FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
(Exact name of registrant as specified in its charter)
Minnesota 41-0715583
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
445 Minnesota St., Suite 2000, St. Paul, MN 55101-2107
(Address of principal executive offices)
(Zip Code)
(612) 227-7621
(Registrant's telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of March 31, 1997, there were 1,200,000 shares of class A common
stock and 10,800,000 shares of class B common stock outstanding.
BREMER FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
PART I -- FINANCIAL INFORMATION Page
Item 1 -- Financial Statements 2
Item 2 -- Management's Discussion and Analysis 7
of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 5 -- Other information 22
Item 6 -- Exhibits and Reports on Form 8-K 22
Signatures 23
ITEM 1. FINANCIAL STATEMENTS
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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March 31 December 31 March 31
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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 $ 98,664 159,832 90,858
Interest bearing deposits 1,598 1,778 2,277
Investment securities held to maturity (market value of $178,581,
$187,045 and $185,916, respectively) 176,405 183,095 182,059
Mortgage-backed securities held to maturity (market value of $104,696,
$108,111 and $118,010, respectively) 106,385 109,036 120,010
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TOTAL SECURITIES HELD TO MATURITY 282,790 292,131 302,069
Investment securities available for sale (book value of $166,982,
$180,453 and $203,794, respectively) 166,623 180,679 203,805
Mortgage-backed securities available for sale (book value of $493,392,
$460,958 and $464,893, respectively) 492,682 462,964 466,293
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TOTAL SECURITIES AVAILABLE FOR SALE 659,305 643,643 670,098
Loans 1,744,167 1,759,711 1,638,784
Reserve for loan losses (31,139) (30,482) (28,810)
Unearned discount (4,016) (3,954) (3,838)
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NET LOANS 1,709,012 1,725,275 1,606,136
Premises and equipment, net 47,531 45,980 44,400
Interest receivable and other assets 58,778 57,012 55,592
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TOTAL ASSETS $ 2,857,678 2,925,651 2,771,430
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LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 276,587 332,143 266,777
Interest bearing deposits 1,965,431 1,951,303 1,927,431
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TOTAL DEPOSITS 2,242,018 2,283,446 2,194,208
Federal funds purchased and repurchase agreements 144,189 188,129 166,393
Other short-term borrowings 102,472 86,892 94,280
Long-term debt 62,312 62,389 27,688
Accrued expenses and other liabilities 38,570 39,125 38,104
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TOTAL LIABILITIES 2,589,561 2,659,981 2,520,673
Minority interests 9,449 9,319 9,047
Redeemable preferred stock, $100 par, 80,000 shares authorized;
71,594 shares issued and 21,437 shares outstanding 2,164 2,144 2,164
Redeemable class A common stock, 960,000 shares
issued and outstanding 20,520 20,337 19,164
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 233,939 230,071 217,007
Net unrealized (loss)gain on securities available for sale (574) 1,180 756
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TOTAL SHAREHOLDER'S EQUITY 235,984 233,870 220,382
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 2,857,678 2,925,651 2,771,430
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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 March 31
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
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INTEREST INCOME
Loans, including fees $ 37,970 36,401 31,998
Securities
Taxable 11,528 12,002 11,522
Tax-exempt 2,758 2,756 2,610
Federal funds sold -- -- --
Other 30 45 33
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Total interest income 52,286 51,204 46,163
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INTEREST EXPENSE
Deposits 21,590 21,600 19,232
Federal funds purchased and repurchase agreements 1,655 1,952 2,176
Other short term borrowings 1,188 1,101 796
Long term debt 889 431 233
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Total interest expense 25,322 25,084 22,437
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Net interest income 26,964 26,120 23,726
Provision for loan losses 858 611 --
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Net interest income after provision for loan losses 26,106 25,509 23,726
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NONINTEREST INCOME
Service charges 3,603 3,025 2,476
Insurance 1,664 1,452 984
Trust 1,495 1,311 1,122
Gain on sale of loans 328 470 154
Gain / (loss) on sale of securities (265) 158 (34)
Other 1,739 1,577 1,360
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Total noninterest income 8,564 7,993 6,062
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NONINTEREST EXPENSE
Salaries and wages 10,376 9,545 8,723
