of record on
October 31, 2001. 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, 2001 and September 30, 2000.
Net Income. Net income increased by $533,000 and $968,000, or 125.1%
and 78.4% for the three and nine-month periods ended September 30, 2001,
respectively, when compared to the same periods during 2000. The increase in net
income was primarily due to increases of $638,000 and $1,492,000 in noninterest
income for the three and nine-month periods ended September 30, 2001,
respectively, when compared to the same periods in 2000. Also affecting net
income were increases of $502,000 and $965,000 in net interest income for the
quarter and nine-month period ended September 30, 2001, respectively, when
compared to the same periods in 2000. These increases were partially offset by
increases of $222,000 and $693,000 in noninterest expense for the quarter and
nine-month periods ended September 30, 2001, respectively, when compared to the
same periods in 2000.
Interest Income. Interest income increased by $35,000 and $703,000, or
0.9% and 6.0% for the quarter and nine-month period ended September 30, 2001,
respectively, when compared to the same periods in 2000. During the first nine
months of 2001 the average amount in the Company's loan portfolio was greater
than the average amount during the first nine months of 2000. This is the
primary reason for the increase in interest income.
Interest Expense. Total interest expense decreased by $467,000, or
18.1%, for the quarter ended September 30, 2001 when compared to the same
quarter in 2000 and decreased by $262,000, or 3.7%, for the nine months ended
September 30, 2001 when compared to the same period in 2000. The decrease in
interest expense was primarily the result of the downward repricing of the
Company's deposits and borrowed funds due to lower market interest rates during
the period.
Net Interest income. Net interest income increased by $502,000 and
$965,000, or 33.0% and 20.5%, for the three and nine-month periods ended
September 30, 2001, respectively, when compared to the same periods in 2000 due
to the changes in interest income and interest expense described above.
Provision for loan losses. The provision for loan losses increased by
$45,000 for the quarter ended September 30, 2001 when compared to the same
period in 2000 and increased by $105,000 for the nine months ended September 30,
2001 when compared to the same period in 2000. Management evaluates the quality
of the loan portfolio on a quarterly basis to identify and determine the
adequacy of the allowance for loan loss. During the first nine months of 2001
management elected to increase the provision for loan loss due to changes in
local economic conditions and the increase in the amount of commercial loans in
the Company's loan portfolio. 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.
Noninterest Income. Noninterest income increased by $638,000 and
$1,492,000, or 146% and 136%, for the three and nine-month periods ended
September 30, 2001, respectively, when compared to the same periods in 2000
primarily due to increases in the gain on sale of loans originated for sale and
loan origination and commitment fees. Due to low interest rates on residential
mortgage loans during the first nine months of 2001, the Company sold to the
secondary market a larger volume of loans during that period when compared to
the same period in 2000, resulting in increases in the gain on sale of loans
originated for sale and loan origination and commitment fees recognized
immediately in income.
11
Noninterest Expense. Noninterest expense increased by $222,000 and
$693,000, or 18.5% and 18.8%, for the three and nine months ended September 30,
2001, respectively, when compared same periods during 2000 primarily due to an
increase in compensation and benefits and to an increase in other noninterest
expense. The increase in compensation and benefits resulted from annual
compensation adjustments and increases in commissions paid to loan officers for
the origination of loans. Also affecting compensation and benefits was an
increase in the Employee Stock Ownership Plan expense that resulted from the
appreciation of the Company's stock and an increase in the amortization of
Management Stock Bonus Plan awards. The increase in other noninterest expense
resulted primarily from an increase in the amortization of mortgage servicing
rights.
Income Tax Expense. Income tax expense increased by $340,000 and
$691,000 for the three and nine-month periods ended September 30, 2001 when
compared to the same periods in 2000. These increases are proportionate to the
increase in income before income taxes for the quarter and nine-month period
ended September 30, 2001 when compared to the same periods in 2000.
Non-performing Assets. The following table sets forth the amounts and
categories of non-performing assets at September 30, 2001 and December 31,
2000.
September 30, 2001 December 31, 2000
------------------ -----------------
(Dollars in Thousands)
Non-accruing loans
One to four family real estate $ 277 $ 108
Agricultural real estate 195 195
Commercial 52 -
Consumer 248 60
------ ------
Total $ 772 $ 363
------ ------
Accruing loans which are contractually
past due 90 days or more
One to four family real estate $ 324 $ 258
Commercial real estate - -
------ ------
Total $ 324 $ 258
------ ------
Total non-accrual and accruing loans
past due 90 days or more $1,096 $ 621
====== ======
Repossessed and non-performing assets
Repossessed property $ 168 $ 54
Other non-performing assets - -
------ ------
Total repossessed and non-performing assets $ 168 $ 54
------ ------
Total non-performing assets $1,264 $ 675
====== ======
Total non-accrual and accruing loans
past due 90 days or more to net loans 0.61% 0.32%
====== ======
Total non-accrual and accruing loans
past due 90 days or more to total assets 0.49% 0.28%
====== ======
Total nonperforming assets to total assets 0.57% 0.30%
====== ======
12
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, 2001 and December 31, 2000, the value of loans that would be
classified as impaired under these Statements is considered to be immaterial.
Liquidity and Capital Resources:
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 1996, 1998, 1999 and 2000, the Company approved stock buy back
programs in which up to 955,606 shares of common stock of the Company could be
acquired. During 1998, 1999 and 2000, the Company bought 307,200 shares, 223,003
shares and 198,100 shares, respectively, which completed these buy back
programs. On December 21, 2000, the Company approved a stock buy back program in
which up to 125,000 shares of the common stock of the Company could be acquired.
During the first nine months of 2001 the Company bought 116,140 shares of its
common stock under this buy back program.
The Company paid a cash dividend of $0.16 per share on February 12,
2001, May 14, 2001 and August 13, 2001. On October 16, 2001 the Company declared
a cash dividend of $0.16 per share payable on November 12, 2001 to stockholders
of record on October 31, 2001. 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, 2001, the Bank exceeded 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 8.38% at September 30, 2001.
13
WELLS FINANCIAL CORP. and SUBSIDIARIES
September 30, 2001
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: none
b. No reports on Form 8-K were filed
No other information is required to be filed under Part II of the form
--------------------------------------------------------------------------------
14
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: October 30, 2001
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Lawrence H. Kruse
President and Chief Executive Officer
By: /s/ James D. Moll Date: October 30, 2001
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James D. Moll
Treasurer and Principal Financial & Accounting Officer