FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1996.
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 0-18342
Bremer Financial Corporation
(Exact name of registrant as specified in its charter)
Minnesota 41-0715583
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
445 Minnesota St., Suite 2000, St. Paul, MN 55101-2107
(Address of principal executive offices)
(Zip Code)
(612) 227-7621
(Registrant's telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark 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.
Yes __X__ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of September 30, 1996, there were 1,200,000 shares of class A common
stock and 10,800,000 shares of class B common stock outstanding.
BREMER FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PART I -- FINANCIAL INFORMATION Page
----
Item 1 -- Financial Statements 2
Item 2 -- Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 5-- Other information 24
Item 6 -- Exhibits and Reports on Form 8-K 24
Signatures 25
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
===============================================================================================================================
September 30 December 31 September 30
----------------------------------------
(IN THOUSANDS) 1996 1995 1995
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<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 118,388 127,786 96,546
Interest bearing deposits 1,853 3,008 2,869
Investment securities held to maturity (market value of $184,445,
$203,607 and $207,513 respectively) 182,152 198,515 203,288
Mortgage-backed securities held to maturity (market value of $110,839,
$116,772 and $159,952 respectively) 112,925 118,390 164,110
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY 295,077 316,905 367,398
Investment securities available for sale (book value of $193,152,
$209,978 and $209,825 respectively) 192,898 213,520 209,923
Mortgage-backed securities available for sale (book value of $463,106,
$450,551 and $369,502 respectively) 461,445 454,343 371,210
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE 654,343 667,863 581,133
Loans 1,749,075 1,630,100 1,612,996
Reserve for loan losses (30,531) (28,253) (28,213)
Unearned discount (3,929) (3,484) (3,486)
- -------------------------------------------------------------------------------------------------------------------------------
NET LOANS 1,714,615 1,598,363 1,581,297
Premises and equipment, net 45,468 44,252 42,862
Interest receivable and other assets 61,797 54,055 64,273
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,891,541 2,812,232 2,736,378
===============================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 307,170 326,531 284,653
Interest bearing deposits 1,937,300 1,915,776 1,894,572
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 2,244,470 2,242,307 2,179,225
Federal funds purchased and repurchase agreements 203,582 187,100 142,437
Other short-term borrowings 133,860 69,427 104,669
Long-term debt 10,287 25,568 25,780
Accrued expenses and other liabilities 40,758 38,633 42,763
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,632,957 2,563,035 2,494,874
Minority interests 9,097 9,112 8,901
Redeemable preferred stock, $100 par, 80,000 shares authorized;
71,594 shares issued and 21,437 shares outstanding 2,205 2,144 2,198
Redeemable class A common stock, 960,000 shares
issued and outstanding 19,783 19,035 18,433
Shareholder's equity
Common stock
Class A, no par, 12,000,000 shares authorized;
240,000 shares issued and outstanding 57 57 57
Class B, no par, 10,800,000 shares authorized,
issued and outstanding 2,562 2,562 2,562
Retained earnings 225,893 212,392 208,389
Net unrealized (loss)gain on securities available for sale (1,013) 3,895 964
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY 227,499 218,906 211,972
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,891,541 2,812,232 2,736,378
===============================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
===========================================================================================================
Nine Months Ended September 30
-------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
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INTEREST INCOME
Loans, including fees $112,627 104,179 81,521
Securities
Taxable 35,668 34,846 28,552
Tax-exempt 8,417 8,075 7,253
Federal funds sold -- -- 20
Other 121 131 63
- -----------------------------------------------------------------------------------------------------------
Total interest income 156,833 147,231 117,409
- -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 64,417 62,464 41,883
Federal funds purchased and repurchase agreements 6,575 6,246 4,994
Other short term borrowings 4,325 3,306 952
Long term debt 1,110 1,136 192
- -----------------------------------------------------------------------------------------------------------
Total interest expense 76,427 73,152 48,021
- -----------------------------------------------------------------------------------------------------------
Net interest income 80,406 74,079 69,388
Provision for loan losses 1,965 1,320 --
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 78,441 72,759 69,388
- -----------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges 9,490 8,188 7,174
Insurance 4,702 4,152 3,794
Trust 3,919 3,470 3,367
Gain on sale of loans 1,627 869 1,429
Gain on sale of securities 246 332 1,327
Other 4,533 3,685 5,331
- -----------------------------------------------------------------------------------------------------------
Total noninterest income 24,517 20,696 22,422
- -----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 29,829 27,485 26,584
Employee benefits 8,202 7,861 7,343
Occupancy 4,384 4,072 3,683
Furniture and equipment 4,356 3,650 3,197
Data processing fees 5,686 5,392 5,226
FDIC premiums and examination fees 1,084 2,565 3,522
Other 14,279 12,821 11,773
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense 67,820 63,846 61,328
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 35,138 29,609 30,482
Income tax expense 11,462 9,224 9,622
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 23,676 20,385 20,860
===========================================================================================================
Per common share amounts
Net income $1.97 1.70 1.74
Dividends paid 0.75 0.60 0.58
===========================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
===========================================================================================================
Three Months Ended September 30
------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $38,923 37,335 29,779
Securities
Taxable 11,769 11,614 9,812
Tax-exempt 2,846 2,780 2,426
Federal funds sold -- -- 20
Other 37 45 26
- -----------------------------------------------------------------------------------------------------------
Total interest income 53,575 51,774 42,063
- -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 21,678 22,218 14,799
Federal funds purchased and repurchase agreements 2,368 1,814 1,945
Other short term borrowings 1,828 1,358 746
Long term debt 221 595 165
- -----------------------------------------------------------------------------------------------------------
Total interest expense 26,095 25,985 17,655
- -----------------------------------------------------------------------------------------------------------
Net interest income 27,480 25,789 24,408
