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, 1997.
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
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(Exact name of registrant as specified in its charter)
Minnesota 41-0715583
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
445 Minnesota St., Suite 2000, St. Paul, MN 55101-2107
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(Address of principal executive offices)
(Zip Code)
(612) 227-7621
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(Registrant's telephone number, including area code)
Not applicable.
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(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, 1997, there were 1,200,000 shares of class A common
stock and 10,800,000 shares of class B common stock outstanding.
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BREMER FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
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 25
Item 6 -- Exhibits and Reports on Form 8-K 25
Signatures 26
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ITEM 1. FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30 December 31 September 30
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(IN THOUSANDS) 1997 1996 1996
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(Unaudited) (Unaudited)
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ASSETS
Cash and due from banks $123,756 159,832 118,388
Interest bearing deposits 1,746 1,778 1,853
Investment securities held to maturity (market value of $193,138,
$187,045 and $184,445, respectively) 188,096 183,095 182,152
Mortgage-backed securities held to maturity (market value of $99,633,
$108,111 and $110,839, respectively) 100,152 109,036 112,925
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TOTAL SECURITIES HELD TO MATURITY 288,248 292,131 295,077
Investment securities available for sale (book value of $151,142,
$180,453 and $193,152, respectively) 151,834 180,679 192,898
Mortgage-backed securities available for sale (book value of $542,451,
$460,958 and $463,106, respectively) 549,159 462,964 461,445
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TOTAL SECURITIES AVAILABLE FOR SALE 700,993 643,643 654,343
Loans 1,953,307 1,760,100 1,749,505
Reserve for loan losses (34,455) (30,482) (30,531)
Unearned discount (4,590) (3,954) (3,929)
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NET LOANS 1,914,262 1,725,664 1,715,045
Premises and equipment, net 51,464 45,980 45,468
Interest receivable and other assets 63,918 56,623 61,367
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TOTAL ASSETS $3,144,387 2,925,651 2,891,541
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LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $328,041 332,143 307,170
Interest bearing deposits 2,051,885 1,951,303 1,937,300
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TOTAL DEPOSITS 2,379,926 2,283,446 2,244,470
Federal funds purchased and repurchase agreements 146,371 188,129 203,582
Other short-term borrowings 257,342 86,892 133,860
Long-term debt 31,630 62,389 10,287
Accrued expenses and other liabilities 45,601 39,125 40,758
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TOTAL LIABILITIES 2,860,870 2,659,981 2,632,957
Minority interests 9,857 9,319 9,097
Redeemable preferred stock, $100 par, 80,000 shares authorized;
71,594 shares issued and 21,437 shares outstanding 2,205 2,144 2,205
Redeemable class A common stock, 960,000 shares
issued and outstanding 21,716 20,337 19,783
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 243,354 230,071 225,893
Net unrealized gain (loss) on securities available for sale 3,766 1,180 (1,013)
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TOTAL SHAREHOLDER'S EQUITY 249,739 233,870 227,499
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $3,144,387 2,925,651 2,891,541
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Nine Months Ended September 30
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
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INTEREST INCOME
Loans, including fees $121,407 112,648 104,107
Securities
Taxable 36,744 35,668 34,934
Tax-exempt 8,408 8,417 8,075
Other 99 100 115
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Total interest income 166,658 156,833 147,231
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INTEREST EXPENSE
Deposits 66,457 64,417 62,464
Federal funds purchased and repurchase agreements 5,506 6,575 6,246
Other short term borrowings 6,284 4,325 3,306
Long term debt 2,728 1,110 1,136
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Total interest expense 80,975 76,427 73,152
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Net interest income 85,683 80,406 74,079
Provision for loan losses 4,029 1,965 1,320
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Net interest income after provision for loan losses 81,654 78,441 72,759
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NONINTEREST INCOME
Service charges 11,607 9,490 8,188
Insurance 4,907 4,702 4,152
Trust 4,574 3,919 3,470
Gain on sale of loans 1,628 1,627 869
(Loss) / gain on sale of securities (133) 246 332
Other 4,991 4,533 3,685
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Total noninterest income 27,574 24,517 20,696
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NONINTEREST EXPENSE
Salaries and wages 32,744 29,829 27,485
Employee benefits 8,740 8,202 7,861
Occupancy 4,413 4,384 4,072
Furniture and equipment 4,726 4,356 3,650
Data processing fees 5,342 5,686 5,392
FDIC premiums and examination fees 352 1,084 2,565
Other 15,148 14,279 12,821
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Total noninterest expense 71,465 67,820 63,846
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INCOME BEFORE INCOME TAX EXPENSE 37,763 35,138 29,609
Income tax expense 12,524 11,462 9,224
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NET INCOME $25,239 23,676 20,385
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Per common share amounts
Net income $2.10 1.97 1.70
Dividends paid 0.90 0.75 0.60
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended September 30
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
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INTEREST INCOME
Loans, including fees $43,214 38,932 37,340
Securities
Taxable 12,705 11,769 11,614
Tax-exempt 2,875 2,846 2,780
Other 49 28 40
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Total interest income 58,843 53,575 51,774
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INTEREST EXPENSE
Deposits 22,914 21,678 22,218
Federal funds purchased and repurchase agreements 1,774 2,368 1,814
Other short term borrowings 3,233 1,828 1,358
Long term debt 885 221 595
