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, 2000
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------
Commission File Number 0-25342
-------
Wells Financial Corp.
---------------------
(Exact name of Registrant as Specified in Its Charter)
Minnesota 41-1799504
-------------------------------------------- -------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
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 whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
The number of shares outstanding of each of the issuer's classes of common stock
as of August 4, 2000:
Class Outstanding
----- -----------
$.10 par value per share, common stock 1,231,057 Shares
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
[OBJECT OMITTED]
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION: Page
------------------------------- ----
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
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
June 30, 2000 and December 31, 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
2000 1999
--------------------- --------------------------
<S> <C> <C>
Cash, including interest-bearing accounts
June 30, 2000 $2,470; December 31, 1999 $2,320 $ 3,333 $ 4,200
Certificates of deposit 100 400
Securities available for sale, at fair value 3,630 2,551
Securities held to maturity (approximate market value $15,043 at
June 30, 2000 and $15,090 at December 31, 1999) 15,470 15,559
Loans held for sale 505 521
Loans receivable, net 185,830 172,713
Accrued interest receivable 1,808 1,350
Income taxes receivable 86 16
Foreclosed real estate 54 55
Premises and equipment 1,842 1,558
Other assets 889 913
--------------------- --------------------------
TOTAL ASSETS $ 213,547 $ 199,836
===================== ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 161,186 $ 156,984
Borrowed funds 28,500 17,000
Advances from borrowers for taxes and insurance 1,258 1,262
Income taxes:
Current - -
Deferred 726 763
Accrued interest payable 243 116
Accrued expenses and other liabilities 182 254
--------------------- --------------------------
TOTAL LIABILITIES 192,095 176,379
--------------------- --------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares
Authorized; none outstanding - -
Common stock, $.10 par value; authorized 7,000,000
shares; issued 2,187,500 shares 219 219
Additional paid in capital 16,965 16,939
Retained earnings, substantially restricted 18,584 18,189
Accumulated other comprehensive income 563 655
Unearned ESOP shares (363) (435)
Unearned compensation restricted stock awards (23) (27)
Treasury stock, at cost, 956,443 shares at June 30, 2000;
758,343 shares at December 31, 1999 (14,493) (12,083)
--------------------- --------------------------
TOTAL STOCKHOLDERS' EQUITY 21,452 23,457
--------------------- --------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,547 $ 199,836
===================== ==========================
</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,
----------------------------------- --------------------------------------
2000 1999 2000 1999
---------------- ------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Interest and dividend income Loans receivable:
First mortgage loans $ 2,825 $ 2,433 $ 5,529 $ 4,894
Consumer and other loans 786 657 1,524 1,310
Investment securities and other
interest bearing deposits 295 399 574 794
---------------- ------------------ ------------------- ----------------
Total interest income 3,906 3,489 7,627 6,998
---------------- ------------------ ------------------- ----------------
Interest Expense
Deposits 1,986 1,818 3,858 3,649
Borrowed funds 354 67 582 134
---------------- ------------------ ------------------- ----------------
Total interest expense 2,340 1,885 4,440 3,783
---------------- ------------------ ------------------- ----------------
Net interest income 1,566 1,604 3,187 3,215
Provision for loan losses - 4 - 27
---------------- ------------------ ------------------- ----------------
Net interest income after provision for
loan losses 1,566 1,600 3,187 3,188
---------------- ------------------ ------------------- ----------------
Noninterest income
Gain on sale of loans originated for sale - 50 14 122
Loan origination and commitment fees 24 71 41 226
Loan servicing fees 101 101 201 194
Insurance commissions 110 89 185 162
Fees and service charges 103 123 201 235
Other 9 14 16 19
---------------- ------------------ ------------------- ----------------
Total noninterest income 347 448 658 958
---------------- ------------------ ------------------- ----------------
Noninterest expense
Compensation and benefits 655 588 1,253 1,179
Occupancy and equipment 222 215 434 404
SAIF deposit insurance premium 9 23 17 47
Data processing 91 83 184 179
Advertising 57 46 110 94
Other 221 290 492 550
