Wells Financial Corp. is a bank holding company that was incorporated in December
1994 under the laws of the State of Minnesota for the purpose of acquiring all
of the issued and outstanding common stock of Wells Federal Bank (the “Bank”).
This acquisition occurred in April 1995 at the time the Bank simultaneously
converted from a mutual to a stock institution, and sold all of its outstanding
capital stock to the Company and the Company made its initial public offering
of common stock.
The primary activity of the Company is directing and planning the activities
of the Bank, the Company’s primary asset. The Company engages in no other
significant activities. As a result, references to the Company or Wells generally
refer to the Bank, unless the context otherwise indicates. In the discussion
of regulation, except for the discussion of the regulation of the Company, all
regulations apply to the Bank rather than the Company.
Historically, the Bank’s lending strategy was focused on the origination
of traditional one-to-four family mortgage loans primarily secured by owner-occupied
and non-owner-occupied single- family residences and, to a lesser extent, home
equity, home improvement, second mortgage, agricultural real estate and agricultural
operating loans in the Bank’s primary market area. As a method to reduce
interest rate risk, the Bank has modified the composition of its loan portfolio
in an effort to decrease the emphasis on mortgage loans on owner-occupied and
non-owner-occupied single-family residences and increase the emphasis on agricultural
real estate and operating loans, consumer loans, commercial real estate and
commercial construction and operating loans. Subject to market conditions, the
Bank plans to continue to expand its commercial and agricultural real estate
and operating lending.
The Company is required under federal regulations to maintain a minimum amount
of liquid assets which may be invested in specified short-term securities and
certain other investments. The Company has maintained a liquidity portfolio
in excess of regulatory requirements. Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives and upon management’s
judgment as to the attractiveness of the yields then available in relation to
other opportunities and its expectation of future yield levels, as well as management’s
projections as to the short-term demand for funds to be used in the Company’s
loan origination and other activities.
Deposits are the major external source of the Company’s funds for lending
and other investment purposes. The Company derives funds from amortization and
prepayment of loans and, to a much lesser extent, maturities of investment securities,
borrowings and operations. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are significantly influenced by general interest rates and market conditions.
The Company may also borrow from the FHLB of Des Moines and the United Bankers
Bank as a source of funds.
Consumer and commercial deposits are attracted principally from within the
Company’s primary market area through the offering of a broad selection
of deposit instruments including regular savings accounts, NOW accounts, and
term certificate accounts. The Company also offers IRA and KEOGH accounts. Deposit
account terms vary according to the minimum balance required, the time period
the funds must remain on deposit and the interest rate, among other factors.
The interest rates paid by the Company on deposits can be set daily at the direction
of senior management. Senior management determines the interest rate to offer
the public on new and maturing accounts. Senior management obtains the interest
rates being offered by other financial institutions within its market area.
This data along with a report showing the dollar value of certificates of deposit
maturing is reviewed and interest rates are determined.
Deposits are the primary source of funds of the Company’s lending and
investment activities and for its general business purposes. Through the Bank,
the Company may obtain advances from the FHLB of Des Moines to supplement its
supply of lendable funds. Advances from the FHLB of Des Moines are typically
secured by a pledge of the Bank’s stock in the FHLB of Des Moines and
a portion of the Company’s first mortgage loans and certain other assets.
The Bank, if the need arises, may also access the Federal Reserve Bank discount
window to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.