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Total interest expense 28,806 26,095 25,985
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Net interest income 30,037 27,480 25,789
Provision for loan losses 1,431 661 800
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Net interest income after provision for loan losses 28,606 26,819 24,989
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NONINTEREST INCOME
Service charges 4,063 3,251 2,939
Insurance 1,786 1,854 1,910
Trust 1,563 1,311 1,164
Gain on sale of loans 779 519 429
Gain on sale of securities 60 57 226
Other 1,759 1,495 1,005
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Total noninterest income 10,010 8,487 7,673
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NONINTEREST EXPENSE
Salaries and wages 11,229 10,252 9,442
Employee benefits 2,857 2,735 2,689
Occupancy 1,484 1,435 1,390
Furniture and equipment 1,648 1,480 1,241
Data processing fees 1,587 1,894 1,841
FDIC premiums and examination fees 302 193 91
Other 5,446 4,911 4,546
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Total noninterest expense 24,553 22,900 21,240
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INCOME BEFORE INCOME TAX EXPENSE 14,063 12,406 11,422
Income tax expense 4,697 4,089 3,685
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NET INCOME $9,366 8,317 7,737
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Per common share amounts
Net income $0.78 0.69 0.65
Dividends paid 0.30 0.25 0.20
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
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Net Unrealized
Gain (Loss) on
Common Stock Securities
------------------------ Available Retained
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Class A Class B for Sale Earnings Total
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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
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BALANCE, DECEMBER 31, 1995 57 2,562 3,895 212,392 218,906
Net income 31,817 31,817
Dividends, $1.05 per share (12,600) (12,600)
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 236 (1,538) (1,302)
Change in net unrealized gain (loss) on securities available for sale (2,951) (2,951)
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BALANCE, DECEMBER 31, 1996 57 2,562 1,180 230,071 233,870
Net income 25,239 25,239
Dividends, $.90 per share (10,800) (10,800)
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 (225) (1,156) (1,381)
Change in net unrealized gain (loss) on securities available for sale 2,811 2,811
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BALANCE, SEPTEMBER 30, 1997 $57 2,562 3,766 243,354 249,739
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED.
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Ended September 30
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(IN THOUSANDS) 1997 1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $25,239 23,676 20,385
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 4,029 1,965 1,320
Depreciation and amortization 5,072 5,210 4,890
Minority interests in earnings of subsidiaries 1,090 1,051 945
Loss / (gain) on sale of securities 133 (246) (332)
Valuation writedown on other real estate owned -- -- 13
(Gain) / loss on sale of other real estate owned, net (55) (7) (203)
Other assets and liabilities, net 48 (3,134) 1,623
Proceeds from sales of other real estate owned 557 272 504
Cash receipts related to loans originated specifically for resale 87,129 90,687 39,968
Cash payments related to loans originated specifically for resale (87,362) (90,450) (39,099)
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Net cash provided by operating activities 35,880 29,024 30,014
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CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net 32 1,155 (1,257)
Purchases of securities available for sale (253,363) (164,126) (180,920)
Purchases of securities held to maturity (28,188) (19,641) (18,983)
Proceeds from maturities of securities available for sale 95,876 87,257 63,941
Proceeds from maturities of securities held to maturity 24,531 42,636 45,833
Proceeds from sales of securities available for sale 130,031 80,258 87,032
Loans, net (153,381) (118,453) (131,926)
Acquisitions, net of cash acquired (8,203) -- (1,469)
Acquisition of premises and equipment (9,357) (5,511) (8,764)
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Net cash used by investing activities (202,022) (96,425) (146,513)
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CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (10,637) (19,361) (5,718)
Interest bearing deposits (excluding certificates of deposit), net 21,087 (26,881) (4,333)
Certificates of deposits, net 33,101 48,405 118,941
Federal funds purchased and repurchase agreements, net (40,410) 17,830 (61,624)
Other short-term borrowings, net 169,273 64,433 60,854
Long-term debt, net (30,759) (15,281) 1,992
Minority interests acquired and dividends paid (850) (855) (854)
Redeemable preferred stock 61 61 (5,054)
Dividends paid (10,800) (9,000) (7,200)
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Net cash provided by financing activities 130,066 59,351 97,004
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Net increase in cash and due from banks (36,076) (8,050) (19,495)
Cash and due from banks
Beginning of year 159,832 127,786 116,041
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End of year $123,756 119,736 96,546
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
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, 1996 and included in its Annual Report
on Form 10-K for the year ended December 31, 1996 filed on March 14,
1997.
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, 1997, the 960,000
class A shares were generally redeemable at $22.62 per share. Since
January 1, 1997 and through September 30, 1997, options to call
50,945.9748 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 3,619 shares changed
hands directly between individuals.
<PAGE>
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 $9.4 million
for the third quarter of 1997, a 12.6% increase from the $8.3 million earned in
the third quarter of 1996. On a year-to-date basis, earnings were $25.2 million,
up 6.6% or $1.6 million from the $23.7 million earned in the first nine months
of 1996. Contributing positively to earnings in the first nine months of 1997
were a 6.6% or $5.3 million increase in net interest income coupled with an
increase in noninterest income of 12.5% or $3.1 million. Partially offsetting
these positive increases were a 5.4% or $3.6 million increase in noninterest
expense and a $2.1 million increase in the provision for loan losses.
