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 March 31, 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 March 29, 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 MARCH 31, 1996
INDEX
PART I -- FINANCIAL INFORMATION Page
Item 1 -- Financial Statements 2
Item 2 -- Management's Discussion and Analysis 7
of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 5 -- Other information 22
Item 6 -- Exhibits and Reports on Form 8-K 22
Signatures 23
ITEM 1. FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=====================================================================================================================
March 31 December 31 March 31
-----------------------------------------
(in thousands) 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 90,858 127,786 85,456
Interest bearing deposits 2,277 3,008 1,511
Investment securities held to maturity (market value of $185,916,
$203,607 and $209,870 respectively) 182,059 198,515 209,581
Mortgage-backed securities held to maturity (market value of $118,010,
$116,772 and $155,167 respectively) 120,010 118,390 164,440
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY 302,069 316,905 374,021
Investment securities available for sale (book value of $203,794,
$209,978 and $200,145 respectively) 203,805 213,520 197,254
Mortgage-backed securities available for sale (book value of $464,893,
$450,551 and $357,180 respectively) 466,293 454,343 352,294
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE 670,098 667,863 549,548
Loans 1,638,784 1,630,100 1,465,417
Reserve for loan losses (28,810) (28,253) (27,242)
Unearned discount (3,838) (3,484) (3,526)
- ---------------------------------------------------------------------------------------------------------------------
NET LOANS 1,606,136 1,598,363 1,434,649
Premises and equipment, net 44,400 44,252 38,720
Interest receivable and other assets 55,592 54,055 54,472
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,771,430 2,812,232 2,538,377
=====================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 266,777 326,531 250,416
Interest bearing deposits 1,927,431 1,915,776 1,776,232
--------- --------- ---------
TOTAL DEPOSITS 2,194,208 2,242,307 2,026,648
Federal funds purchased and repurchase agreements 166,393 187,100 168,405
Other short-term borrowings 94,280 69,427 62,371
Long-term debt 27,688 25,568 18,631
Accrued expenses and other liabilities 38,104 38,633 30,669
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,520,673 2,563,035 2,306,724
Minority interests 9,047 9,112 8,677
Redeemable preferred stock, $100 par, 80,000 shares authorized;
21,437 shares issued and outstanding 2,164 2,144 7,119
Redeemable class A common stock, 960,000 shares
issued and outstanding 19,164 19,035 17,269
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 217,007 212,392 200,084
Net unrealized gain (loss) on securities available for sale 756 3,895 (4,115)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY 220,382 218,906 198,588
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 2,771,430 2,812,232 2,538,377
=====================================================================================================================
</TABLE>
Interim data subject to year-end audit.
See notes to consolidated financial statements.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
=========================================================================================
Three Months Ended March 31
-----------------------------
(in thousands, except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $36,401 31,998 24,919
Securities
Taxable 12,002 11,522 9,238
Tax-exempt 2,756 2,610 2,457
Federal funds sold -- -- --
Other 45 33 12
- -----------------------------------------------------------------------------------------
Total interest income 51,204 46,163 36,626
- -----------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 21,600 19,232 13,551
Federal funds purchased and repurchase agreements 1,952 2,176 1,230
Other short term borrowings 1,101 796 57
Long term debt 431 233 5
- -----------------------------------------------------------------------------------------
Total interest expense 25,084 22,437 14,843
- -----------------------------------------------------------------------------------------
Net interest income 26,120 23,726 21,783
Provision for loan losses 611 -- --
- -----------------------------------------------------------------------------------------
Net interest income after provision for loan losses 25,509 23,726 21,783
- -----------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges 3,025 2,476 2,252
Insurance 1,452 984 824
Trust 1,311 1,122 1,124
Gain on sale of loans 470 154 679
Gain (loss) on sale of securities 158 (34) 1,045
Other 1,577 1,360 1,649
- -----------------------------------------------------------------------------------------
Total noninterest income 7,993 6,062 7,573
- -----------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 9,545 8,723 8,669
Employee benefits 2,762 2,491 2,479
Occupancy 1,521 1,310 1,258
Furniture and equipment 1,462 1,144 1,054
Data processing fees 1,919 1,767 1,731
FDIC premiums and examination fees 435 1,232 1,178
Other 4,047 3,661 3,455
- -----------------------------------------------------------------------------------------
Total noninterest expense 21,691 20,328 19,824
- -----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 11,811 9,460 9,532
Income tax expense 3,795 2,902 2,944
- -----------------------------------------------------------------------------------------
NET INCOME $ 8,016 6,558 6,588
=========================================================================================
Per common share amounts
Net income $ 0.67 0.55 0.55
Dividends paid 0.25 0.20 0.18
=========================================================================================
</TABLE>
Interim data subject to year-end audit.
