SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
445 MINNESOTA STREET 55101
SUITE 2000, ST. PAUL, MN (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 227-7621
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, no par value
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based upon the $21.18 per share book value of the shares of class A common stock
of the Company as of December 31, 1996, the aggregate value of the Company's
shares of class A common stock held by employees and directors as of such date
was approximately $20.3 million.
As of March 14, 1997, there were 1,200,000 shares of class A common stock and
10,800,000 shares of class B common stock outstanding.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks $ 159,832 127,786
Interest bearing deposits 1,778 3,008
Investment securities held to maturity (fair value of
$187,045 and $203,607, respectively) 183,095 198,515
Mortgage-backed securities held to maturity (fair value of
$108,111 and $116,772, respectively) 109,036 118,390
---------- -------
TOTAL SECURITIES HELD TO MATURITY 292,131 316,905
Investment securities available for sale (amortized cost of
$180,453 and $209,978, respectively) 180,679 213,520
Mortgage-backed securities available for sale (amortized
cost of $460,958 and $450,551, respectively) 462,964 454,343
---------- -------
TOTAL SECURITIES AVAILABLE FOR SALE 643,643 667,863
Loans 1,759,711 1,630,100
Reserve for loan losses (30,482) (28,253)
Unearned discount (3,954) (3,484)
---------- -------
NET LOANS 1,725,275 1,598,363
Premises and equipment, net 45,980 44,252
Interest receivable and other assets 57,012 54,055
---------- -------
TOTAL ASSETS $2,925,651 2,812,232
========== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 332,143 326,531
Interest bearing deposits 1,951,303 1,915,776
---------- -------
TOTAL DEPOSITS 2,283,446 2,242,307
Federal funds purchased and repurchase agreements 188,129 187,100
Other short-term borrowings 86,892 69,427
Long-term debt 62,389 25,568
Accrued expenses and other liabilities 39,125 38,633
---------- -------
TOTAL LIABILITIES 2,659,981 2,563,035
Minority interests 9,319 9,112
Redeemable preferred stock, $100 par, 80,000 shares
authorized; 71,594 shares issued; 21,437 shares outstanding 2,144 2,144
Redeemable class A common stock, 960,000 shares
issued and outstanding 20,337 19,035
Shareholder's equity
Common stock
Class A, no par, 12,000,000 shares authorized;
240,000 shares issued and outstanding 57 57
Class B, no par, 10,800,000 shares authorized,
issued and outstanding 2,562 2,562
Retained earnings 230,071 212,392
Net unrealized gain on securities available for sale 1,180 3,895
---------- -------
TOTAL SHAREHOLDER'S EQUITY 233,870 218,906
---------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,925,651 2,812,232
========== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
--------------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INTEREST INCOME
Loans, including fees $151,964 141,754 113,295
Securities
Taxable 47,297 47,006 39,091
Tax-exempt 11,285 10,839 9,748
Federal funds sold -- -- 37
Other 157 182 96
-------- ------- -------
Total interest income 210,703 199,781 162,267
-------- ------- -------
INTEREST EXPENSE
Deposits 86,246 84,872 59,187
Federal funds purchased and
repurchase agreements 8,823 8,175 6,771
Other short term borrowings 6,027 4,503 1,844
Long term debt 1,414 1,586 382
-------- ------- -------
Total interest expense 102,510 99,136 68,184
-------- ------- -------
Net interest income 108,193 100,645 94,083
Provision for loan losses 2,756 1,780 (1,300)
-------- ------- -------
Net interest income after
provision for loan losses 105,437 98,865 95,383
-------- ------- -------
NONINTEREST INCOME
Service charges 12,837 11,047 9,627
Insurance 7,082 5,503 4,716
Trust 5,332 4,784 4,502
Gain on sale of loans 2,138 1,302 1,649
Gain (loss) on sale of securities 147 304 (270)
Other 6,306 4,952 6,544
-------- ------- -------
Total noninterest income 33,842 27,892 26,768
-------- ------- -------
NONINTEREST EXPENSE
Salaries and wages 40,676 37,325 36,556
Employee benefits 10,739 10,878 11,254
Occupancy 5,756 5,433 4,871
Furniture and equipment 6,020 5,020 4,320
Data processing fees 7,680 7,334 7,031
FDIC premiums and examination fees 1,075 2,901 4,719
Other 20,379 18,405 16,885
-------- ------- -------
Total noninterest expense 92,325 87,296 85,636
-------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 46,954 39,461 36,515
Income tax expense 15,137 12,325 10,718
-------- ------- -------
NET INCOME $ 31,817 27,136 25,797
======== ======= =======
Per common share amounts
Net income $ 2.65 2.26 2.15
Dividends paid $ 1.05 0.80 0.78
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
CLASS A CLASS B FOR SALE EARNINGS TOTAL
------- ------- -------------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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 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)
--- ----- ------- ------- -------
BALANCE, DECEMBER 31, 1996 $57 2,562 1,180 230,071 233,870
=== ===== ===== ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 31,817 27,136 25,797
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 2,756 1,780 (1,300)
Depreciation and amortization 7,135 6,525 9,531
Deferred income taxes (1,204) 1,074 (459)
Minority interests in earnings of subsidiaries 1,400 1,277 1,271