Return on average assets (ROA) was 1.26% for the third quarter of 1997, compared
to 1.21% for the same period in 1996. For the first nine months of 1997, ROA
improved to 1.20% from 1.18% for the first nine months of 1996. Return on
average realized equity (RORE) was 14.05% for the third quarter of 1997,
compared to 13.43% for the same period in 1996. On a year-to-date basis, RORE
was 12.97%, compared to 13.12% recorded for the first nine months of 1996. Table
I presents a summary of the components affecting the change in year-to-date
return on assets from September 30, 1996 to September 30, 1997.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $271.5 million
at September 30, 1997, representing a book value per share of $22.62, a 9.8%
increase from $20.61 at September 30, 1996. Dividends paid per share of $.30 in
the third quarter of 1997 remained unchanged from the first and second quarter
of 1997 and fourth quarter of 1996, and are up from the $.25 dividend paid in
each of the first three quarters 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. This
accounting standard had the effect of increasing the book value per share by
$.34 as of September 30, 1997 and decreasing book value per share by $.09 as of
September 30, 1996.
Net Interest Income
Tax-equivalent net interest income for the third quarter of 1997 was $32.0
million, an increase of $2.6 million or 8.7% from the third quarter of 1996.
This increase in net interest income resulted from a 6.9% increase in average
earning assets combined with an improvement in the net interest margin from
4.33% to 4.40% for the third quarter of 1997. On a year-to-date basis, tax-
equivalent net interest income was $91.4 million, an increase of $5.2 million or
6.1% over the $86.1 million realized in the first nine months of 1996. Table III
presents the quarter-to-quarter comparison of tax-equivalent net interest income
and net interest margins.
<PAGE>
For both the third quarter and year-to-date 1997, the net interest margin
improved, as presented in Table IV, resulting from both an increase in the
spread between yields on earning assets and costs on interest bearing
liabilities and a more favorable product mix. Adversely impacting the margin for
both the quarter and year-to-date was less free funds supporting earning assets.
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, 1997, 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. The Company has set policy limits for
simulation modeling under both gradual and immediate changes in interest rates.
For modeling under a gradual change, the change in net interest income, over the
next 12 months, shall not exceed 5%, with a target of 2%. In the case of
modeling under an immediate change in rates, the change in net interest income,
over the next 12 months, shall not exceed 10%, with a target of 5%.
Nonperforming Assets
Table VI shows the details of nonperforming assets at September 30, 1997,
December 31, 1996 and September 30, 1996. Nonperforming assets, which include
nonperforming loans and other real estate owned (OREO), were $11.6 million at
September 30, 1997. This total represents an increase of $111 thousand from
December 31, 1996 and an increase of $1.5 million from September 30, 1996.
Nonperforming assets as a percentage of total loans and OREO declined slightly
to .59% as of September 30, 1997 from .65% as of December 31, 1996, and have
increased from .58% as of September 30, 1996.
Nonperforming loans, which include nonaccrual and restructured loans, were $10.8
million at September 30, 1997, a decrease of $419 thousand from December 31,
1996 and an increase of $1.0 million from September 30, 1996. The ratio of
nonperforming loans to total loans improved to .56% at September 30, 1997 from
.64% as of December 31, 1996, and remained unchanged from September 30, 1996.
The ratio of nonperforming assets and past due loans to total loans and OREO
improved from .78% at December 31, 1996 to .73% at September 30, 1997, and
remained unchanged from September 30, 1996. The level of at-risk performing
loans (with an internal loan review rating of either substandard, doubtful or
loss) increased $10.9 million or 12.2% from $89.4 million at September 30, 1996
to $100.3 million at September 30, 1997. Accordingly, the ratio of classified
loans to total loans has increased from 5.1% at September 30, 1996 to 5.2% at
September 30, 1997. Net charge-offs were $799 thousand for the first nine months
of 1997 as compared to net recoveries of $313 thousand in the same period of
1996.
Other real estate owned, which includes real estate acquired in loan
settlements, increased $530 thousand from December 31, 1996 and $500 thousand
from September 30, 1996 to $770 thousand at September 30, 1997.
Reserve for Loan Losses
The Company's reserve for loan losses was 318.3% of nonperforming loans at
September 30, 1997 compared to 271.1% at December 31, 1996 and 311.2% at
September 30, 1996. The Company continues to monitor the situation in the Red
River Valley of North Dakota and Minnesota, and as of September 30, 1997, has
not experienced a significant increase in past due loans or charge-offs
<PAGE>
relating to the floods. The Company will continue to assess the long-term impact
the damages caused by the April 1997 flooding may have on the loan portfolio.
Management believes that 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. See also Item 5 of Part
II of this Quarterly Report on Form 10-Q.
The reserve for loan losses increased from $30.5 million at September 30, 1996
to $34.5 million at September 30, 1997. Contributing to the increase in the
reserve for loan losses was an addition of $600 thousand of provision during
June 1997 in anticipation of potential losses relating to the April 1997
flooding in the Red River Valley. This additional provision was determined to be
appropriate given the current assessment of the situation. As the Company
continues to assess the long-term impact of the flood, further adjustments may
be necessary. See also Item 5 of Part II of this Quarterly Report on Form 10-Q.
Additionally, $743 thousand in reserves were added as a result of the Company's
acquisition of First National Bank of Devils Lake, Devils Lake, North Dakota.
