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 March 31, 1999
--------------------------------------------
or
_
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-25342
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Wells Financial Corp.
------------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Minnesota 41-1799504
- -------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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 share outstanding of each of the issuer's classes of common stock
as of April 12, 1999:
Class Outstanding
----- -----------
$.10 par value per share, common stock 1,602,160 Shares
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
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[OBJECT OMITTED]
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FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION: Page
- ------------------------------ ----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Financial Condition
March 31, 1999 and December 31, 1998
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
1999 1998
-------------- --------------
<S> <C> <C>
Cash, including interest-bearing accounts
3/31/99 $20,754; 12/31/98 $18,523 $ 21,765 $ 19,446
Certificates of deposit 500 500
Securities available for sale, at fair value 2,797 2,968
Securities held to maturity (approximate market value $11,593
at March 31, 1999 and $5,542 at December 31, 1998) 11,606 5,539
Loans held for sale 3,447 6,097
Loans receivable, net 150,264 154,305
Accrued interest receivable 1,081 843
Foreclosed real estate 31 -
Premises and equipment 1,261 1,249
Other assets 1,053 929
------------ ------------
TOTAL ASSETS $ 193,805 $ 191,876
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 159,999 $ 158,441
Borrowed funds 5,000 5,000
Advances from borrowers for taxes and insurance 1,980 1,220
Income taxes:
Current
206 128
Deferred 847 885
Accrued interest payable 170 100
Accrued expenses and other liabilities 234 210
------------ ------------
TOTAL LIABILITIES 168,436 165,984
------------ ------------
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 16,867 16,840
Retained earnings, substantially restricted 17,515 17,211
Accumulated other comprehensive income, 800 901
Unearned ESOP shares (552) (591)
Unearned compensation restricted stock awards (56) (67)
Treasury stock, at cost (9,424) (8,621)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 25,369 25,892
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 193,805 $ 191,876
============ ============
</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
March 31,
------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Interest and dividend income Loans receivable:
First mortgage loans $ 2,461 $ 3,333
Consumer and other loans 653 645
Investment securities and other
interest bearing deposits 395 264
---------- ----------
Total interest income 3,509 3,942
---------- ----------
Interest Expense
Deposits 1,831 1,787
Borrowed funds 67 404
---------- ----------
Total interest expense 1,898 2,191
---------- ----------
Net interest income 1,611 1,751
Provision for loan losses 23 30
---------- ----------
Net interest income after provision for
loan losses 1,588 1,721
---------- ----------
Noninterest income
Gain on sale of loans originated for sale 72 81
Loan origination and commitment fees 155 246
Loan servicing fees 93 54
Insurance commissions 73 69
Fees and service charges 112 69
Other 5 4
---------- ----------
Total noninterest income 510 523
---------- ----------
Noninterest expense
Compensation and benefits 591 578
Occupancy and equipment 189 193
SAIF deposit insurance premium 24 23
Data processing 96 73
Advertising 48 43
Other 260 213
---------- ----------
Total noninterest expense 1,208 1,123
---------- ----------
Income before taxes 890 1,121
Income tax expense 349 463
========== ==========
Net Income $ 541 $ 658
========== ==========
Earnings per share
Basic earnings per share $ 0.34 $ 0.35
========== ==========
Diluted earnings per share $ 0.34 $ 0.34
========== ==========
Weighted average number of common shares
outstanding:
Basic 1,573,009 1,867,221
========== ==========
Diluted 1,610,508 1,916,760
========== ==========
</TABLE>
(See Notes to Consolidated Financial Statements)
2
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------- ---- ----------------
1999 1998
--------------- ----------------
<S> <C> <C>
Net Income $ 541 $ 658
Other comprehensive income:
Unrealized appreciation (depreciation)
on securities available for sale (171) 132
Income tax benefit (expense) 70 (54)
--------- ---------
Comprehensive income $ 440 $ 736
========= =========
