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 June 30, 1997
------------------------------------------
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
-------
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
------------------------------------------------
(Address of principal executive offices)
(507) 553-3151
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check by u 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. [ ] Yes [ ] No
No
The number of share outstanding of each of the issuer's classes of common stock
as of July 31, 1997:
Class Outstanding
----- -----------
$.10 par value per share, common stock 1,959,360 Shares
<PAGE>
- --------------------------------------------------------------------------------
WELLS FINANCIAL CORP. and SUBSIDIARY
------------------------------------
[GRAPHIC OMITTED]
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION: Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statement of Stockholders' equity 3
Consolidated Statements of Cash Flows 4-5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures
- --------------------------------------------------------------------------------
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
June 30, 1997 and December 31, 1996
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
1997 1996
----------------- -----------------
<S> <C> <C>
Cash, including interest-bearing accounts
6/30/97 $4,844; 12/31/96 $7,560 $ 5,579 $ 8,301
Certificates of deposit 100 200
Securities available for sale 4,922 7,100
Securities held to maturity (approximate market value $3,803 at
June 30, 1997 and $2,044 at December 31, 1996) 3,800 2,049
Mortgage-backed securities available for sale 243 428
Loans held for sale 1,821 1,791
Loans receivable, net 182,327 178,447
Accrued interest receivable 1,224 1,060
Foreclosed real estate 42 78
Premises and equipment 1,481 1,519
Other assets 496 353
---------------- ----------------
TOTAL ASSETS $ 202,035 $ 201,326
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 143,701 $ 145,349
Borrowed funds 28,000 26,500
Advances from borrowers for taxes and insurance 670 681
Income taxes:
Current 143 -
Deferred 417 358
Accrued interest payable 310 126
Accrued expenses and other liabilities 120 110
---------------- ----------------
TOTAL LIABILITIES 173,361 173,124
---------------- ----------------
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 16,632 16,588
Retained earnings, substantially restricted 15,085 13,986
Unrealized appreciation on securities
available for sale, net of related deferred taxes 474 348
Unearned ESOP shares (840) (896)
Unearned compensation restricted stock awards (212) (280)
Treasury stock at cost (2,684) (1,763)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 28,674 28,202
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,035 $ 201,326
================ ================
</TABLE>
(See Notes to Consolidated Financial Statements)
1
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ --------------------------------------
1997 1996 1997 1996
------------------ ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Interest and dividend income
Loans receivable:
First mortgage loans $ 3,005 $ 2,784 $ 5,982 $ 5,611
Consumer and other loans 600 489 1,158 973
Investment securities and other
interest bearing deposits 212 310 433 577
------------------ ---------------- ------------------ -----------------
Total interest income 3,817 3,583 7,573 7,161
------------------ ---------------- ------------------ -----------------
Interest Expense
Deposits 1,709 1,784 3,403 3,572
Borrowed funds 407 222 753 460
------------------ ---------------- ------------------ -----------------
Total interest expense 2,116 2,006 4,156 4,032
------------------ ---------------- ------------------ -----------------
Net interest income 1,701 1,577 3,417 3,129
Provision for loan losses 45 45 90 90
------------------ ---------------- ------------------ -----------------
Net interest income after provision for
loan losses 1,656 1,532 3,327 3,039
------------------ ---------------- ------------------ -----------------
Noninterest income
Gain on sale of loans originated for sale 7 22 15 79
Gain on sale of securities available for sale 7 - 7 -
Loan origination and commitment fees 40 33 69 60
Loan servicing fees 49 53 99 102
Insurance commissions 69 65 142 167
Fees and service charges 68 56 132 111
Other 7 28 23 37
------------------ ---------------- ----------------- -----------------
Total noninterest income 247 257 487 556
------------------ ---------------- ----------------- -----------------
Noninterest expense
Compensation and benefits 516 478 996 953
Occupancy and equipment 157 179 308 317
SAIF deposit insurance premium 24 84 48 168
Data processing 64 169 123 240
Advertising 42 40 78 72
Other 176 238 369 383
------------------ ----------------- ---------------- -----------------
Total noninterest expense 979 1,188 1,922 2,133
------------------ ----------------- ---------------- -----------------
Income before taxes 924 601 1,892 1,462
Income tax expense 385 238 793 599