See notes to consolidated financial statements.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
===============================================================================================================================
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 8,016 8,016
Dividends, $.25 per share (3,000) (3,000)
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 273 (401) (128)
Change in net unrealized gain (loss) on securities available for sale (3,412) (3,412)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 $ 57 2,562 756 217,007 220,382
===============================================================================================================================
</TABLE>
Interim data subject to year-end audit.
See notes to consolidated financial statements.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===========================================================================================================
Three Months Ended March 31
------------------------------------
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,310 6,558 6,588
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 611 -- --
Depreciation and amortization 1,731 1,667 2,695
Minority interests in earnings of subsidiaries 346 307 314
Gain (loss) on sale of securities (158) 34 (1,045)
Valuation writedown on other real estate owned -- 10 --
Gains on sale of other real estate owned, net (8) 79 151
Other assets and liabilities, net (285) 620 (869)
Proceeds from sales of other real estate owned 263 253 1,106
Cash receipts related to loans originated specifically for resale 27,440 6,957 29,388
Cash payments related to loans originated specifically for resale (26,970) (6,803) (28,709)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,986 9,682 9,619
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net 731 101 490
Federal funds sold, net -- -- 16,787
Purchases of securities available for sale (62,861) (61,017) (118,284)
Purchases of securities held to maturity (9,381) (6,069) (25,544)
Proceeds from maturities of securities available for sale 30,705 16,011 39,205
Proceeds from maturities of securities held to maturity 25,206 26,296 30,915
Proceeds from sales of securities avaialable for sale 23,155 21,559 50,205
Loans, net 8,854 (18,621) (13,899)
Acquisition of premises and equipment (1,530) (3,158) (639)
- -----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (2,829) (24,898) (20,764)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (59,754) (35,242) (42,659)
Interest bearing deposits (excluding certificates of deposit), net (9,246) (20,694) (462)
Certificates of deposits, net 20,901 58,120 (6,397)
Federal funds purchased and repurchase agreements, net (20,707) (35,656) 43,337
Other short-term borrowings, net 24,853 20,431 (3,626)
Long-term debt, net 2,120 416 (75)
Minority interests acquired and dividends paid (272) (211) (533)
Redeemable preferred stock 20 (133) --
Dividends paid (3,000) (2,400) (2,160)
- -----------------------------------------------------------------------------------------------------------
Net cash used by financing activities (45,085) (15,369) (12,575)
- -----------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (36,928) (30,585) (23,720)
Cash and due from banks
Beginning of year 127,786 116,041 100,304
- -----------------------------------------------------------------------------------------------------------
End of period $ 90,858 85,456 76,584
===========================================================================================================
</TABLE>
Interim data subject to year-end audit.
See notes to consolidated financial statements.
