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 June 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 0-18342
Bremer Financial Corporation
(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 June 30, 1997, there were 1,200,000 shares of class A common
stock and 10,800,000 shares of class B common stock outstanding.
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BREMER FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
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<CAPTION>
INDEX
PART I -- FINANCIAL INFORMATION Page
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Item 1 -- Financial Statements 2
Item 2 -- Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 5-- Other information 25
Item 6 -- Exhibits and Reports on Form 8-K 25
Signatures 26
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31 June 30
(IN THOUSANDS) 1997 1996 1996
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 114,908 159,832 123,145
Interest bearing deposits 1,733 1,778 1,805
Investment securities held to maturity (market value of $186,289,
$187,045 and $182,502, respectively) 182,229 183,095 181,595
Mortgage-backed securities held to maturity (market value of $102,688,
$108,111 and $114,298, respectively) 103,671 109,036 117,343
----------- ----------- -----------
TOTAL SECURITIES HELD TO MATURITY 285,900 292,131 298,938
Investment securities available for sale (book value of $178,653,
$180,453 and $195,247, respectively) 178,926 180,679 195,389
Mortgage-backed securities available for sale (book value of $549,361,
$460,958 and $466,578, respectively) 553,128 462,964 463,506
----------- ----------- -----------
TOTAL SECURITIES AVAILABLE FOR SALE 732,054 643,643 658,895
Loans 1,865,368 1,759,711 1,726,321
Reserve for loan losses (32,519) (30,482) (29,999)
Unearned discount (4,234) (3,954) (3,817)
----------- ----------- -----------
NET LOANS 1,828,615 1,725,275 1,692,505
Premises and equipment, net 48,833 45,980 45,668
Interest receivable and other assets 55,917 57,012 55,755
----------- ----------- -----------
TOTAL ASSETS $ 3,067,960 2,925,651 2,876,711
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 299,416 332,143 296,937
Interest bearing deposits 1,972,506 1,951,303 1,930,755
----------- ----------- -----------
TOTAL DEPOSITS 2,271,922 2,283,446 2,227,692
Federal funds purchased and repurchase agreements 196,957 188,129 206,125
Other short-term borrowings 210,603 86,892 136,082
Long-term debt 72,657 62,389 16,477
Accrued expenses and other liabilities 40,056 39,125 37,759
----------- ----------- -----------
TOTAL LIABILITIES 2,792,195 2,659,981 2,624,135
Minority interests 9,658 9,319 9,014
Redeemable preferred stock, $100 par, 80,000 shares authorized;
71,594 shares issued and 21,437 shares outstanding 2,185 2,144 2,185
Redeemable class A common stock, 960,000 shares
issued and outstanding 21,114 20,337 19,310
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 238,050 230,071 221,002
Net unrealized (loss)gain on securities available for sale 2,139 1,180 (1,554)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY 242,808 233,870 222,067
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,067,960 2,925,651 2,876,711
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Six Months Ended June 30
----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
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<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 78,171 73,704 66,756
Securities
Taxable 24,039 23,899 23,320
Tax-exempt 5,533 5,571 5,295
Other 72 84 86
--------- --------- ---------
Total interest income 107,815 103,258 95,457
--------- --------- ---------
INTEREST EXPENSE
Deposits 43,543 42,739 40,246
Federal funds purchased and repurchase agreements 3,732 4,207 4,432
Other short term borrowings 3,051 2,497 1,948
Long term debt 1,843 889 541
--------- --------- ---------
Total interest expense 52,169 50,332 47,167
--------- --------- ---------
Net interest income 55,646 52,926 48,290
Provision for loan losses 2,598 1,304 520
--------- --------- ---------
Net interest income after provision for loan losses 53,048 51,622 47,770
--------- --------- ---------
NONINTEREST INCOME
Service charges 7,544 6,239 5,249
Insurance 3,121 2,848 2,242
Trust 3,011 2,608 2,306
Gain on sale of loans 849 1,108 440
Gain / (loss) on sale of securities (193) 189 106
Other 3,232 3,038 2,680
--------- --------- ---------
Total noninterest income 17,564 16,030 13,023
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and wages 21,515 19,577 18,043
Employee benefits 5,883 5,467 5,172
Occupancy 2,929 2,949 2,682
Furniture and equipment 3,078 2,876 2,409
Data processing fees 3,755 3,792 3,551
FDIC premiums and examination fees 50 891 2,474
Other 9,702 9,368 8,275
--------- --------- ---------
Total noninterest expense 46,912 44,920 42,606
--------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE 23,700 22,732 18,187
Income tax expense 7,827 7,373 5,539
--------- --------- ---------
NET INCOME $ 15,873 15,359 12,648
========= ========= =========