The increase in the reserve for loan losses contributed to an overall increase
in the reserve to outstanding loans ratio from 1.74% at December 31, 1996 and
1.75% at September 30, 1996 to 1.77% at September 30, 1997. Table VII presents
the activity in the reserve for loan losses.
Noninterest Income
As presented in Table VIII, noninterest income was $10.0 million for the third
quarter of 1997 compared to $8.5 million for the third quarter of 1996,
representing a $1.5 million or 18.0% improvement. On a year-to-date basis,
noninterest income was $27.6 million compared to $24.5 million in 1996, an
increase of $3.1 million or 12.5%. On a year-to-date basis, operating
noninterest income, which excludes investment securities gains and losses,
increased 14.2% over 1996, with all categories posting increases. Service charge
fees, trust fees, brokerage commissions, and insurance commissions were the
major contributors to the increase in operating noninterest income.
Noninterest Expense
As presented in Table IX, noninterest expense increased $1.7 million or 7.2%
compared to the third quarter of 1996. On a year-to-date basis, noninterest
expense increased $3.6 million or 5.4% compared to the first nine months of
1996. While operating expenses of acquired entities unfavorably impacted the
comparison of noninterest expense between the first nine months of 1997 and
1996, the Company experienced a significant decline in the FDIC insurance
premiums, as the assessment rate on savings and loan acquired deposits fell.
Additionally, as previously mentioned in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, the Company's conversion of its
banks' charters to national charters regulated by the Office of Comptroller of
Currency (the "OCC"), during the first quarter of 1997, resulted in the reversal
of approximately $260 thousand in accruals set aside for state and other
examinations for 1997. Upon conversion to national charters, examinations by
state and other regulators were canceled, as the OCC became the examining
authority.
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 slightly
from
<PAGE>
59.54% at September 30, 1996 to 58.26% at September 30, 1997. Contributing to
this improvement were increases in the tax-equivalent net interest income of
6.1% coupled with strong growth in recurring noninterest income of 13.5%, driven
by significant increases in service charge income, and modest growth in
recurring noninterest expense of 5.4%.
Taxes
Comparing the first nine months of 1997 to the first nine months of 1996, the
Company's effective tax rate increased from 32.6% to 33.2%. This results from
proportionately more taxable than tax-exempt income during the first nine months
of 1997 compared to the same period in 1996.
Balance Sheet Growth
Assets
Average total assets increased $137.6 million or 4.9% from the first nine months
of 1996 to the first nine months of 1997, while average earning assets increased
$127.6 million or 4.8% when comparing the same two periods.
Loans
From the first nine months of 1996 to the first nine months of 1997, average
loans increased $129.8 million or 7.8%, driven by increases in all loan
categories. Average loans in the third quarter of 1997 increased $112.9 million
from the second quarter of 1997, resulting from seasonal activity.
On a year-to-date basis, the increase in average loan volume in 1997 over 1996
was primarily driven by commercial real estate, residential real estate,
agricultural, consumer, and commercial loans which increased $32.2 million,
$30.4 million, $29.8 million, $20.1 million, and $15.8 million, respectively.
The Company is not involved in highly leveraged transaction lending or lending
to foreign countries.
Securities
Average securities decreased $1.5 million or .2% from the first nine months of
1996 to the first nine months of 1997, as proceeds from maturities were utilized
to fund the continued strong loan growth. Taxable securities decreased $2.8
million or .4%, while tax-exempt securities increased $1.2 million or .6%. The
average maturity of the portfolio was 53.8 months at September 30, 1997, with an
average yield to maturity on the $989.2 million portfolio of 6.91%, unrealized
gains of $5.1 million and unrealized losses of $586 thousand for held to
maturity securities. Available for sale investments are recorded inclusive of
any unrealized gain or loss.
Liabilities
Comparing the first nine months of 1997 to the first nine months of 1996,
average interest bearing liabilities increased $115.7 million or 5.2%, while
average deposits increased $61.4 million or 2.8%. 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 $17.3 million or 6.3%. Average long-term debt, which
includes long-term FHLB advances and installment promissory notes issued in
connection with
<PAGE>
acquisitions, increased $38.3 million. Most of the increase in short-term and
long-term borrowings can be attributed to an increase in the Company's FHLB
advances. 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 1996 and the first nine months of
1997, average core deposits increased $68.2 million or 3.2%. The growth in core
deposits can be attributed to the Company's expanded presence in its markets.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
==================================================================================================================================
Nine Months Ended September 30 Three Months Ended September 30
-----------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 Change 1997 1996 Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total interest income $166,658 156,833 6.3% $58,843 53,575 9.8%
Net interest income 85,683 80,406 6.6 30,037 27,480 9.3
Net interest income (1) 91,379 86,130 6.1 31,974 29,419 8.7
Provision for loan losses 4,029 1,965 105.0 1,431 661 116.5
Noninterest income 27,574 24,517 12.5 10,010 8,487 17.9
Noninterest expense 71,465 67,820 5.4 24,553 22,900 7.2
Net income 25,239 23,676 6.6 9,366 8,317 12.6
Dividends 10,800 9,000 20.0 3,600 3,000 20.0
AVERAGE BALANCES
Assets 2,939,419 2,801,790 4.9 3,063,269 2,855,980 7.3
Loans 1,801,677 1,671,873 7.8 1,895,665 1,739,256 9.0
Securities 961,996 963,523 (0.2) 983,994 953,684 3.2
Deposits 2,265,571 2,204,188 2.8 2,313,539 2,224,332 4.0
Redeemable class A common stock 21,026 19,409 8.3 21,415 19,546 9.6
Shareholder's equity 241,805 223,203 8.3 246,273 224,784 9.6