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 March 31, 1996, the 960,000 class A
shares were generally redeemable at $19.96 per share. Since January 1,
1996 and through March 31, 1996 options to call 26,442.2409 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 $8.0 million
for the first quarter of 1996, a 22.2% increase from the $6.6 million earned in
the first quarter of 1995. Contributing positively to first quarter earnings
were a $2.4 million or 10.1% increase in net interest income combined with an
increase in noninterest income of $1.9 million or 31.9%. Offsetting the positive
increases were a $1.4 million or 6.7% increase in noninterest expense and a $611
thousand increase in the provision for loan losses.
Return on average assets (ROA) was 1.22% for the first quarter of 1996, compared
to 1.11% for the same period in 1995. Return on average realized equity (RORE)
was 13.65%, compared to 12.19% for the first quarter of 1995. Table I presents a
summary of the components affecting the change in return on assets from March
31, 1995 to March 31, 1996.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $239.5 million
at March 31, 1996, representing a book value per share of $19.96, an 11.0%
increase from $17.99 at March 31, 1995. Dividends paid per share increased from
the $.20 paid throughout 1995 to $.25 for the first quarter of 1996. 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 $.37 as of March 31, 1995 and increasing book value
per share by $.07 as of March 31, 1996.
Net Interest Income
Tax-equivalent net interest income for the first quarter of 1996 was $28.0
million, an increase of $2.5 million or 9.8% from the first quarter of 1995.
This increase in net interest income resulted from an 8.9% increase in average
earning assets, enhanced by acquisitions. The increase in earning assets more
than offset the slight decline in the net interest margin from 4.36% in the
first quarter of 1995 to 4.35% in the first quarter of 1996. Table III presents
the quarter-to-quarter comparison of tax-equivalent net interest income and net
interest margins.
As presented in Table IV, in comparing the net interest margin for the first
quarter of 1996 to that of the first quarter of 1995, the margin was positively
impacted by both an increase in spread between yields on earning assets and
costs on interest bearing liabilities and a more favorable product mix.
Negatively affecting the margin was a less favorable impact of nonaccruing
loans; specifically a reduction in the level of net interest recoveries
experienced over the same period a year ago.
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 March 31, 1996, simulation modeling
results 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 March 31, 1996, December
31, 1995 and March 31, 1995. Nonperforming assets, which include nonperforming
loans and other real estate owned (OREO), were $9.5 million at March 31, 1996.
This total represents decreases of $1.1 million from December 31, 1995 and $2.6
million from March 31, 1995. Nonperforming assets as a percentage of total loans
and OREO declined steadily over the past three years, as follows: 1.30% at March
31, 1994; .83% at March 31, 1995; and .58% at March 31, 1996.
Nonperforming loans, which include nonaccrual and restructured loans, were $9.3
million at March 31, 1996, a decrease of $1.0 million from December 31, 1995 and
a decrease of $2.3 million from March 31, 1995. The ratio of nonperforming loans
to total loans improved from .79% at March 31, 1995 to .57% at March 31, 1996,
and the ratio of nonperforming assets and past due loans to total loans and OREO
improved from .91% to .74% 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 $20.8 million or 31.6% from $65.8 million at March
31, 1995 to $86.6 million at March 31, 1996. Accordingly, the ratio of
classified loans to total loans has increased from 4.5% at March 31, 1995 to
5.3% at March 31, 1996. Net charge-offs were $54 thousand for the first three
months of 1996 as compared to net recoveries of $296 thousand in the first three
months of 1995.
Other real estate owned, which includes real estate acquired in loan
settlements, decreased $100 thousand from December 31, 1995 and $229 thousand
from March 31, 1995.
Reserve for Loan Losses
The Company's reserve for loan losses was 311.4% of nonperforming loans at March
31, 1996 compared to 275.7% at December 31, 1995 and 234.9% at March 31, 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 $27.2 million at March 31, 1995 to
$28.8 million at March 31, 1996. While the reserve for loan losses increased
$1.6 million or 5.8% from March 31, 1995 to March 31, 1996, the loan portfolio
increased 12.4% causing the reserve to outstanding loans ratio to decline from
1.86% to 1.76%. Table VII presents the activity in the reserve for loan losses.