Provision for loan losses 661 800 --
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 26,819 24,989 24,408
- -----------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges 3,251 2,939 2,527
Insurance 1,854 1,910 1,810
Trust 1,311 1,164 1,088
Gain on sale of loans 519 429 303
Gain on sale of securities 57 226 (35)
Other 1,495 1,005 1,274
- -----------------------------------------------------------------------------------------------------------
Total noninterest income 8,487 7,673 6,967
- -----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 10,252 9,442 9,028
Employee benefits 2,735 2,689 2,444
Occupancy 1,435 1,390 1,222
Furniture and equipment 1,480 1,241 1,081
Data processing fees 1,894 1,841 1,755
FDIC premiums and examination fees 193 91 1,170
Other 4,911 4,546 4,154
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense 22,900 21,240 20,854
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 12,406 11,422 10,521
Income tax expense 4,089 3,685 3,372
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 8,317 7,737 7,149
===========================================================================================================
Per common share amounts
Net income $0.69 0.64 0.60
Dividends paid 0.25 0.20 0.20
===========================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
============================================================================================================================
Net Unrealized
Gain (Loss) on
Common Stock Securities
-------------------------- Available Retained
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Class A Class B for Sale Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $57 2,562 4,678 181,137 188,434
Net income 25,797 25,797
Dividends, $.78 per share (9,360) (9,360)
Allocation of net income in excess of dividends and change
in net unrealized gain (loss) on securities available
for sale to redeemable class A common stock 1,393 (1,315) 78
Change in net unrealized gain (loss) on securities available for sale (17,411) (17,411)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 57 2,562 (11,340) 196,259 187,538
Net income 27,136 27,136
Dividends, $.80 per share (9,600) (9,600)
Allocation of net income in excess of dividends and change
in net unrealized gain (loss) on securities available
for sale to redeemable class A common stock (1,324) (1,403) (2,727)
Change in net unrealized gain (loss) on securities available for sale 16,559 16,559
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 57 2,562 3,895 212,392 218,906
Net income 23,676 23,676
Dividends, $.75 per share (9,000) (9,000)
Allocation of net income in excess of dividends and change
in net unrealized gain (loss) on securities available
for sale to redeemable class A common stock 427 (1,175) (748)
Change in net unrealized gain (loss) on securities available for sale (5,335) (5,335)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 $57 2,562 (1,013) 225,893 227,499
============================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
==================================================================================================================
Nine Months Ended September 30
-----------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,676 20,385 20,860
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 1,965 1,320 --
Depreciation and amortization 5,210 4,890 7,219
Minority interests in earnings of subsidiaries 1,051 945 984
Gain on sale of securities (246) (332) (1,327)
Valuation writedown on other real estate owned -- 13 --
Gains on sale of other real estate owned, net (7) (203) 1,350
Other assets and liabilities, net (3,135) 1,623 (5,952)
Proceeds from sales of other real estate owned 272 504 3,083
Cash receipts related to loans originated specifically for resale 90,687 39,968 66,637
Cash payments related to loans originated specifically for resale (90,450) (39,099) (65,208)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,023 30,014 27,646
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net 1,155 (1,257) (135)
Federal funds sold, net -- -- 16,391
Purchases of securities available for sale (164,126) (180,920) (214,347)
Purchases of securities held to maturity (19,641) (18,983) (41,354)
Proceeds from maturities of securities available for sale 87,257 63,941 78,266
Proceeds from maturities of securities held to maturity 42,636 45,833 54,782
Proceeds from sales of securities avaialable for sale 80,258 87,032 102,816
Loans, net (118,453) (131,926) (145,021)
Acquisitions, net of cash acquired -- (1,469) 1,621
Acquisition of premises and equipment (5,511) (8,764) (3,112)
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (96,425) (146,513) (150,093)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (19,361) (5,718) (8,971)
Interest bearing deposits (excluding certificates of deposit), net (26,881) (4,333) (33,795)
Certificates of deposits, net 48,405 118,941 34,237
Federal funds purchased and repurchase agreements, net 16,482 (61,624) 46,820
Other short-term borrowings, net 64,433 60,854 67,861
Long-term debt, net (15,281) 1,992 12,924
Minority interests acquired and dividends paid (855) (854) (1,179)
Redeemable preferred stock 61 (5,054) --
Dividends paid (9,000) (7,200) (6,960)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 58,003 97,004 110,937
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks (9,398) (19,495) (11,510)
Cash and due from banks
Beginning of year 127,786 116,041 100,304
- ------------------------------------------------------------------------------------------------------------------
End of year $118,388 96,546 88,794
==================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. FINANCIAL STATEMENTS. The condensed financial statements included
herein have been prepared by Bremer Financial Corporation (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading.
B. GENERAL. The consolidated financial statements include the accounts of
Bremer Financial Corporation and Subsidiaries. All material
intercompany transactions and balances are eliminated in consolidation.
The Company has not changed its accounting policies from those stated
for the year ended December 31, 1995 and included in its Annual Report
on Form 10-K for the year ended December 31, 1995 filed on March 29,
1996.
C. INTERIM PERIOD ADJUSTMENTS. The consolidated financial statements
contained herein reflect all adjustments which are, in the opinion of
management, of a normal recurring nature and are necessary for a fair
statement of the financial position, results of operations, and cash
flows for the unaudited interim periods. The results of operations for
the interim periods are not necessarily indicative of the results to be
expected for the entire year.
D. EARNINGS PER SHARE CALCULATIONS. Earnings per common share have been
computed using 12,000,000 common shares outstanding for all periods.
E. MORTGAGE-BACKED SECURITIES. Mortgage-backed securities classified as
held to maturity are valued at amortized historical cost, increased for
accretion of discounts and reduced by amortization of premiums,
computed by the constant yield method. Mortgage-backed securities
classified as available for sale are valued at current market value
with the resulting unrealized holding gains and losses excluded from
earnings and reported, net of tax, as a separate component of
shareholder's equity. Gains and losses on these securities are computed
based on the adjusted cost of the specific securities sold.