Employee benefits 2,927 2,762 2,491
Occupancy 1,482 1,521 1,310
Furniture and equipment 1,554 1,462 1,144
Data processing fees 2,103 1,919 1,767
FDIC premiums and examination fees (84) 435 1,232
Other 4,674 4,047 3,661
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Total noninterest expense 23,032 21,691 20,328
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INCOME BEFORE INCOME TAX EXPENSE 11,638 11,811 9,460
Income tax expense 3,834 3,795 2,902
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NET INCOME $ 7,804 8,016 6,558
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Per common share amounts
Net income $ 0.65 0.67 0.55
Dividends paid 0.30 0.25 0.20
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
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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 7,804 7,804
Dividends, $.30 per share (3,600) (3,600)
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 153 (336) (183)
Change in net unrealized gain (loss) on securities available for sale (1,907) (1,907)
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BALANCE, MARCH 31, 1997 $ 57 2,562 (574) 233,939 235,984
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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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Three Months Ended March 31
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(IN THOUSANDS) 1997 1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,804 8,016 6,558
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 858 611 --
Depreciation and amortization 1,748 1,731 1,667
Minority interests in earnings of subsidiaries 340 346 307
(Gain) / loss on sale of securities 265 (158) 34
Valuation writedown on other real estate owned -- -- 10
(Gain) / loss on sale of other real estate owned, net (23) (8) 79
Other assets and liabilities, net (1,376) (285) 620
Proceeds from sales of other real estate owned 54 263 253
Cash receipts related to loans originated specifically for resale 16,450 27,440 6,957
Cash payments related to loans originated specifically for resale (16,506) (26,970) (6,803)
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Net cash provided by operating activities 9,614 10,986 9,682
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CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net 180 731 101
Federal funds sold, net -- -- --
Purchases of securities available for sale (103,123) (62,861) (61,017)
Purchases of securities held to maturity (6,525) (9,381) (6,069)
Proceeds from maturities of securities available for sale 39,859 30,705 16,011
Proceeds from maturities of securities held to maturity 8,524 25,206 26,296
Proceeds from sales of securities avaialable for sale 51,441 23,155 21,559
Loans, net 15,460 (8,854) (18,621)
Acquisitions, net of cash acquired -- -- --
Acquisition of premises and equipment (3,015) (1,530) (3,158)
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Net cash used by investing activities 2,801 (2,829) (24,898)
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CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (55,556) (59,754) (35,242)
Interest bearing deposits (excluding certificates of deposit), net (2,133) (9,246) (20,694)
Certificates of deposits, net 16,262 20,901 58,120
Federal funds purchased and repurchase agreements, net (43,940) (20,707) (35,656)
Other short-term borrowings, net 15,580 24,853 20,431
Long-term debt, net (77) 2,120 416
Minority interests acquired and dividends paid (139) (272) (211)
Redeemable preferred stock 20 20 (133)
Dividends paid (3,600) (3,000) (2,400)
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Net cash provided by financing activities (73,583) (45,085) (15,369)
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Net increase in cash and due from banks (61,168) (36,928) (30,585)
Cash and due from banks
Beginning of year 159,832 127,786 116,041
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End of year $ 98,664 90,858 85,456
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
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 March 31, 1997, the 960,000 class A
shares were generally redeemable at $21.38 per share. Since January 1,
1997 and through March 31, 1997, options to call 28,826.6893 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 2,113 shares changed hands directly between individuals.
G. 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 at the date of the financial
statements and the reported amounts of income and expenses during the
reported period. Actual results may differ from those estimates.
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 $7.8 million
for the first quarter of 1997, compared to $8.0 million earned in the first
quarter of 1996. Contributing positively to first quarter earnings were an $844
thousand or 3.2% increase in net interest income and a $571 thousand or 7.1%
increase in noninterest income. Partially offsetting these positive increases
were a 6.2% or $1.3 million increase in noninterest expense and a $247 thousand
increase in the provision for loan losses.