Noninterest Income
Noninterest income was $8.0 million for the first quarter of 1996 compared to
$6.1 million for the first quarter of 1995, representing a $1.9 million or 31.9%
improvement. Operating noninterest income, which excludes investment securities
gains and losses, increased 28.5% over 1995, with most categories posting
increases. Service charges fees, insurance commissions, and gains on sale of
loans were the major contributors to the increase in operating noninterest
income, with the $468 thousand or 47.6% increase in insurance commissions
resulting 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 $1.4 million or 6.7%
compared to the first quarter of 1995. Acquisitions completed during 1995 and
early 1996 had an impact on the comparison of expenditures between periods.
Excluding the $855 thousand in noninterest expenses attributed to these acquired
entities, noninterest expense would have increased only $508 thousand or 2.5%.
Offsetting the impact of acquisitions on noninterest expenses was a $797
thousand 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 63.05% at March 31, 1995 to 58.69% at March 31, 1996.
Contributing to this improvement were significant increases in the
tax-equivalent net interest income of 9.8% coupled with strong growth in
recurring noninterest income of 33.5% and modest growth in recurring noninterest
expense of 6.3%.
Taxes
Comparing the first three months of 1996 to the first three months of 1995, the
Company's effective tax rate increased from 30.7% to 32.1%. This results from
proportionately more taxable than tax-exempt income during the first three
months of 1996 compared to the same period in 1995.
Balance Sheet Growth
When comparing the first quarter 1996 average balances to first quarter 1995
average balances, acquisitions added approximately $69.0 million to average
total assets, increasing gross loans by $33.8 million, securities by $28.0
million, and core deposits by $61.2 million.
Assets
Average total assets increased $242.0 million or 9.7% from the first three
months of 1995 to the first three months of 1996, while average earning assets
increased $211.8 million or 8.9% when comparing the same two periods.
Loans
From the first three months of 1995 to the first three months of 1996, average
loans increased $177.0 million or 12.4% driven by increases in all loan
categories, except tax-exempt loans which experienced a modest decline of $1.6
million or 3.3%. Agricultural, commercial, commercial real estate, residential
real estate, and consumer loans increased $47.8 million, $36.5 million, $33.2
million, $30.9 million, and $30.2 million, respectively. The Company is not
involved in highly leveraged transaction lending or lending to foreign
countries.
Securities
Average securities increased $33.9 million or 3.6% from the first three months
of 1995 to the first three months of 1996. Tax-exempt securities increased $10.9
million or 5.6%, while taxable securities increased $23.0 million or 3.1%. 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 51.5 months at March 31, 1996,
with an average yield to maturity on the $972.2 million portfolio of 6.6%,
unrealized gains of $4.5 million and unrealized losses of $2.6 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 the first three months of 1996 to the first three months of 1995,
average interest bearing liabilities increased $181.6 million or 9.0%, while
average deposits increased $177.5 million or 8.8%. 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 $20.7 million or 9.6%. Average long-term debt,
which includes long-term FHLB advances and installment promissory notes issued
in connection with acquisitions, increased $7.7 million. Most of the increase in
short-term borrowings can be attributed to an increase in the Company's FHLB
advances over the first quarter of 1995. Continued strong asset growth, coupled
with a 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, have provided a historically stable source of
funding. Between the first three months of 1995 and the first three months of
1996, average core deposits increased $148.3 million or 7.6%. The strong 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.
Acquisitions
On January 1, 1996, First American Insurance Agencies, Inc. of Casselton, North
Dakota (a wholly-owned subsidiary of the Company) finalized its purchase of the
United Insurance Agency in Minot, North Dakota. The United Insurance Agency has
annual premiums of $7 million.
The above described acquisition was previously reported in the Company's 1995
Annual Report on Form 10-K. See also Item 5 of Part II to this Quarterly Report
on Form 10-Q.