F. REDEEMABLE CLASS A COMMON STOCK. At September 30, 1996, the 960,000
class A shares were generally redeemable at $20.61 per share. Since
January 1, 1996 and through September 30, 1996, options to call
53,164.4788 shares had been exercised and the shares subsequently
purchased by the Company's ESOP and profit sharing plan from employees
and non-employee directors of the Company and the Company's
Subsidiaries. During the same period, a total of 1,250 shares changed
hands directly between individuals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Earnings Summary
Bremer Financial Corporation (the "Company") recorded net income of $8.3 million
for the third quarter of 1996, a 7.5% increase from the $7.7 million earned in
the third quarter of 1995. On a year-to-date basis, earnings were $23.7 million,
up 16.1% or $3.3 million from the $20.4 million earned in the first nine months
of 1995. Contributing positively to earnings in the first nine months of 1996
were an 8.5% or $6.3 million increase in net interest income coupled with an
increase in noninterest income of 18.5% or $3.8 million. Partially offsetting
these positive increases were a 6.2% or $4.0 million increase in noninterest
expense and a $645 thousand increase in the provision for loan losses.
Return on average assets (ROA) was 1.21% for the third quarter of 1996, compared
to 1.18% for the same period in 1995. For the first nine months of 1996, ROA
improved to 1.18% from 1.09% for the first nine months of 1995. Return on
average realized equity (RORE) was 13.43% for the third quarter of 1996,
compared to 13.54% for the same period in 1995. On a year-to-date basis, RORE
was 13.12%, compared to 12.23% recorded for the first nine months of 1995. Table
I presents a summary of the components affecting the change in year-to-date
return on assets from September 30, 1995 to September 30, 1996.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $247.3 million
at September 30, 1996, representing a book value per share of $20.61, a 7.3%
increase from $19.20 at September 30, 1995. Dividends paid per share remained
unchanged from the $.25 paid in the first quarter of 1996, and are up from the
$.20 dividend paid quarterly throughout 1995. The Company maintains a very
strong capital position compared to industry standards. Table II presents
various regulatory capital ratios.
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS No. 115), requires the market
value of securities available for sale to be recorded on the Company's balance
sheet, with unrealized gains or losses, net of tax, included in equity. The
application of this accounting standard, which has been reflected on the
Company's balance sheet since December 31, 1993, had the effect of decreasing
the book value per share by $.09 as of September 30, 1996 and increasing book
value per share by $.09 as of September 30, 1995.
Net Interest Income
Tax-equivalent net interest income for the third quarter of 1996 was $29.4
million, an increase of $1.8 million or 6.4% from the third quarter of 1995.
This increase in net interest income resulted from a 5.9% increase in average
earning assets (enhanced by acquisitions) combined with an improvement in the
net interest margin from 4.31% to 4.33% for the third quarter of 1996. On a
year-to-date basis, tax-equivalent net interest income was $86.1 million, an
increase of $6.6 million or 8.3% over the $79.5 million realized in the first
nine months of 1995. Table III presents the quarter-to-quarter comparison of
tax-equivalent net interest income and net interest margins.
For both the third quarter and year-to-date 1996, the net interest margin
improved, as presented in Table IV, due to continued reductions in nonaccrual
loans from 1995 and greater interest recoveries on problem loans along with more
free funds supporting earning assets. Also contributing positively to the net
interest margin on a year-to-date basis was an increase in the spread between
yields on earning assets and costs on interest bearing liabilities offset
partially by a less favorable product mix.
The Company uses gap reports to assess its current interest rate sensitivity
position, but relies more heavily on simulation modeling to measure projected
interest rate risk over time. While the Company's traditional gap report
indicated a liability sensitive position at September 30, 1996, simulation
modeling results have indicated the amount of net interest income at risk as a
result of any substantial change in market interest rates was within the
Company's acceptable policy limits.
Nonperforming Assets
Table VI shows the details of nonperforming assets at September 30, 1996,
December 31, 1995 and September 30, 1995. Nonperforming assets, which include
nonperforming loans and other real estate owned (OREO), were $10.1 million at
September 30, 1996. This total represents an increase of $676 thousand from
December 31, 1995 and a decrease of $2.0 million from September 30, 1995.
Nonperforming assets as a percentage of total loans and OREO declined steadily
over the past three years, as follows: 1.02% at September 30, 1994; .75% at
September 30, 1995; and .58% at September 30, 1996.
Nonperforming loans, which include nonaccrual and restructured loans, were $9.8
million at September 30, 1996, an increase of $786 thousand from December 31,
1995 and a decrease of $827 thousand from September 30, 1995. The ratio of
nonperforming loans to total loans improved from .66% at September 30, 1995 to
.56% at September 30, 1996, and the ratio of nonperforming assets and past due
loans to total loans and OREO improved from 1.04% to .73% between the same two
periods. The level of at-risk performing loans (with an internal loan review
rating of either substandard, doubtful or loss) increased $9.4 million or 11.8%
from $80.0 million at September 30, 1995 to $89.4 million at September 30, 1996.
Accordingly, the ratio of classified loans to total loans has increased from
5.0% at September 30, 1995 to 5.1% at September 30, 1996. Net recoveries were
$313 thousand for the first nine months of 1996 as compared to net charge-offs
of $804 thousand in the same period of 1995.
Other real estate owned, which includes real estate acquired in loan
settlements, decreased $110 thousand from December 31, 1995 and $1.2 million
from September 30, 1995.
Reserve for Loan Losses
The Company's reserve for loan losses was 311.2% of nonperforming loans at
September 30, 1996 compared to 313.0% at December 31, 1995 and 265.2% at
September 30, 1995. Management believes the current reserve is adequate to cover
the risks inherent in the portfolio, including the risk of nonperforming loans
and other loans that have been identified for careful monitoring.
The reserve for loan losses increased from $28.2 million at September 30, 1995
to $30.5 million at September 30, 1996. While the reserve for loan losses
increased $2.3 million or 8.2% from September 30, 1995 to September 30, 1996,
the loan portfolio increased 9.6% causing the reserve to outstanding loans ratio
to remain unchanged at 1.75%. Table VII presents the activity in the reserve for
loan losses.
