10QSB 1 f10qsb_093001-0129.txt FORM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------- Commission File Number 0-25342 ------- Wells Financial Corp. ------------------------------------------------ (Exact name of Registrant as Specified in Its Charter) Minnesota 41-1799504 ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 53 1st Street S.W., P.O. Box 310, Wells MN 56097 ------------------------------------------------ (Address of principal executive offices) (507) 553-3151 ------------------------------------------------ (Registrant's Telephone Number, including Area Code) N/A ------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check by |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 shares outstanding of each of the issuer's classes of common stock as of October 30, 2001: Class Outstanding ----- ----------- $.10 par value per share, common stock 1,165,101 Shares -------------------------------------------------------------------------------- WELLS FINANCIAL CORP. and SUBSIDIARY [LOGO 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 -------------------------------------------------------------------------------- WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Financial Condition September 30, 2001 and December 31, 2000 (Dollars in Thousands) (Unaudited)
ASSETS 2001 2000 ----------- ---------- Cash, including interest-bearing accounts September 30, 2001 $16,516; December 31, 2000 $6,553 $ 17,643 $ 7,606 Certificates of deposit 200 200 Securities available for sale, at fair value 15,627 16,225 Loans held for sale 4,809 1,955 Loans receivable, net 179,058 191,137 Accrued interest receivable 2,036 1,910 Foreclosed real estate 168 54 Premises and equipment 1,834 1,833 Other assets 1,614 928 ----------- ---------- TOTAL ASSETS $ 222,989 $ 221,848 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $ 173,388 $ 163,582 Borrowed funds 23,000 33,500 Advances from borrowers for taxes and insurance 1,970 1,228 Income taxes: Current 378 52 Deferred 1,142 855 Accrued interest payable 274 129 Accrued expenses and other liabilities 241 161 ----------- ---------- TOTAL LIABILITIES 200,393 199,507 ----------- ---------- 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 17,050 17,011 Retained earnings, substantially restricted 20,830 19,182 Accumulated other comprehensive income 876 698 Unearned ESOP shares (188) (290) Unearned compensation restricted stock awards (145) (237) Treasury stock, at cost (16,046) (14,242) ----------- ---------- TOTAL STOCKHOLDERS' EQUITY 22,596 22,341 ----------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 222,989 $ 221,848 =========== ==========
(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 Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Interest and dividend income Loans receivable: First mortgage loans $ 2,948 $ 2,967 $ 8,910 $ 8,496 Consumer and other loans 913 850 2,702 2,374 Investment securities and other interest bearing deposits 268 277 812 851 ---------- ---------- ---------- ---------- Total interest income 4,129 4,094 12,424 11,721 ---------- ---------- ---------- ---------- Interest Expense Deposits 1,793 2,100 5,715 5,958 Borrowed funds 314 474 1,037 1,056 ---------- ---------- ---------- ---------- Total interest expense 2,107 2,574 6,752 7,014 ---------- ---------- ---------- ---------- Net interest income 2,022 1,520 5,672 4,707 Provision for loan losses 45 - 105 - ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 1,977 1,520 5,567 4,707 ---------- ---------- ---------- ---------- Noninterest income Gain on sale of loans originated for sale 349 43 635 57 Loan origination and commitment fees 310 63 829 104 Loan servicing fees 118 100 330 301 Insurance commissions 111 106 310 291 Fees and service charges 176 114 460 315 Other 11 11 23 27 ---------- ---------- ---------- ---------- Total noninterest income 1,075 437 2,587 1,095 ---------- ---------- ---------- ---------- Noninterest expense Compensation and benefits 711 612 2,195 1,865 Occupancy and equipment 204 199 654 633 Data processing 97 86 294 270 Advertising 51 59 142 169 Other 358 243 1,097 752 ---------- ---------- ---------- ---------- Total noninterest expense 1,421 1,199 4,382 3,689 ---------- ---------- ---------- ---------- Income before taxes 1,631 758 3,772 2,113 Income tax expense 672 332 1,569 878 ---------- ---------- ---------- ---------- Net Income $ 959 $ 426 $ 2,203 $ 1,235 ========== ========== ========== ========== Earnings per share Basic earnings per share $ 0.85 $ 0.36 $ 1.91 $ 0.98 ========== ========== ========== ========== Diluted earnings per share $ 0.81 $ 0.35 $ 1.83 $ 0.96 ========== ========== ========== ========== Weighted average number of common shares outstanding: Basic 1,131,202 1,191,218 1,153,496 1,263,589 ========== ========== ========== ========== Diluted 1,184,441 1,205,200 1,203,838 1,289,338 ========== ========== ========== ==========