</TABLE>
(See Notes to Consolidated Financial Statements)
3
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 219 $ 16,840 $ 17,211 $ 901 $ (591) $ (67) $ (8,621) $ 25,892
Net income for the three
months ended March 31, 1999 - - 541 - - - - 541
Net change in unrealized
appreciation on securities
available for sale, net of
related deferred taxes - - - (101) - - - (101)
Treasury stock purchases (803) (803)
Amortization of unearned
compensation - - - - - 11 - 11
Dividends on common stock - - (237) - - - - (237)
Allocated employee stock
ownership plan shares - 27 39 - - - - 66
----------------------------------------------------------------------------------------------
Balance March 31, 1999 $ 219 $ 16,867 $ 17,515 $ 800 $ (552) $ (56) $ (9,424) $ 25,369
==============================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements)
4
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow
Three Months Ended March 31, 1999 and 1998
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 541 $ 658
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 23 30
Gain on the sale of loans originated for sale (72) (81)
Compensation on allocation of ESOP shares 66 64
Amortization of restricted stock awards 11 31
Write-down of foreclosed real estate - 1
Unrealized gain on loans held for sale - (14)
Deferred income taxes 31 30
Depreciation and amortization on premises and equipment 62 71
Amortization of deferred loan origination fees (51) (65)
Amortization of excess servicing fees, mortgage servicing
rights and bond premiums and discounts 49 25
Loans originated for sale (15,763) (21,961)
Proceeds from the sale of loans originated for sale 18,351 16,949
Changes in assets and liabilities:
Accrued interest receivable (238) (61)
Other assets (37) (31)
Income taxes payable, current 78 236
Accrued expenses and other liabilities 94 70
---------- ----------
Net cash provided by (used in) operating activities 3,145 (4048)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in loans $ 4,038 $ 11,277
Purchase of certificates of deposit (300) (5,300)
Purchase of securities held to maturity (7,147) (410)
Proceeds from principal repayments of mortgage backed securities - 86
Proceeds from the maturities of certificates of deposit 300 -
Proceeds from the maturities of securities held to maturity 1,079 1,438
Purchase of premises and equipment (74) (19)
---------- ----------
Net cash provided by (used in) investment activities (2,104) 7,072
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 1,558 $ 1,240
Net increase in advances from borrowers
for taxes and insurance 760 769
Proceeds from borrowed funds - 5,000
Purchase of treasury stock (803) -
Dividends on common stock (237) (235)
---------- ----------
Net cash provided by financing activities 1,278 6,785
---------- ----------
Net increase in cash and cash equivalents 2,319 9,809
CASH:
Beginning 19,446 5,971
---------- ----------
Ending $ 21,765 $ 15,780
========== ==========
</TABLE>
(See Notes to Consolidated Financial Statements)
5
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow (continued)
Three Months Ended March 31, 1999 and 1998
(Dollars in Thousands)
(Unaudited
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest on deposits $ 1,761 $ 1,775
Interest on borrowed funds 67 411
Income taxes 240 95
====== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to foreclosed real estate $ 31 $ -
Allocation of ESOP shares to participants 39 39
Net change in unrealized appreciation on
securities available for sale (101) 78
====== ======
(See Notes to Consolidated Financial Statements)
6
<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
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 March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
Amount Percent Amount Percent
----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tier 1 (Core) Capital:
Required $ 7,426 4.00% $ 5,480 3.00%
Actual 16,367 8.82% 15,896 8.70%
Excess 8,941 4.82% 10,416 5.70%
Risk-based Capital
Required 8,935 8.00% 9,066 8.00%
Actual 17,235 15.43% 16,745 14.78%
Excess 8,300 7.43% 7,679 6.78%
</TABLE>
7
<PAGE>
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.
The weighted average number of shares of common stock used to compute
the basic earnings per share were 1,573,009 and 1,867,221 for the three month
periods ended March 31, 1999 and 1998, respectively. The weighted average number
of shares of common stock were increased by 37,499 and 49,539 for the three
month periods ended March 31, 1999 and 1998, respectively, for the assumed
exercise of the employee stock options in computing the diluted per-share data.