PERIOD-END BALANCES
Assets 3,144,387 2,891,541 8.7
Loans 1,948,717 1,745,576 11.6
Securities 989,241 949,420 4.2
Deposits 2,379,926 2,244,470 6.0
Redeemable class A common stock 21,716 19,783 9.8
Shareholder's equity 249,739 227,499 9.8
FINANCIAL RATIOS
Return on assets (2) 1.20% 1.18 1.7 1.26% 1.21 4.1
Return on realized equity (3)(4) 12.97 13.12 (1.1) 14.05 13.43 4.6
Average equity/assets (3) 8.94 8.66 3.2 8.74 8.56 2.1
Dividend payout 42.79 38.01 12.6 38.44 36.07 6.6
Net interest margin (1) 4.42 4.36 1.4 4.40 4.33 1.6
Net charge-offs/average loans 0.06 (0.03) (300.0) 0.05 0.03 66.7
Reserve/period-end loans 1.77 1.75 1.1 1.77 1.75 1.1
PER SHARE OF COMMON STOCK (3)
Net income 2.10 1.97 6.6 $0.78 0.69 12.6
Dividends paid 0.90 0.75 20.0 0.30 0.25 20.0
Period-end book value 22.62 20.61 9.8 22.62 20.61 9.8
Period-end realized book value (4) 22.28 20.70 7.6 22.28 20.70 7.6
(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.
===================================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
TABLE I
CHANGES IN RETURN ON ASSETS
================================================================================
Year-To-Date
September 30
1997 vs 1996
- --------------------------------------------------------------------------------
Return on assets, prior period 1.18%
- --------------------------------------------------------------------------------
Increases
Net interest income (TEB) 0.05
Service charges 0.08
Trust fees 0.02
Brokerage 0.01
Data processing fees 0.03
FDIC premiums and examination fees 0.04
Occupancy 0.01
- -------------------------------------------------------------------------------
Total increases 0.24
- -------------------------------------------------------------------------------
Decreases
Provision for loan loss 0.09
Gain on sale of securities 0.02
Salaries and wages 0.07
Employee benefits 0.01
Furniture and equipment 0.01
Printing, postage and office supplies 0.01
Other noninterest expense, net 0.01
- -------------------------------------------------------------------------------
Total decreases 0.22
- -------------------------------------------------------------------------------
Return on assets, current period 1.20%
===============================================================================
<PAGE>
TABLE II
CAPITAL RATIOS (1)
<TABLE>
<CAPTION>
=================================================================================================
September 30 December 31 September 30 Regulatory
1997 1996 1996 Minimums
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Equity to assets (2) 8.63% 8.69 8.55 --
Equity to tangible assets (2) 8.95 8.62 8.47 --
Tier I capital (3) 12.46 12.89 12.70 4.00
Tier I and tier II capital (3) 13.72 14.15 13.95 8.00
Leverage ratio (3) 8.61 8.79 8.62 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.
<PAGE>
TABLE III
NET INTEREST INCOME / MARGINS (TEB)
<TABLE>
<CAPTION>
========================================================================================
Net Net
Interest Interest
(DOLLARS IN THOUSANDS) Income Margin
- ----------------------------------------------------------------------------------------
Quarter
- -------
<S> <C> <C>
1997
Third $31,974 4.40%
Second 30,570 4.45
First 28,835 4.41
1996
Fourth 29,732 4.40
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
========================================================================================
</TABLE>
<PAGE>
TABLE IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
================================================================================================================
Nine Months Ended September 30 Three Months Ended September 30
(IN THOUSANDS) 1997 vs 1996 1997 vs 1996
- ----------------------------------------------------------------------------------------------------------------
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CHANGE IN VOLUME
Earning assets $7,863 $3,832
Interest bearing liabilities (3,963) (2,017)
-------------- --------------
3,900 1,815
CHANGE IN INTEREST RATE SPREAD
Earning assets 1,351 0.06% 985 0.14%
Interest bearing liabilities (666) (0.03) (633) (0.09)
-------------- -------------- -------------- --------------
685 0.03 352 0.05
CHANGE IN PRODUCT MIX
Earning assets 968 0.05 183 0.03
Interest bearing liabilities (199) (0.01) (62) (0.01)
-------------- -------------- -------------- --------------
769 0.04 121 0.02
CHANGE DUE TO NUMBER OF DAYS
Earning assets (593) -- -- --
Interest bearing liabilities 279 -- -- --
-------------- -------------- -------------- --------------
(314) -- -- --
OTHER CHANGES
Nonaccruing loans (76) (0.01) 31 0.00
Yield-related loan fees 166 0.01 236 0.03
30/360 investment adjustment 119 0.01 -- --
Free funds -- (0.02) -- (0.03)
-------------- -------------- -------------- --------------
209 (0.01) 267 0.00
CHANGE IN NET INTEREST INCOME 5,249 0.06 2,555 0.07
Net interest income, prior period 86,130 4.36 29,419 4.33
-------------- -------------- -------------- --------------
Net interest income, current period $91,379 4.42% $31,974 4.40%
============== ============== ============== ==============
</TABLE>
<PAGE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
==================================================================================================
Nine Months Ended September 30
------------------------------------------------------
(IN THOUSANDS) 1997 vs 1996
- --------------------------------------------------------------------------------------------------
Volume Yield/Rate (1) Total
--------------- ---------------- ----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans $5,515 3,225 8,740
Taxable securities 1,725 (649) 1,076
Tax-exempt securities 618 (636) (18)
Interest bearing deposits -- -- --
Federal funds sold -- -- --
Other earning assets 5 (5) 0
--------------- ---------------- ----------------
Total 7,863 1,935 9,798
INTEREST EXPENSE
Savings deposits 583 (111) 472
Other time deposits 2,757 (1,188) 1,569
Short-term borrowings 565 324 889
Long-term debt 58 1,561 1,619
--------------- ---------------- ----------------
Total 3,963 586 4,549
--------------- ---------------- ----------------
NET INTEREST INCOME $3,900 1,349 5,249
==================================================================================================
</TABLE>
(1) ALL CHANGES IN NET INTEREST INCOME, OTHER THAN THOSE DUE TO VOLUME, HAVE
BEEN ALLOCATED TO YIELD/RATE.