---------------- ------------------ ------------------- ----------------
Total noninterest expense 1,255 1,245 2,490 2,453
---------------- ------------------ ------------------- ----------------
Income before taxes 658 803 1,355 1,693
Income tax expense 259 330 546 679
---------------- ------------------ ------------------- ----------------
Net Income $ 399 $ 473 $ 809 $ 1,014
================ ================== =================== ================
Earnings per share
Basic earnings per share $ 0.32 $ 0.31 $ 0.62 $ 0.66
================ ================== =================== ================
Diluted earnings per share $ 0.32 $ 0.30 $ 0.62 $ 0.64
================ ================== =================== ================
Weighted average number of common shares outstanding:
Basic 1,247,470 1,519,249 1,300,191 1,547,731
================ ================== =================== ================
Diluted 1,254,821 1,556,939 1,308,206 1,585,325
================ ================== =================== ================
</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 Six Months Ended
June 30, June 30,
------------ --- -------------- ------------- --- -------------
2000 1999 2000 1999
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income $ 399 $ 473 $ 809 $ 1,014
Other comprehensive income:
Unrealized appreciation (depreciation) on
Securities available for sale (86) 16 (155) (155)
Income tax benefit (expense) 35 (7) 63 63
------------ -------------- ------------- -------------
Comprehensive income $ 348 $ 482 $ 717 $ 922
============ ============== ============= =============
</TABLE>
(See Notes to Consolidated Financial Statements)
3
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2000
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unearned
Employee Unearned
Accumulated Stock Compensation
Additional Other Ownership Restricted Total
Common Paid-In Retained Comprehensive Plan Shares Stock Treasury Stockholders'
Stock Capital Earnings Income Awards Stock Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 219 $ 16,939 $ 18,189 $ 655 $ (435) $ (27) $(12,083) $ 23,457
Net income for the six months
ended June 30, 2000 - - 809 - - - - 809
Net change in unrealized
appreciation on securities
available for sale, net of
related deferred taxes - - - (92) - - - (92)
Treasury stock purchases (2,410) (2,410)
Amortization of unearned
compensation - - - - - 4 - 4
Dividends on common stock - - (414) - - - - (414)
Allocated employee stock
ownership plan shares - 26 - - 72 - - 98
--------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $ 219 $ 16,965 $ 18,584 $ 563 $ (363) $ (23) $(14,493) $ 21,452
==================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements)
4
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow
Six Months Ended June 30, 2000 and 1999
(Dollars in Thousands)
(Unaudited)
2000 1999
<TABLE>
<CAPTION>
2000 1999
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 809 $ 1,014
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses - 27
(Gain) loss on the sale of loans originated for sale 14 (86)
Compensation on allocation of ESOP shares 98 132
Amortization of restricted stock awards 4 22
Loss on the sale of foreclosed real estate 5 -
Write-down of foreclosed real estate 3 -
Deferred income taxes 26 23
Depreciation and amortization on premises and equipment 136 121
Amortization of deferred loan origination fees (38) (89)
Amortization of excess servicing fees, mortgage servicing
rights and bond premiums and discounts 78 107
Loans originated for sale (6,253) (23,437)
Proceeds from the sale of loans originated for sale 6,273 28,501
Changes in assets and liabilities:
Accrued interest receivable (458) (459)
Other assets (143) (84)
Income taxes payable, current - (128)
Accrued expenses and other liabilities 55 (18)
-------------------- --------------------
Net cash provided by operating activities 609 5,646
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (13,121) (1,593)
Purchase of certificates of deposit (100) (400)
Purchase of securities held to maturity - (9,984)
Purchase of securities available for sale (1,234) -
Proceeds from the maturities of certificates of deposit 400 400
Proceeds from the maturities of securities held to maturity 90 1,145
Proceeds from the sale and redemption of foreclosed real estate 35 83
Purchase of premises and equipment (420) (141)
-------------------- --------------------
Net cash (used in) investment activities (14,350) (10,490)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,202 877
Net increase in advances from borrowers
for taxes and insurance (4) 41
Proceeds from borrowed funds 22,800 -
Repayments on borrowed funds (11,300) -
Purchase of treasury stock (2,410) (1,209)
Dividends on common stock (414) (466)
-------------------- --------------------