------------------ ----------------- ---------------- -----------------
Net Income $ 539 363 $ 1,099 $ 863
================== ================= ================ =================
Earnings per common share
Primary and fully diluted $ 0.28 $ 0.19 $ 0.57 $ 0.43
================== ================= ================ =================
Weighted average number of common shares
outstanding:
Primary and fully diluted 1,892,297 1,941,349 1,916,714 2,022,701
================== ================= ================ =================
</TABLE>
(See Notes to Consolidated Financial Statements)
2
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 30, 1997
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Net unrealized Unearned Unearned
appreciation Employee Compensation
Additional on securities Stock Restricted Total
Common Paid-In Retained available Ownership Stock Treasury Stockholders'
Stock Capital Earnings for sale, net Plan shares Awards Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 219 $ 16,588 $ 13,986 $ 348 $ (896) $ (280) $ (1,763) $ 28,202
Net income for the six months
ended June 30, 1997 - - 1,099 - - - - 1,099
Net change in unrealized
appreciation on securities
available for sale, net of
related deferred taxes - - - 126 - - - 126
Treasury stock purchases - - - - - - (921) (921)
Amortization of unearned
compensation - - - - - 68 - 68
Allocated employee stock
ownership plan shares - 44 - - 56 - - 100
------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $ 219 $ 16,632 $ 15,085 $ 474 $ (840) $ (212) $ (2,684) $ 28,674
======================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements)
3
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow
Six Months Ended June 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,099 $ 863
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 90 90
Gain on the sale of loans originated for sale (15) (79)
Compensation on allocation of ESOP shares 100 76
Amortization of restricted stock awards 68 125
Write-down of foreclosed real estate 9 1
Gain on the sale of foreclosed real estate (12) -
Gain on sale of securities available for sale (7) -
Unrealized loss on loans held for sale 4 -
Deferred income taxes (29) (17)
Depreciation and amortization on premises and equipment 132 114
Amortization of deferred loan origination fees (26) (87)
Amortization of excess servicing fees 6 7
Amortization of mortgage servicing rights 13 6
Amortization of bond premiums and discounts - (2)
Loans originated for sale (2,751) (13,137)
Proceeds from the sale of loans originated for sale 2,718 14,694
Changes in assets and liabilities:
Accrued interest receivable (164) (73)
Other assets (152) (53)
Income taxes payable, current 150 30
Accrued expenses and other liabilities 195 171
-------------------------- -------------------------
Net cash provided by operating activities
1,428 2,729
-------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans $ (3,948) $ (2,506)
Purchase of certificates of deposit (100) (200)
Purchase of securities available for sale (135) (140)
Purchase of securities held to maturity (2,500) (2,500)
Proceeds from principal repayments of mortgage backed securities 184 206
Proceeds from the maturities of certificates of deposit 200 800
Proceeds from the maturities of securities held to maturity 749 1,900
Proceeds from the sale of securities available for sale 2,535 -
Proceeds from the sale and redemption of foreclosed real estate 71 -
Investment in foreclosed real estate (32) -
Purchase of premises and equipment (94) (509)
-------------------------- -------------------------
Net cash used in investment activities (3,070) (2,949)
-------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ (1,648) $ 1,127
Net increase (decrease) in advances from borrowers for taxes
and insurance (11) 3
Proceeds from borrowed funds 14,000 -
Repayments on borrowed funds (12,500) (3,500)
Purchase of treasury stock (921) (1,554)
Purchase of common stock for restricted stock awards - (539)
-------------------------- -------------------------
Net cash used in financing activities (1,080) (4,463)
-------------------------- -------------------------
Net decrease in cash and cash equivalents (2,722) (4,683)
CASH:
Beginning 8,301 8,192
-------------------------- -------------------------
Ending $ 5,579 3,509
========================== =========================
</TABLE>
(See Notes to Consolidated Financial Statements)
4
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow (continued)
Six Months Ended June 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited
<TABLE>
<CAPTION>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest on deposits $ 3,227 $ 3,464
Interest on borrowed funds 744 463
Income taxes 668 586
====================== =========================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to foreclosed real estate $ - $ 5
Allocation of ESOP shares to participants 56 56
====================== =========================
</TABLE>
(See Notes to Consolidated Financial Statements)
5
<PAGE>
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 subsidiary,
Wells Insurance Agency, Inc.