(Gain) loss on sale of securities (147) (304) 270
Valuation writedown on other real estate owned -- 13 6
Gains on sale of other real estate owned, net (33) (517) (1,471)
Other assets and liabilities, net (915) 2,758 (793)
Proceeds from sales of other real estate owned 269 2,192 4,466
Cash receipts related to loans originated
specifically for resale 123,549 74,672 81,401
Cash payments related to loans originated
specifically for resale (123,397) (73,370) (79,752)
--------- -------- --------
Net cash provided by operating activities 41,230 43,236 38,967
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net 1,230 (1,396) 11
Federal funds sold, net -- -- 21,547
Purchases of securities available for sale (208,159) (273,311) (294,536)
Purchases of securities held to maturity (33,762) (20,738) (54,868)
Proceeds from maturities of securities available
for sale 128,539 92,292 95,976
Proceeds from maturities of securities held to
maturity 59,942 55,081 60,900
Proceeds from sales of securities available for
sale 97,713 112,886 143,593
Loans, net (129,819) (149,885) (163,484)
Business acquisitions, net of cash acquired -- (1,469) 1,621
Acquisition of premises and equipment (7,637) (11,540) (5,913)
--------- -------- --------
Net cash used by investing activities (91,953) (198,080) (195,153)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net 5,612 36,160 5,781
Interest bearing deposits (excluding certificates
of deposit), net (7,416) 16,692 (32,545)
Certificates of deposits, net 42,943 119,120 97,316
Federal funds and repurchase agreements, net 1,029 (16,961) 68,016
Other short-term borrowings, net 17,465 25,611 29,889
Long-term debt, net 36,821 1,780 13,924
Minority interests acquired and dividends paid (1,085) (1,105) (1,098)
Redeemable preferred stock -- (5,108) --
Dividends paid (12,600) (9,600) (9,360)
--------- -------- --------
Net cash provided by financing activities 82,769 166,589 171,923
--------- -------- --------
Net increase in cash and due from banks 32,046 11,745 15,737
Cash and due from banks
Beginning of year 127,786 116,041 100,304
--------- -------- --------
End of year $ 159,832 127,786 116,041
========= ======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for interest $ 103,494 89,977 64,366
Cash paid during the year for income taxes 16,229 8,640 13,270
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: ACCOUNTING POLICIES
NATURE OF BUSINESS -- Bremer Financial Corporation (the "Company") is a regional
multi-state bank holding company headquartered in St. Paul, Minnesota. The
Company is a majority owner of sixteen subsidiary banks which draw most of their
deposits from and make substantially all of their loans within the states of
Minnesota, North Dakota, and Wisconsin. Additionally, the Company also provides
trust and insurance services to its customers through wholly-owned nonbanking
subsidiaries, and investment services through a third party relationship.
The accounting and reporting policies of the Company and its subsidiaries
conform to generally accepted accounting principles and general practices
within the financial services industry. The more significant accounting
policies are summarized below:
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Company (a bank holding company majority owned by the Otto Bremer
Foundation) and all banks and financial service subsidiaries in which the
Company has a majority interest. All significant intercompany accounts and
transactions have been eliminated.
CASH FLOWS -- For purposes of this statement, the Company has defined cash
equivalents as cash and due from banks. During the years ended December 31,
1996, 1995, and 1994, the Company received real estate valued at $481,000,
$1,312,000, and $506,000, respectively, in satisfaction of outstanding loan
balances. During the years ended December 31, 1996, 1995 and 1994, the Company
issued installment notes totaling $250,000, $5,577,000 and $3,801,000,
respectively, and redeemable preferred stock during 1994 of $7,160,000, in
connection with acquisitions. Of the preferred stock issued in 1994, $5,108,000
was redeemed during 1995.
INVESTMENT AND MORTGAGE-BACKED SECURITIES -- HELD TO MATURITY SECURITIES consist
of debt securities which the Company has the intent and ability to hold to
maturity, and are valued at amortized historical cost, increased for accretion
of discounts and reduced by amortization of premiums, computed by the
constant-yield method. Under certain circumstances (including the deterioration
of the issuer's creditworthiness or a change in tax law or statutory or
regulatory requirements), securities held to maturity may be sold or transferred
to another portfolio.
AVAILABLE FOR SALE SECURITIES consist of debt and equity securities that will be
held for indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for liquidity
or changes in the availability or yield of alternative investments. These
securities are valued at current market value with the resulting unrealized
holding gains and losses excluded from earnings and reported, net of tax and
minority interest effects and the resultant allocation to redeemable class A
common stock, as a separate component of shareholder's equity until realized.
Gains or losses on these securities are computed based on the adjusted cost of
the specific securities sold.