Net cash provided by (used in) financing activities 12,874 (757)
-------------------- --------------------
Net decrease in cash and cash equivalents (867) (5,601)
CASH:
Beginning 4,200 19,446
-------------------- --------------------
Ending $ 3,333 $ 13,845
==================== ====================
</TABLE>
(See Notes to Consolidated Financial Statements)
5
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARY
Consolidated Statements of Cash Flow (continued)
Six Months Ended June 30, 2000 and 1999
(Dollars in Thousands)
(Unaudited
<TABLE>
<CAPTION>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest on deposits $ 3,858 $ 3,522
Interest on borrowed funds 582 134
Income taxes 584 691
==================== ====================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from loans to foreclosed real estate $ 42 $ 98
Allocation of ESOP shares to participants 72 78
Net change in unrealized appreciation on securities available for sale 92 92
==================== ====================
</TABLE>
(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 June 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
Amount Percent Amount Percent
----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tier 1 (Core) Capital
Required $ 8,409 4.00% $ 7,754 4.00%
Actual 17,331 8.24% 16,865 8.70%
Excess 8,922 4.24% 9,111 4.70%
Risk-based Capital
Required 11,076 8.00% 10,154 8.00%
Actual 18,177 13.13% 17,722 13.96%
Excess 7,101 5.13% 7,568 5.96%
</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.
A reconciliation of the common stock share amounts used in the
calculation of basic and diluted earnings per share is presented in the
following chart.
<TABLE>
<CAPTION>
Number of Shares
Three months ended June 30, Six months ended June 30,
------------------------------- ----------------------------
2000 1999 2000 1999
------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Basic EPS 1,247,470 1,519,249 1,300,191 1,547,731
Effect of dilutive securities:
Stock options 7,351 37,690 8,015 37,594
------------------------------- ----------------------------
Diluted EPS 1,254,821 1,556,939 1,308,206 1,585,325
=============================== ============================
</TABLE>
NOTE 4. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the six months ended
June 30,
2000 1999
-----------------------------------
<S> <C> <C>
Return on assets
(ratio of net income to average total assets) (1) 0.79% 1.05%
Return on equity
(ratio of net income to average equity) (1) 7.13% 7.93%
Equity to assets ratio
(ratio of average equity to average total assets) 11.07% 13.25%
Net interest margin
(ratio of net interest income to average interest earning assets) (1) 3.19% 3.42%
(1) Net income and net interest income have been annualized.
</TABLE>
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. The Bank's
net income is primarily dependent upon the difference (or spread) between the
average yield earned on loans, investments and mortgage-backed securities and
the average rate paid on deposits and borrowings, as well as the relative
amounts of such assets and liabilities. The interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. Net income is also affected by, among other things,
provision for loan losses, gains on the sale of interest earning assets, service
charges, servicing fees, subsidiary activities, operating expenses, and income
taxes.
The Bank has eight full service offices located in Faribault, Martin,
Blue Earth, Nicollet, Freeborn and Steele Counties, Minnesota.
The Company may from time to time make written or oral "forward-looking
statements" including statements contained in this report and in other
communications by the Company which are made in good faith pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements, such as statements of the Company's plans,
objectives, estimates and intentions, involve risks and uncertainties and are
subject to change based on various important factors (some of which are beyond
the Company's control). The following factors, among others, could cause the
Company's financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking
statements: the strength of the United States economy in general and the
strength of the local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System, inflation, interest rate, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of the products and services by users, including
the features, pricing and quality compared to competitor's products and
services; the willingness of users to substitute competitors' products and
services for the Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when required; the
impact of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
acquisitions; changes in consumer spending and savings habits; and the success
of the Company at managing the risks involved in the foregoing.