(See Notes to Consolidated Financial Statements) 2 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Comprehensive Income (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2001 2000 2001 2000 ------- ------- ------- ------- Net Income $ 959 $ 426 $ 2,203 $ 1,235 Other comprehensive income: Unrealized appreciation (depreciation) on securities available for sale 143 (136) 301 (291) Income tax benefit (expense) (59) 57 (123) 120 ------- ------- ------- ------- Comprehensive income $ 1,043 $ 347 $ 2,381 $ 1,064 ======= ======= ======= =======
(See Notes to Consolidated Financial Statements) 3 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statement of Stockholders' Equity Nine Months Ended September 30, 2001 (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, 2000 $ 219 $ 17,011 $ 19,182 $ 698 $ (290) $ (237) $(14,242) $ 22,341 Net income for the nine months ended September 30, 2001 - - 2,203 - - - - 2,203 Net change in unrealized appreciation on securities available for sale, net of related deferred taxes - - - 178 - - - 178 Treasury stock purchases - - - - - - (2,006) (2,006) Options exercised - (58) - - - - 202 144 Amortization of unearned compensation - - - - - 92 - 92 Dividends on common stock - - (555) - - - - (555) Allocated employee stock ownership plan shares - 97 - - 102 - - 199 -------------------------------------------------------------------------------------------- Balance September 30, 2001 $ 219 $ 17,050 $ 20,830 $ 876 $ (188) $ (145) $(16,046) $ 22,596 ================================================================================================
(See Notes to Consolidated Financial Statements) 4 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 (Dollars in Thousands) (Unaudited)
2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,203 $ 1,235 Adjustments to reconcile net income to net cash used in operating activities: Provision for loan losses 105 - (Gain) on the sale of loans originated for sale (635) 24 Compensation on allocation of ESOP shares 199 153 Amortization of restricted stock awards 92 6 Loss on the sale of foreclosed real estate - Write-down of foreclosed real estate - 3 Gain on disposal of equipment - (12) Deferred income taxes 165 14 Depreciation and amortization on premises and equipment 181 207 Amortization of deferred loan origination fees (53) (31) Amortization of excess servicing fees, mortgage servicing rights and bond premiums and discounts 243 120 Loans originated for sale (69,372) (11,629) Proceeds from the sale of loans originated for sale 66,327 10,599 Changes in assets and liabilities: Accrued interest receivable (126) (672) Other assets (100) (92) Income taxes payable, current 326 9 Accrued expenses and other liabilities 225 34 -------- -------- Net cash used in operating activities (220) (32) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in loans $ 11,916 $(18,460) Purchase of certificates of deposit (1,500) (200) Purchase of securities available for sale (6,462) (6,927) Proceeds from the maturities of certificates of deposit 1,500 400 Proceeds from the maturities of securities available for sale 7,357 8,000 Proceeds from the maturities of securities held to maturity - 1,120 Proceeds from the sale and redemption of foreclosed real estate - 92 Purchase of premises and equipment (182) (489) Investment in foreclosed real estate (3) - Net cash provided by (used in) investing activities 12,626 (16,464) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits $ 9,806 $ 3,427 Net increase in advances from borrowers for taxes and insurance 742 586 Options exercised 144 - Proceeds from borrowed funds - 33,800 Repayments on borrowed funds (10,500) (18,300) Purchase of treasury stock (2,006) (2,410) Dividends on common stock (555) (580) -------- -------- Net cash provided by (used in) financing activities (2,369) 16,523 -------- -------- Net increase in cash and cash equivalents 10,037 27 CASH AND CASH EQUIVALENTS: Beginning 7,606 4,200 -------- -------- Ending $ 17,643 $ 4,227 ======== ========