NOTE 4. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 1998
---------------------------------
<S> <C> <C>
Return on assets
(ratio of net income to average total assets) (1) 1.12% 1.27%
Return on equity
(ratio of net income to average equity) (1) 8.40% 8.81%
Equity to assets ratio
(ratio of average equity to average total assets) 13.34% 14.44%
Net interest margin
(ratio of net interest income to average interest earning assets) (1) 3.42% 3.45%
</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 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 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 March 31, 1999 and December 31, 1998:
Total assets increased by $1,929,000, from $191,876,000 at December 31,
1998 to $193,805,000 at March 31, 1999 primarily due a decrease in the Company's
mortgage loan portfolio and an increase in deposits being invested in cash and
interest bearing investments. Loans receivable and loans held for sale decreased
by $6,691,000 from December 31, 1998 to March 31, 1999. Due to lower interest
rates on residential mortgages, management elected to sell the majority of the
residential loans originated during the first three months of 1999 to the
secondary market. Included in the loans that were originated and sold during the
first three months of 1999 were loans from the Company's mortgage loan portfolio
that were refinanced. This is the primary reason for the decrease in loans
receivable and loans held for sale. Securities that are classified as held to
maturity increased by $6,067,000 from $5,539,000 at December 31, 1998 to
$11,606,000 at March 31, 1999 as cash that was received from the reduction in
loans receivable and from the increase in deposits was invested in securities.
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 March 31, 1999 and
December 31, 1998 the balances in the allowance for loan losses and the
allowance for loan losses as a percentage of total loans were $871,000 and
$853,000 and 0.57% and 0.53%, respectively.
9
<PAGE>
Activity in the Company's allowance for loan losses for the three
months ended March 31, 1999 and 1998 is summarized as follows:
1999 1998
-----------------------------------
Balance on January 1, $ 852,557 $ 763,292
Provision for loan losses 22,500 30,000
Charge-offs (8,970) (4,018)
Recoveries 4,292 3,958
------------ -----------
Balance on March 31, $ 871,079 $ 793,232
============ ===========
Loans on which the accrual of interest has been discontinued amounted
to $231,000 and $260,000 at March 31, 1999 and December 31, 1998, 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 March 31,
1999 and December 31, 1998.
Liabilities increased by $2,558,000, from $165,984,000 at December 31,
1998 to $168,436,000 at March 31, 1999. The increase in liabilities was
primarily the result of a $1,558,000 increase in deposits and, to a lesser
extent, a $760,000 increase in advances from borrowers for taxes and insurance.
Equity decreased by $523,000 from $25,892,000 at December 31, 1998 to
$25,369,000 at March 31, 1999. This change in equity is primarily due to net
income of $541,000 for the three months ended March 31, 1999 being offset by the
purchase of 50,000 shares of treasury stock at a total cost of $803,000. Also
affecting equity was a payment on February 12, 1999 of $237,000, or $0.15 per
share, in cash dividends. On April 21, 1999, the Board of Directors of the
Company declared a $0.15 per share cash dividend to be paid on May 14, 1999 to
the stockholders of record on May 3, 1999. 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 Months Ended March 31, 1999 and
March 31, 1998.
Net Income. Net income decreased by $117,000 for the three month period
ended March 31, 1999, when compared to the same period in 1998 primarily due to
a decrease in net interest income of $140,000 for the three month period ended
March 31, 1999 when compared to the same period in 1998.
Interest Income. Interest income from the loan portfolio decreased by
$864,000 for the three-month period ended March 31, 1999 when compared to the
same period in 1998. Interest income from investments in securities,
certificates of deposit and interest earned on interest bearing cash accounts
increased by $131,000 for the three month period ended March 31, 1999 when
compared to the same period in 1998. The decrease in interest income from the
loan portfolio for the three month period ended March 31, 1999 when compared to
the same period in 1998 was primarily the result of a decrease in the average
amount of the loan portfolio during the first quarter of 1999 when compared to
the same period in 1998. Due to lower interest rates on residential mortgages,
management elected to sell the majority of the residential loans originated
during the first three months of 1999 to the secondary market. Included in the
loans originated and sold during the first three months of 1999 were loans from
the Company's mortgage loan portfolio that were refinanced. This is the primary
reason for the decrease in the average amount of the loan portfolio. The
increase in interest income from investment securities, certificates of deposit
and other interest bearing deposits was primarily the result of increases in the
average amounts of these investments during the first quarter of 1999 when
compared to the same period in 1998.
10
<PAGE>
Interest Expense. Interest expense on deposits increased by $44,000 for
the three-month period ended March 31, 1999 when compared to the same period in
1998. The increase in interest expense on deposits was primarily the result of
an increase in the average amounts of deposits during the first three months of
1999 when compared to the first three months of 1998. Interest expense on
borrowed funds decreased by $337,000 for the three-month period ended March 31,
1999 when compared to the three-month period ended March 31, 1998. Cash obtained
from the sale of loans that were refinanced during 1998 to the secondary market
was used to reduce borrowed funds which resulted in a decrease in the average
amounts of borrowed funds during the three months ended March 31, 1999 when
compared to the three months ended March 31, 1998.