<PAGE>
TABLE VI
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
==================================================================================================
September 30 December 31 September 30
(DOLLARS IN THOUSANDS) 1997 1996 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $10,003 10,830 9,381
Restructured loans 822 414 431
- --------------------------------------------------------------------------------------------------
Total nonperforming loans 10,825 11,244 9,812
Other real estate owned (OREO) 770 240 270
- --------------------------------------------------------------------------------------------------
Total nonperforming assets $11,595 11,484 10,082
==================================================================================================
Past due loans * $2,599 2,205 2,692
==================================================================================================
Nonperforming loans to total loans 0.56% 0.64 0.56
Nonperforming assets to total loans and OREO 0.59 0.65 0.58
Nonperforming assets and past due loans* to
total loans and OREO 0.73 0.78 0.73
Reserve to nonperforming loans 318.29 271.10 311.16
Reserve to total loans 1.77 1.74 1.75
==================================================================================================
</TABLE>
* PAST DUE LOANS INCLUDE ACCRUING LOANS 90 DAYS OR MORE PAST DUE.
<PAGE>
TABLE VII
RESERVE FOR LOAN LOSSES
==================================================================
Nine Months Ended
September 30
--------------------------
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------
Beginning of period $30,482 28,253
Charge-offs (1,578) (1,075)
Recoveries 779 1,388
- ------------------------------------------------------------------
Net charge-offs (799) 313
Provision for loan losses 4,029 1,965
Reserve related to acquired assets 743 --
- ------------------------------------------------------------------
End of period $34,455 30,531
==================================================================
<PAGE>
TABLE VIII
NONINTEREST INCOME
<TABLE>
<CAPTION>
===========================================================================================
Nine Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges $11,607 9,490 2,117 22.31%
Insurance 4,907 4,702 205 4.36
Trust 4,574 3,919 655 16.71
Brokerage 2,111 1,824 287 15.73
Gain on sale of loans 1,628 1,627 1 0.06
Gain on sale of other assets 126 88 38 43.18
Other 2,754 2,621 133 5.07
- -------------------------------------------------------------------------------------------
Operating noninterest income 27,707 24,271 3,436 14.16
(Loss) / gain on sale of securities (133) 246 (379) (154.07)
- -------------------------------------------------------------------------------------------
Total $27,574 24,517 3,057 12.47%
===========================================================================================
===========================================================================================
Three Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- -------------------------------------------------------------------------------------------
Service charges $4,063 3,251 812 24.98%
Insurance 1,786 1,854 (68) (3.67)
Trust 1,563 1,311 252 19.22
Brokerage 768 653 115 17.61
Gain on sale of loans 779 519 260 50.10
Gain on sale of other assets 35 50 (15) (30.00)
Other 956 792 164 20.71
- -------------------------------------------------------------------------------------------
Operating noninterest income 9,950 8,430 1,520 18.03
Gain on sale of securities 60 57 3 5.26
- -------------------------------------------------------------------------------------------
Total $10,010 8,487 1,523 17.95%
===========================================================================================
</TABLE>
<PAGE>
TABLE IX
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
===========================================================================================
Nine Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and wages $32,744 29,829 2,915 9.77%
Employee benefits 8,740 8,202 538 6.56
Occupancy 4,413 4,384 29 0.66
Furniture and equipment 4,726 4,356 370 8.49
Printing, postage and office supplies 3,870 3,548 322 9.08
Marketing 2,595 2,383 212 8.90
Data processing fees 5,342 5,686 (344) (6.05)
Professional fees 516 557 (41) (7.36)
Other real estate owned 88 29 59 203.45
Minority interest in earnings 1,090 1,051 39 3.71
FDIC premiums and examination fees 352 1,084 (732) (67.53)
Other 6,989 6,711 278 4.14
- -------------------------------------------------------------------------------------------
Total $71,465 67,820 3,645 5.37%
===========================================================================================