The Company does not engage in trading activities.
LOANS -- Interest income is accrued on loan balances based on the principal
amount outstanding. Loans are reviewed regularly by management and placed on
nonaccrual status when the collection of interest or principal is unlikely.
Thereafter, no interest is recognized as income unless received in cash or until
such time the borrower demonstrates the ability to pay interest and principal.
Certain net loan and commitment fees are deferred and amortized over the life of
the related loan or commitment as an adjustment of yield.
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures" (FAS 114 and
118). Under the Company's credit policies and practices, all nonaccrual and
restructured commercial, agricultural, construction, and commercial real estate
loans plus certain other loans identified by the Company meet the definition of
impaired loans under FAS 114 and 118. Impaired loans as defined by FAS 114 and
118 exclude certain large groups of smaller balance homogeneous loans such as
consumer loans and residential real estate loans. Under these statements, loan
impairment is required to be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the observable market price of the loan or the fair
value of the collateral if the loan is collateral dependent. The adoption of FAS
114 and 118 did not have a material effect on the Company's financial position
or results of operations.
RESERVE FOR LOAN LOSSES -- Management determines the adequacy of the reserve
based upon a number of factors, including credit loss experience and a
continuous review of the loan portfolio. Being an estimate, the reserve is
subject to change through evaluation of the loan composition, economic
conditions, and the economic prospects of borrowers.
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation and amortization computed principally on accelerated
methods based on estimated useful lives.
OTHER REAL ESTATE -- Other real estate owned, which is included in other assets,
represents properties acquired through foreclosure and other proceedings
recorded at the lower of the amount of the loan satisfied or fair value. Any
write-down to fair value at the time of foreclosure is charged to the reserve
for loan losses. Property is appraised periodically to ensure that the recorded
amount is supported by the current fair value. Market write-downs, operating
expenses and losses on sales are charged to other expenses. Income, including
gains on sales, is credited to other income.
INTANGIBLE ASSETS -- Intangible assets consist primarily of goodwill. The
remaining unamortized balances at December 31, 1996 and 1995 were approximately
$10,635,000 and $10,200,000, respectively, which are amortized over a 15 year
period.
INCOME TAXES -- Bremer Financial Corporation and subsidiaries file a
consolidated federal tax return, accounting for income taxes under FAS 109.
Deferred taxes are recorded to reflect the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end. Such differences are primarily related to
the differences between providing for loan losses for financial reporting
purposes while deducting charged-off loans for tax purposes.
ESTIMATES -- The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans.
EARNINGS PER SHARE CALCULATIONS -- Earnings per common share have been computed
using 12,000,000 common shares for all periods. See Note O.
RECLASSIFICATIONS -- Certain amounts have been reclassified to provide
consistent presentation among the various accounting periods shown. The
reclassifications have no effect on previously reported net income or total
shareholder's equity.
NOTE B: RESTRICTIONS ON CASH AND DUE FROM BANKS
Subsidiary Banks are required to maintain average reserve balances in accordance
with the Federal Reserve Bank requirements. The amount of those reserve balances
was approximately $15,883,000 and $15,388,000 as of December 31, 1996 and 1995,
respectively.
NOTE C: INVESTMENT AND MORTGAGE-BACKED SECURITIES
At December 31, 1996 and 1995, investment and mortgage-backed securities with
amortized cost of $655,439,000 and $606,895,000, respectively, were pledged as
collateral to secure public deposits and for other purposes. The amortized cost
and estimated fair value by maturity at December 31, 1996, are shown below
(contractual maturity or, if earlier, call dates are used):
HELD TO MATURITY AVAILABLE FOR SALE
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- -------- -------
(IN THOUSANDS)
Within 1 year $ 74,676 74,634 117,829 118,237
1 -- 5 years 130,204 131,627 354,041 356,237
5 -- 10 years 71,893 73,643 65,535 65,504
After 10 years 15,358 15,252 104,006 103,665
-------- ------- ------- -------
Total $292,131 295,156 641,411 643,643
======== ======= ======= =======
The amortized cost and fair value of investment and mortgage-backed securities
available for sale as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------- --------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-------- ---------- ---------- ------- --------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Governments $ 54,966 317 25 55,258 76,335 851 63 77,123
State and political
subdivisions 36,934 271 7 37,198 41,500 431 8 41,923
Corporate bonds 36,109 88 80 36,117 48,236 130 319 48,047
Mortgage-backed
securities 460,958 3,886 1,880 462,964 450,551 5,257 1,465 454,343
Equity securities 45,337 145 136 45,346 33,436 2,718 15 36,139
Other 7,107 42 389 6,760 10,471 27 210 10,288
-------- ----- ----- ------- ------- ----- ----- -------
Total $641,411 4,749 2,517 643,643 660,529 9,414 2,080 667,863
======== ===== ===== ======= ======= ===== ===== =======
</TABLE>
Proceeds from sales of investments and mortgage-backed securities were
$97,713,000, $112,886,000, and $143,593,000, for 1996, 1995, and 1994,
respectively. Gross gains of $727,000, $938,000, and $1,583,000 and gross losses
of $580,000, $634,000, and $1,853,000 were realized on those sales for 1996,
1995, and 1994, respectively.