Return on average assets (ROA) was 1.17% for the first quarter of 1997, compared
to 1.22% for the same period in 1996. Return on average realized equity (RORE)
was 12.41% for the first quarter of 1997, compared to 13.65% for the same period
in 1996. Table I presents a summary of the components affecting the change in
return on assets from March 31, 1996 to March 31, 1997.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $256.5 million
at March 31, 1997, representing a book value per share of $21.38, a 7.1%
increase from $19.96 at March 31, 1996. Dividends paid per share, in the first
quarter of 1997, remained unchanged from the $.30 paid in the fourth quarter of
1996, but are up from the $.25 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 decreasing the book value per share by
$.05 as of March 31, 1997 and increasing book value per share by $.07 as of
March 31, 1996.
Net Interest Income
Tax-equivalent net interest income for the first quarter of 1997 was $28.8
million, an increase of $858 thousand or 3.1% from the first quarter of 1996.
This increase in net interest income resulted from a 2.7% increase in average
earning assets combined with an improvement in the net interest margin from
4.35% to 4.41% for the first quarter of 1997. Table III presents the quarter-
to-quarter comparison of tax-equivalent net interest income and net interest
margins.
As presented in Table IV, in comparing the net interest margin for the first
quarter of 1997 to that of the first quarter of 1996, the margin was positively
impacted by both an increase in spread between yields on earning assets and cost
on interest bearing liabilities and a more favorable product mix. Negatively
impacting the margin were a reduction in yield related loan fees and lower
levels of free funds.
The Company uses gap reports to assess its current interest rate sensitivity
position, but relies more heavily on simulation modeling to measure projected
interest rate risk over time. While the Company's traditional gap report
indicated a liability sensitive position at March 31, 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.
Nonperforming Assets
Table VI shows the details of nonperforming assets at March 31, 1997, December
31, 1996 and March 31, 1996. Nonperforming assets, which include nonperforming
loans and other real estate owned (OREO), were $11.2 million at March 31, 1997.
This total represents a decrease of $334 thousand from December 31, 1996 and an
increase of $1.6 million from March 31, 1996. Nonperforming assets as a
percentage of total loans and OREO declined slightly to .64% as of March 31,
1997 from .65% as of December 31, 1996, and have increased from .58% as of March
31, 1996.
Nonperforming loans, which include nonaccrual and restructured loans, were $10.5
million at March 31, 1997, a decrease of $754 thousand from December 31, 1996
and an increase of $1.2 million from March 31, 1996. The ratio of nonperforming
loans to total loans decreased to .60% at March 31, 1997 from .64% at December
31, 1996, and increased from .57% at March 31, 1996. The ratio of nonperforming
assets and past due loans to total loans and OREO improved slightly from .78% at
December 31, 1996 to .77% at March 31, 1997 and increased from .74% at March 31,
1996. The level of at-risk performing loans (with an internal loan review rating
of either substandard, doubtful or loss) increased $1.3 million or 1.6% from
$86.6 million at March 31, 1996 to $87.9 million at March 31, 1997. However, the
ratio of classified loans to total loans has decreased from 5.3% at March 31,
1996 to 5.1% at March 31, 1997 as total loans grew 6.4% during the same period.
Net charge-offs were $201 thousand for the first three months of 1997 as
compared to net charge-offs of $54 thousand in the same period of 1996.
Other real estate owned, which includes real estate acquired in loan
settlements, increased $420 thousand from December 31, 1996 and $380 thousand
from March 31, 1996 to $660 thousand at March 31, 1997.
Reserve for Loan Losses
The Company's reserve for loan losses was 296.8% of nonperforming loans at March
31, 1997 compared to 271.1% at December 31, 1996 and 311.4% at March 31, 1996.
Subject to a determination of the damages caused by the April 1997 flooding in
the Red River Valley, management believes the current reserve is adequate to
cover the risks inherent in the portfolio, including the risk of nonperforming
loans and other loans that have been identified for careful monitoring. See also
Item 5 of Part II of this Quarterly Report on Form 10-Q.
The reserve for loan losses increased from $28.8 million at March 31, 1996 to
$31.1 million at March 31, 1997. The increase in the reserve for loan losses of
$2.3 million contributed to an overall increase in the reserve to outstanding
loans ratio from 1.76% at March 31, 1996 to 1.79% at March 31, 1997. Table VII
presents the activity in the reserve for loan losses.
