-----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, UCFcLHM5aRALbOD6dN+5Bkp6vN6JrzI41RIfkMwPwvSs81WyJIjgZMmTuAhsCRNv pTItTMNW3k5j26lPmstufw== 0000946275-03-000304.txt : 20030505 0000946275-03-000304.hdr.sgml : 20030505 20030505132310 ACCESSION NUMBER: 0000946275-03-000304 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030505 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: 1934 Act SEC FILE NUMBER: 000-25342 FILM NUMBER: 03681718 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 f10qsb_033103-0129.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 March 31, 2003 ---------------------------------------- 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 May 5, 2003: Class Outstanding ----- ----------- $.10 par value per share, common stock 1,130,886 Shares Transitional Small Business Disclosure Format (check one): Yes No X --- --- - -------------------------------------------------------------------------------- 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 Item 3. Controls and Procedures 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures - -------------------------------------------------------------------------------- WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Financial Condition March 31, 2003 and December 31, 2002 (Dollars in Thousands) (Unaudited)
ASSETS 2003 2002 --------- --------- Cash, including interest-bearing accounts March 31, 2003 $45,636; December 31, 2002 $35,178 $ 46,560 $ 36,571 Certificates of deposit 200 200 Securities available for sale, at fair value 20,315 19,856 Federal Home Loan Bank Stock, at cost 1,875 1,875 Loans held for sale 14,439 9,695 Loans receivable, net 135,662 145,586 Accrued interest receivable 1,233 1,387 Foreclosed real estate 417 209 Premises and equipment 3,400 2,975 Mortgage servicing rights, net 2,242 2,179 Other assets 115 83 --------- --------- TOTAL ASSETS $ 226,458 $ 220,616 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $ 172,671 $ 169,126 Borrowed funds 23,000 23,000 Advances from borrowers for taxes and insurance 2,129 1,347 Deferred income taxes 1,301 1,376 Accrued interest payable 126 50 Accrued expenses and other liabilities 1,348 494 --------- --------- TOTAL LIABILITIES 200,575 195,393 --------- --------- 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 16,959 16,985 Retained earnings, substantially restricted 24,950 24,287 Accumulated other comprehensive income 627 746 Unearned ESOP shares - (29) Unearned compensation restricted stock awards (117) (138) Treasury stock, at cost, 1,056,614 shares at March 31, 2003, and 1,062,435 shares at December 31, 2002 (16,755) (16,847) --------- --------- TOTAL STOCKHOLDERS' EQUITY 25,883 25,223 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 226,458 $ 220,616 ========= =========
(See Notes to Consolidated Financial Statements) 1 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Income Three Months Ended March 31, 2003 and 2002 (Dollars in thousands, except per share data) (Unaudited) 2003 2002 ---------- ---------- Interest and dividend income Loans receivable: First mortgage loans $ 1,939 $ 2,375 Consumer and other loans 721 786 Investment securities and other interest bearing deposits 340 391 ---------- ---------- Total interest income 3,000 3,552 ---------- ---------- Interest expense Deposits 986 1,389 Borrowed funds 307 307 ---------- ---------- Total interest expense 1,293 1,696 ---------- ---------- Net interest income 1,707 1,856 Provision for loan losses -- 23 ---------- ---------- Net interest income after provision for loan losses 1,707 1,833 ---------- ---------- Noninterest income Gain on sale of loans originated for sale 820 487 Loan origination and commitment fees 587 305 Loan servicing fees 218 154 Insurance commissions 94 80 Fees and service charges 220 201 Other 30 8 ---------- ---------- Total noninterest income 1,969 1,235 ---------- ---------- Noninterest expense Compensation and benefits 911 787 Occupancy and equipment 261 233 Data processing 125 136 Advertising 59 46 Amortization and valuation adjustments for mortgage servicing rights 519 119 Other 341 298 ---------- ---------- Total noninterest expense 2,216 1,619 ---------- ---------- Income before income taxes 1,460 1,449 Income tax expense 572 596 ---------- ---------- Net Income $ 888 $ 853 ========== ========== Cash dividend declared per common share $ 0.20 $ 0.18 ========== ========== Earnings per share Basic $ 0.79 $ 0.73 ========== ========== Diluted $ 0.77 $ 0.71 ========== ========== Weighted average number of common shares outstanding: Basic 1,125,866 1,162,394 ========== ========== Diluted 1,147,342 1,194,997 ========== ========== (See Notes to Consolidated Financial Statements) 2 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2003 and 2002 (Dollars in Thousands) (Unaudited) 2003 2002 ---------- ---------- Net Income $ 888 $ 853 Other comprehensive income: Unrealized appreciation (depreciation) on securities available for sale (202) (212) Related deferred income taxes 83 87 ---------- ---------- Comprehensive income $ 769 $ 728 ========== ========== (See Notes to Consolidated Financial Statements) 3 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statement of Stockholders' Equity Three Months Ended March 31, 2003 (Dollars in Thousands) (Unaudited)