===========================================================================================
Three Months Ended
September 30 Increase/(Decrease)
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- -------------------------------------------------------------------------------------------
Salaries and wages $11,229 10,252 977 9.53%
Employee benefits 2,857 2,735 122 4.46
Occupancy 1,484 1,435 49 3.41
Furniture and equipment 1,648 1,480 168 11.35
Printing, postage and office supplies 1,326 1,150 176 15.30
Marketing 877 804 73 9.08
Data processing fees 1,587 1,894 (307) (16.21)
Professional fees 255 218 37 16.97
Other real estate owned 27 10 17 170.00
Minority interest in earnings 381 368 13 3.53
FDIC premiums and examination fees 302 193 109 56.48
Other 2,580 2,361 219 9.28
- -------------------------------------------------------------------------------------------
Total $24,553 22,900 1,653 7.22%
===========================================================================================
</TABLE>
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Tax Equivalent Basis-In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER YTD 1997 SEPTEMBER YTD 1996
------------------------------------- ------------------------------------- % 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 $358,870 $24,631 9.18% $343,118 $23,520 9.16% 4.59%
COMMERCIAL REAL ESTATE 383,748 25,998 9.06 351,544 23,946 9.10 9.16
AGRICULTURAL 385,856 26,748 9.27 356,043 24,710 9.27 8.37
RESIDENTIAL REAL ESTATE 372,369 24,565 8.82 341,999 22,205 8.67 8.88
CONSUMER 248,603 16,854 9.06 228,490 15,616 9.13 8.80
TAX-EXEMPT 52,231 3,968 10.16 50,679 4,027 10.61 3.06
---------- --------- ---------- ---------
TOTAL LOANS 1,801,677 122,764 9.11 1,671,873 114,024 9.11 7.76
RESERVE FOR LOAN LOSSES (31,885) (29,373) 8.55
---------- ----------
NET LOANS 1,769,792 1,642,500 7.75
SECURITIES
MORTGAGE BACKED 614,077 30,060 6.54 578,414 27,419 6.33 6.17
OTHER TAXABLE 138,550 6,684 6.45 176,987 8,249 6.23 (21.72)
TAX EXEMPT 209,369 12,747 8.14 208,122 12,765 8.19 0.60
---------- --------- ---------- ---------
TOTAL SECURITIES 961,996 49,491 6.88 963,523 48,433 6.71 (0.16)
FEDERAL FUNDS SOLD 0 0 -- 0 0 -- --
OTHER EARNING ASSETS 1,755 99 7.54 2,427 99 5.45 (27.69)
---------- --------- ---------- ---------
TOTAL EARNING ASSETS 2,765,428 172,354 8.33 2,637,823 162,556 8.23 4.84
CASH & DUE FROM BANKS 96,393 91,520 5.32
NONEARNING ASSETS 109,483 101,820 7.53
---------- ----------
$2,939,419 $2,801,790 4.91
========== ==========
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $274,934 $273,563 0.50
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 301,313 3,807 1.69 253,869 3,214 1.69 18.69
MONEY MARKET CHECKING 151,399 1,735 1.53 179,332 2,286 1.70 (15.58)
MONEY MARKET SAVINGS 248,566 6,173 3.32 243,925 5,743 3.14 1.90
SAVINGS CERTIFICATES 1,123,825 47,828 5.69 1,098,896 46,809 5.69 2.27
CERTIFICATES OVER $100,000 165,534 6,915 5.59 154,603 6,365 5.50 7.07
---------- --------- ---------- ---------
TOTAL TIME DEPOSITS 1,990,637 66,458 4.46 1,930,625 64,417 4.46 3.11
---------- ----------
TOTAL DEPOSITS 2,265,571 2,204,188 2.78
CORE DEPOSITS 2,190,855 2,122,653 3.21
SHORT-TERM BORROWINGS 294,060 11,788 5.36 276,711 10,899 5.26 6.27
LONG-TERM DEBT 61,841 2,729 5.90 23,523 1,110 6.30 162.90
---------- --------- ---------- ---------
TOTAL INTEREST BEARING LIABILITIES 2,346,538 80,975 4.61 2,230,859 76,426 4.58 5.19
OTHER LIABILITIES 43,353 43,476 (0.28)
---------- ----------
TOTAL LIABILITIES 2,664,825 2,547,898 4.59
MINORITY INTEREST 9,588 9,105 5.30
REDEEMABLE PREFERRED STOCK 2,175 2,175 0.00
REDEEMABLE CLASS A COMMON STOCK 21,026 19,409 8.33
SHAREHOLDER'S EQUITY 241,805 223,203 8.33
---------- ----------
$2,939,419 $2,801,790 4.91
========== ==========
NET INTEREST INCOME $91,379 $86,130
========== =========
NET INTEREST MARGIN 4.42% 4.36%
GROSS SPREAD 3.72 3.66
</TABLE>
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Tax Equivalent Basis-In Thousands)
<TABLE>
<CAPTION>
THIRD QUARTER 1997 THIRD QUARTER 1996
------------------------------------- ------------------------------------- % 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 $372,868 $8,761 9.32% $349,005 $7,867 8.94% 6.84%
COMMERCIAL REAL ESTATE 399,720 9,061 8.99 358,901 8,141 9.00 11.37
AGRICULTURAL 426,831 10,030 9.32 387,965 8,963 9.17 10.02
RESIDENTIAL REAL ESTATE 389,279 8,675 8.84 352,980 7,650 8.60 10.28
CONSUMER 254,652 5,817 9.06 236,449 5,408 9.07 7.70
TAX-EXEMPT 52,315 1,323 10.03 53,956 1,372 10.09 (3.04)
---------- --------- ---------- ---------
TOTAL LOANS 1,895,665 43,667 9.14 1,739,256 39,401 8.99 8.99
RESERVE FOR LOAN LOSSES (33,349) (30,281) 10.13
---------- ----------
NET LOANS 1,862,316 1,708,975 8.97
SECURITIES
MORTGAGE BACKED 644,439 10,646 6.55 577,007 9,095 6.25 11.69