A summary of amortized cost and fair value of investment and mortgage-backed
securities held to maturity at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------- --------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-------- ---------- ---------- ------- --------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government agencies $ 32,439 93 79 32,453 51,222 240 54 51,408
State and political
subdivisions 150,656 4,123 187 154,592 147,293 5,160 254 152,199
Mortgage-backed
securities 109,036 308 1,233 108,111 118,390 3 1,621 116,772
-------- ----- ----- ------- ------- ----- ----- -------
Total $292,131 4,524 1,499 295,156 316,905 5,403 1,929 320,379
======== ===== ===== ======= ======= ===== ===== =======
</TABLE>
State and political subdivision investments largely involve governmental
entities within the Company's market area.
NOTE D: LOANS
The Company is engaged in lending activities with borrowers in a wide variety of
industries. Lending is concentrated in the areas in which its Subsidiary Banks
are located. Loans at December 31 consist of the following:
1996 1995
---------- ---------
(IN THOUSANDS)
Commercial and other $ 346,472 331,605
Commercial real estate 340,621 313,287
Construction 30,039 31,952
Agricultural 378,399 350,786
Residential real estate 351,946 322,296
Construction 11,904 11,511
Consumer 247,511 221,727
Tax-exempt 52,819 46,936
---------- ---------
Total $1,759,711 1,630,100
========== =========
Impaired loans were $11,244,000 and $10,248,000 at December 31, 1996 and 1995,
respectively. Impaired loans include nonaccrual, restructured loans and certain
other loans identified by the Company. Restructured loans are those for which
the terms (principal and/or interest) have been modified as a result of the
inability of the borrower to meet the original terms of the loan. The reserve
for loan losses includes approximately $1,519,000 and $1,623,000 relating to
impaired loans at December 31, 1996 and 1995, respectively.
The effect of nonaccrual and restructured loans on interest income for each of
the three years ended December 31 was as follows:
1996 1995 1994
------ ----- -----
(IN THOUSANDS)
Interest income
As originally contracted $1,227 1,575 1,662
As recognized (291) (429) (346)
------ ----- -----
Reduction of interest income $ 936 1,146 1,316
====== ===== =====
Other nonperforming assets, consisting of other real estate owned, amounted to
$240,000 and $380,000 at December 31, 1996 and 1995, respectively.
Loans totaling $62,300,000 and $45,300,000 were pledged to secure Federal Home
Loan Bank (FHLB) advances at December 31, 1996 and 1995, respectively.
The Company and its subsidiaries have granted loans to the officers and
directors (the "Group") of significant subsidiaries. The aggregate dollar amount
of loans to the Group was $16,483,000 and $14,115,000 at December 31, 1996 and
1995, respectively. During 1996, $15,417,000 of new loans were made, repayments
totaled $13,512,000, and changes in the composition of the Group or their
associations increased loans outstanding by $463,000. Rates on these loans were
made at the prevailing market rates.
NOTE E: RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses are as follows:
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Beginning of year $28,253 26,946 27,624
Charge-offs (2,230) (2,834) (2,065)
Recoveries 1,703 1,610 1,814
------- ------- -------
Net charge-offs (527) (1,224) (251)
Provision for loan loss 2,756 1,780 (1,300)
Reserve related to acquired assets -- 751 873
------- ------- -------
End of year $30,482 28,253 26,946
======= ======= =======
NOTE F: PREMISES AND EQUIPMENT
Premises and equipment at December 31 consist of the following:
1996 1995
------- ------
(IN THOUSANDS)
Land $ 6,521 6,582
Buildings and improvements 49,836 47,057
Furniture and equipment 38,538 35,331
------- ------
Total premises and equipment 94,895 88,970
Less: accumulated depreciation and amortization 48,915 44,718
------- ------
Premises and equipment, net $45,980 44,252
======= ======
NOTE G: SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds and repurchase agreements (which
generally mature within one to sixty days of the transaction date), treasury,
tax and loan notes (which generally mature within one to thirty days), and FHLB
advances (which mature within one year).
Information related to short-term borrowings for the two years ended December 31
is provided below:
<TABLE>
<CAPTION>
FEDERAL FUNDS FEDERAL HOME TREASURY
AND REPURCHASE LOAN BANK TAX AND LOAN
AGREEMENTS BORROWINGS NOTES
-------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31
1995 $187,100 64,500 4,927
1996 188,129 78,200 8,692
Weighted average interest rate at December 31
1995 5.12% 5.84 5.24
1996 5.58 5.85 5.16
Maximum amount outstanding at any month end
1995 $193,777 95,990 21,083
1996 204,332 130,500 13,466
Average amount outstanding during the year
1995 $154,453 67,203 8,279
1996 175,196 101,081 6,536
Weighted average interest rate during the year
1995 5.30% 6.01 5.57
1996 5.04 5.62 5.16
</TABLE>
NOTE H: LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at December
31 consists of the following:
1996 1995
------- ------
(IN THOUSANDS)
Federal Home Loan Bank borrowings $54,514 16,200
Installment promissory notes and other 7,875 9,368
------- ------
Total $62,389 25,568
======= ======
The FHLB borrowings bear interest at rates ranging from 5.46% to 7.35%, with
maturity dates from 1998 through 2011.