Comparison of Financial Condition at June 30, 2000 and December 31, 1999:
Total assets increased by $13,711,000, from $199,836,000 at December
31, 1999 to $213,547,000 at June 30, 2000 primarily due to an increase of
$13,117,000 in the loan portfolio and a $1,079,000 increase in securities
available for sale. The increase in the loan portfolio was primarily due to
increases in loans secured by single family dwellings, loans secured by farm
real estate and home equity loans. Interest rates on mortgage loans increased
during the last half of 1999 and the first half of 2000 which was the basis for
management's decision to retain almost all of the mortgage loans the Company
originated during those periods.
9
<PAGE>
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 June 30, 2000 and
December 31, 1999 the balances in the allowance for loan losses and the
allowance for loan losses as a percentage of total loans were $846,000 and
$857,000 and 0.45% and 0.49%, respectively.
Activity in the Company's allowance for loan losses for the six months
ended June 30, 2000 and 1999 is summarized as follows:
2000 1999
-------------------------
Balance on January 1, $856,692 $852,557
Provision for loan losses - 27,000
Charge-offs (16,886) (26,296)
Recoveries 6,677 13,271
--------- ---------
Balance on June 30, $846,483 $866,532
========= =========
Loans on which the accrual of interest has been discontinued amounted
to $126,000 and $111,000 at June 30, 2000 and December 31, 1999, respectively.
The effect of nonaccrual loans was not significant to the results of operations.
The Company includes all loans considered impaired under FASB Statement No. 114
in nonaccrual loans. The amount of impaired loans was not material at June 30,
2000 and December 31, 1999.
Liabilities increased by $15,716,000, from $176,379,000 at December 31,
1999 to $192,095,000 at June 30, 2000. This increase is primarily due to a
$11,500,000 increase in borrowed funds and a $4,202,000 increase in deposits,
which were used to fund loan growth and to purchase investment securities.
Equity decreased by $2,005,000 from $23,457,000 at December 31, 1999 to
$21,452,000 at June 30, 2000. The decrease in equity was primarily the result of
net income for the first six months of 2000 of $809,000 being offset by the
payment of $414,000 in cash dividends and by the repurchase of 198,100 shares of
treasury stock at a total cost of $2,410,000. On July 18, 2000, the Board of
Directors of the Company declared a $0.15 per share cash dividend to be paid on
August 11, 2000 to the stockholders of record on July 31, 2000. Subject to the
Company's earnings and capital, it is the current intention of the Company to
continue to pay regular quarterly cash dividends.
Comparison of Operating Results for the Three and Six-Month Periods Ended June
30, 2000 and June 30, 1999.
Net Income. Net income decreased by $74,000 and $205,000, or 15.6% and
20.2% for the three and six months ended June 30, 2000, respectively, when
compared to the same periods during 1999. The decrease in net income was
primarily due to decreases of $47,000 and $185,000 in loan origination and
commitment fees for the three and six-month periods ended June 30, 2000,
respectively, when compared to the three and six-month periods ended June 30,
1999. Also affecting net income were decreases of $50,000 and $108,000 for the
three and six months ended June 30, 2000, respectively, when compared to the
same periods in 1999, in the gain on sale of loans originated for sale.
10
<PAGE>
Interest Income. Interest income from the loan portfolio increased by
$521,000 and $849,000, or 16.9% and 13.7%, for the three and six-month periods
ended June 30, 2000, respectively, when compared to the same periods in 1999.