Noninterest Income
Noninterest income was $8.6 million for the first quarter of 1997 compared to
$8.0 million for the first quarter of 1996, representing a $571 thousand or 7.1%
improvement. Operating noninterest income, which excludes investment securities
gains and losses, increased 12.7% over the first quarter of 1996, with most
categories posting increases. Service charge fees, insurance commissions, trust
fees, and brokerage commissions were the major contributors to the increase in
operating noninterest income. Offsetting some of these gains was a decline in
gain on sale of loans of $142 thousand as residential real estate activity was
slower in the first quarter of 1997 versus 1996 due to a less favorable interest
rate environment and unfavorable weather conditions in many of the Company's
markets. Table VIII presents a comparison of significant noninterest income
components.
Noninterest Expense
As presented in Table IX, noninterest expense increased $1.3 million or 6.2%
compared to the first quarter of 1996. While operating expenses of acquired
entities unfavorably impacted the comparison of noninterest expense between the
first quarters of 1997 and 1996, the Company experienced a significant decline
in FDIC insurance premiums, as the assessment rate on savings and loan acquired
deposits fell. Additionally, 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 planned for 1997. Upon converting 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 was 59.37% at March
31, 1997 compared to 58.69% at March 31, 1996. The efficiency ratio increased
slightly resulting from a 6.4% increase in recurring noninterest expense, only
partially offset by the modest increase in the tax-equivalent net interest
income of 3.1% and a 12.8% increase in recurring noninterest income.
Taxes
Comparing the first three months of 1997 to the first three months of 1996, the
Company's effective tax rate increased from 32.1% to 32.9%. This results from
proportionately more taxable than tax-exempt income during the first three
months of 1997 compared to the same period in 1996.
Balance Sheet Growth
Assets
Average total assets increased $72.7 million or 2.6% from the first three months
of 1996 to the first three months of 1997, with most of this increase occurring
in average earning assets which increased $70.8 million or 2.7% when comparing
the same two periods.
Loans
From the first quarter of 1996 to the first quarter of 1997, average loans
increased $111.0 million or 6.9%, driven by increases in all loan categories.
Residential real estate, commercial real estate, agricultural, consumer,
commercial, and tax-exempt loans increased $25.5 million, $25.1 million, $24.7
million, $22.6 million, $7.6 million, and $5.4 million, respectively. The
Company is not involved in highly leveraged transaction lending or lending to
foreign countries.
Securities
Average securities decreased $39.3 million or 4.0% from the first quarter of
1996 to the first quarter of 1997. Taxable securities decreased $40.5 million or
5.3%, while tax-exempt securities increased $1.2 million or .59%. The decline in
average securities can be attributed to the continued strong growth in loans,
which is out pacing the increase in deposits, and thus as securities mature, the
proceeds have been used to fund new loans. The average maturity of the portfolio
was 52.5 months at March 31, 1997, with an average yield to maturity on the
$942.1 million portfolio of 6.75%, unrealized gains of $2.9 million and
unrealized losses of $2.4 million for held to maturity securities. In accordance
with FAS No. 115, the available for sale investments are recorded inclusive of
any unrealized gain or loss.
Liabilities
Comparing the first three months of 1997 to the first three months of 1996,
average interest bearing liabilities increased $65.4 million or 3.0%, while
average deposits increased $38.0 million or 1.7%. Average long-term debt, which
includes long-term Federal Home Loan Bank (FHLB) advances and installment
promissory notes issued in connection with acquisitions, increased $36.2
million. Average short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase, treasury tax and loan notes, and
FHLB advances, decreased $11.6 million or 4.9%, resulting from the increase in
longer-term funding. Most of the increase in long-term borrowings can be
attributed to an increase in the Company's FHLB advances over the first three
months of 1996, as continued strong asset growth, coupled with slower growth in
deposits, 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 three months of 1996 and the first three months of
1997, average core deposits increased $53.4 million or 2.5%. The growth in core
deposits can be attributed to the Company's expanded presence in its markets.