Unearned Unearned Accumulated Employee Compensation Total Additional Other Stock Restricted Stock- Common Paid-In Retained Comprehensive Ownership Stock Treasury holders' Stock Capital Earnings Income Plan shares Awards Stock Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 $ 219 $ 16,985 $ 24,287 $ 746 $ (29) $ (138) $(16,847) $25,223 Net income for the three months ended March 31, 2003 - - 888 - - - - 888 Net change in unrealized appreciation on securities available for sale, net of related deferred taxes - - - (119) - - - (119) Options exercised - (76) - - - - 92 16 Amortization of unearned compensation - - - - - 21 - 21 Dividends on common stock - - (225) - - - - (225) Allocated employee stock ownership plan shares - 50 - - 29 - - 79 ------------------------------------------------------------------------------------------------- Balance March 31, 2003 $ 219 $ 16,959 $ 24,950 $ 627 $ - $ (117) $(16,755) $25,883 =================================================================================================
(See Notes to Consolidated Financial Statements) 4 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Cash Flows Three Months Ended March 31, 2003 and 2002 (Dollars in Thousands) (Unaudited)
2003 2002 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 888 $ 853 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses - 23 (Gain) on the sale of loans originated for sale (820) (487) Amortization and valuation adjustments for mortgage servicing rights 519 119 Compensation on allocation of ESOP shares 79 72 Amortization of unearned compensation 21 17 Write-down of foreclosed real estate - 23 Deferred income taxes (75) (45) Depreciation and amortization on premises and equipment 79 58 Amortization of deferred loan origination fees (21) (40) Amortization of excess servicing fees, bond premiums and discounts 19 1 Loans originated for sale (54,876) (28,781) Proceeds from the sale of loans originated for sale 50,370 35,477 Changes in assets and liabilities: Accrued interest receivable 154 (41) Other assets 51 89 Accrued expenses and other liabilities 930 506 -------- -------- Net cash provided by (used in) operating activities (2,682) 7,844 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net decrease in loans $ 9,731 $ 3,350 Purchase of certificates of deposit (100) - Purchase of securities available for sale (6,480) (11,044) Proceeds from the maturities of certificates of deposit 100 - Proceeds from the maturities of securities available for sale 5,800 2,773 Purchase of premises and equipment (504) (69) Proceeds from the sale and redemption of foreclosed real estate 10 - Investment in foreclosed real estate (4) (4) -------- -------- Net cash provided by (used in) investing activities 8,553 (4,994) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits $ 3,545 $ (1,573) Net increase in advances from borrowers for taxes and insurance 782 885 Options exercised 16 391 Purchase of treasury stock - (172) Dividends on common stock (225) (209) -------- -------- Net cash provided by (used in) financing activities 4,118 (678) -------- -------- Net increase in cash and cash equivalents 9,989 2,172 CASH AND CASH EQUIVALENTS: Beginning 36,571 38,070 -------- -------- Ending $ 46,560 $ 40,242 ======== ========
(See Notes to Consolidated Financial Statements) 5 WELLS FINANCIAL CORP. and SUBSIDIARY Consolidated Statements of Cash Flows (continued) Three Months Ended March 31, 2003 and 2002 (Dollars in Thousands) (Unaudited)
2003 2002 ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for: Interest on deposits $ 910 $ 1,334 Interest on borrowed funds 307 307 Income taxes 174 95 ======= ======= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Transfers from loans to foreclosed real estate $ 214 $ 73 Allocation of ESOP shares to participants 29 32 Net change in unrealized appreciation on securities available for sale (119) (125) ======= =======
(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., Wells Insurance Agency, Inc and Wells REIT Holding, LLC. NOTE 2. REGULATORY CAPITAL The following table presents the Bank's regulatory capital amounts and percents at March 31, 2003 and December 31, 2002. March 31, 2003 December 31, 2002 Amount Percent Amount Percent ------------------------------------------------------------------ Tier 1 (Core) Capital Required $ 8,809 4.00% $ 8,629 4.00% Actual 19,459 8.84% 19,245 8.92% Excess 10,650 4.84% 10,616 4.92% Risk-based Capital Required 10,853 8.00% 10,956 8.00% Actual 20,376 15.02% 20,153 14.72% Excess 9,523 7.02% 9,197 6.72% 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 March 31, ------------------------------- 2003 2002 ------------------------------- Basic EPS 1,125,866 1,162,394 Effect of dilutive securities: Stock options 21,476 32,603 ------------------------------- Diluted EPS 1,147,342 1,194,997 =============================== NOTE 4. SELECTED FINANCIAL RATIOS
For the three months ended March 31, 2003 2002 -------------------------- Return on assets (ratio of net income to average total assets) (1) 1.59% 1.48% Return on equity (ratio of net income to average equity) (1) 13.86% 14.18% Equity to assets ratio (ratio of average equity to average total assets) 11.43% 10.45% Net interest margin (ratio of net interest income to average interest earning assets) (1) 3.17% 3.42%