<TABLE>
<CAPTION>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
========================================================================================================
Three Months Ended March 31
---------------------------------------------
(in thousands, except per share amounts) 1996 1995 Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS
Total interest income $51,204 46,163 10.9%
Net interest income 26,120 23,726 10.1
Net interest income (1) 27,977 25,487 9.8
Provision for loan losses 611 -- N/M
Noninterest income 7,993 6,062 31.9
Noninterest expense 21,691 20,328 6.7
Net income 8,016 6,558 22.2
Dividends 3,000 2,400 25.0
AVERAGE BALANCES
Assets 2,748,898 2,506,925 9.7
Loans 1,609,517 1,432,501 12.4
Securities 971,297 937,413 3.6
Deposits 2,192,253 2,014,797 8.8
Redeemable class A common stock 19,099 16,788 13.8
Shareholder's equity 219,644 193,064 13.8
PERIOD-END BALANCES
Assets 2,771,430 2,538,377 9.2
Loans 1,634,946 1,461,891 11.8
Securities 972,167 923,569 5.3
Deposits 2,194,208 2,026,648 8.3
Redeemable class A common stock 19,164 17,269 11.0
Shareholder's equity 220,382 198,588 11.0
FINANCIAL RATIOS
Return on assets (2) 1.22% 1.11 9.9
Return on realized equity (3)(4) 13.65 12.19 12.0
Average equity/assets (3) 8.69 8.37 3.8
Dividend payout 37.43 36.60 2.3
Net interest margin (1) 4.35 4.36 (0.2)
Net charge-offs/average loans 0.01 (0.08) (112.5)
Reserve/period-end loans 1.76 1.86 (5.3)
PER SHARE OF COMMON STOCK (3)
Net income $0.67 0.55 22.2
Dividends paid 0.25 0.20 25.0
Period-end book value 19.96 17.99 11.0
Period-end realized book value (4) 19.89 18.36 8.7
========================================================================================================
</TABLE>
(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.
Interim data subject to year-end audit.
See notes to consolidated financial statements.
TABLE I
Changes in Return on Assets
=================================================================
March 31
1996 vs 1995
- -----------------------------------------------------------------
Return on assets, prior period 1.11%
- -----------------------------------------------------------------
Increases
Service charges 0.04
Insurance 0.05
Trust fees 0.01
Brokerage 0.01
Gain on sale of loans 0.04
Gain on sale of securities 0.03
Salaries and wages 0.01
Marketing 0.01
Data processing fees 0.01
FDIC premiums and examination fees 0.14
- -----------------------------------------------------------------
Total increases 0.35
- -----------------------------------------------------------------
Decreases
Provision for loan loss 0.09
Net interest income (TEB) 0.03
Gain on sale of other assets 0.01
Furniture and equipment 0.03
Provision for income taxes 0.07
Other noninterest expense, net 0.01
- -----------------------------------------------------------------
Total decreases 0.24
- -----------------------------------------------------------------
Return on assets, current period 1.22%
=================================================================
TABLE II
CAPITAL RATIOS (1)
<TABLE>
<CAPTION>
=========================================================================================================
March 31 December 31 March 31 Regulatory
1996 1995 1995 Minimums
---------- ---------- ---------- ----------
<S> <C> <C> <C>
Equity to assets (2) 8.64% 8.46 8.50 --
Equity to tangible assets (2) 8.54 8.40 8.49 --
Tier I capital (3) 13.25 12.75 13.58 4.00
Tier I and tier II capital (3) 14.50 14.01 14.83 8.00
Leverage ratio (3) 8.59 8.41 8.74 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
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 IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
=======================================================================================================