Noninterest Income
Noninterest income was $8.5 million for the third quarter of 1996 compared to
$7.7 million for the third quarter of 1995, representing an $814 thousand or
10.6% improvement. On a year-to-date basis, noninterest income was $24.5 million
compared to $20.7 million in 1995, an increase of $3.8 million or 18.5%.
Operating noninterest income, which excludes investment securities gains and
losses, increased 19.2% over 1995, with most categories posting increases.
Service charge fees, brokerage commissions, gains on sale of loans, and
insurance commissions were the major contributors to the increase in operating
noninterest income. The $550 thousand or 13.3% increase in insurance commissions
resulted primarily from two agency acquisitions since the first quarter of
1995. Table VIII presents a comparison of significant noninterest income
components.
Noninterest Expense
As presented in Table IX, noninterest expense increased $1.7 million or 7.8%
compared to the third quarter of 1995. On a year-to-date basis, noninterest
expense increased $4.0 million or 6.2% compared to the first nine months of
1995. Acquisitions completed during 1995 and early 1996 had an impact on the
comparison of expenditures between periods. Excluding the $1.7 million in
noninterest expenses attributed to these acquired entities, noninterest expense
would have increased only $2.3 million or 3.7%. Offsetting the impact of
acquisitions on noninterest expenses was a $1.5 million decline in FDIC
premiums, a situation that was experienced industry-wide.
A common industry statistic used to measure the productivity of banking
organizations is the efficiency ratio. The efficiency ratio measures the cost
required to generate each dollar of revenue and is calculated by dividing
recurring noninterest expense by tax-equivalent net interest income and
recurring noninterest income. The Company's efficiency ratio improved
significantly from 62.48% at September 30, 1995 to 59.54% at September 30, 1996.
Contributing to this improvement were significant increases in the
tax-equivalent net interest income of 8.3% coupled with strong growth in
recurring noninterest income of 23.1% and modest growth in recurring noninterest
expense of 6.0%.
Taxes
Comparing the first nine months of 1996 to the first nine months of 1995, the
Company's effective tax rate increased from 31.2% to 32.6%. This results from
proportionately more taxable than tax-exempt income during the first nine months
of 1996 compared to the same period in 1995.
Balance Sheet Growth
When comparing year-to-date 1996 average balances to year-to-date 1995 average
balances, acquisitions added approximately $32.9 million to average total
assets, increasing gross loans by $14.0 million, securities by $15.2 million,
and core deposits by $29.2 million.
Assets
Average total assets increased $191.8 million or 7.4% from the first nine months
of 1995 to the first nine months of 1996, while average earning assets increased
$176.4 million or 7.2% when comparing the same two periods.
Loans
From the first nine months of 1995 to the first nine months of 1996, average
loans increased $146.7 million or 9.6%, driven by increases in all loan
categories. Average loans in the third quarter of 1996 increased $72.1 million
from the second quarter of 1996, resulting from seasonal activity.
On a year-to-date basis, the increase in average loan volume in 1996 over 1995
was driven by agricultural, commercial real estate, residential real estate,
commercial, consumer, and tax-exempt loans which increased $35.0 million, $28.2
million, $27.6 million, $27.2 million, $26.6 million, and $2.3 million,
respectively. The Company is not involved in highly leveraged transaction
lending or lending to foreign countries.
Securities
Average securities increased $29.7 million or 3.2% from the first nine months of
1995 to the first nine months of 1996. Taxable securities increased $17.7
million or 2.4%, while tax-exempt securities increased $12.0 million or 6.1%.
The continued increase in tax-exempt investment securities is attributed to the
Company's strong earnings in recent years and its ability to utilize tax-exempt
income. The average maturity of the portfolio was 51.0 months at September 30,
1996, with an average yield to maturity on the $949.4 million portfolio of 6.7%,
unrealized gains of $3.3 million and unrealized losses of $3.1 million for held
to maturity securities. In accordance with FAS No. 115, the available for sale
investments are recorded inclusive of any unrealized gain or loss.
Liabilities
Comparing year-to-date 1996 to year-to-date 1995, average interest bearing
liabilities increased $143.4 million or 6.9%, while average deposits increased
$118.6 million or 5.7%. Average short-term borrowings, which include federal
funds purchased, securities sold under agreements to repurchase, treasury tax
and loan notes, and Federal Home Loan Bank (FHLB) advances, increased $47.1
million or 20.5%. Average long-term debt, which includes long-term FHLB advances
and installment promissory notes issued in connection with acquisitions,
increased $1.2 million. Most of the increase in short-term borrowings can be
attributed to an increase in the Company's FHLB advances over the first nine
months of 1995. Continued strong asset growth, coupled with slower growth in
deposits, has created the need for this funding source. The associated interest
rate risk was monitored closely and steps were taken to match repricability of
assets and liabilities prior to any funding decisions.
Core deposits, which generally include all deposits and repurchase agreements
except for those greater than $100 thousand of nonpersonal and public entities,
and certain other public funds, historically have provided a stable source of
funding. Between the first nine months of 1995 and the first nine months of
1996, average core deposits increased $107.2 million or 5.3%. The growth in core
deposits can be attributed to the aforementioned acquisitions and the Company's
focused effort to redefine the pricing of its core deposits, emphasizing
customer relationships and responsiveness to national market rates, in an effort
to consistently provide customers with fair returns on their deposits.