NOTE 2. REGULATORY CAPITAL
The following table presents the Bank's regulatory capital amounts and
percents at June 30, 1997 and December 31, 1996.
June 30, 1997 December 31, 1996
Amount Percent Amount Percent
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Tangible Capital:
Required $ 3,000 1.50% $ 2,981 1.50%
Actual 21,638 10.82% 20,478 10.31%
Excess 18,638 9.32% 17,497 8.81%
Core Capital
Required (1) $ 6,001 $ 3.00% $ 5,961 3.00%
Actual 21,638 10.82% 20,478 10.31%
Excess 15,637 7.82% 14,517 7.31%
Risk-based Capital
Required $ 9,346 8.00% $ 9,054 8.00%
Actual 22,298 19.09% 21,064 18.61%
Excess 12,952 11.09% 12,010 10.61%
(1) The OTS is expected to adopt a core capital requirement for savings
institutions comparable to the requirement for national banks that became
effective December 31, 1990. The OTS core capital requirement is anticipated to
be at least 3% of total adjusted assets for thrifts that receive the highest
supervisory rating for safety and soundness, with a 4% to 5% core capital
requirement for all other thrifts. No prediction can be made as to the exact
nature of any new OTS core capital regulation, or the date of its effectiveness,
and the core capital requirement to be applicable to the Bank under such
regulation.
6
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Notes to consolidated Financial Statements Continued
(Unaudited)
NOTE 3. EARNINGS PER SHARE
Earnings per share for the three and six month periods ended June 30,
1997 and 1996 were computed by dividing net income for the period by the
weighted average common shares and common share equivalents outstanding during
the period.
The Financial Accounting Standards Board (FASB) has issued Statement
No. 128, Earnings per Share, which supersedes APB Opinion No. 15. Statement No.
128 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 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. All entities required to present per share amounts must initially
apply Statement No. 128 for annual and interim periods ending after December 15,
1997. Earlier application is not permitted.
Because the Company has potential common stock outstanding (stock
options to employees), the Company will be required to present basic and diluted
earnings per share. If the Company had applied Statement No. 128 in the
accompanying financial statements, the following per share amounts would have
been reported.
Diluted
Basic Earnings Earnings Per
Per Share Share
-------------- ------------
For the three months ended:
June 30, 1997 $0.29 $0.28
June 30, 1996 $0.19 $0.19
For the six months ended:
June 30, 1997 $0.58 $0.57
June 30, 1996 $0.43 $0.43
The weighted average number of shares of common stock used to compute
the basic earnings per share was increased by 29,518 and 28,940 for the three
and six month periods ended June 30, 1997, respectively, for the assumed
exercise of the employee stock options in computing the diluted per share data.
The weighted average number of shares of common stock used to compute the basic
earnings per share for the three and six months ended June 30, 1996 was not
increased in computing the diluted per share data as the exercise of the options
would have increased income per common share.
NOTE 4. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the six months ended
June 30,
1997 1996
--------------------------------------
<S> <C> <C>
Return on assets
(ratio of net income to average total assets) (1) 1.09% 0.89%
Return on equity
(ratio of net income to average equity) (1) 7.71% 6.04%
Equity to assets ratio
(ratio of average equity to average total assets) 14.15% 14.72%
Net interest margin
(ratio of net interest income to average interest earning assets) (1) 3.46% 3.22%
</TABLE>
(1) Net income and net interest income have been annualized.
7
<PAGE>
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 was 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 subsidiary, Wells Insurance Agency, Inc.