<TABLE>
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BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
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Three Months Ended March 31
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 Change
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OPERATING RESULTS
Total interest income $ 52,286 51,204 2.1%
Net interest income 26,964 26,120 3.2
Net interest income (1) 28,835 27,977 3.1
Provision for loan losses 858 611 40.4
Noninterest income 8,564 7,993 7.1
Noninterest expense 23,032 21,691 6.2
Net income 7,804 8,016 (2.6)
Dividends 3,600 3,000 20.0
AVERAGE BALANCES
Assets 2,821,578 2,748,898 2.6
Loans 1,720,499 1,609,517 6.9
Securities 932,010 971,297 (4.0)
Deposits 2,230,210 2,192,253 1.7
Redeemable class A common stock 20,428 19,099 7.0
Shareholder's equity 234,927 219,644 7.0
PERIOD-END BALANCES
Assets 2,857,678 2,771,430 3.1
Loans 1,740,151 1,634,946 6.4
Securities 942,095 972,167 (3.1)
Deposits 2,242,018 2,194,208 2.2
Redeemable class A common stock 20,520 19,164 7.1
Shareholder's equity 235,984 220,382 7.1
FINANCIAL RATIOS
Return on assets (2) 1.17% 1.22 (4.1)
Return on realized equity (3)(4) 12.41 13.65 (9.1)
Average equity/assets (3) 9.05 8.69 4.1
Dividend payout 46.13 37.43 23.3
Net interest margin (1) 4.41 4.35 1.4
Net charge-offs/average loans 0.05 0.01 400.0
Reserve/period-end loans 1.79 1.76 1.7
PER SHARE OF COMMON STOCK (3)
Net income 0.65 0.67 (2.6)
Dividends paid 0.30 0.25 20.0
Period-end book value 21.38 19.96 7.1
Period-end realized book value (4) 21.43 19.89 7.7
(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).
TABLE I
CHANGES IN RETURN ON ASSETS
==============================================================
March 31
1997 vs 1996
- --------------------------------------------------------------
Return on assets, prior period 1.22%
- --------------------------------------------------------------
Increases
Net interest income (TEB) 0.05
Service charges 0.08
Insurance 0.03
Trust fees 0.02
Brokerage 0.02
Gain on sale of other assets 0.01
FDIC premiums and examination fees 0.08
Provision for income taxes 0.01
- --------------------------------------------------------------
Total increases 0.30
- --------------------------------------------------------------
Decreases
Provision for loan loss 0.03
Gain on sale of loans 0.03
Gain on sale of securities 0.06
Salaries and wages 0.09
Employee benefits 0.02
Marketing 0.05
Printing, postage and office supplies 0.02
Data processing fees 0.02
Other noninterest expense, net 0.03
- --------------------------------------------------------------
Total decreases 0.35
- --------------------------------------------------------------
Return on assets, current period 1.17%
==============================================================
TABLE II
CAPITAL RATIOS (1)
===============================================================================
March 31 December 31 March 31 Regulatory
1997 1996 1996 Minimums
--------- -------- -------- --------
Equity to assets (2) 8.98% 8.69 8.64 --
Equity to tangible assets (2) 8.90 8.62 8.54 --
Tier I capital (3) 13.24 12.89 13.25 4.00
Tier I and tier II capital (3) 14.49 14.15 14.50 8.00
Leverage ratio (3) 9.04 8.79 8.59 3.00
(1) Calculations include redeemable class A common stock.
(2) Computed in accordance with generally accepted accounting principles,
including the unrealized market value adjustment of securities
available for sale.
(3) Computed exclusive of the unrealized market value adjustment of
securities available for sale.