(See Notes to Consolidated Financial Statements) 5 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Cash Flows (continued) Nine Months Ended September 30, 2001 and 2000 (Dollars in Thousands) (Unaudited) 2001 2000 ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for: Interest on deposits $ 5,539 $ 5,964 Interest on borrowed funds 1,068 1,031 Income taxes 1,079 834 ======= ======= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Transfers from loans to foreclosed real estate $ 111 $ 42 Allocation of ESOP shares to participants 102 109 Net change in unrealized appreciation on securities available for sale 178 (171) ======= ======= (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 September 30, 2001 and December 31, 2000. September 30, 2001 December 31, 2000 Amount Percent Amount Percent ------------------------------------------------------------------- Tier 1 (Core) Capital Required $ 8,778 4.00% $ 8,715 4.00% Actual 18,385 8.38% 17,812 8.17% Excess 9,607 4.38% 9,097 4.17% Risk-based Capital Required 11,726 8.00% 11,572 8.00% Actual 19,279 13.15% 18,645 12.89% Excess 7,553 5.15% 7,073 4.89% 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. 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.
Number of Shares Three months ended Nine months ended September 30, September 30, -------------------------------------------------- 2001 2000 2001 2000 ------------------------ ----------------------- Basic EPS 1,131,202 1,191,218 1,153,496 1,263,589 Effect of dilutive securities: Stock options 53,239 13,982 50,342 25,749 ------------------------ ----------------------- Diluted EPS 1,184,441 1,205,200 1,203,838 1,289,338 ======================== =======================
NOTE 4. SELECTED FINANCIAL DATA
For the nine months ended September 30, 2001 2000 ------------------------- Return on assets (ratio of net income to average total assets) (1) 1.3% 0.79% Return on equity (ratio of net income to average equity) (1) 13.4% 7.37% Equity to assets ratio (ratio of average equity to average total assets) 9.96% 10.73% Net interest margin (ratio of net interest income to average interest earning assets) (1) 3.61% 3.10%
(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. 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. 9 Comparison of Financial Condition at September 30, 2001 and December 31, 2000: Total assets increased by $1,141,000, from $221,848,000 at December 31, 2000 to $222,989,000 at September 30, 2001. Loans receivable and loans held for sale decreased by $9,225,000 from December 31, 2000 to September 30, 2001. Due to lower interest rates on residential mortgages, management elected to sell the majority of the residential loans originated during the first nine months of 2001 to the secondary market. Included in the loans that were originated and sold during the first nine months of 2001 were loans from the Company's mortgage loan portfolio that were refinanced resulting in the decrease in loans receivable and loans held for sale. Cash, including interest-bearing accounts, increased by $10,037,000. This increase resulted from the refinancing activity of the Company's loan portfolio described above and from cash provided by operations. 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 September 30, 2001 and December 31, 2000 the balances in the allowance for loan losses and the allowance for loan losses as a percentage of total loans were $894,000 and $833,000 and 0.49% and 0.43%, respectively. Activity in the Company's allowance for loan losses for the nine months ended September 30, 2001 and 2000 is summarized as follows: 2001 2000 --------- --------- Balance on January 1, $ 833,248 $ 856,692 Provision for loan losses 105,000 - Charge-offs (59,904) (30,515) Recoveries 15,824 20,072 --------- --------- Balance on September 30, $ 894,168 $ 846,249 ========= ========= Loans on which the accrual of interest has been discontinued amounted to $772,000 and $363,000 at September 30, 2001 and December 31, 2000, respectively. The increase in nonaccrual loans was due to changes in local economic conditions. The effect of nonaccrual loans was not significant to the results of operations. The Company includes all loans considered impaired under FASB Statement No. 114 in nonaccrual loans. The amount of impaired loans was not material at September 30, 2001 and December 31, 2000. Liabilities increased by $886,000, from $199,507,000 at December 31, 2000 to $200,393,000 at September 30, 2001. This