(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., Wells Insurance Agency, Inc and Wells REIT Holding, LLC. 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 and one loan origination office in Dakota County, 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. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. 9 Critical Accounting Estimates: The consolidated financial statements include amounts that are based on informed judgments of management. These estimates and judgments are the result of management's need to estimate the effect of matters that are inherently uncertain. Therefore, actual results could vary significantly from the estimates used. Management considers the following items to be the critical accounting estimates contained in the consolidated financial statements. Allowance for Loan Loss. The allowance for loan loss is based on management's periodic review of the loan portfolio. In evaluating the adequacy of the allowance for loan loss, management considers factors including, but not limited to, specific loan impairment, historical loss experience, the size and composition of the loan portfolio and current economic conditions. Although management believes that the allowance for loan loss is maintained at an adequate level, there can be no assurance that further additions will not be made to the allowance and that losses will not exceed the estimated amounts. Mortgage Servicing Rights. Mortgage servicing rights are capitalized and then amortized over the period of estimated servicing income. Management periodically evaluates its capitalized mortgage servicing rights for impairment. The valuation of mortgage servicing rights is based on estimated prepayment speeds, ancillary income received from servicing the loans and current interest rates. Changes in these factors from the estimates used may have a material effect on the valuation of the mortgage servicing rights. Although management believes that the assumptions used to determine the value of the mortgage servicing rights are reasonable, future material adjustments may be necessary if economic conditions vary from those used to estimate the value of the mortgage servicing rights. Comparison of Financial Condition at March 31, 2003 and December 31, 2002: Total assets increased by $5,842,000, from $220,616,000 at December 31, 2002 to $226,458,000 at March 31, 2003. This increase was primarily the result of an increase of $9,989,000 in cash. Cash increased, primarily, due to an increase in deposits by the Company's customers of $3,545,000 and a decrease in total loans of $5,180,000. Due to the continued refinance market, loans held for sale increased by $4,744,000 from December 31, 2002 to March 31, 2003 while loans receivable decreased by $9,924,000 during the same period. Due to lower interest rates on residential mortgages, management continued to sell to the secondary market the majority of the residential mortgage loans that were originated during the first quarter of 2003. Included in the loans that were originated and sold during the quarter were loans from the Company's mortgage loan portfolio that were refinanced resulting in the decrease in loans receivable. 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 the underlying collateral, and current economic conditions. As of March 31, 2003 and December 31, 2002, the balances in the allowance for loan losses and the allowance for loan losses as a percentage of total loans were $917,000 and $908,000 and 0.61% and 0.62%, respectively. Loans on which the accrual of interest has been discontinued amounted to $619,000 and $428,000 at March 31, 2003 and December 31, 2002, 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, 2003 and December 31, 2002. Liabilities increased by $5,182,000 from $195,393,000 at December 31, 2002 to $200,575,000 at March 31, 2003. This increase was primarily due to a $3,545,000 increase in deposits. The Company has been actively promoting its demand deposit and saving accounts as they provide a lower cost of funds than other deposit accounts. During the first quarter of 2003, the balance in the Company's demand deposit and savings accounts increased by $4,169,000 and $1,711,000, respectively. Partially offsetting this increase was a $2,335,000 decrease in certificates of deposit. 10 Equity increased by $660,000 from $25,223,000 at December 31, 2002 to $25,883,000 at March 31, 2003. The increase in equity was primarily the result of net income for the first three months of 2003 of $888,000 being partially offset by the payment of $225,000 in cash dividends. On April 16, 2003, the Board of Directors of the Company declared a $0.20 per share cash dividend to be paid on May 15, 2003 to the stockholders of record on May 1, 2003. 