Per common share amounts
Net income $ 1.32 1.28 1.05
Dividends paid 0.60 0.50 0.40
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
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<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $40,216 37,303 34,837
Securities
Taxable 12,496 11,897 11,719
Tax-exempt 2,775 2,815 2,685
Other 42 39 53
------- ------- -------
Total interest income 55,529 52,054 49,294
------- ------- -------
INTEREST EXPENSE
Deposits 21,953 21,139 21,014
Federal funds purchased and repurchase agreements 2,077 2,255 2,256
Other short term borrowings 1,863 1,396 1,152
Long term debt 954 458 308
------- ------- -------
Total interest expense 26,847 25,248 24,730
------- ------- -------
Net interest income 28,682 26,806 24,564
Provision for loan losses 1,740 693 520
------- ------- -------
Net interest income after provision for loan losses 26,942 26,113 24,044
------- ------- -------
NONINTEREST INCOME
Service charges 3,941 3,214 2,773
Insurance 1,457 1,396 1,258
Trust 1,516 1,297 1,184
Gain on sale of loans 521 638 286
Gain on sale of securities 72 31 140
Other 1,493 1,461 1,320
------- ------- -------
Total noninterest income 9,000 8,037 6,961
------- ------- -------
NONINTEREST EXPENSE
Salaries and wages 11,139 10,032 9,320
Employee benefits 2,956 2,705 2,681
Occupancy 1,447 1,428 1,372
Furniture and equipment 1,524 1,414 1,265
Data processing fees 1,652 1,873 1,784
FDIC premiums and examination fees 134 456 1,242
Other 5,028 5,321 4,614
------- ------- -------
Total noninterest expense 23,880 23,229 22,278
------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 12,062 10,921 8,727
Income tax expense 3,993 3,578 2,637
------- ------- -------
NET INCOME $ 8,069 7,343 6,090
======= ======= =======
Per common share amounts
Net income $ 0.67 0.61 0.50
Dividends paid 0.30 0.25 0.20
======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Common Stock Securities
------------------- Available Retained
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Class A Class B for Sale Earnings Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 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
Net income 15,873 15,873
Dividends, $.60 per share (7,200) (7,200)
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 (83) (694) (777)
Change in net unrealized gain (loss) on securities available for sale 1,042 1,042
-------- -------- -------- -------- --------
BALANCE, JUNE 30, 1997 $ 57 2,562 2,139 238,050 242,808
======== ======== ======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------------
(IN THOUSANDS) 1997 1996 1995
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,873 15,359 12,648
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 2,598 1,304 520
Depreciation and amortization 3,446 3,460 3,254
Minority interests in earnings of subsidiaries 709 683 609
(Gain) / loss on sale of securities 193 (189) (106)
Valuation writedown on other real estate owned -- -- 10
(Gain) / loss on sale of other real estate owned, net (24) (7) (94)
Other assets and liabilities, net 501 639 2,908
Proceeds from sales of other real estate owned 135 273 993
Cash receipts related to loans originated specifically for resale 44,767 59,059 16,075
Cash payments related to loans originated specifically for resale (44,907) (58,722) (15,635)
--------- --------- ---------
Net cash provided by operating activities 23,291 21,859 21,182
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net 45 1,203 (1,336)
Purchases of securities available for sale (241,905) (116,494) (110,054)
Purchases of securities held to maturity (19,885) (15,491) (18,983)
Proceeds from maturities of securities available for sale 70,017 64,712 40,963
Proceeds from maturities of securities held to maturity 18,655 34,777 35,524
Proceeds from sales of securities avaialable for sale 92,763 49,378 65,356
Loans, net (105,799) (95,783) (115,620)
Acquisitions, net of cash acquired -- -- (1,469)
Acquisition of premises and equipment (5,817) (4,263) (6,518)
--------- --------- ---------
Net cash used by investing activities (191,926) (81,961) (112,137)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (32,727) (29,594) (30,403)
Interest bearing deposits (excluding certificates of deposit), net (8,799) (15,490) (24,862)
Certificates of deposits, net 30,002 30,469 105,046
Federal funds purchased and repurchase agreements, net 8,828 19,025 (10,284)
Other short-term borrowings, net 123,711 66,655 39,699
Long-term debt, net 10,268 (9,091) 3,472
Minority interests acquired and dividends paid (413) (554) (666)
Redeemable preferred stock 41 41 (5,067)
Dividends paid (7,200) (6,000) (4,800)
--------- --------- ---------
Net cash provided by financing activities 123,711 55,461 72,135
--------- --------- ---------
Net increase in cash and due from banks (44,924) (4,641) (18,820)
Cash and due from banks
Beginning of year 159,832 127,786 116,041
--------- --------- ---------
End of year $ 114,908 123,145 97,221
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED STATEMENTS (UNAUDITED).