<TABLE>
<CAPTION>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
============================================================================================================================
Nine Months Ended September 30 Three Months Ended September 30
---------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total interest income $ 156,833 147,231 6.5% $53,575 51,774 3.5%
Net interest income 80,406 74,079 8.5 27,480 25,789 6.6
Net interest income (1) 86,130 79,493 8.3 29,419 27,637 6.4
Provision for loan losses 1,965 1,320 48.9 661 800 (17.4)
Noninterest income 24,517 20,696 18.5 8,487 7,673 10.6
Noninterest expense 67,820 63,846 6.2 22,900 21,240 7.8
Net income 23,676 20,385 16.1 8,317 7,737 7.5
Dividends 9,000 7,200 25.0 3,000 2,400 25.0
AVERAGE BALANCES
Assets 2,801,790 2,609,942 7.4 2,855,980 2,712,936 5.3
Loans 1,671,408 1,524,674 9.6 1,738,714 1,609,887 8.0
Securities 963,523 933,853 3.2 953,684 932,065 2.3
Deposits 2,204,188 2,085,610 5.7 2,224,332 2,162,191 2.9
Redeemable class A common stock 19,409 17,370 11.7 19,546 18,241 7.2
Shareholder's equity 223,203 199,756 11.7 224,784 209,766 7.2
PERIOD-END BALANCES
Assets 2,891,541 2,736,378 5.7
Loans 1,745,145 1,609,510 8.4
Securities 949,420 948,531 0.1
Deposits 2,244,470 2,179,225 3.0
Redeemable class A common stock 19,783 18,433 7.3
Shareholder's equity 227,499 211,972 7.3
FINANCIAL RATIOS
Return on assets (2) 1.18% 1.09 8.3 1.21% 1.18 2.5
Return on realized equity (3)(4) 13.12 12.23 7.3 13.43 13.54 (0.8)
Average equity/assets (3) 8.66 8.32 4.1 8.56 8.40 1.9
Dividend payout 38.01 35.32 7.6 36.07 31.02 16.3
Net interest margin (1) 4.36 4.32 0.9 4.33 4.31 0.5
Net charge-offs/average loans (0.03) 0.07 -- 0.03 0.19 --
Reserve/period-end loans 1.75 1.75 0.0 1.75 1.75 0.0
PER SHARE OF COMMON STOCK (3)
Net income 1.97 1.70 16.1 $0.69 0.64 7.5
Dividends paid 0.75 0.60 25.0 0.25 0.20 25.0
Period-end book value 20.61 19.20 7.3 20.61 19.20 7.3
Period-end realized book value (4) 20.70 19.11 8.3 20.70 19.11 8.3
(1) Tax-equivalent basis (TEB).
(2) Calculation is based on income before minority interests.
(3) Calculation is based on 12,000,000 shares, including redeemable class A common stock.
(4) Excluding net unrealized gain (loss) on securities available for sale.
============================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
TABLE I
CHANGES IN RETURN ON ASSETS
==============================================================
Year-To-Date
September 30
1996 vs 1995
- --------------------------------------------------------------
Return on assets, prior year 1.09%
- --------------------------------------------------------------
Increases
Net interest income (TEB) 0.03
Service charges 0.03
Insurance 0.01
Trust fees 0.01
Brokerage 0.03
Gain on sale of loans 0.03
Employee benefits 0.01
Data processing fees 0.01
FDIC premiums and examination fees 0.08
Other noninterest expense, net 0.01
- --------------------------------------------------------------
Total increases 0.25
- --------------------------------------------------------------
Decreases
Provision for loan loss 0.03
Gain on sale of other assets 0.01
Gain on sale of securities 0.01
Salaries and wages 0.01
Furniture and equipment 0.02
Marketing 0.01
Provision for income taxes 0.07
- --------------------------------------------------------------
Total decreases 0.16
- --------------------------------------------------------------
Return on assets, current year 1.18%
==============================================================
<TABLE>
<CAPTION>
TABLE II
CAPITAL RATIOS (1)
=========================================================================================
September 30 December 31 September 30 Regulatory
1996 1995 1995 Minimums
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Equity to assets (2) 8.55% 8.46 8.42 --
Equity to tangible assets (2) 8.47 8.40 8.34 --
Tier I capital (3) 12.70 12.75 12.62 4.00
Tier I and tier II capital (3) 13.95 14.01 13.87 8.00
Leverage ratio (3) 8.62 8.41 8.37 3.00
</TABLE>
(1) Calculations include redeemable class A common stock.
(2) Computed in accordance with generally accepted accounting principles,
including the unrealized market value adjustment of securities available
for sale.
(3) Computed exclusive of the unrealized market value adjustment of securities
available for sale.
TABLE III
NET INTEREST INCOME / MARGINS (TEB)
================================================================================
Net Net
Interest Interest
(DOLLARS IN THOUSANDS) Income Margin
- --------------------------------------------------------------------------------
Quarter
- -------
1996
Third $29,419 4.33%
Second 28,734 4.38
First 27,977 4.35
1995
Fourth 28,405 4.37
Third 27,637 4.31
Second 26,369 4.31
First 25,487 4.36
1994
Fourth 26,532 4.51
Third 25,911 4.53
Second 24,820 4.56
First 23,435 4.48
1993
Fourth 24,095 4.52
Third 22,797 4.47
Second 23,762 4.78
First 23,011 4.77
================================================================================
<TABLE>
<CAPTION>
TABLE IV
CHANGES IN NET INTEREST INCOME (TEB)
1996 vs 1995
====================================================================================================
Nine Months Ended Three Months Ended
(IN THOUSANDS) September 30 September 30
- ----------------------------------------------------------------------------------------------------
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN VOLUME
Earning assets $ 10,940 $ 3,162
Interest bearing liabilities (5,027) (1,200)
-------- --------
5,913 1,962
CHANGE IN INTEREST RATE SPREAD
Earning assets (2,573) (0.13)% (1,416) (0.21)%
Interest bearing liabilities 3,055 0.15 1,436 0.21
-------- -------- -------- --------
482 0.02 20 0.00
CHANGE IN PRODUCT MIX
Earning assets 780 0.04 244 0.04
Interest bearing liabilities (1,034) (0.05) (344) (0.05)
-------- -------- -------- --------
(254) (0.01) (100) (0.01)
CHANGE DUE TO NUMBER OF DAYS
Earning assets 560 -- -- --
Interest bearing liabilities (268) -- -- --
-------- -------- -------- --------
292 -- -- --
OTHER CHANGES
Nonaccruing loans 308 0.02 108 0.01
Yield-related loan fees 3 0.00 (208) (0.03)
30/360 investment adjustment (107) (0.01) -- --
Free funds -- 0.02 -- 0.05
-------- -------- -------- --------
204 0.03 (100) 0.03
CHANGE IN NET INTEREST INCOME 6,637 0.04 1,782 0.02
Net interest income, prior period 79,493 4.32 27,637 4.31
-------- -------- -------- --------
Net interest income, current period $ 86,130 4.36% $ 29,419 4.33%
======== ======== ======== ========
</TABLE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
================================================================================
Nine Months Ended September 30
---------------------------------------
(IN THOUSANDS) 1996 vs 1995
- --------------------------------------------------------------------------------
Volume Yield/Rate (1) Total
------- ------- -------
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans $ 7,549 $ 1,127 $ 8,676
Taxable securities 2,497 (1,675) 822
Tax-exempt securities 878 (364) 514
Interest bearing deposits -- -- --
Federal funds sold -- -- --
Other earning assets 16 (117) (101)
------- ------- -------
Total 10,940 (1,029) 9,911
INTEREST EXPENSE
Savings deposits 881 (2,458) (1,577)
Other time deposits 3,376 671 4,047
Short-term borrowings 701 (5) 696
Long-term debt 69 39 108
------- ------- -------
Total 5,027 (1,753) 3,274
------- ------- -------
NET INTEREST INCOME $ 5,913 $ 724 $ 6,637
================================================================================
(1) ALL CHANGES IN NET INTEREST INCOME, OTHER THAN THOSE DUE TO VOLUME, HAVE
BEEN ALLOCATED TO YIELD/RATE.