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-Month Periods Ended March 31, 2003 and March 31, 2002. Net Income. Net income increased by $35,000, or 4.1% for the quarter ended March 31, 2003 when compared to the same quarter during 2002. The increase in net income for the first quarter of 2003 when compared to the first quarter of 2002 was primarily due to an increase of $734,000 in noninterest income being offset by an increase of $597,000 in noninterest expense and a decrease in net interest income after provision for loan losses of $126,000. Interest Income. Interest income decreased by $552,000, or 15.5% for the quarter ended March 31, 2003 when compared to the same period in 2002. The decrease in interest income resulted from a $501,000 decrease in interest income from the Company's loan portfolio which was the result of a decrease in the average balance of the Company's loan portfolio during the first quarter of 2003 when compared to the first quarter of 2002 and, to a lesser extent, due to a general decrease in the yield on the Company's loan portfolio. Also contributing to the decrease in interest income was a $51,000 decrease in interest income from investment securities and interest bearing deposits. The decrease in interest income from investment securities and interest bearing deposits was the result of a general decrease in the yield on these investments during the first quarter of 2003 when compared to the same period in 2002. Interest Expense. Total interest expense decreased by $403,000, or 23.8%, for the quarter ended March 31, 2003 when compared to the same quarter in 2002 due to a decrease in interest expense on deposits. The decrease in interest expense on deposits was primarily the result of a decrease in the average rate paid on deposits. Net Interest income. Net interest income decreased by $149,000, or 8.0%, for the three month period ended March 31, 2003 when compared to the same period in 2002 due to the changes in interest income and interest expense described above. Provision for loan losses. The provision for loan losses decreased by $23,000 for the quarter ended March 31, 2003 when compared to the same period in 2002. Management evaluates the quality of the loan portfolio on a quarterly basis to identify and determine the adequacy of the allowance for loan loss. Classified loans were 1.3% and 1.1% of total loans at March 31, 2003 and December 31, 2002, respectively. Nonaccrual loans were $619,000 and $428,000 at March 31, 2003 and December 31, 2002, respectively. The provision reflects management's monitoring of the allowance for loan losses in relation to the size and quality of the loan portfolio and adjusts the provision for loan losses to adequately provide for loan losses. Management determines the amounts of the allowance for loan losses in a systematic manner that includes self-correcting policies that adjust loss estimation methods on a periodic basis. 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. 11 Activity in the Company's allowance for loan losses for the three months ended March 31, 2003 and 2002 is summarized as follows: 2003 2002 --------- --------- Balance on January 1, $ 908,111 $ 951,862 Provision for loan losses - 22,500 Charge-offs (201) (29,472) Recoveries 9,198 5,862 --------- --------- Balance on March 31, $ 917,108 $ 950,752 ========= ========= Noninterest Income. Noninterest income increased by $734,000, or 59.4%, for the three month period ended March 31, 2003 when compared to the same period in 2002 primarily due to increases in the gain on sale of loans originated for sale and loan origination and commitment fees. Due to continued low interest rates on residential mortgage loans during the first three months of 2003, the Company sold to the secondary market a larger volume of loans during that period when compared to the same period in 2002. Market conditions during the first quarter of 2003 when compared to the first quarter of 2002 allowed the Company to obtain a more favorable price on the loans sold to the secondary market which also contributed to the increase in gain on sale of loans originated for sale and loan origination and commitment fees. Also contributing to the increase in noninterest income was a $64,000 increase in loan servicing fees which resulted from an increase in the average amount of loans serviced by the Company during the first quarter of 2003 when compared to the same period in 2002. Noninterest Expense. Noninterest expense increased by $597,000, or 36.9%, for the three months ended March 31, 2003 when compared to the same period during 2002 primarily due to an increase of $400,000 in the amortization and valuation adjustments for mortgage servicing rights. The amortization of mortgage servicing rights increased by $250,000 and the valuation allowance increased by $150,000 for the first quarter of 2003 when compared to the first quarter of 2002. The increase in the amortization and valuation adjustments in mortgage servicing rights is primarily due to increased prepayments resulting from refinancing due to the low interest rate environment. Management anticipates that prepayments will continue if rates remain at these historically low levels. Income Tax Expense. Income tax expense decreased by $24,000 for the three month period ended March 31, 2003 when compared to the same period in 2002. The decrease in income tax expense was primarily due to the Company reducing its effective income tax rate by using certain tax strategies to reduce its taxable income. 