The promissory notes and other bear interest at rates ranging from 5.68% to
8.53%, paid predominantly in annual installments through 2007.
Maturities of long-term debt outstanding at December 31, 1996, were as follows:
(IN THOUSANDS)
1997 $ 1,748
1998 52,197
1999 1,703
2000 673
2001 1,423
Thereafter 4,645
-------
Total $62,389
=======
The Company had an unused line of credit of $10 million with a bank at December
31, 1996. Borrowings under this line are noncollateralized and would bear
interest at an applicable reserve adjusted certificate of deposit rate.
The line of credit expires on September 11, 1997.
NOTE I: DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose the estimated fair values of the Company's
financial instruments. For the Company, most of its assets and liabilities are
considered financial instruments as defined in FAS 107. Many of the Company's
financial instruments, however, lack an available trading market which is
characterized by an exchange transaction of the instrument by a willing buyer
and seller. It is also the Company's general practice and intent to hold most of
its financial instruments to maturity and not engage in trading activities.
Therefore, significant estimations and present value calculations were utilized
by the Company for purposes of this disclosure. The use of different market
assumptions and/or estimation methodologies may have a material effect on these
estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to the Company as of December 31, 1996 and 1995. Although the Company
is not aware of any factors that would significantly affect the estimated fair
value amounts, these amounts have not been comprehensively revalued for purposes
of these financial statements since December 31, 1996 and, therefore, current
estimates of fair value may differ from the amounts presented. As of December
31, carrying amounts and estimated fair values are:
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 159,832 159,832 127,786 127,786
Interest bearing deposits 1,778 1,778 3,008 3,008
Securities held to maturity 292,131 295,156 316,905 320,379
Securities available for sale 643,643 643,643 667,863 667,863
Loans 1,725,275 1,749,205 1,626,616 1,678,937
LIABILITIES
Demand deposits 1,019,717 1,019,717 1,013,415 1,013,415
Time deposits 1,263,729 1,266,944 1,228,892 1,261,969
Short-term borrowings 275,021 275,021 256,527 256,527
Long-term debt 62,389 62,826 25,568 26,169
</TABLE>
CASH AND DUE FROM BANKS AND INTEREST BEARING DEPOSITS -- The carrying values for
these financial instruments approximates fair value due to the relatively short
period of time between the origination of the instruments and their expected
realization.
SECURITIES -- Fair values of these financial instruments were estimated using
quoted market prices, when available. If quoted market prices were not
available, fair value was estimated using market prices for similar assets. As
required by FAS 115, securities available for sale are carried at fair market
value.
LOANS -- The fair value of loans (net of unearned discount) is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to qualified borrowers and for the same remaining maturities,
adjusted by a related portion of the reserve for loan losses.
DEPOSITS -- The estimated fair value of deposits with no stated maturity, such
as non-interest bearing savings and money-market checking accounts, is the
amount payable on demand. The fair value of time deposits is estimated using the
rates currently offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS -- Due to the short term nature of repricing and
maturities of these instruments, fair value is considered carrying value.
LONG-TERM DEBT -- The majority of the long-term debt reprices monthly, and
therefore, fair value is considered carrying value. For fixed rate debt, the
fair value is determined by discounting future cash flows at current rates for
debt with similar remaining maturities.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- The estimated fair value of these
instruments, such as loan commitments and standby letters of credit,
approximates their off-balance sheet carrying value due to repricing ability and
other terms of the contracts.
NOTE J: EMPLOYEE BENEFIT PLANS
PENSION PLAN -- The Company has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on age, years of
service and the employee's highest average compensation during 60 consecutive
months of the last 120 months of employment. The Company's funding policy is
generally to contribute annually an amount approximating the Company's annual
net pension expense.
Contributions are intended to provide for benefits attributed to service to date
and for those expected to be earned in the future. The following table sets
forth the plan's funded status and amount recognized in the Company's balance
sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$12,986 in 1996, and $11,302 in 1995 $ 14,836 14,089
Increase due to salary projections 5,067 6,159
-------- -------
Projected benefit obligation for service rendered to date 19,903 20,248
Plan assets (marketable securities) at fair value (21,124) (18,667)
-------- -------
Projected benefit obligation (less than)/in excess of plan assets (1,221) 1,581
Unrecognized actuarial gain (loss) 2,019 (162)
Prior service cost not yet recognized in net periodic expense (612) (734)
-------- -------
Accrued pension expense $ 186 685
======== =======
</TABLE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the
period $ 1,145 973 1,143
Interest cost on projected benefit obligation 1,597 1,434 1,279
Actual return on plan assets (1,240) (3,645) 202
Net amortization and deferral (297) 2,526 (1,258)
------- ------ ------
Net pension cost $ 1,205 1,288 1,366
======= ====== ======
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 4.5%, respectively, at December 31, 1996, and 7.5% and
5.0%, respectively, at December 31, 1995. The expected long-term rate of return
on assets in 1996, 1995, and 1994 was 9.0%.