Net Interest income. Net interest income decreased by $140,000 for the
quarter ended March 31, 1999 when compared to the same quarter in 1998 due to
the changes in interest income and interest expense described above.
Provision for loan losses. The provision for loan losses decreased by
$7,000 for the three-month period ended March 31, 1999 when compared to the same
period in 1998. Management evaluates the quality of the loan portfolio on a
quarterly basis to identify and determine the adequacy of the allowance for loan
loss. Based on these continuing reviews, management decreased the monthly
provision for loan loss beginning in January of 1999. 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 decreased by $13,000 for the
three-month period ended March 31, 1999 when compared to the same period in
1998. The decrease in noninterest income was primarily due to a decrease in loan
origination and commitment fees of $91,000 for the three months ended March 31,
1999 when compared to the same period in 1998. This decrease resulted from a
smaller amount of loans originated and sold to the secondary market during the
first three months of 1999 when compared to the first three months of 1998. Also
affecting noninterest income was an increase in loan servicing fees of $39,000
and an increase in fees and service charges of $43,000 for the three month
period ended March 31, 1999 when compared to the same period during 1998.
Noninterest Expense. Noninterest expense increased by $85,000 for the
quarter ended March 31, 1999 when compared to the same period in 1998 primarily
due to increases in compensation, data processing and other noninterest expense.
Other noninterest expense increased by $47,000 for the three month period ended
March 31, 1999 when compared to the same period in 1998 primarily due to an
increase in the amortization of mortgage servicing rights of $23,000 for the
quarter ended March 31, 1999 when compared to the quarter ended March 31, 1998.
Income Tax Expense. Income tax expense decreased by $114,000 for the
three-month period ended March 31, 1999 when compared to the same period in
1998. This decrease was the result of a decrease in income before income taxes
for the three-month period ended March 31, 1999 when compared to the same period
in 1998.
11
<PAGE>
Non-performing Assets. The following table sets forth the amounts and
categories of non-performing assets at March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998
---------------------------------
(Dollars in Thousands)
Non-accruing loans
One to four family real estate $ 211 $ 192
Consumer 20 68
-------- --------
Total $ 231 $ 260
-------- --------
Accruing loans which are contractually
past due 90 days or more
One to four family real estate $ 220 $ 100
Commercial real estate 132 -
-------- --------
Total $ 352 $ 100
-------- --------
Total non-accrual and accruing loans
past due 90 days or more $ 583 $ 360
======== ========
Repossessed and non-performing assets
Repossessed property $ 31 $ -
Other non-performing assets - -
-------- --------
Total repossessed and non-performing assets $ 31 $ -
-------- --------
Total non-performing assets $ 614 $ 360
======== ========
Total non-accrual and accruing loans
past due 90 days or more to net loans 0.38% 0.23%
======== ========
Total non-accrual and accruing loans
past due 90 days or more to total assets 0.30% 0.19%
======== ========
Total nonperforming assets to total assets 0.32% 0.19%
======== ========
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
March 31, 1999 and December 31, 1998, the value of loans that would be
classified as impaired under these Statements is considered to be immaterial.
Liquidity and Capital Resources:
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of US Government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings association maintain liquid
assets of not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. At March 31, 1999,
the Bank's liquidity, as measured for regulatory purposes, was 16.14%. 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 income until funds are needed to meet
required loan funding.
In 1996 and 1998, the Company approved stock buy back programs in which
up to 535,340 shares of the common stock of the Company could be acquired. The
Company bought 307,200 shares of its common stock during 1998, which completed
these approved buy back programs. During January 1999, the Company approved a
stock buy back program in which up to 129,660 shares of the common stock of the
Company could be acquired. As of March 31, 1999, 50,000 shares of the Company's
stock had been acquired under this stock buy back program.
The Company paid a cash dividend of $0.15 per share on February 12,
1999. The Company declared a cash dividend of $0.15 per share payable on May 14,
1999 to stockholders of record on May 3, 1999. 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 insured by the Federal Deposit Insurance
Corporation are required by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) 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 March 31,
1999, the Bank met all current capital requirements.