12 Non-performing Assets. The following table sets forth the amounts and categories of non-performing assets at March 31, 2003 and December 31, 2002. March 31, 2003 December 31, 2002 -------------- ----------------- (Dollars in Thousands) Non-accruing loans One to four family real estate $ 221 $ 287 Agricultural real estate - - Commercial 341 - Consumer 57 141 ------ ------ Total $ 619 $ 428 ------ ------ Accruing loans which are contractually past due 90 days or more One to four family real estate $ 252 $ 249 Commercial real estate - - ------ ------ Total $ 252 $ 249 ------ ------ Total non-accrual and accruing loans past due 90 days or more $ 871 $ 677 ====== ====== Repossessed and non-performing assets Repossessed property $ 417 $ 209 Other non-performing assets - - ------ ------ Total repossessed and non-performing assets $ 417 $ 209 ------ ------ Total non-performing assets $1,288 $ 886 ====== ====== Total non-accrual and accruing loans past due 90 days or more to net loans 0.58% 0.44% ====== ====== Total non-accrual and accruing loans past due 90 days or more to total assets 0.38% 0.31% ====== ====== Total nonperforming assets to total assets 0.57% 0.40% ====== ====== 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, 2003 and December 31, 2002, the amount of loans that would be classified as impaired under these Statements is considered to be immaterial. 13 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. 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 2001 and 2002 the Company bought 116,140 shares and 8,860 shares, respectively, which completed this buy back program. During 2002 the Company approved stock buy back programs in which up to 120,000 shares of the common stock of the Company could be acquired. During 2002 the Company bought 80,000 shares of its common stock under these buy back programs. The Company paid a cash dividend of $0.20 per share on February 24, 2003. On April 16, 2003 the Company declared a cash dividend of $0.20 per share payable on May 15, 2002 to stockholders of record on May 1, 2003. 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 March 31, 2003, the Bank exceeded all current capital requirements. See Note 2 in the notes to Consolidated Financial Statements. 14 WELLS FINANCIAL CORP. and SUBSIDIARIES Item 3. Controls and Procedures. - ------- ------------------------ a) Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB, the Registrant's principal executive officer and principal financial officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rules 13a-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. b) Changes in internal controls. There were no significant changes in the Registrant's internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 15 WELLS FINANCIAL CORP. and SUBSIDIARIES March 31, 2003 FORM 10-QSB PART II. OTHER INFORMATION - -------------------------- Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds 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: 99.1 Certification pursuant to 18 U.S.C. ss. 1350 of the Sarbanes Oxley Act of 2002 b. No reports on Form 8-K were filed No other information is required to be filed under Part II of the form - -------------------------------------------------------------------------------- 16 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/ Lonnie R. Trasamar Date: May 5, 2003 ------------------------------------------------------ ----------- Lonnie R. Trasamar President and Chief Executive Officer By: /s/ James D. Moll Date: May 5, 2003 ------------------------------------------------------ ----------- James D. Moll Treasurer and Principal Financial & Accounting Officer SECTION 302 CERTIFICATION I, Lonnie R. Trasamar, President and Chief Executive Officer of Wells Financial Corp., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Wells Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 5, 2003 /s/ Lonnie R. Trasamar - ------------------ ---------------------- Lonnie R. Trasamar President and Chief Executive Officer SECTION 302 CERTIFICATION I, James D. Moll, Treasurer and Principal Financial and Accounting Officer of Wells Financial Corp., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Wells Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 5, 2003 /s/ James D. Moll - ------------------ ---------------------------- James D. Moll Treasurer and Principal Financial and Accounting Officer EX-99 3 ex99.txt EX99-1 CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Wells Financial Corp.(the "Company") on Form 10-QSB for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Lonnie R. Trasamar, President and Chief Executive Officer, and James D. Moll, Treasurer (Principal Financial and Accounting Officer), certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Lonnie R. Trasamar /s/ James D. Moll - ------------------------------------- ------------------------------------------ Lonnie R. Trasamar James D. Moll President and Chief Executive Officer Treasurer (Principal Executive Officer) (Principal Financial and Accounting Officer) Date: May 5, 2003 Date: May 5, 2003
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----