The income of the Company is derived primarily from the operations of
the Bank and the Bank's subsidiary, and to a lesser degree from interest income
from securities and certificates of deposit with other banks that the Company
has purchased. 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.
Comparison of Financial Condition at June 30, 1997 and December 31, 1996:
Total assets increased by $709,000 from $201,326,000 at December 31,
1996 to $202,035,000 at June 30, 1997 primarily due to cash and net income being
used to fund an increase of $3,880,000 in loans receivable and the purchase of
64,500 shares of treasury stock.
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 loses. As of December 31, 1996
and June 30, 1997 the balance in the allowance for loan losses and the allowance
for loan losses as a percentage of total loans was $615,000 and $678,000 and
0.34% and 0.37% respectively.
Loans on which the accrual of interest has been discontinued amounted
to $385,000 and $298,000 at June 30, 1997 and December 31, 1996, 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 June 30,
1997 and December 31, 1996.
Activity in the Company's allowance for loan losses for the six months
ended June 30, 1997 and 1996 is summarized as follows:
1997 1996
----------------------------------------
Balance on January 1, $ 615,372 $ 512,430
Provision for loan losses 90,000 90,000
Charge-offs (39,416) (21,729)
Recoveries 12,323 3,595
----------------------------------------
Balance on June 30, $ 678,279 584,296
----------------------------------------
8
<PAGE>
Deposits decreased by $1,648,000 from $145,349,000 at December 31, 1996
to $143,701,000 at June 30, 1997. The decrease in deposits was partially offset
by an increase of $1,500,000 in borrowed funds. Current income tax liability
increased by $143,000 during the six month period ended June 30, 1997. On
September 30, 1996, a law was enacted which required savings institutions
insured by the Savings Association Insurance Fund (SAIF) to pay a one time
special assessment to recapitalize the SAIF. Due to the tax consequences of this
assessment, the Company had no current tax liability as of December 31, 1996.
Equity increased by $472,000 from $28,202,000 at December 31, 1996 to
$28,674,000 at June 30, 1997. This change in equity is primarily due to net
income of $1,099,000 for the six months ended June 30, 1997 and the purchase of
$921,000 of treasury stock. On July 16, 1997, the Board of Directors of the
Company declared a $0.12 per share cash dividend to be paid on August 21, 1997
to the stockholders of record on July 31, 1997. This is the first dividend
declared by the Company since the issuance of its stock on April 11, 1995.
Subject to the Company's earnings and capital, it is the current intention of
the Company to continue to pay regular quarterly cash dividends.
Comparison of Operating Results for the Three and Six Month Periods Ended
June 30, 1997 and June 30, 1996.
Net Income. Net income increased by $176,000 and $236,000 for the three
and six month periods ended June 30, 1997, respectively, when compared to the
same periods in 1996. These increases in net income are primarily due to an
increase of $124,000 and $288,000 in net interest income for the three and six
month periods ended June 30, 1997, respectively, when compared to the same
periods in 1996. Also affecting net income was a decrease of $209,000 and
$211,000 in noninterest expense for the three and six month periods ended June
30, 1997 when compared to the three and six month periods ended June 30, 1996
and an increase of $147,000 and $194,000 in income tax expense for the three and
six months periods ended June 30, 1997, respectively, when compared to the same
periods in 1996.
Interest Income. Interest income from the loan portfolio increased by
$332,000 and $556,000 for the three and six month periods ended June 30, 1997,
respectively, when compared to the same periods in 1996. Interest income from
investments in securities, certificates of deposit and interest earned on
interest bearing cash accounts decreased by $98,000 and $144,000 for the three
and six month periods ended June 30, 1997, respectively, when compared to the
same periods in 1996. The increase in interest income from the loan portfolio
was primarily the result of an increase in the average amount of the loan
portfolio during the first six months of 1997 when compared to the first six
months of 1996. The decrease in interest income from other interest bearing
assets was the result of an decrease in the average amount of these assets
during the first six months of 1997 when compared to the same period during
1996.