TABLE III
NET INTEREST INCOME / MARGINS (TEB)
================================================
Net Net
Interest Interest
(DOLLARS IN THOUSANDS) Income Margin
- ------------------------------------------------
Quarter
- -------
1997
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 IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
==================================================================================
Three Months Ended March 31
(in thousands) 1997 vs 1996
- ----------------------------------------------------------------------------------
Net Net
Interest Interest
Income Margin
------------------ -----------------
<S> <C> <C>
Change in volume
Earning assets $1,452
Interest bearing liabilities (748)
------------------
704
Change in interest rate spread
Earning assets (318) (0.05)%
Interest bearing liabilities 357 0.06
------------------ -----------------
39 0.01
Change in product mix
Earning assets 500 0.08
Interest bearing liabilities (123) (0.02)
------------------ -----------------
377 0.06
Change due to number of days
Earning assets (583) --
Interest bearing liabilities 276 --
------------------ -----------------
(307) --
Other changes
Nonaccruing loans 35 0.01
Yield-related loan fees (98) (0.02)
30/360 investment adjustment 108 0.02
Free funds -- (0.02)
------------------ -----------------
45 (0.01)
Change in net interest income 858 0.06
Net interest income, prior period 27,977 4.35
------------------ -----------------
Net interest income, current period $28,835 4.41%
================== =================
</TABLE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
=========================================================================
Three Months Ended March 31
-----------------------------------
(IN THOUSANDS) 1997 vs 1996
- -------------------------------------------------------------------------
Volume Yield/Rate(1) Total
---------- ---------- ---------
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans $1,008 576 1,584
Taxable securities 328 (802) (474)
Tax-exempt securities 115 (114) 1
Interest bearing deposits -- -- --
Federal funds sold -- -- --
Other earning assets 1 (16) (15)
---------- ---------- ---------
Total 1,452 (356) 1,096
INTEREST EXPENSE
Savings deposits 114 (173) (59)
Other time deposits 530 (480) 50
Short-term borrowings 91 (302) (211)
Long-term debt 13 445 458
---------- ---------- ---------
Total 748 (510) 238
---------- ---------- ---------
NET INTEREST INCOME $704 154 858
=========================================================================
(1) ALL CHANGES IN NET INTEREST INCOME, OTHER THAN THOSE DUE TO VOLUME, HAVE
BEEN ALLOCATED TO YIELD/RATE.
TABLE VI
NONPERFORMING ASSETS
==============================================================================
March 31 December 31 March 31
(DOLLARS IN THOUSANDS) 1997 1996 1996
- ------------------------------------------------------------------------------
Nonaccrual loans $10,080 10,830 8,660
Restructured loans 410 414 592
- ------------------------------------------------------------------------------
Total nonperforming loans 10,490 11,244 9,252
Other real estate owned (OREO) 660 240 280
- ------------------------------------------------------------------------------
Total nonperforming assets $11,150 11,484 9,532
==============================================================================
Past due loans * $ 2,298 2,205 2,607
==============================================================================
Nonperforming loans to total loans 0.60% 0.64 0.57
Nonperforming assets to total loans and OREO 0.64 0.65 0.58
Nonperforming assets and past due loans* to
total loans and OREO 0.77 0.78 0.74
Reserve to nonperforming loans 296.84 271.10 311.39
Reserve to total loans 1.79 1.74 1.76
==============================================================================
* PAST DUE LOANS INCLUDE ACCRUING LOANS 90 DAYS OR MORE PAST DUE.
TABLE VII
RESERVE FOR LOAN LOSSES
===========================================================
Three Months Ended
March 31
-----------------------
(IN THOUSANDS) 1997 1996
- ----------------------------------------------------------
Beginning of period $ 30,482 28,253