Three Months Ended March 31
(in thousands) 1996 vs 1995
- -------------------------------------------------------------------------------------------------------
Net Net
Interest Interest
Income Margin
-------------- ------------
<S> <C> <C>
CHANGE IN VOLUME
Earning assets $4,280
Interest bearing liabilities (2,027)
-------------
2,253
CHANGE IN INTEREST RATE SPREAD
Earning assets 101 1.6%
Interest bearing liabilities (38) (0.6)
------------- ------------
63 1.0
CHANGE IN PRODUCT MIX
Earning assets 359 5.6
Interest bearing liabilities (332) (5.2)
------------- ------------
27 0.4
CHANGE DUE TO NUMBER OF DAYS
Earning assets 531 --
Interest bearing liabilities (249) --
------------- ------------
282 --
OTHER CHANGES
Nonaccruing loans (74) (1.1)
Yield related loan fees 47 0.7
30/360 investment adjustment (108) (1.7)
Free funds -- 0.4
------------- ------------
(135) (1.7)
CHANGE IN NET INTEREST INCOME 2,490 (0.3)
Net interest income, prior period 25,487 4.36
------------- ------------
Net interest income, current period $27,977 4.35
============= ============
</TABLE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
======================================================================================================
Three Months Ended March 31
-----------------------------------------------------
(in thousands) 1996 vs 1995
- ------------------------------------------------------------------------------------------------------
Volume Yield/Rate (1) Total
-------------- -------------- --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans $2,894 1,530 4,424
Taxable securities 1,029 (549) 480
Tax-exempt securities 354 (132) 222
Interest bearing deposits -- -- --
Federal funds sold -- -- --
Other earning assets 3 7 10
-------------- -------------- --------------
Total 4,280 856 5,136
INTEREST EXPENSE
Savings deposits 393 (901) (508)
Other time deposits 1,344 1,531 2,875
Short-term borrowings 269 (188) 81
Long-term debt 21 177 198
-------------- -------------- --------------
Total 2,027 619 2,646
-------------- -------------- --------------
NET INTEREST INCOME $2,253 237 2,490
======================================================================================================
</TABLE>
(1) All changes in net interest income, other than those due to volume,
have been allocated to yield/rate.
TABLE VI
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
=============================================================================================
March 31 December 31 March 31
(dollars in thousands) 1996 1995 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $8,660 8,392 10,762
Restructured loans 592 1,856 834
- ---------------------------------------------------------------------------------------------
Total nonperforming loans 9,252 10,248 11,596
Other real estate owned (OREO) 280 380 509
- ---------------------------------------------------------------------------------------------
Total nonperforming assets $9,532 10,628 12,105
=============================================================================================
Past due loans* $2,607 2,504 1,261
=============================================================================================
Nonperforming loans to total loans 0.57% 0.63 0.79
Nonperforming assets to total loans and OREO 0.58 0.65 0.83
Nonperforming assets and past due loans* to
total loans and OREO 0.74 0.81 0.91
Reserve to nonperforming loans 311.39 275.69 234.93
Reserve to total loans 1.76 1.74 1.86
=============================================================================================
</TABLE>
* Past due loans include accruing loans 90 days or more past due
TABLE VII
RESERVE FOR LOAN LOSSES
================================================================