OTHER TAXABLE 126,257 2,059 6.47 165,982 2,674 6.39 (23.93)
TAX EXEMPT 213,298 4,358 8.11 210,695 4,316 8.13 1.24
---------- --------- ---------- ---------
TOTAL SECURITIES 983,994 17,063 6.88 953,684 16,085 6.69 3.18
FEDERAL FUNDS SOLD 0 0 -- 0 0 -- --
OTHER EARNING ASSETS 1,737 50 11.42 2,359 27 4.54 (26.37)
---------- --------- ---------- ---------
TOTAL EARNING ASSETS 2,881,396 60,780 8.37 2,695,299 55,513 8.17 6.90
CASH & DUE FROM BANKS 99,702 89,884 10.92
NONEARNING ASSETS 115,520 101,078 14.29
---------- ----------
$3,063,269 $2,855,980 7.26
========== ==========
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $293,172 $286,731 2.25
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 308,920 1,350 1.73 252,669 1,047 1.64 22.26
MONEY MARKET CHECKING 149,691 570 1.51 176,924 747 1.68 (15.39)
MONEY MARKET SAVINGS 249,951 2,117 3.36 240,971 1,919 3.16 3.73
SAVINGS CERTIFICATES 1,140,015 16,440 5.72 1,109,849 15,797 5.65 2.72
CERTIFICATES OVER $100,000 171,790 2,438 5.63 157,188 2,168 5.47 9.29
---------- --------- ---------- ---------
TOTAL TIME DEPOSITS 2,020,367 22,915 4.50 1,937,601 21,678 4.44 4.27
---------- ----------
TOTAL DEPOSITS 2,313,539 2,224,332 4.01
CORE DEPOSITS 2,227,609 2,146,202 3.79
SHORT-TERM BORROWINGS 364,630 5,005 5.45 316,848 4,194 5.25 15.08
LONG-TERM DEBT 59,073 886 5.95 14,224 222 6.19 315.31
---------- --------- ---------- ---------
TOTAL INTEREST BEARING LIABILITIES 2,444,070 28,806 4.68 2,268,673 26,094 4.56 7.73
OTHER LIABILITIES 46,386 44,995 3.09
---------- ----------
TOTAL LIABILITIES 2,783,628 2,600,399 7.05
MINORITY INTEREST 9,758 9,056 7.75
REDEEMABLE PREFERRED STOCK 2,195 2,195 0.00
REDEEMABLE CLASS A COMMON STOCK 21,415 19,546 9.56
SHAREHOLDER'S EQUITY 246,273 224,784 9.56
---------- ----------
$3,063,269 $2,855,980 7.26
========== ==========
NET INTEREST INCOME $31,974 $29,419
========== =========
NET INTEREST MARGIN 4.40% 4.33%
GROSS SPREAD 3.69 3.61
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other information
As previously reported in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, on July 22, 1997, the Company
signed an agreement with The Halo Bancorporation, Inc. ("HBI") of
Devils Lake, North Dakota, for the purchase of First National Bank of
Devils Lake ("FNB-DL") and its parent, HBI. This acquisition has since
been completed and approved by the necessary regulatory agencies,
effective September 4, 1997. Subsequent to this acquisition, the
Company intends to merge FNB-DL into First American Bank, National
Association, of Minot, North Dakota ("FAB-Minot"), subject to
regulatory approval and approval by the shareholders of FAB-Minot. A
tentative merger date has been set for November 15, 1997. The FNB-DL
bank has assets of over $60 million.
As previously reported in the Company's Quarterly Report on Form 10-Q
for the quarters ended March 31, 1997 and June 30, 1997, the Company's
1997 results will be impacted by the April 1997 floods in the Red River
Valley of Minnesota and North Dakota. Approximately 12% of the
Company's deposit base and 13% of the loan base are located in the area
directly impacted by the flooding. As of September 30, 1997, the
Company has not experienced significant increases in either past due
loan balances or charge-offs, as a result of the flooding. In June
1997, based upon initial assessments, the Company added $600 thousand
to its reserve for loan losses. The full extent of the flood damage is
not yet known, as the number of the Company's borrowers suffering
losses, the amount of assistance those customers might receive, and the
ability of these customers to recover, long-term, from the flood, are
still being determined. Although the Company continues to assess the
potential long-term effects the flood may have on its loan portfolio,
the Company's management continues to believe that the combination of
loan loss reserves and high levels of capitalization should be adequate
to cover any losses ultimately realized by the Company from this flood.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS A NUMBER OF FORWARD-LOOKING
STATEMENTS WHICH REFLECT THE CURRENT VIEWS OF THE COMPANY'S MANAGEMENT
WITH RESPECT TO FUTURE EVENTS THAT WILL HAVE AN EFFECT ON ITS FUTURE
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY
ANTICIPATED. READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS.
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
September 30, 1997 or during the period from September 30, 1997 to the
date of this Quarterly Report on Form 10-Q.
<PAGE>
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, 1997 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
Controller
(Chief Accounting Officer)
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