<TABLE>
<CAPTION>
TABLE VI
NONPERFORMING ASSETS
===========================================================================================
September 30 December 31 September 30
(DOLLARS IN THOUSANDS) 1996 1995 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 9,381 8,392 9,524
Restructured loans 431 634 1,115
- -------------------------------------------- ------- ------- -------
Total nonperforming loans 9,812 9,026 10,639
Other real estate owned (OREO) 270 380 1,442
- -------------------------------------------- ------- ------- -------
Total nonperforming assets $10,082 9,406 12,081
============================================ ======= ======= =======
Past due loans * $ 2,692 2,504 4,642
============================================ ======= ======= =======
Nonperforming loans to total loans 0.56% 0.55 0.66
Nonperforming assets to total loans and OREO 0.58 0.58 0.75
Nonperforming assets and past due loans* to
total loans and OREO 0.73 0.73 1.04
Reserve to nonperforming loans 311.16 313.02 265.18
Reserve to total loans 1.75 1.74 1.75
============================================ ======= ======= =======
* PAST DUE LOANS INCLUDE ACCRUING LOANS 90 DAYS OR MORE PAST DUE.
</TABLE>
TABLE VII
RESERVE FOR LOAN LOSSES
=========================================================================
Nine Months Ended
September 30
--------------------------
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------
Beginning of period $ 28,253 26,946
Charge-offs (1,075) (1,992)
Recoveries 1,388 1,188
- --------------------------------------- -------- --------
Net charge-offs 313 (804)
Provision for loan losses 1,965 1,320
Reserve related to acquired assets -- 751
- --------------------------------------- -------- --------
End of period $ 30,531 28,213
======================================= ======== ========
<TABLE>
<CAPTION>
TABLE VIII
NONINTEREST INCOME
===========================================================================================
Nine Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 Dollar Percent
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges $ 9,490 8,188 1,302 15.90%
Insurance 4,702 4,152 550 13.25
Trust 3,919 3,470 449 12.94
Brokerage 1,824 1,037 787 75.89
Gain on sale of loans 1,627 869 758 87.23
Gain on sale of other assets 88 368 (280) (76.09)
Other 2,621 2,280 341 14.96
- ------------------------------- ------- ------ ------ ------
Operating noninterest income 24,271 20,364 3,907 19.19
Gain on sale of securities 246 332 (86) (25.90)
- ------------------------------- ------- ------ ------ ------
Total $24,517 20,696 3,821 18.46%
=============================== ======= ====== ====== ======
===========================================================================================
Three Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 Dollar Percent
- -------------------------------------------------------------------------------------------
Service charges $ 3,251 2,939 312 10.62%
Insurance 1,854 1,910 (56) (2.93)
Trust 1,311 1,164 147 12.63
Brokerage 653 231 422 182.68
Gain on sale of loans 519 429 90 20.98
Gain on sale of other assets 50 149 (99) (66.44)
Other 792 625 167 26.72
- ------------------------------- ------- ------ ------ ------
Operating noninterest income 8,430 7,447 983 13.20
Gain on sale of securities 57 226 (169) (74.78)
- ------------------------------- ------- ------ ------ ------
Total $ 8,487 7,673 814 10.62%
=============================== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
TABLE IX
NONINTEREST EXPENSE
=======================================================================================================
Nine Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 Dollar Percent
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and wages $29,829 27,485 2,344 8.53%
Employee benefits 8,202 7,861 341 4.34
Occupancy 4,384 4,072 312 7.66
Furniture and equipment 4,356 3,650 706 19.34
Printing, postage and office supplies 3,548 3,305 243 7.35
Marketing 2,383 1,928 455 23.60
Data processing fees 5,686 5,392 294 5.45
Professional fees 557 559 (2) (0.36)
Other real estate owned 29 63 (34) (53.97)
Minority interest in earnings 1,051 945 106 11.22
FDIC premiums and examination fees 1,084 2,565 (1,481) (57.74)
Other 6,711 6,021 690 11.46
- ------------------------------------------ ------- ------- ------ ------
Total $67,820 63,846 3,974 6.22%
========================================== ======= ======= ====== ======
=======================================================================================================
Three Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 Dollar Percent