Three Months Ended
March 31
------------------------------
(in thousands) 1996 1995
- ----------------------------------------------------------------
Beginning of year $28,253 26,946
Charge-offs (353) (214)
Recoveries 299 510
- ----------------------------------------------------------------
Net charge-offs (54) 296
Provision for loan losses 611 --
- ----------------------------------------------------------------
End of period $28,810 27,242
================================================================
TABLE VIII
NONINTEREST INCOME
<TABLE>
<CAPTION>
================================================================================================
Three Months Ended
March 31 Increase/(Decrease)
- ------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 Dollar Percent
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges $3,025 2,476 549 22.17%
Insurance 1,452 984 468 47.56
Trust 1,311 1,122 189 16.84
Brokerage 513 383 130 33.94
Gain on sale of loans 470 154 316 205.19
Gain on sale of other assets 24 102 (78) (76.47)
Other 1,040 875 165 18.86
- ------------------------------------------------------------------------------------------------
Operating noninterest income 7,835 6,096 1,739 28.53
Gain on sale of securities 158 (34) 192 564.71
- ------------------------------------------------------------------------------------------------
Total $7,993 6,062 1,931 31.85%
================================================================================================
</TABLE>
TABLE IX
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
====================================================================================================
Three Months Ended
March 31 Increase/(Decrease)
- ----------------------------------------------------------------------------------------------------
(in thousands) 1996 1995 Dollar Percent
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and wages $9,545 8,723 822 9.42%
Employee benefits 2,762 2,491 271 10.88
Occupancy 1,521 1,310 211 16.11
Furniture and equipment 1,462 1,144 318 27.80
Printing, postage and office supplies 1,159 1,030 129 12.52
Marketing 417 459 (42) (9.15)
Data processing fees 1,919 1,767 152 8.60
Professional fees 140 198 (58) (29.29)
Other real estate owned 11 22 (11) 50.00
Minority interest in earnings 346 307 39 12.70
FDIC premiums and examination fees 435 1,232 (797) (64.69)
Other 1,974 1,645 329 20.00
- ----------------------------------------------------------------------------------------------------
Total $21,691 20,328 1,363 6.71%
====================================================================================================
</TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(Tax Equivalent Basis-In Thousands)
<TABLE>
<CAPTION>
FIRST QUARTER 1996 FIRST QUARTER 1995
--------------------------------- --------------------------------- % CHANGE
ASSETS AVG BAL INTEREST RATE/YIELD AVG BAL INTEREST RATE/YIELD AVG BAL
----------- -------- ---------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED DISCOUNT)
COMMERCIAL AND OTHER $329,040 $7,668 9.37% $292,573 $6,869 9.52% 12.46%
COMMERCIAL REAL ESTATE 346,256 7,930 9.21 313,046 7,231 9.37 10.61
AGRICULTURAL 333,363 7,739 9.34 285,600 6,659 9.46 16.72
RESIDENTIAL REAL ESTATE 333,475 7,187 8.67 302,552 6,337 8.49 10.22
CONSUMER 220,529 5,050 9.21 190,284 4,113 8.77 15.89
TAX-EXEMPT 46,854 1,257 10.79 48,446 1,198 10.03 (3.29)
----------- -------- --------- -------
TOTAL LOANS 1,609,517 36,831 9.20 1,432,501 32,407 9.17 12.36
RESERVE FOR LOAN LOSSES (28,596) (27,253) 4.93
----------- ---------
NET LOANS 1,580,921 1,405,248 12.50
SECURITIES
MORTGAGE BACKED 233,361 4,089 7.05 251,965 4,353 7.01 (7.38)
OTHER TAXABLE 532,212 7,913 5.98 490,636 7,169 5.93 8.47