Interest Expense. Interest expense on deposits decreased by $75,000 and
$169,000 while interest expense on borrowed funds increased by $185,000 and
$293,000 for the three and six month periods ended June 30, 1997, respectively,
when compared to the same periods in 1996. The decrease in interest expense on
deposits was primarily the result of a decrease in the average amount of
deposits during the three and six month periods ended June 30, 1997 when
compared to the same periods in 1996. The increase in interest expense on
borrowed funds is primarily due to an increase in the average amount of borrowed
funds during the first six months of 1997 and, to a lesser extent, due to an
increase in the average rate paid on borrowed funds.
Net Interest income. Net interest income increased by $124,000 and
$288,000 for the three and six month periods ended June 30, 1997 when compared
to the three and six month periods ended June 30, 1996. These increases are
primarily the result of the increase in interest income on the loan portfolio
due to the increase in the average loans for the three and six month periods
ended June 30, 1997 when compared to the same periods in 1996.
Provision for loan losses. The provision for loan losses remained
constant for the quarter and six months ended June 30, 1997 when compared to the
same periods during 1996. 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.
9
<PAGE>
Noninterest Income. Noninterest income decreased by $10,000 and $69,000
for the three and six month periods ended June 30, 1997, respectively, when
compared to the three and six month periods ended June 30, 1996. The decrease in
noninterest income for the three and six months ended June 30, 1997 when
compared to the same periods in 1996 is primarily the result of a decrease in
the gain on sale of loans originated for sale due to a lower volume of loans
being sold during the first six months of 1997 when compared to the first six
months of 1996. Also affecting noninterest income was a decrease in contingency
commissions that were earned by the Bank's insurance subsidiary during the first
quarter of 1997 when compared to the first quarter of 1996.
Noninterest Expense. Noninterest expense decreased by $209,000 and
$211,000 for the three and six months ended June 30, 1997, respectively, when
compared to the same periods in 1996. The decease in noninterest expense was
primarily the result of a decrease in data processing expense and a reduction in
SAIF insurance premiums. As part of management's commitment to provide
competitive products and excellent service to the Bank's customers, the Bank
converted to a new data processing software system during the second quarter of
1996. The decision to convert the data processing software was based upon
management's desire to improve marketing of the Bank's products to current as
well as potential customers. The conversion resulted in non-recurring expenses
of approximately $132,000 that were realized during the six month period ended
June 30, 1996 which resulted in higher than normal data processing expense for
the three and six month periods ended June 30, 1996. The reduction in the SAIF
insurance premiums was the result of legislation that was signed into law on
September 30, 1996 which recapitalized the SAIF fund and reduced the insurance
rate on a prospective basis.
Income Tax Expense. Income tax expense increased by $147,000 for the
three months ended June 30, 1997 and by $194,000 for the six months ended June
30, 1997 when compared to the same periods in 1996. This increase was the result
of an increase in income before income taxes for the three and six month periods
ended June 30, 1997 when compared to the same periods in 1996.
10
<PAGE>
Non-performing Assets. The following table sets forth the amounts and
categories of non-performing assets at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
----------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans
One to four family real estate $ 352 $ 164
Non-residential property - 59
Consumer 33 75
----------------------- --------------------------
Total $ 385 $ 298
----------------------- --------------------------
Accruing loans which are contractually
past due 90 days or more
One to four family real estate $ 130 $ 147
All other mortgage loans - -
----------------------- --------------------------
Total $ 130 $ 147
----------------------- --------------------------
Total non-accrual and accruing loans
past due 90 days or more $ 515 $ 445
======================= ==========================
Repossessed property $ 42 $ 78
Other non-performing assets - -
----------------------- --------------------------
Total repossessed and non-performing $ 42 $ 78
----------------------- --------------------------
Total non-performing assets $ 557 $ 523
======================= ==========================
Total non-accrual and accruing loans
past due 90 days or more to net loans 0.28% 0.25%
======================= ==========================
Total non-accrual and accruing loans
past due 90 days or more to total assets 0.26% 0.22%
======================= ==========================
Total nonperforming assets to total assets 0.28% 0.26%
======================= ==========================
</TABLE>
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, requires 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 June 30, 1997 and December 31, 1996, the value of loans that would
be classified as impaired under these Statements is considered to be immaterial.