During the last half of 1999 and the first six months of 2000, the Company's
loan portfolio increased due, primarily, to an increase in real estate loans
secured by farmland, loans secured by residential real estate and home equity
loans. This resulted in an increase in the average balance of the loan portfolio
during the first half of 2000 when compared to the same period in 1999. This is
the primary reason for the increase in interest income from the Company's loan
portfolio. To a lesser degree, an increase in the interest rates on the
Company's loan portfolio also contributed to the increase in interest income.
Partially offsetting the increase in interest income from the loan portfolio was
a $104,000 and $220,000 decrease in interest income from investment securities
and interest bearing deposits during the three and six months ended June 30,
2000, respectively, when compared to the same periods in 1999. The decrease in
interest income from investment securities and interest bearing deposits
resulted from the use of cash that was held in interest bearing deposits during
the first half of 1999 to fund loan growth and to purchase treasury stock.
Interest Expense. Total interest expense increased by $455,000 and
$657,000, or 24.1% and 17.4%, for the three and six-month periods ended June 30,
2000 when compared to the same periods in 1999. The increase in interest was
primarily due to an increase in the average amount of borrowed funds and
deposits during the first half of 2000 when compared to the first half of 1999.
To a lesser extent, an overall increase in the cost of deposits and borrowed
funds during the first half of 2000 contributed to the increase in interest
expense.
Net Interest income. Net interest income decreased by $38,000 and
$28,000, for the three and six- month periods ended June 30, 2000, respectively,
when compared to the same periods in 1999 due to the changes in interest income
and interest expense described above.
Provision for loan losses. The provision for loan losses decreased by
$4,000 and $27,000 for the three and six month periods ended June 30, 2000,
respectively, when compared to the same periods in 1999. Management evaluates
the quality of the loan portfolio on a quarterly basis to identify and determine
the adequacy of the allowance for loan loss. Based on these continuing reviews,
management believes no provision for loan losses are necessary at this time.
While the Company maintains its allowance for loan losses at a level that is
considered to be adequate to provide for potential losses, there can be no
assurance that further additions will not be made to the loss allowance and that
losses will not exceed estimated amounts.
Noninterest Income. Noninterest income decreased by $101,000 and
$300,000, or 22.5% and 31.3%, for the three and six-month periods ended June 30,
2000, respectively, when compared to the same periods in 1999. The decrease in
noninterest income was primarily due to decreases of $47,000 and $185,000 for
the three and six-month periods ended June 30, 2000, respectively, when compared
to the same periods in 1999 in loan origination and commitment fees. Also
affecting noninterest income were decreases of $50,000 and $108,000 for the
three and six months ended June 30, 2000, respectively, when compared to the
same periods in 1999, in the gain on sale of loans originated for sale. Due to
low interest rates on residential mortgage loans during the first quarter and
beginning of the second quarter of 1999, the Company originated a larger volume
of loans during that period when compared to the same period in 2000. This
resulted in the decrease in loan origination and commitment fees during the
first half of 2000 when compared to the first half of 1999. The decrease in the
gain on sale of loans originated for sale resulted from management's decision to
retain almost all of the loans the Company originated during the first half of
2000.
Noninterest Expense. Noninterest expense remained relatively constant
for the three and six-month periods ended June 30, 2000 when compared to the
same periods in 1999 as increases in compensation and benefits were offset by
decreases in other noninterest expense. Compensation and benefits increased by
$67,000 and $74,000 for the quarter and six-months ended June 30, 2000,
respectively, when compared to the same periods in 1999, primarily due to a
timing difference in the payment of compensation and annual compensation
adjustments.
11
<PAGE>
Income Tax Expense. Income tax expense decreased by $71,000 and
$133,000 for the three and six month periods ended June 30, 2000 when compared
to the same periods in 1999. This decrease was the result of a decrease in
income before income taxes for the three and six-month periods ended June 30,
2000 when compared to the same periods in 1999.