TAX EXEMPT 205,724 4,182 8.18 194,812 3,960 8.24 5.60
----------- -------- --------- -------
TOTAL SECURITIES 971,297 16,184 6.70 937,413 15,482 6.70 3.61
FEDERAL FUNDS SOLD 0 0 -- (508) 0 -- --
OTHER EARNING ASSETS 3,009 46 6.15 2,076 36 7.03 44.94
----------- -------- --------- -------
TOTAL EARNING ASSETS 2,583,823 53,061 8.26 2,371,990 47,925 8.19 8.93
CASH & DUE FROM BANKS 91,673 87,326 4.98
NONEARNING ASSETS 101,998 74,862 36.25
----------- ---------
$2,748,898 $2,506,925 9.65
=========== ==========
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $262,484 $238,261 10.17
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 256,953 1,118 1.75 248,382 1,286 2.10 3.45
MONEY MARKET CHECKING 180,393 787 1.75 172,443 907 2.13 4.61
MONEY MARKET SAVINGS 247,464 1,939 3.15 252,445 2,159 3.47 (1.97)
SAVINGS CERTIFICATES 1,093,077 15,655 5.76 981,104 13,231 5.47 11.41
CERTIFICATES OVER $100,000 151,882 2,101 5.56 122,162 1,650 5.48 24.33
----------- -------- --------- -------
TOTAL TIME DEPOSITS 1,929,769 21,600 4.50 1,776,536 19,233 4.39 8.63
----------- ---------
TOTAL DEPOSITS 2,192,253 2,014,797 8.81
CORE DEPOSITS 2,108,003 1,959,743 7.57
SHORT-TERM BORROWINGS 235,802 3,053 5.21 215,152 2,972 5.60 9.60
LONG-TERM DEBT 26,165 431 6.63 18,430 233 5.13 41.97
----------- -------- --------- -------
TOTAL INTEREST BEARING LIABILITIES 2,191,736 25,084 4.60 2,010,118 22,438 4.53 9.04
OTHER LIABILITIES 44,701 33,050 35.25
----------- ---------
TOTAL LIABILITIES 2,498,921 2,281,429 9.53
MINORITY INTEREST 9,080 8,459 7.34
REDEEMABLE PREFERRED STOCK 2,154 7,185 (70.02)
REDEEMABLE CLASS A COMMON STOCK 19,099 16,788 13.77
SHAREHOLDER'S EQUITY 219,644 193,064 13.77
----------- ---------
$2,748,898 $2,506,925 9.65
=========== ==========
NET INTEREST INCOME $27,977 $25,487
======== =======
NET INTEREST MARGIN 4.35% 4.36%
GROSS SPREAD 3.66 3.67
</TABLE>
PART II - OTHER INFORMATION
Item 5. Other information
On January 1, 1996, First American Insurance Agencies, Inc of
Casselton, North Dakota (a wholly-owned subsidiary of the Company)
acquired the United Insurance Agency in Minot, North Dakota. The United
Insurance Agency has annual premiums of $7 million. The agreement to
acquire the United Insurance Agencies was reported in the Annual Report
on Form 10-K for the year ended December 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are being filed as part of this Quarterly Report on Form
10-Q.
(b) No Current Reports on Form 8-K were filed during the quarter ended
March 31, 1996 or during the period from March 31, 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: May 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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 90,858
<INT-BEARING-DEPOSITS> 2,277
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 670,098
<INVESTMENTS-CARRYING> 302,069
<INVESTMENTS-MARKET> 303,926
<LOANS> 1,634,946
<ALLOWANCE> 28,810
<TOTAL-ASSETS> 2,771,430
<DEPOSITS> 2,194,208
<SHORT-TERM> 260,673
<LIABILITIES-OTHER> 38,104
<LONG-TERM> 27,688
2,164
0
<COMMON> 21,783
<OTHER-SE> 226,810
<TOTAL-LIABILITIES-AND-EQUITY> 2,771,430
<INTEREST-LOAN> 36,401
<INTEREST-INVEST> 14,758
<INTEREST-OTHER> 45
<INTEREST-TOTAL> 51,204
<INTEREST-DEPOSIT> 21,600
<INTEREST-EXPENSE> 25,084
<INTEREST-INCOME-NET> 26,120
<LOAN-LOSSES> 611
<SECURITIES-GAINS> 158
<EXPENSE-OTHER> 21,691
<INCOME-PRETAX> 11,811
<INCOME-PRE-EXTRAORDINARY> 8,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,016
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
<YIELD-ACTUAL> 4.35
<LOANS-NON> 8,660
<LOANS-PAST> 2,607
<LOANS-TROUBLED> 592
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 28,253
<CHARGE-OFFS> 353
<RECOVERIES> 299
<ALLOWANCE-CLOSE> 28,810
<ALLOWANCE-DOMESTIC> 611
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>