OTHER POSTRETIREMENT BENEFITS -- The Company provides certain retiree health
care benefits relating primarily to medical insurance co-payments to retired
employees between the ages of 55 and 65. In accordance with Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (FAS 106), the Company accrues the
cost of these benefits during the employees' active service.
The following table sets forth the unfunded plan's accumulated postretirement
obligation on the Company's balance sheet at December 31:
1996 1995
------ -----
(IN THOUSANDS)
Retirees $ 517 240
Fully eligible active plan participants 280 377
Other active plan participants 1,133 1,158
------ -----
Total $1,930 1,775
====== =====
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 122 106 118
Interest cost on accumulated postretirement benefit
obligation 148 130 138
Net amortization and deferral (82) (106) (87)
------ ---- ---
Net postretirement benefit cost $ 188 130 169
====== ==== ===
</TABLE>
For the 1996 measurements, the assumed annual rate of increase in the per capita
cost of covered health care benefits was 9.6% for 1996 and 8.6% for 1997; the
rate was assumed to decrease gradually to 5.0% for 2001 and remain at that level
thereafter. The health care cost trend assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by 1 percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 1996 by $210,000 and the
aggregate of the service cost and interest cost components of net periodic
post-retirement benefit cost for the year then ended by $36,000.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at December 31, 1996 and 1995 were 8.0% and
7.5%, respectively.
OTHER POSTEMPLOYMENT BENEFITS -- The Company accounts for postemployment
benefits in accordance with Statement of Financial Accounting Standards No. 112,
"Employer's Accounting for Postemployment Benefits" (FAS 112), adopted in 1994.
The adoption of FAS 112 had no material impact on income in 1994.
PROFIT SHARING PLAN -- The profit sharing plan is a defined contribution plan
with contributions made by the participating employers. The profit sharing plan
is noncontributory at the employee level, except for the employees' option to
contribute under a 401(k) savings plan available as part of the profit sharing
plan.
Contributions are calculated using a formula based primarily upon the Company's
earnings. The expense for 1996 was approximately $1,757,000. Contributions to
the plan were $1,560,000 and $1,893,000 in 1995 and 1994, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN -- The ESOP is a defined contribution plan
covering substantially all employees, with contributions made exclusively by the
Company on a discretionary year-by-year basis. The expense for 1996 was
approximately $350,000. Contributions for the plan were $350,000 and $140,000 in
1995, and 1994, respectively.
NOTE K: OTHER NONINTEREST INCOME
Other noninterest income consists of the following:
1996 1995 1994
------ ----- -----
(IN THOUSANDS)
Brokerage commissions $2,531 1,243 1,856
Fees on loans 2,484 1,726 1,538
Other 1,291 1,983 3,150
------ ----- -----
Total $6,306 4,952 6,544
====== ===== =====
NOTE L: OTHER NONINTEREST EXPENSE
Other noninterest expense consists of the following:
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
Printing, postage and office supplies $ 4,824 4,599 3,918
Marketing 3,306 3,041 2,954
Other real estate owned 56 84 (63)
Other 12,193 10,681 10,076
------- ------ ------
Total $20,379 18,405 16,885
======= ====== ======
NOTE M: INCOME TAXES
The components of the provision for income taxes are as follows:
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
Current
Federal $12,290 8,295 8,236
State 4,051 2,956 2,941
Deferred (1,204) 1,074 (459)
------- ------ ------
Total $15,137 12,325 10,718
======= ====== ======
A reconciliation between income tax expense and the amount computed by applying
the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate $16,434 13,811 12,780
Plus state income tax, net of federal tax benefits 2,634 1,922 1,912
------- ------ ------
19,068 15,733 14,692
Less tax effect of:
Interest on state and political subdivision
securities 3,003 2,980 2,855
Other tax-exempt interest 1,499 1,553 1,196
Amortization (249) (93) 105
Minority interest in earnings (560) (511) (508)
Other 238 (521) 326
------- ------ ------
3,931 3,408 3,974
------- ------ ------
Income tax expense $15,137 12,325 10,718
======= ====== ======
</TABLE>
The following table sets forth the temporary differences comprising the net
deferred taxes included with interest receivable and other assets on the
consolidated balance sheet at December 31:
1996 1995
-------- ------
(IN THOUSANDS)
Deferred tax assets
Provision for loan losses $ 12,113 11,135
Employee compensation and benefits accruals 1,757 1,425
Deferred income 270 208
Other 378 --
-------- ------
Total 14,518 12,768
-------- ------
Deferred tax liabilities
Deferred expense 1,196 1,334
Depreciation 1,630 1,402
Unrealized gains on securities available for sale 888 2,933
Other 396 665
-------- ------
Total 4,110 6,334
-------- ------
Net deferred tax assets $ 10,408 6,434
======== ======
NOTE N: COMMITMENTS AND CONTINGENCIES
The Company utilizes various off-balance sheet instruments to satisfy the
financing needs of customers. These instruments represent contractual
obligations of the Company to provide funding, within a specified time period,
to a customer. The following represents the outstanding obligations at December
31:
1996 1995
-------- ------
(IN THOUSANDS)
Standby letters of credit $ 35,863 39,889
Loan commitments 341,822 325,692
Standby letters of credit represent a conditional commitment to satisfy an
obligation to a third party, generally to support public and private borrowing
arrangements, on behalf of the customer. Loan commitments represent contractual
agreements to provide funding to customers over a specified time period as long
as there is no violation of any condition of the contract. These loans generally
will take the form of operating lines.
