-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FrOsDvgOOr5sj3Qp3eW669mBEYupN+EBfXSUBRu5Numb2Cri7HqiyPpHVLOkgC9+ g9kwIGmBnDPXASN5X29e9w== 0000946275-99-000304.txt : 19990513 0000946275-99-000304.hdr.sgml : 19990513 ACCESSION NUMBER: 0000946275-99-000304 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS FINANCIAL CORP CENTRAL INDEX KEY: 0000934739 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 411799504 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25342 FILM NUMBER: 99618515 BUSINESS ADDRESS: STREET 1: 53 FIRST ST SW STREET 2: P.O. BOX 310 CITY: WELLS STATE: MN ZIP: 56097 BUSINESS PHONE: 5075533151 MAIL ADDRESS: STREET 1: 53 1ST ST SW STREET 2: PO BOX 310 CITY: WELLS STATE: MN ZIP: 56097 10QSB 1 FORM 10QSB 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 ------- 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 ------------------------------------------------ (Address of principal executive offices) (507) 553-3151 ---------------------------------------------------- (Registrant's Telephone Number, including Area Code) N/A -------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check by |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 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 9-14 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 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Financial Condition March 31, 1999 and December 31, 1998 (Dollars in Thousands) (Unaudited)
ASSETS 1999 1998 -------------- -------------- 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 ============ ============
(See Notes to Consolidated Financial Statements) 1 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Income (Dollars in thousands, except per share data) (Unaudited)
Three Months Ended March 31, ------------------------------ 1999 1998 ----------- ------------ 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 ========== ==========
(See Notes to Consolidated Financial Statements) 2 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Comprehensive Income (Dollars in Thousands) (Unaudited)
Three Months Ended March 31, --------------- ---- ---------------- 1999 1998 --------------- ---------------- 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 ========= =========
(See Notes to Consolidated Financial Statements) 3 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statement of Stockholders' Equity For the Three Months Ended March 31, 1999 (Dollars in Thousands) (Unaudited)
Unearned Employee Unearned Accumulated Stock Compensation Additional Other Ownership Restricted Total Common Paid-In Retained Comprehensive Plan Stock Treasury Stockholders' Stock Capital Earnings Income shares Awards Stock Equity - -------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 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 ==============================================================================================
(See Notes to Consolidated Financial Statements) 4 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Cash Flow Three Months Ended March 31, 1999 and 1998 (Dollars in Thousands) (Unaudited)
1999 1998 ---------- ---------- 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 ========== ==========
(See Notes to Consolidated Financial Statements) 5 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 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.
March 31, 1999 December 31, 1998 Amount Percent Amount Percent ---------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 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%
7 WELLS FINANCIAL CORP. and SUBSIDIARY Notes to consolidated Financial Statements Continued (Unaudited) NOTE 3. EARNINGS PER SHARE Earnings per share are calculated and presented in accordance with FASB Statement No. 128, Earnings per Share. The Statement requires the presentation of earnings per share by all entities that have common stock or potential common stock, such as options, warrants and convertible securities, outstanding that trade in a public market. Those entities that have only common stock outstanding are required to present basic earnings per-share amounts. All other entities are required to present basic and diluted earnings per-share amounts. Diluted per-share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce a loss or increase the income per common share from continuing operations. 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
For the three months ended March 31, 1999 1998 --------------------------------- 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%
(1) Net income and net interest income have been annualized. 8 WELLS FINANCIAL CORP. and SUBSIDIARIES Management's Discussion and Analysis of Financial Condition And Results of Operations General: Wells Financial Corp. (Company) was incorporated under the laws of the State of Minnesota in December 1994 for the purpose of owning all of the outstanding stock of Wells Federal Bank, fsb (Bank) issued in the mutual to stock conversion of the Bank. On April 11, 1995, the conversion was completed and $8.4 million of the net proceeds from the sale of the stock were provided to the Bank in exchange for all of the Bank's stock. The consolidated financial statements included herein are for the Company, the Bank and the Bank's wholly owned subsidiaries, Greater Minnesota Mortgage, Inc. and Wells Insurance Agency, Inc. The income of the Company is derived primarily from the operations of the Bank and the Bank's subsidiaries, and to a lesser degree from interest income from securities and certificates of deposit with other banks 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 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 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 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 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 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 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 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 EX-27 2 FDS
9 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. 1000 3-MOS DEC-31-1999 MAR-31-1999 1,011 20,754 0 0 2,797 11,606 11,593 153,711 871 193,805 159,999 5,000 3,437 0 0 0 219 25,150 193,805 3,114 395 0 3,509 1,831 67 1,611 23 0 1,208 890 890 0 0 541 0.34 0.34 3.42 231 352 0 755 853 9 4 871 871 0 0
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