increase is primarily due to increases of $9,806,000, $742,000 and $613,000 in deposits, advances from borrowers for taxes and insurance and income taxes, respectively, being offset by a $10,500,000 decrease in borrowed funds. Equity increased by $255,000 from $22,341,000 at December 31, 2000 to $22,596,000 at September 30, 2001. The increase in equity was primarily the result of net income for the first nine months of 2001 of $2,203,000 and the amortization of Employee Stock Ownership Plan shares and restricted stock awards being offset by the payment of $555,000 in cash dividends and by the repurchase of 116,140 shares of treasury stock at a total cost of $2,006,000. On October 16, 2001, the Board of Directors of the Company declared a $0.16 per share cash dividend to be paid on November 12, 2001 to the stockholders of record on October 31, 2001. Subject to the Company's earnings and capital, it is the current intention of the Company to continue to pay regular quarterly cash dividends. 10 Comparison of Operating Results for the Three and Nine-Month Periods Ended September 30, 2001 and September 30, 2000. Net Income. Net income increased by $533,000 and $968,000, or 125.1% and 78.4% for the three and nine-month periods ended September 30, 2001, respectively, when compared to the same periods during 2000. The increase in net income was primarily due to increases of $638,000 and $1,492,000 in noninterest income for the three and nine-month periods ended September 30, 2001, respectively, when compared to the same periods in 2000. Also affecting net income were increases of $502,000 and $965,000 in net interest income for the quarter and nine-month period ended September 30, 2001, respectively, when compared to the same periods in 2000. These increases were partially offset by increases of $222,000 and $693,000 in noninterest expense for the quarter and nine-month periods ended September 30, 2001, respectively, when compared to the same periods in 2000. Interest Income. Interest income increased by $35,000 and $703,000, or 0.9% and 6.0% for the quarter and nine-month period ended September 30, 2001, respectively, when compared to the same periods in 2000. During the first nine months of 2001 the average amount in the Company's loan portfolio was greater than the average amount during the first nine months of 2000. This is the primary reason for the increase in interest income. Interest Expense. Total interest expense decreased by $467,000, or 18.1%, for the quarter ended September 30, 2001 when compared to the same quarter in 2000 and decreased by $262,000, or 3.7%, for the nine months ended September 30, 2001 when compared to the same period in 2000. The decrease in interest expense was primarily the result of the downward repricing of the Company's deposits and borrowed funds due to lower market interest rates during the period. Net Interest income. Net interest income increased by $502,000 and $965,000, or 33.0% and 20.5%, for the three and nine-month periods ended September 30, 2001, respectively, when compared to the same periods in 2000 due to the changes in interest income and interest expense described above. Provision for loan losses. The provision for loan losses increased by $45,000 for the quarter ended September 30, 2001 when compared to the same period in 2000 and increased by $105,000 for the nine months ended September 30, 2001 when compared to the same period in 2000. Management evaluates the quality of the loan portfolio on a quarterly basis to identify and determine the adequacy of the allowance for loan loss. During the first nine months of 2001 management elected to increase the provision for loan loss due to changes in local economic conditions and the increase in the amount of commercial loans in the Company's loan portfolio. 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 increased by $638,000 and $1,492,000, or 146% and 136%, for the three and nine-month periods ended September 30, 2001, respectively, when compared to the same periods in 2000 primarily due to increases in the gain on sale of loans originated for sale and loan origination and commitment fees. Due to low interest rates on residential mortgage loans during the first nine months of 2001, the Company sold to the secondary market a larger volume of loans during that period when compared to the same period in 2000, resulting in increases in the gain on sale of loans originated for sale and loan origination and commitment fees recognized immediately in income. 