Charge-offs (490) (353)
Recoveries 289 299
- ----------------------------------------------------------
Net charge-offs (201) (54)
Provision for loan losses 858 611
- ----------------------------------------------------------
End of period $ 31,139 28,810
===========================================================
TABLE VIII
<TABLE>
<CAPTION>
NONINTEREST INCOME
========================================================================================
Three Months Ended
March 31 Increase/(Decrease)
- ----------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges $ 3,603 3,025 578 19.11%
Insurance 1,664 1,452 212 14.60
Trust 1,495 1,311 184 14.04
Brokerage 643 513 130 25.34
Gain on sale of loans 328 470 (142) (30.21)
Gain on sale of other assets 71 24 47 195.83
Other 1,025 1,040 (15) (1.44)
- ----------------------------------------------------------------------------------------
Operating noninterest income 8,829 7,835 994 12.69
Gain / (loss) on sale of securities (265) 158 (423) (267.72)
- ----------------------------------------------------------------------------------------
Total $ 8,564 7,993 571 7.14%
========================================================================================
</TABLE>
TABLE IX
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
=============================================================================================
Three Months Ended
March 31 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and wages $ 10,376 9,545 831 8.71%
Employee benefits 2,927 2,762 165 5.97
Occupancy 1,482 1,521 (39) (2.56)
Furniture and equipment 1,554 1,462 92 6.29
Printing, postage and office supplies 1,311 1,159 152 13.11
Marketing 792 417 375 89.93
Data processing fees 2,103 1,919 184 9.59
Professional fees 139 140 (1) (0.71)
Other real estate owned 16 11 5 45.45
Minority interest in earnings 340 346 (6) (1.73)
FDIC premiums and examination fees (84) 435 (519) (119.31)
Other 2,076 1,974 102 5.17
- ---------------------------------------------------------------------------------------------
Total $ 23,032 21,691 1,341 6.18%
=============================================================================================
</TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Tax Equivalent Basis-In Thousands)
<TABLE>
<CAPTION>
FIRST QUARTER 1997 FIRST QUARTER 1996
--------------------------------------- ------------------------------------ % CHANGE
ASSETS AVG BAL INTEREST RATE/YIELD AVG BAL INTEREST RATE/YIELD AVG BAL
------------ ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED DISCOUNT)
COMMERCIAL AND OTHER $ 336,647 $ 7,506 9.04% $ 329,040 $ 7,668 9.37% 2.31
COMMERCIAL REAL ESTATE 371,378 8,301 9.06 346,256 7,930 9.21 7.26
AGRICULTURAL 358,111 8,080 9.15 333,363 7,739 9.34 7.42
RESIDENTIAL REAL ESTATE 358,998 7,791 8.80 333,475 7,187 8.67 7.65
CONSUMER 243,095 5,433 9.06 220,529 5,050 9.21 10.23
TAX-EXEMPT 52,270 1,304 10.12 46,854 1,257 10.79 11.56
----------- ---------- ----------- ----------
TOTAL LOANS 1,720,499 38,415 9.06 1,609,517 36,831 9.20 6.90
RESERVE FOR LOAN LOSSES (30,766) (28,596) 7.59
----------- -----------
NET LOANS 1,689,733 1,580,921 6.88
SECURITIES
MORTGAGE BACKED 579,567 9,234 6.46 574,433 9,061 6.34 0.89
OTHER TAXABLE 145,511 2,294 6.39 191,140 2,941 6.19 (23.87)
TAX EXEMPT 206,932 4,183 8.20 205,724 4,182 8.18 0.59
----------- ---------- ----------- ----------
TOTAL SECURITIES 932,010 15,711 6.84 971,297 16,184 6.70 (4.04)
FEDERAL FUNDS SOLD 0 0 -- 0 0 -- --
OTHER EARNING ASSETS 2,071 31 6.07 3,009 46 6.15 (31.17)
----------- ---------- ----------- ----------
TOTAL EARNING ASSETS 2,654,580 54,157 8.27 2,583,823 53,061 8.26 2.74
CASH & DUE FROM BANKS 94,844 91,673 3.46
NONEARNING ASSETS 102,920 101,998 0.90
----------- -----------
$ 2,821,578 $ 2,748,898 2.64
=========== ===========
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $ 259,608 $ 262,484 (1.10)
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 297,128 1,227 1.67 256,953 1,118 1.75 15.64
MONEY MARKET CHECKING 151,487 584 1.56 180,393 787 1.75 (16.02)
MONEY MARKET SAVINGS 245,524 1,974 3.26 247,464 1,939 3.15 (0.78)
SAVINGS CERTIFICATES 1,116,978 15,623 5.67 1,093,077 15,655 5.76 2.19
