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, 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 |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 share outstanding of each of the issuer's classes of common stock
as of October 31, 1997:
Class Outstanding
----- -----------
$.10 par value per share, common stock 1,959,360 Shares
<PAGE>
================================================================================
WELLS FINANCIAL CORP. and SUBSIDIARY
=============================
[OBJECT 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 6-8
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
================================================================================
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, 1997 and December 31, 1996
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------ ---------
<S> <C> <C>
Cash, including interest-bearing accounts
9/30/97 $5,788; 12/31/96 $7,560 $ 6,746 $ 8,301
Certificates of deposit 100 200
Securities available for sale 4,976 7,100
Securities held to maturity (approximate market value $2,353 at
September 30, 1997 and $2,044 at December 31, 1996) 2,348 2,049
Mortgage-backed securities available for sale 173 428
Loans held for sale 2,739 1,791
Loans receivable, net 184,592 178,447
Accrued interest receivable 1,207 1,060
Foreclosed real estate 42 78
Premises and equipment 1,430 1,519
Other assets 408 353
--------- ---------
TOTAL ASSETS $ 204,761 $ 201,326
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 144,494 $ 145,349
Borrowed funds 29,000 26,500
Advances from borrowers for taxes and insurance 1,079 681
Income taxes:
Current 114 -
Deferred 408 358
Accrued interest payable 362 126
Accrued expenses and other liabilities 191 110
--------- ---------
TOTAL LIABILITIES 175,648 173,124
--------- ---------
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 16,661 16,588
Retained earnings, substantially restricted 15,410 13,986
Unrealized appreciation on securities
available for sale, net of related deferred taxes 484 348
Unearned ESOP shares (799) (896)
Unearned compensation restricted stock awards (178) (280)
Treasury stock at cost (2,684) (1,763)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 29,113 28,202
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 204,761 $ 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 Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Interest and dividend income Loans receivable:
First mortgage loans $ 3,064 $ 2,949 $ 9,046 $ 8,560
Consumer and other loans 637 529 1,795 1,502
Investment securities and other
interest bearing deposits 161 237 594 814
----------- ----------- ----------- -----------
Total interest income 3,862 3,715 11,435 10,876
----------- ----------- ----------- -----------
Interest Expense
Deposits 1,777 1,760 5,180 5,332
Borrowed funds 396 269 1,149 729
----------- ----------- ----------- -----------
Total interest expense 2,173 2,029 6,329 6,061
----------- ----------- ----------- -----------
Net interest income 1,689 1,686 5,106 4,815
Provision for loan losses 45 45 135 135
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 1,644 1,641 4,971 4,680
----------- ----------- ----------- -----------
Noninterest income
Gain (loss) on sale of loans originated for sale 22 (11) 37 68
Gain on sale of securities available for sale 2 - 9 19
Loan origination and commitment fees 53 44 122 104
Loan servicing fees 49 51 148 153
Insurance commissions 88 79 230 246
Fees and service charges 81 64 213 175
Other 7 7 30 25
----------- ----------- ----------- -----------
Total noninterest income 302 234 789 790
----------- ----------- ----------- -----------
Noninterest expense
Compensation and benefits 501 455 1,497 1,408
Occupancy and equipment 172 157 480 474
SAIF deposit insurance premium 23 88 71 256
SAIF premium assessment - 1,085 - 1,085
Data processing 59 59 182 299
Advertising 43 35 121 107
Other 194 214 563 597
----------- ----------- ----------- -----------
Total noninterest expense 992 2,093 2,914 4,226
----------- ----------- ----------- -----------
Income (loss) before taxes 954 (218) 2,846 1,244
Income tax expense 399 (74) 1,192 525
=========== =========== =========== ===========
Net Income (loss) $ 555 $ (144) $ 1,654 $ 719
=========== =========== =========== ===========
Earnings (loss) per common share
Primary and fully diluted $ 0.29 $ (0.07) $ 0.87 $ 0.36
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Primary and fully diluted 1,909,101 2,012,780 1,909,914 2,004,186
=========== =========== =========== ===========
</TABLE>
(See Notes to Consolidated Financial Statements)
2
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1997
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unearned Unearned
Net unrealized Employee Compensation
Additional appreciation 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 nine months
ended September 30, 1997 -- -- 1,654 -- -- -- -- 1,654
Net change in unrealized
appreciation on securities
available for sale,
net of related deferred
taxes -- -- -- 136 -- -- -- 136
Treasury stock purchases -- -- -- -- -- -- (921) (921)
Amortization of unearned
compensation -- -- -- -- -- 102 -- 102
Dividends on common stock,
net of tax effect -- -- (230) -- -- -- -- (230)
Allocated employee stock owners
ownership plan shares -- 73 -- -- 97 -- -- 170
-------- -------- -------- -------- -------- -------- -------- --------
Balance, September 30, 1997 $ 219 $ 16,661 $ 15,410 $ 484 $ (799) $ (178) $ (2,684) $ 29,113
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(See Notes to Consolidated Financial Statements)