11 Noninterest Expense. Noninterest expense increased by $222,000 and $693,000, or 18.5% and 18.8%, for the three and nine months ended September 30, 2001, respectively, when compared same periods during 2000 primarily due to an increase in compensation and benefits and to an increase in other noninterest expense. The increase in compensation and benefits resulted from annual compensation adjustments and increases in commissions paid to loan officers for the origination of loans. Also affecting compensation and benefits was an increase in the Employee Stock Ownership Plan expense that resulted from the appreciation of the Company's stock and an increase in the amortization of Management Stock Bonus Plan awards. The increase in other noninterest expense resulted primarily from an increase in the amortization of mortgage servicing rights. Income Tax Expense. Income tax expense increased by $340,000 and $691,000 for the three and nine-month periods ended September 30, 2001 when compared to the same periods in 2000. These increases are proportionate to the increase in income before income taxes for the quarter and nine-month period ended September 30, 2001 when compared to the same periods in 2000. Non-performing Assets. The following table sets forth the amounts and categories of non-performing assets at September 30, 2001 and December 31, 2000. September 30, 2001 December 31, 2000 ------------------ ----------------- (Dollars in Thousands) Non-accruing loans One to four family real estate $ 277 $ 108 Agricultural real estate 195 195 Commercial 52 - Consumer 248 60 ------ ------ Total $ 772 $ 363 ------ ------ Accruing loans which are contractually past due 90 days or more One to four family real estate $ 324 $ 258 Commercial real estate - - ------ ------ Total $ 324 $ 258 ------ ------ Total non-accrual and accruing loans past due 90 days or more $1,096 $ 621 ====== ====== Repossessed and non-performing assets Repossessed property $ 168 $ 54 Other non-performing assets - - ------ ------ Total repossessed and non-performing assets $ 168 $ 54 ------ ------ Total non-performing assets $1,264 $ 675 ====== ====== Total non-accrual and accruing loans past due 90 days or more to net loans 0.61% 0.32% ====== ====== Total non-accrual and accruing loans past due 90 days or more to total assets 0.49% 0.28% ====== ====== Total nonperforming assets to total assets 0.57% 0.30% ====== ====== 12 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 September 30, 2001 and December 31, 2000, the value of loans that would be classified as impaired under these Statements is considered to be immaterial. Liquidity and Capital Resources: 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, 1998, 1999 and 2000, the Company approved stock buy back programs in which up to 955,606 shares of common stock of the Company could be acquired. During 1998, 1999 and 2000, the Company bought 307,200 shares, 223,003 shares and 198,100 shares, respectively, which completed these buy back programs. On December 21, 2000, the Company approved a stock buy back program in which up to 125,000 shares of the common stock of the Company could be acquired. During the first nine months of 2001 the Company bought 116,140 shares of its common stock under this buy back program. The Company paid a cash dividend of $0.16 per share on February 12, 2001, May 14, 2001 and August 13, 2001. On October 16, 2001 the Company declared a cash dividend of $0.16 per share payable on November 12, 2001 to stockholders of record on October 31, 2001. 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 September 30, 2001, the Bank exceeded 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 8.38% at September 30, 2001. 13 WELLS FINANCIAL CORP. and SUBSIDIARIES September 30, 2001 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: none b. No reports on Form 8-K were filed No other information is required to be filed under Part II of the form -------------------------------------------------------------------------------- 14 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: October 30, 2001 --------------------------------------------------- ---------------- Lawrence H. Kruse President and Chief Executive Officer By: /s/ James D. Moll Date: October 30, 2001 --------------------------------------------------- ---------------- James D. Moll Treasurer and Principal Financial & Accounting Officer