Non-performing Assets. The following table sets forth the amounts and
categories of non-performing assets at June 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans
One to four family real estate $ 2 $ -
Agricultural real estate - 32
Consumer 124 79
-------------------- ------------------------
Total $ 126 $ 111
-------------------- ------------------------
Accruing loans which are contractually
Past due 90 days or more
One to four family real estate $ 191 $ 10
Commercial real estate - -
-------------------- ------------------------
Total $ 191 $ 10
-------------------- ------------------------
Total non-accrual and accruing loans
past due 90 days or more $ 317 $ 121
==================== ========================
Repossessed and non-performing assets
Repossessed property $ 54 $ 55
Other non-performing assets - -
-------------------- ------------------------
Total repossessed and non-performing assets $ 54 $ 55
-------------------- ------------------------
Total non-performing assets $ 371 $ 176
==================== ========================
Total non-accrual and accruing loans
past due 90 days or more to net loans 0.17% 0.07%
==================== ========================
Total non-accrual and accruing loans
past due 90 days or more to total assets 0.15% 0.06%
==================== ========================
Total nonperforming assets to total assets 0.17% 0.09%
==================== ========================
</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, 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 June
30, 2000 and December 31, 1999, the value of loans that would be classified as
impaired under these Statements is considered to be immaterial.
12
<PAGE>
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 June 30, 2000,
the Bank's liquidity, as measured for regulatory purposes, was 8.74%. The Bank
adjusts liquidity as appropriate to meet its asset/liability objectives.
The Bank's primary sources of funds are deposits, borrowed funds,
amortization and prepayment of loans, maturities of investment securities and
funds provided from operations. While scheduled loan repayments are a relatively
predictable source of funds, deposit flows and loan prepayments are
significantly influenced by general interest rates, economic conditions and
competition. If needed, the Bank's source of funds can be supplemented by
wholesale funds obtained through additional advances from the Federal Home Loan
Bank system. The Bank invests excess funds in overnight deposits, which not only
serve as liquidity, but also earn interest income until funds are needed to meet
required loan funding.
In 1999 and 2000, the Company approved stock buy back programs in which
up to 420,266 shares of the common stock of the Company can be acquired. The
Company bought 223,003 shares of its common stock during 1999 and 197,263 shares
of its common stock during the first half of 2000 completing these stock buy
back programs.
The Company paid cash dividends of $0.15 per share on February 11, 2000
and on May 12, 2000. The Company declared a cash dividend of $0.15 per share
payable on August 11, 2000 to stockholders of record on July 31, 2000. Subject
to the Company's earnings and capital, it is the current intention of the
Company to continue to pay regular quarterly cash dividends.
Savings institutions like the Bank are required to meet prescribed
regulatory capital requirements. If a requirement is not met, regulatory
authorities may take legal or administrative actions, including restrictions on
growth or operations or, in extreme cases, seizure. Institutions not in
compliance may apply for an exemption from the requirements and submit a
recapitalization plan. At June 30, 2000, the Bank met all current capital
requirements.
The Office of Thrift Supervision (OTS) has adopted a core capital
requirement for savings institutions comparable to the requirement for national
banks. The OTS core capital requirement for the Bank is 4% of adjusted assets
for thrifts that receive the highest supervisory rating for safety and
soundness. The Bank had core capital of 8.24% at June 30, 2000.
13
<PAGE>
WELLS FINANCIAL CORP. and SUBSIDIARIES
June 30, 2000
FORM 10-QSB
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other information
-----------------
None
Item 6. Exhibits and Reports of Form 8-K
--------------------------------
a. Exhibits:
27 - Financial data schedule
b. No reports on Form 8-K were filed
No other information is required to be filed under Part II of the form
-----------------------------------------------
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.
By: /s/ Lawrence H. Kruse Date: August 4, 2000
----------------------- --------------
Lawrence H. Kruse
President and Chief Executive Officer
By: /s/ James D. Moll Date: August 4, 2000
----------------------- --------------
James D. Moll
Treasurer and Principal Financial & Accounting Officer