3
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow
Nine Months Ended September 30, 1997 and 1996
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,654 $ 719
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 135 135
Gain on the sale of loans originated for sale (37) (68)
Compensation on allocation of ESOP shares 157 118
Amortization of restricted stock awards 102 185
Write-down of foreclosed real estate 2 14
(Gain) loss on the sale of foreclosed real estate (10) 1
Gain on sale of securities available for sale (9) --
Unrealized (gain) loss on loans held for sale (11) 36
Loss on disposal of equipment -- 6
Deferred income taxes (46) (519)
Depreciation and amortization on premises and equipment 200 181
Amortization of deferred loan origination fees (99) (114)
Amortization of excess servicing fees 10 10
Amortization of mortgage servicing rights 20 10
Amortization of bond premiums and discounts -- (3)
Recognition of SAIF premium assessment -- 1,085
Loans originated for sale (7,920) (15,810)
Proceeds from the sale of loans originated for sale 6,963 16,489
Changes in assets and liabilities:
Accrued interest receivable (147) (92)
Other assets (30) 34
Income taxes payable, current 114 63
Accrued expenses and other liabilities 316 159
---------- ---------
Net cash provided by operating activities 1,364 2,639
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans $ (6,197) $ (8,272)
Purchase of certificates of deposit (100) (200)
Purchase of securities available for sale (171) (213)
Purchase of securities held to maturity (3,298) (3,749)
Proceeds from principal repayments of mortgage backed securities 253 332
Proceeds from the maturities of certificates of deposit 200 800
Proceeds from the maturities of securities held to maturity 2,999 2,600
Proceeds from the sale of securities available for sale 2,535 --
Proceeds from the sale and redemption of foreclosed real estate 103 --
Investment in foreclosed real estate (32) --
Purchase of premises and equipment (111) (538)
---------- ---------
Net cash used in investment activities (3,819) (9,240)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ (855) $ 392
Net increase in advances from borrowers for taxes and insurance 398 413
Proceeds from repayment of loan to ESOP 13 --
Proceeds from borrowed funds 15,000 16,000
Repayments on borrowed funds (12,500) (10,500)
Purchase of treasury stock (921) (1,554)
Purchase of common stock for restricted stock awards -- (539)
Dividends on common stock (235) --
---------- ---------
Net cash provided by financing activities 900 4,212
---------- ---------
Net decrease in cash and cash equivalents (1,555) (2,389)
CASH:
Beginning 8,301 8,192
---------- ---------
Ending $ 6,746 $ 5,803
========== =========
</TABLE>
(See Notes to Consolidated Financial Statements)
4
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow (continued)
Nine Months Ended September 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 $ 5,050 $ 5,147
Interest on borrowed funds 1,138 725
Income taxes 1,108 981
===== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to foreclosed real estate $ 27 $ 133
Allocation of ESOP shares to participants 97 84
===== =========
</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 September 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amount Percent Amount Percent
------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tangible Capital:
Required $ 3,043 1.50% $ 2,981 1.50%
Actual 22,247 10.96% 20,478 10.31%
Excess 19,204 9.46% 17,497 8.81%
Core Capital
Required (1) $ 6,087 3.00% $ 5,961 3.00%
Actual 22,247 10.96% 20,478 10.31%
Excess 16,160 7.96% 14,517 7.31%
Risk-based Capital
Required $ 9,539 8.00% $ 9,054 8.00%
Actual 22,978 19.27% 21,064 18.61%
Excess 13,439 11.27% 12,010 10.61%
</TABLE>
(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 nine month periods ended
September 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. Early 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:
September 30, 1997 $ 0.30 $ 0.29
September 30, 1996 $(0.07) $(0.07)
For the nine months ended:
September 30, 1997 $0.88 $0.87
September 30, 1996 $0.36 $0.36
The weighted average number of shares of common stock used to
compute the basic earnings per share was increased by 39,671 and 32,828 for the
three and nine month periods ended September 30, 1997, respectively, and by
10,993 and 2,104 for the three and nine month periods ended September 30, 1996,
respectively, for the assumed exercise of the employee stock options in
computing the diluted per share data.
7
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Notes to consolidated Financial Statements Continued
(Unaudited)
NOTE 4. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1997 1996
-----------------------------
<S> <C> <C>
Return on assets
(ratio of net income to average total assets) (1) 1.09% 0.49%
Return on equity
(ratio of net income to average equity) (1) 7.70% 3.38%
Equity to assets ratio
(ratio of average equity to average total assets) 14.16% 14.53%
Net interest margin
(ratio of net interest income to average interest earning assets) (1) 3.44% 3.35%
</TABLE>
(1) Net income and net interest income have been annualized
8
<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 September 30, 1997 and December 31, 1996:
Total assets increased by $3,435,000 from $201,326,000 at
December 31, 1996 to $204,761,000 at September 30, 1997 primarily due to an
increase of $6,145,000 in loans receivable. The increase in loans receivable was
primarily funded through the use of cash, net income for the period and borrowed
funds.