The Office of Thrift Supervision (OTS) has adopted a core capital
requirement for savings institutions comparable to the requirement for national
banks. The OTS core capital requirement for the Bank is 4% of adjusted assets
for thrifts that receive the highest supervisory rating for safety and
soundness. The Bank had core capital of 8.82% at March 31, 1999.
Pursuant to FDICIA, the federal banking agencies, including the OTS,
have also proposed regulations authorizing the agencies to require a depository
institution to maintain additional total capital to account for concentration of
credit risk and the risk of non-traditional activities. No assurance can be
given as to the final form of any such regulation or its effect on the Bank.
Year 2000 Issue. Rapid and accurate data processing is essential to the
Company's operations. Many computer programs that can only distinguish the final
two digits of the year entered are expected to read entries for the year 2000 as
the year 1900 or as zero and incorrectly attempt to compute payment, interest,
delinquency and other data. We have been evaluating both information technology
(our computer systems) and non-information technology systems (e.g., heating,
cooling and ventilation controls). We have contacted the third party suppliers
of non-information technology systems (utility companies, etc.) and examined all
of our non-information technology systems. The third party suppliers of
non-information technology systems have assured us they are aware of the
possible year 2000 issue and are working to become year 2000 compliant before
December 31, 1999. We do not expect any material costs to address our
non-information technology systems and have not had any material costs to date.
We have evaluated our information technology systems risk in three areas: (1)
our own computers, (2) computers of others used by our borrowers, and (3)
computers of others who provide us with data processing.
13
<PAGE>
Our own computers. Our strategy to address the year 2000 issue in
regards to the computers that we own is to replace all computers that are not
year 2000 compliant. At December 31, 1998, the majority of our computers had
been replaced. We expect to spend approximately $10,000 between March 31, 1999
and September 30, 1999 to replace the remaining computers that are not year 2000
compliant.
Computers of others used by our borrowers. We have evaluated most of
our borrowers and do not believe that the year 2000 problem should, on an
aggregate basis, impact the borrowers' ability to make payments to the Company.
We believe that most of the Company's residential and consumer borrowers are not
dependent on their home computers for income. As a result, we have not contacted
residential or consumer borrowers concerning this issue and do not consider this
issue in our residential and consumer loan underwriting process. The majority of
the Company's commercial real estate loans are collateralized by agricultural
real estate and the majority of the Company's commercial operating loans are for
farm machinery and farm inputs. We feel that the year 2000 issue should not
significantly impact the Company's commercial borrowers' ability to make
payments to the Company.
Computers of others who provide us with data processing. This risk is
primarily focused on one-third party service bureau that provides virtually all
of the Company's data processing. The software that is used by this service
bureau was designed to be year 2000 compliant. We are monitoring the progress
this service bureau is making in regards to testing their software and hardware
to be year 2000 compliant. Testing of this risk that has been completed
includes: testing of the software by the software vendor, testing of the
software and hardware by the service bureau, proxy testing of the software and
hardware by us and other banks using the service bureau's system and testing by
us of the communication links between the Company and the service bureau. We
have completed our testing of the software, hardware and communication links and
are currently evaluating the results. We estimate that we will spend
approximately $40,000 from March 31, 1999 to September 30, 1999 to complete the
testing and upgrading of our data processing and communication systems.
Contingency plan. Should this data processing system fail, the Company
has developed a contingency plan. The contingency plan provides for the service
bureau to furnish to the Company a complete database tape of our customers'
accounts, complete with account history as of December 28, 1999. This
information will also be supplied in printed form. Each of the Company's offices
will be supplied with a computer workstation loaded with a database front-end
entry screen program for recording transactions on their customers' accounts. If
this labor-intensive approach is necessary, the Company's employees will become
much less efficient. However, we believe the Company will be able to operate in
this manner until the existing service bureau, or its replacement, is able to
again provide data processing services.
Despite our best efforts to address the year 2000 issue, the vast
number of external entities that have direct and indirect relationships with us
makes it impossible to assure that a failure to achieve compliance by one or
more of these entities would not have a material adverse impact on the
operations of the Company.
14
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARIES
March 31, 1999
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
<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: May 7, 1999
-------------------------------------------------------- -----------
Lawrence H. Kruse
President and Chief Executive Officer
By: /s/ James D. Moll Date: May 7, 1999
-------------------------------------------------------- -----------
James D. Moll
Treasurer and Principal Financial & Accounting Officer
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
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