The Company's potential exposure to credit loss in the event of nonperformance
by the other party is represented by the contractual amount of those
instruments. The credit risk associated with letters of credit and loan
commitments is substantially the same as extending credit in the form of a loan;
therefore, the same credit policies apply in evaluating potential letters of
credit or loan commitments. The amount of collateral obtained, if deemed
necessary upon the extension of credit, is based on management's credit
evaluation. Collateral held varies, but includes accounts receivable, inventory,
and productive assets.
Under a substantially noncancelable contract, the Company is obligated to pay
approximately $2 million in annual fees, through February 2004, to its data
processing provider. In addition, the Company has a separate contract, with its
item processing provider, which covers item processing services to the Company's
subsidiary banks through March 1999. The costs under this contract are
calculated in accordance with a volume-based fee schedule, which is subject to
change annually.
The Company is routinely involved in legal actions which are incidental to the
business of the Company. Although it is difficult to predict the ultimate
outcome of these cases, management believes, based on discussions with counsel,
that any ultimate liability will not materially affect the consolidated
financial position or operations.
The Company issued redeemable preferred stock of Dunn County Bankshares, Inc.
("DCBI") in connection with the acquisition of Menomonie, Wisconsin operation on
September 1, 1994. This stock is cumulative, pays dividends of 3.85% annually,
and is generally redeemable at par value plus unpaid dividends after the earlier
to occur of (i) the death of the holder, or (ii) the lapse of 5 years from the
date of issuance.
NOTE O: COMMON STOCK
The Company has authorized 12,000,000 shares of class A common stock and
10,800,000 shares of class B common stock. The shares of class A common stock
have full rights to vote on all matters properly before the Company's
shareholders, including the election of the Company's directors. The class B
common stock, all of which is held by the Otto Bremer Foundation, is non-voting
except with respect to certain extraordinary corporate transactions, upon which
the holders would have the right to vote on an equivalent per share basis with
the holders of class A common stock.
Each share of class B common stock is convertible into one share of class A
common stock upon the occurrence of the following events: (i) at the affirmative
election of a third party or entity, upon the transfer of class B common stock
from the Otto Bremer Foundation to any third party or entity, or (ii) at the
affirmative election of the holder of class B common stock, if cash dividends
have not been paid on class A and class B common stock with respect to any year
in an amount equal to at least 5% of the Company's net book value as of the last
day of the immediately preceding year. The Company has reserved 10,800,000
shares of class A common stock in the event of conversion of the class B common
stock.
At December 31, 1996 and 1995, 960,000 shares of redeemable class A common stock
were issued and outstanding. With the exception of shares held in the Company's
ESOP, these shares were subject to redemption at a price of $21.18 and $19.83
per share, respectively, which approximated book value. Shares held in the
Company's ESOP were redeemed at a price of $26.35 and $23.75 per share,
respectively, as determined by an independent appraiser. These shares are owned
by employees and Directors of the Company and its subsidiaries and the employee
benefit plans of the Company. These holders of class A common stock have the
right to require the Company to purchase their shares under certain
circumstances. The shares have been classified as redeemable class A common
stock subject to redemption at a price, which approximates book value. It is the
Company's intent that these 960,000 shares will continue to be held by
employees, directors, and employee benefit plans of the Company or its
subsidiaries and not be directly repurchased by the Company or the Otto Bremer
Foundation.
Certain restrictions exist regarding the extent to which banks may transfer
funds to the Company in the form of dividends. Federal law prevents the Company
and its non-bank subsidiaries from borrowing from the Subsidiary Banks unless
the loans are secured by specified U.S. obligations. Further, the secured loans
that may be made by Subsidiary Banks are generally limited in amount to 10% of
the Subsidiary Bank's equity if made to the Company or any individual affiliate
and 20% of the Subsidiary Bank's equity if made to all affiliates and the
Company in the aggregate. At December 31, 1996, 1995 and 1994, no Subsidiary
Banks had extended credit to the Company.