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 September 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
$733,000 and 0.34% and 0.40% respectively.
Loans on which the accrual of interest has been discontinued
amounted to $421,000 and $298,000 at September 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 September 30, 1997 and December 31, 1996.
Activity in the Company's allowance for loan losses for the nine
months ended September 30, 1997 and 1996 is summarized as follows:
1997 1996
-----------------------------
Balance on January 1, $ 615,372 $ 512,430
Provision for loan losses 135,000 135,000
Charge-offs (48,705) (54,604)
Recoveries 31,022 6,790
-----------------------------
Balance on September 30, $ 732,689 $ 599,616
-----------------------------
9
<PAGE>
Deposits decreased by $855,000 from $145,349,000 at December 31,
1996 to $144,494,000 at September 30, 1997. The decrease in deposits was offset
by an increase of $2,500,000 in borrowed funds. Current income tax liability
increased by $114,000 during the nine month period ended September 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 $911,000 from $28,202,000 at December 31,
1996 to $29,113,000 at September 30, 1997. This change in equity is primarily
due to net income of $1,654,000 for the nine months ended September 30, 1997
being partially offset by the purchase of $921,000 of treasury stock and the
payment of $235,000 in cash dividends. On October 16, 1997, the Board of
Directors of the Company declared a $0.12 per share cash dividend to be paid on
November 12, 1997 to the stockholders of record on October 31, 1997. 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 Nine Month Periods Ended
September 30, 1997 and September 30, 1996.
Net Income. Net income increased by $699,000 and $935,000 for the
three and nine month periods ended September 30, 1997, respectively, when
compared to the same periods in 1996. As mentioned above, the Bank's one time
special assessment to recapitalize the SAIF was recognized on September 30,
1996. This assessment amounted to $1,085,000, or $640,000 net of tax effects,
which resulted in decreased earnings during the quarter and nine month period
ended September 30, 1996.
Interest Income. Interest income from the loan portfolio
increased by $223,000 and $779,000 for the three and nine month periods ended
September 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 $76,000 and
$220,000 for the three and nine months periods ended September 30, 1997 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 nine months of 1997 when compared to the
first nine months of 1996. The decrease in interest income from other interest
bearing assets was the result of a decrease in the average amount of these
assets during the first nine months of 1997 when compared to the same period
during 1996.
Interest Expense. Interest expense on deposits increased by
$17,000 for the third quarter of 1997 when compared to the third quarter of 1996
and decreased by $152,000 for the nine months ended September 30, 1997 when
compared to the same period in 1996. The increase in interest expense on
deposits for the third quarter of 1997 when compared to the third quarter of
1996 was the result of an increase in the average rate paid on deposits during
the period. The decrease in interest expense on deposits during the first nine
months of 1997 when compared to the first nine months of 1996 was the result of
a decrease in the average amount of deposits during the nine months ended
September 30, 1997 when compared to the same period in 1996. Interest expense on
borrowed funds increased by $127,000 and $420,000 for the three and nine month
periods ended September 30, 1997, respectively, 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 nine
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 remained relatively
constant for the quarter ended September 30, 1997 when compared to the same
period in 1996 due to the increase in interest income for the quarter being
offset by the increase in interest expense. Net interest income increased by
$291,000 for the nine months ended September 30, 1997 when compared to the same
period in 1996 primarily due to the increase in interest income on the loan
portfolio more than offsetting the increase in interest expense.
Provision for loan losses. The provision for loan losses remained
constant for the quarter and nine months ended September 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.
10
<PAGE>
Noninterest Income. Noninterest income increased by $68,000 for
the three months ended September 30, 1997 and remained constant for the nine
months ended September 30, 1997 when compared to the same periods in 1996. The
increase in noninterest income for the quarter ended September 30, 1997 was
primarily due to increases in the gain on sale of loans originated for sale and
fees and service charges. Noninterest income for the nine months ended September
30, 1997 remained constant when compared to the same period in 1996 primarily
due to increases in fees and service charges and loan origination and commitment
fees being offset by decreases in the gain on sale of loans originated for sale
and insurance commissions.