- -------------------------------------------------------------------------------------------------------
Salaries and wages $10,252 9,442 810 8.58%
Employee benefits 2,735 2,689 46 1.71
Occupancy 1,435 1,390 45 3.24
Furniture and equipment 1,480 1,241 239 19.26
Printing, postage and office supplies 1,150 1,178 (28) (2.38)
Marketing 804 586 218 37.20
Data processing fees 1,894 1,841 53 2.88
Professional fees 218 195 23 11.79
Other real estate owned 10 22 (12) (54.55)
Minority interest in earnings 368 336 32 9.52
FDIC premiums and examination fees 193 91 102 112.09
Other 2,361 2,229 132 5.92
- ------------------------------------------ ------- ------- ------ ------
Total $22,900 21,240 1,660 7.82%
========================================== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995
(Tax Equivalent Basis-In Thousands)
SEPTEMBER YTD 1996 SEPTEMBER YTD 1995 % CHANGE
----------------------------------------- -----------------------------------
AVG BAL INTEREST RATE/YIELD AVG BAL INTEREST RATE/YIELD AVG BAL
ASSETS ----------- ----------- ----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED DISCOUNT)
COMMERCIAL AND OTHER $ 342,971 $ 23,509 9.16% $ 315,820 $ 22,328 9.45% 8.60%
COMMERCIAL REAL ESTATE 351,544 23,946 9.10 323,354 22,377 9.25 8.72
AGRICULTURAL 356,043 24,710 9.27 321,059 23,092 9.62 10.90
RESIDENTIAL REAL ESTATE 341,999 22,205 8.67 314,441 20,367 8.66 8.76
CONSUMER 228,490 15,616 9.13 201,904 13,640 9.03 13.17
TAX-EXEMPT 50,361 4,012 10.64 48,096 3,606 10.02 4.71
----------- ----------- ---------- ----------
TOTAL LOANS 1,671,408 113,998 9.11 1,524,674 105,410 9.24 9.62
RESERVE FOR LOAN LOSSES (29,373) (27,853) 5.46
----------- ----------
NET LOANS 1,642,035 1,496,821 9.70
SECURITIES
MORTGAGE BACKED 231,262 12,193 7.04 245,949 12,812 6.96 (5.97)
OTHER TAXABLE 524,139 23,475 5.98 491,772 22,034 5.99 6.58
TAX EXEMPT 208,122 12,765 8.19 196,132 12,251 8.35 6.11
----------- ----------- ---------- ----------
TOTAL SECURITIES 963,523 48,433 6.71 933,853 47,097 6.74 3.18
FEDERAL FUNDS SOLD 0 0 0.00 0 0 0.00 --
OTHER EARNING ASSETS 2,892 125 5.77 2,947 138 6.26 (1.87)
----------- ----------- ---------- ----------
TOTAL EARNING ASSETS 2,637,823 162,556 8.23 2,461,474 152,645 8.29 7.16
CASH & DUE FROM BANKS 91,520 66,326 37.99
NONEARNING ASSETS 101,820 109,995 (7.43)
----------- ----------
$ 2,801,790 $2,609,942 7.35
=========== ==========
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $ 273,563 $ 250,166 9.35
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 253,869 3,214 1.69 253,310 3,885 2.05 0.22
MONEY MARKET CHECKING 179,332 2,286 1.70 171,664 2,638 2.05 4.47
MONEY MARKET SAVINGS 243,925 5,743 3.14 247,876 6,297 3.40 (1.59)
SAVINGS CERTIFICATES 1,098,896 46,809 5.69 1,022,653 43,638 5.71 7.46
CERTIFICATES OVER $100,000 154,603 6,365 5.50 139,941 5,489 5.24 10.48
----------- ----------- ---------- ----------
TOTAL TIME DEPOSITS 1,930,625 64,417 4.46 1,835,444 61,947 4.51 5.19
----------- ----------- ---------- ----------
TOTAL DEPOSITS 2,204,188 2,085,610 5.69
CORE DEPOSITS 2,122,653 2,015,466 5.32
SHORT-TERM BORROWINGS 276,711 10,899 5.26 229,653 10,203 5.94 20.49
LONG-TERM DEBT 23,523 1,110 6.30 22,315 1,002 6.00 5.41
----------- ----------- ---------- ----------
TOTAL INTEREST BEARING LIABILITIES 2,230,859 76,426 4.58 2,087,412 73,152 4.69 6.87
OTHER LIABILITIES 43,476 41,942 3.66
----------- ----------
TOTAL LIABILITIES 2,547,898 2,379,520 7.08
MINORITY INTEREST 9,105 8,571 6.23
REDEEMABLE PREFERRED STOCK 2,175 4,725 (53.97)
REDEEMABLE CLASS A COMMON STOCK 19,409 17,370 11.74
SHAREHOLDER'S EQUITY 223,203 199,756 11.74
----------- ----------
$ 2,801,790 $2,609,942 7.35
=========== ==========
NET INTEREST INCOME $ 86,130 $ 79,493
=========== ==========
NET INTEREST MARGIN 4.36% 4.32%
GROSS SPREAD 3.66 3.61
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995
(Tax Equivalent Basis-In Thousands)
THIRD QUARTER 1996 THIRD QUARTER 1995 % CHANGE
----------------------------------------- -----------------------------------
AVG BAL INTEREST RATE/YIELD AVG BAL INTEREST RATE/YIELD AVG BAL
ASSETS ----------- ----------- ----------- ---------- ---------- ---------- -------
LOANS (NET OF UNEARNED DISCOUNT)
COMMERCIAL AND OTHER $ 348,755 $ 7,861 8.94% $ 329,734 $ 7,804 9.39% 5.77%
COMMERCIAL REAL ESTATE 358,901 8,141 9.00 333,772 7,774 9.24 7.53
AGRICULTURAL 387,965 8,963 9.17 363,579 8,890 9.70 6.71
RESIDENTIAL REAL ESTATE 352,980 7,650 8.60 324,028 7,157 8.76 8.94
CONSUMER 236,449 5,408 9.07 211,710 4,920 9.22 11.69
TAX-EXEMPT 53,664 1,367 10.11 47,064 1,198 10.10 14.02
----------- ----------- ---------- ----------