Liquidity and Capital Resources:
Wells Federal 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 5% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. At June 30,
1997, the Bank's liquidity, as measured for regulatory purposes, was 5.47%. The
Bank adjusts liquidity as appropriate to meet its asset/liability objectives.
11
<PAGE>
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 as income until funds are needed to
meet required loan funding.
In 1996, the Company approved stock buy back programs in which up to
317,188 shares of the common stock of the Company may be acquired. As of June
30, 1997, the Company has purchased 190,375 shares under these programs which
leaves 126,813 shares remaining that may be purchased under these programs.
On July 16, 1997 the Company declared a cash dividend of $0.12 per
share, its first dividend since the issuance of the Company's stock in April of
1995. Subject to the Company's earnings and capital, it is the current intention
of the Company to continue to pay regular quarterly cash dividends.
The Bank is required to maintain specified amounts of capital. The
capital standards generally require the maintenance of regulatory capital
sufficient to meet a tangible capital requirement, a core capital requirement
and a risk based capital requirement. At June 30, 1997, the Bank's tangible
capital totaled $21.6 million, or 10.82% of adjusted total assets, and core
capital totaled $21.6 million, or 10.82% of adjusted total assets, which
substantially exceeded the respective 1.5% tangible capital and 3.0% core
capital requirements at that date by $18.6 million and $15.6 million,
respectively, or 9.32% and 7.82% of adjusted total assets, respectively. The
Bank's risk-based capital totaled $22.3 million at June 30, 1997 or 19.09% of
risk-weighted assets, which exceeded the current requirements of 8.0% of
risk-weighted assets by $13.0 million or 11.09% of risk-weighted assets.
12
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARIES
June 30, 1997
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
---------------------------------------------------
The annual meeting of shareholders of the Company was held at
the corporate offices on April 16, 1997, and the following
item was presented.
Election of Directors Lawrence H. Kruse and Gerald D.
Bastian for three year terms. Lawrence H. Kruse received
1,835,380 votes in favor and 175 votes were withheld. Gerald
D. Bastian received 1,835,380 votes in favor and 175 votes
withheld.
Members of the Board of Directors of the Company are:
Lawrence H. Kruse, Joseph R. Gadola, W.J. Butson, Gerald D.
Bastian and Richard A. Mueller.
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
------------------------------------------------------------------
13
<PAGE>
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: 08/07/97
--------------------- -----------------
Lawrence H. Kruse
President and Chief Executive Officer
By: /s/ James D. Moll Date: 08/07/97
----------------------------------- -----------------
James D. Moll
Treasurer and Principal Financial &
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 735
<INT-BEARING-DEPOSITS> 4,844
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,156
<INVESTMENTS-CARRYING> 3,800
<INVESTMENTS-MARKET> 3,803
<LOANS> 184,148<F1>
<ALLOWANCE> 678
<TOTAL-ASSETS> 202,035
<DEPOSITS> 143,701
<SHORT-TERM> 28,000
<LIABILITIES-OTHER> 1,660
<LONG-TERM> 0
0
0
<COMMON> 219
<OTHER-SE> 28,455
<TOTAL-LIABILITIES-AND-EQUITY> 202,035
<INTEREST-LOAN> 7,140
<INTEREST-INVEST> 433
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,573
<INTEREST-DEPOSIT> 3,403
<INTEREST-EXPENSE> 753
<INTEREST-INCOME-NET> 3,417
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 1,922
<INCOME-PRETAX> 1,892
<INCOME-PRE-EXTRAORDINARY> 1,892
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,099
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 3.46
<LOANS-NON> 385
<LOANS-PAST> 130
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 533<F2>
<ALLOWANCE-OPEN> 615
<CHARGE-OFFS> 39
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 678
<ALLOWANCE-DOMESTIC> 678
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Held to maturity and held for sale
<F2>Substandard
</FN>
</TABLE>