Noninterest Expense. Noninterest expense decreased by $1,101,000
and $1,312,000 for the three and nine month periods ended September 30, 1997
when compared to the same periods in 1996 primarily due to the above mentioned
SAIF assessment of $1,085,000 which was recognized during the third quarter of
1996. Increases in compensation and occupancy and equipment expense for the
quarter ended September 30, 1997 when compared to the same quarter in 1996 were
offset by a decrease in the SAIF deposit insurance premium. Increases in
compensation for the nine months ended September 30, 1997 when compared to the
same period in 1996 were offset by decreases in SAIF deposit premium and data
processing. The reduction of the SAIF insurance premium 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. The
reduction in data processing costs for the nine months ended September 30, 1997
when compared to the same period in 1996 was the result of a $132,000
non-recurring expense that was realized during the first six months of 1996 when
the Bank converted its data processing software in order to provide improved
service and marketing to its customers.
Income Tax Expense. Income tax expense increased by $473,000 for
the three months ended September 30, 1997 and by $667,000 for the nine months
ended September 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 nine month periods ended September 30, 1997 when compared to the same
periods in 1996.
11
<PAGE>
Non-performing Assets. The following table sets forth the amounts
and categories of non-performing assets at September 30, 1997 and December 31,
1996.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans
One to four family real estate $ 375 $ 164
Non-residential property -- 59
Consumer 46 75
---- ----
Total $ 421 $ 298
---- ----
Accruing loans which are contractually
past due 90 days or more
One to four family real estate $ 172 $ 147
Consumer 4 --
---- ----
Total $ 176 $ 147
---- ----
Total non-accrual and accruing loans
past due 90 days or more $ 597 $ 445
==== ====
Repossessed and non-performing assets
Repossessed property $ 42 $ 78
Other non-performing assets -- --
---- ----
Total repossessed and non-performing assets $ 42 $ 78
---- ----
Total non-performing assets $ 639 $ 523
==== ====
Total non-accrual and accruing loans
past due 90 days or more to net loans 0.32% 0.25%
==== ====
Total non-accrual and accruing loans
past due 90 days or more to total assets 0.29% 0.22%
==== ====
Total nonperforming assets to total assets 0.31% 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 September 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 September
30, 1997, the Bank's liquidity, as measured for regulatory purposes, was 5.14%.
The Bank adjusts liquidity as appropriate to meet its asset/liability
objectives.
12
<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
September 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.
The Company paid a cash dividend of $0.12 per share on August 21,
1997, its first dividend since the issuance of the Company's stock in April of
1995. On October 16, 1997 the Company declared a cash dividend of $0.12 per
share payable on November 12, 1997 to stockholders of record on 10/31/97.
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 September 30, 1997, the Bank's tangible
capital totaled $22.2 million, or 10.96% of adjusted total assets, and core
capital totaled $22.2 million, or 10.96% of adjusted total assets, which
substantially exceeded the respective 1.5% tangible capital and 3.0% core
capital requirements at that date by $19.2 million and $16.2 million,
respectively, or 9.46% and 7.96% of adjusted total assets, respectively. The
Bank's risk-based capital totaled $23.0 million at September 30, 1997 or 19.27%
of risk-weighted assets, which exceeded the current requirements of 8.0% of
risk-weighted assets by $13.4 million or 11.27% of risk-weighted assets.
13
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARIES
September 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
---------------------------------------------------
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
------------------------------------------------------
14
<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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/ Lawrence H. Kruse Date: October 31, 1997
--------------------- ----------------
Lawrence H. Kruse
President and Chief Executive Officer
By: /s/ James D. Moll Date: October 31, 1997
--------------------- ----------------
James D. Moll
Treasurer and Principal Financial & Accounting Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 958
<INT-BEARING-DEPOSITS> 5,788
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,149
<INVESTMENTS-CARRYING> 2,348
<INVESTMENTS-MARKET> 2,353
<LOANS> 187,331<F1>
<ALLOWANCE> 733
<TOTAL-ASSETS> 204,761
<DEPOSITS> 144,494
<SHORT-TERM> 29,000
<LIABILITIES-OTHER> 2,154
<LONG-TERM> 0
0
0
<COMMON> 219
<OTHER-SE> 28,894
<TOTAL-LIABILITIES-AND-EQUITY> 204,761
<INTEREST-LOAN> 10,841
<INTEREST-INVEST> 594
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,435
<INTEREST-DEPOSIT> 5,180
<INTEREST-EXPENSE> 1,149
<INTEREST-INCOME-NET> 5,106
<LOAN-LOSSES> 135
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 2,914
<INCOME-PRETAX> 2,846
<INCOME-PRE-EXTRAORDINARY> 2,846
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,654
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 3.44
<LOANS-NON> 421
<LOANS-PAST> 176
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 620<F2>
<ALLOWANCE-OPEN> 615
<CHARGE-OFFS> 49
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 733
<ALLOWANCE-DOMESTIC> 733
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>HELD TO MATURITY AND HELD FOR SALE
<F2>CLASSIFIED AS SUBSTANDARD
</FN>
</TABLE>