TOTAL LOANS 1,738,714 39,390 8.99 1,609,887 37,743 9.30 8.00
RESERVE FOR LOAN LOSSES (30,281) (28,202) 7.37
----------- ----------
NET LOANS 1,708,433 1,581,685 8.01
SECURITIES
MORTGAGE BACKED 227,404 3,999 6.98 240,260 4,202 6.94 (5.35)
OTHER TAXABLE 515,585 7,770 5.98 491,360 7,411 5.98 4.93
TAX EXEMPT 210,695 4,316 8.13 200,445 4,219 8.35 5.11
----------- ----------- ---------- ----------
TOTAL SECURITIES 953,684 16,085 6.69 932,065 15,832 6.74 2.32
FEDERAL FUNDS SOLD 0 0 0.00 0 0 0.00 --
OTHER EARNING ASSETS 2,901 38 5.20 3,305 48 5.76 (12.22)
----------- ----------- ---------- ----------
TOTAL EARNING ASSETS 2,695,299 55,513 8.17 2,545,257 53,623 8.36 5.89
CASH & DUE FROM BANKS 89,884 72,673 23.68
NONEARNING ASSETS 101,078 123,208 (17.96)
----------- ----------
$ 2,855,980 $2,712,936 5.27
=========== ==========
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $ 286,731 $ 265,661 7.93
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 252,669 1,047 1.64 261,039 1,320 2.01 (3.21)
MONEY MARKET CHECKING 176,924 747 1.68 168,795 855 2.01 4.82
MONEY MARKET SAVINGS 240,971 1,919 3.16 245,744 2,038 3.29 (1.94)
SAVINGS CERTIFICATES 1,109,849 15,797 5.65 1,065,174 15,442 5.75 4.19
CERTIFICATES OVER $100,000 157,188 2,168 5.47 155,778 2,046 5.21 0.91
----------- ----------- ---------- ----------
TOTAL TIME DEPOSITS 1,937,601 21,678 4.44 1,896,530 21,701 4.54 2.17
----------- ----------
TOTAL DEPOSITS 2,224,332 2,162,191 2.87
CORE DEPOSITS 2,146,202 2,079,749 3.20
SHORT-TERM BORROWINGS 316,848 4,194 5.25 245,688 3,824 6.18 28.96
LONG-TERM DEBT 14,224 222 6.19 26,347 461 6.94 (46.01)
----------- ----------- ---------- ----------
TOTAL INTEREST BEARING LIABILITIES 2,268,673 26,094 4.56 2,168,565 25,986 4.75 4.62
OTHER LIABILITIES 44,995 39,630 13.54
----------- ----------
TOTAL LIABILITIES 2,600,399 2,473,856 5.12
MINORITY INTEREST 9,056 8,835 2.50
REDEEMABLE PREFERRED STOCK 2,195 2,238 (1.92)
REDEEMABLE CLASS A COMMON STOCK 19,546 18,241 7.15
SHAREHOLDER'S EQUITY 224,784 209,766 7.16
----------- ----------
$ 2,855,980 $2,712,936 5.27
=========== ==========
NET INTEREST INCOME $ 29,419 $ 27,637
=========== ==========
NET INTEREST MARGIN 4.33% 4.31%
GROSS SPREAD 3.61 3.60
</TABLE>
PART II - OTHER INFORMATION
Item 5. Other information
On August 7, 1996, the Company signed an agreement with Valley
Bankshares, Inc. ("VBI") of Nisswa, Minnesota, for the purchase of the
Perham, Minnesota branch ("Perham") of Brainerd National Bank of
Baxter, Minnesota ("BNB") by the First American Bank of Detroit Lakes,
a majority-owned subsidiary of the Company. The agreement is subject to
the necessary regulatory approvals, as is the presumed purchase by VBI
of BNB, which is a prerequisite for this transaction. Perham, a branch
of Metropolitan Federal Bank, fsb (MFB) prior to its sale to BNB in
conjunction with First Bank's acquisition of MFB in 1995, has
approximately $14 million in assets with 5 employees.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) No Current Reports on Form 8-K were filed during the quarter ended
September 30, 1996 or during the period from September 30, 1996 to the
date of this Quarterly Report on Form 10-Q.
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.
Dated: November 14, 1996 BREMER FINANCIAL CORPORATION
By: /s/ Terry M. Cummings
--------------------------------
Terry M. Cummings
President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Stuart F. Bradt
--------------------------------
Stuart F. Bradt
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 118,388
<INT-BEARING-DEPOSITS> 1,853
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 654,343
<INVESTMENTS-CARRYING> 295,077
<INVESTMENTS-MARKET> 295,284
<LOANS> 1,745,146
<ALLOWANCE> 30,531
<TOTAL-ASSETS> 2,891,541
<DEPOSITS> 2,244,470
<SHORT-TERM> 337,442
<LIABILITIES-OTHER> 40,758
<LONG-TERM> 10,287
2,205
0
<COMMON> 22,402
<OTHER-SE> 233,977
<TOTAL-LIABILITIES-AND-EQUITY> 2,891,541
<INTEREST-LOAN> 112,627
<INTEREST-INVEST> 44,085
<INTEREST-OTHER> 121
<INTEREST-TOTAL> 156,833
<INTEREST-DEPOSIT> 64,417
<INTEREST-EXPENSE> 76,427
<INTEREST-INCOME-NET> 80,406
<LOAN-LOSSES> 1,965
<SECURITIES-GAINS> 246
<EXPENSE-OTHER> 67,820
<INCOME-PRETAX> 35,138
<INCOME-PRE-EXTRAORDINARY> 23,676
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,676
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
<YIELD-ACTUAL> 4.07
<LOANS-NON> 9,381
<LOANS-PAST> 2,692
<LOANS-TROUBLED> 431
<LOANS-PROBLEM> 89,388
<ALLOWANCE-OPEN> 28,253
<CHARGE-OFFS> 1,075
<RECOVERIES> 1,388
<ALLOWANCE-CLOSE> 30,531
<ALLOWANCE-DOMESTIC> 25,013
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,518
</TABLE>