CERTIFICATES OVER $100,000 159,485 2,183 5.55 151,882 2,101 5.56 5.01
----------- ---------- ----------- ----------
TOTAL TIME DEPOSITS 1,970,602 21,591 4.44 1,929,769 21,600 4.50 2.12
----------- -----------
TOTAL DEPOSITS 2,230,210 2,192,253 1.73
CORE DEPOSITS 2,161,439 2,108,003 2.53
SHORT-TERM BORROWINGS 224,219 2,842 5.14 235,802 3,053 5.21 (4.91)
LONG-TERM DEBT 62,360 889 5.78 26,165 431 6.63 138.33
----------- ---------- ----------- ----------
TOTAL INTEREST BEARING LIABILITIES 2,257,181 25,322 4.55 2,191,736 25,084 4.60 2.99
OTHER LIABILITIES 37,895 44,701 (15.23)
----------- -----------
TOTAL LIABILITIES 2,554,684 2,498,921 2.23
MINORITY INTEREST 9,384 9,080 3.35
REDEEMABLE PREFERRED STOCK 2,154 2,154 0.00
REDEEMABLE CLASS A COMMON STOCK 20,428 19,099 6.96
SHAREHOLDER'S EQUITY 234,928 219,644 6.96
----------- -----------
$ 2,821,578 $ 2,748,898 2.64
=========== ===========
NET INTEREST INCOME $ 28,835 $ 27,977
========== ========
NET INTEREST MARGIN 4.41% 4.35%
GROSS SPREAD 3.72 3.66
</TABLE>
PART II - OTHER INFORMATION
Item 5. Other information
On January 9, 1997, First American Bank, National Association of
Detroit Lakes, Minnesota (formerly First American Bank of Detroit
Lakes), completed the acquisition of approximately $12.4 million of
deposits from the Perham Minnesota branch of Brainerd National Bank.
On March 1, 1997, First American Insurance Agencies, Inc. of St. Paul,
Minnesota, ( a wholly-owned subsidiary of the Company) acquired the
Paul E. Hedlund Insurance Agency in Boyceville, Wisconsin. The Paul E.
Hedlund Insurance Agency has annual premiums of $900,000.
The above described acquisitions, were previously reported in the
Company's 1996 Annual Report on Form 10-K.
During April 1997, the Red River Valley of Minnesota and North Dakota
experienced one of the worst floods in recorded history. These floods
are expected to have an impact on the Company's results this year, as
many of our customers, the communities at large, and many of the
Company's banking facilities in the Red River Valley have experienced
flood damage. Approximately 12% of the Company's deposit base and 13%
of the loan base are located in the area directly impacted by this
flooding. As the communities begin to recover from the devastation and
determine the damage that disaster relief and insurance will cover, the
Company has begun assessing the financial impact the floods will have
on its customers' ability to repay loans and the damage to its banking
facilities. The full extent of the flood damage is not known as yet, as
the number of the Company's borrowers suffering losses and the amount
of assistance those customers might receive are unknown. However, the
Company's management currently believes that the combination of loan
loss reserves and high levels of capitalization should be adequate to
cover the losses ultimately realized by the Company from the 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
March 31, 1997 or during the period from March 31, 1997 to the date of
this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 98,664
<INT-BEARING-DEPOSITS> 1,598
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 659,305
<INVESTMENTS-CARRYING> 282,790
<INVESTMENTS-MARKET> 283,277
<LOANS> 1,740,151
<ALLOWANCE> 31,139
<TOTAL-ASSETS> 2,857,678
<DEPOSITS> 2,242,018
<SHORT-TERM> 246,661
<LIABILITIES-OTHER> 38,570
<LONG-TERM> 62,312
2,164
0
<COMMON> 23,139
<OTHER-SE> 242,814
<TOTAL-LIABILITIES-AND-EQUITY> 2,857,678
<INTEREST-LOAN> 37,970
<INTEREST-INVEST> 14,286
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 52,286
<INTEREST-DEPOSIT> 21,590
<INTEREST-EXPENSE> 25,322
<INTEREST-INCOME-NET> 26,964
<LOAN-LOSSES> 858
<SECURITIES-GAINS> (265)
<EXPENSE-OTHER> 23,032
<INCOME-PRETAX> 11,638
<INCOME-PRE-EXTRAORDINARY> 7,804
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,804
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 4.12
<LOANS-NON> 10,080
<LOANS-PAST> 2,298
<LOANS-TROUBLED> 410
<LOANS-PROBLEM> 87,939
<ALLOWANCE-OPEN> 30,482
<CHARGE-OFFS> 490
<RECOVERIES> 289
<ALLOWANCE-CLOSE> 31,139
<ALLOWANCE-DOMESTIC> 24,500
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,639
</TABLE>