Payment of dividends to the Company by its Subsidiary Banks is subject to
various limitations by bank regulators, which includes maintenance of certain
minimum capital ratios. As of December 31, 1996, $37,833,000 of retained
earnings of the Subsidiary Banks was available for distribution to the Company
as dividends subject to these limitations. Approximately $19,551,000 was
available for distribution without obtaining the prior approval of the
appropriate bank regulator.
NOTE P: REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines, the Company
must meet specific capital guidelines that involve quantitative measures of the
Company's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below and as defined in the regulations) of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of December 31, 1996, that the Company meets all capital adequacy
requirements to which it is subject.
The Company's actual capital amounts and ratios are also presented below.
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
------------------ ------------------
AMOUNT RATIO AMOUNT RATIO
------- ------ -------- -----
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS) $274,447 14.15% $155,213 8.00%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS) 250,118 12.89 77,607 4.00
TIER I CAPITAL (TO AVERAGE ASSETS) 250,118 8.79 85,410 3.00
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) 253,522 14.01 143,813 8.00
Tier I Capital (to Risk Weighted Assets) 230,825 12.75 72,407 4.00
Tier I Capital (to Average Assets) 230,825 8.41 82,322 3.00
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") required
the establishment of a capital-based supervisory system of prompt corrective
action for all depository institutions. The Federal Reserve Board's
implementation of FDICIA defines "well-capitalized" institutions as those whose
Tier I capital ratio equals or exceeds 6%, total risk-based capital ratio equals
or exceeds 10%, and leverage ratio equals or exceeds 5%. The Company's
Subsidiary Banks ratios in each of these categories met or exceeded the
"well-capitalized" ratios as of December 31, 1996.
NOTE Q: BREMER FINANCIAL CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENTS:
BALANCE SHEETS
DECEMBER 31
1996 1995
-------- -------
(IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 2,048 5,399
Marketable securities 22,391 21,091
Investment in and advances to:
Bank subsidiaries 220,929 206,636
Non-bank subsidiaries 11,432 8,227
Other assets 3,482 3,814
-------- -------
Total assets $260,282 245,167
======== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Accrued expenses and other liabilities $ 1,629 2,356
Long-term debt 4,446 4,870
Redeemable class A common stock 20,337 19,035
Shareholder's equity 233,870 218,906
-------- -------
Total liabilities and shareholder's
equity $260,282 245,167
======== =======
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
INCOME
Dividends from:
Bank subsidiaries $19,281 23,357 20,349
Non-bank subsidiaries 603 200 190
Interest from subsidiaries 313 248 185
Other interest income 1,363 942 484
Gain on sale of securities 200 (13) --
Other income 14 14 --
------- ------ ------
Total income 21,774 24,748 21,208
------- ------ ------
EXPENSES
Salaries and benefits 702 621 640
Operating expense paid to subsidiaries 1,190 1,165 1,402
Interest expense 373 266 --
Other operating expenses 1,105 546 215
------- ------ ------
Total expenses 3,370 2,598 2,257
------- ------ ------
Income before income tax benefit 18,404 22,150 18,951
Income tax benefit 788 747 773
------- ------ ------
Income of parent company only 19,192 22,897 19,724
Equity in undistributed earnings of
subsidiaries 12,625 4,239 6,073
------- ------ ------
NET INCOME $31,817 27,136 25,797
======= ====== ======
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTITIVIES
Net income $ 31,817 27,136 25,797
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed earnings of subsidiaries (12,625) (4,239) (6,073)
(Gain) loss on sale of securities (200) 13 --
Securities amortization 470 185 279
Other, net (262) (1,080) (271)
-------- ------- -------
Net cash provided by operating activities 19,200 22,015 19,732
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in and advances to subsidiaries, net (7,624) (10,332) (5,729)
Purchases of securities, net (22,746) (28,127) (14,428)
Proceeds from maturities of securities 5,303 13,968 --
Proceeds from sales of securities 15,540 9,409 --
Long term debt, net (424) 4,870 --
-------- ------- -------
Net cash used by investing activities (9,951) (10,212) (20,157)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (12,600) (9,600) (9,360)
-------- ------- -------
Net cash used by financing activities (12,600) (9,600) (9,360)
-------- ------- -------
Increase (decrease) in cash and cash equivalents (3,351) 2,203 (9,785)
Cash and cash equivalents
Beginning of year 5,399 3,196 12,981
-------- ------- -------
End of year $ 2,048 5,399 3,196
======== ======= =======
</TABLE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF BREMER FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Bremer Financial
Corporation and subsidiaries (the Company), a subsidiary of the Otto Bremer
Foundation as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Bremer Financial Corporation
and subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 24, 1997
Saint Paul, Minnesota
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: September 15, 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
Chief Accounting Officer