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. FINANCIAL STATEMENTS. The condensed financial statements included
herein have been prepared by Bremer Financial Corporation (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading.
B. GENERAL. The consolidated financial statements include the accounts of
Bremer Financial Corporation and Subsidiaries. All material
intercompany transactions and balances are eliminated in consolidation.
The Company has not changed its accounting policies from those stated
for the year ended December 31, 1996 and included in its Annual Report
on Form 10-K for the year ended December 31, 1996 filed on March 14,
1997.
C. INTERIM PERIOD ADJUSTMENTS. The consolidated financial statements
contained herein reflect all adjustments which are, in the opinion of
management, of a normal recurring nature and are necessary for a fair
statement of the financial position, results of operations, and cash
flows for the unaudited interim periods. The results of operations for
the interim periods are not necessarily indicative of the results to be
expected for the entire year.
D. EARNINGS PER SHARE CALCULATIONS. Earnings per common share have been
computed using 12,000,000 common shares outstanding for all periods.
E. MORTGAGE-BACKED SECURITIES. Mortgage-backed securities classified as
held to maturity are valued at amortized historical cost, increased for
accretion of discounts and reduced by amortization of premiums,
computed by the constant yield method. Mortgage-backed securities
classified as available for sale are valued at current market value
with the resulting unrealized holding gains and losses excluded from
earnings and reported, net of tax, as a separate component of
shareholder's equity. Gains and losses on these securities are computed
based on the adjusted cost of the specific securities sold.
F. REDEEMABLE CLASS A COMMON STOCK. At June 30, 1997, the 960,000 class A
shares were generally redeemable at $21.99 per share. Since January 1,
1997 and through June 30, 1997, options to call 33,813.2512 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Earnings Summary
Bremer Financial Corporation (the "Company") recorded net income of $8.1 million
for the second quarter of 1997, a 9.9% increase from the $7.3 million earned in
the second quarter of 1996. On a year-to-date basis, earnings were $15.9
million, up 3.3% or $514 thousand from the $15.4 million earned in the first six
months of 1996. Contributing positively to earnings in the first six months of
1997 were a 5.1% or $2.7 million increase in net interest income coupled with an
increase in noninterest income of 9.6% or $1.5 million. Partially offsetting
these positive increases were a 4.4% or $2.0 million increase in noninterest
expense and a $1.3 million increase in the provision for loan losses.
Return on average assets (ROA) was 1.16% for the second quarter of 1997,
compared to 1.10% for the same period in 1996. For the first six months of 1997,
ROA remained unchanged at 1.16%, as compared to the first six months of 1996.
Return on average realized equity (RORE) was 12.48% for the second quarter of
1997, compared to 12.23% for the same quarter of 1996. On a year-to-date basis,
RORE was 12.44%, compared to 12.96% recorded for the first six months of 1996.
Table I presents a summary of the components affecting the change in
year-to-date return on assets from June 30, 1996 to June 30, 1997.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $263.9 million
at June 30, 1997, representing a book value per share of $21.99, a 9.3% increase
from $20.11 at June 30, 1996. Dividends paid per share of $.30 in the second
quarter of 1997, remained unchanged from the first quarter of 1997 and fourth
quarter of 1996, and are up from the $.25 dividend paid in each of the first
three quarters of 1996. The Company maintains a very strong capital position
compared to industry standards. Table II presents various regulatory capital
ratios.
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS No. 115), requires the market
value of securities available for sale to be recorded on the Company's balance
sheet, with unrealized gains or losses, net of tax, included in equity. This
accounting standard had the effect of increasing the book value per share by
$.19 as of June 30, 1997 and decreasing the book value per share by $.15 as of
June 30, 1996.
Net Interest Income
Tax-equivalent net interest income for the second quarter of 1997 was $30.6
million, an increase of $1.8 million or 6.4% from the second quarter of 1996.
This increase in net interest income resulted from a 4.7% increase in average
earning assets combined with an improvement in the net interest margin from
4.38% to 4.45% for the second quarter of 1997. On a year-to-date basis,
tax-equivalent net interest income was $59.4 million, an increase of $2.7
million or 4.8% over the $56.7 million realized in the first six months of 1996.
Table III presents the quarter-to-quarter comparison of tax-equivalent net
interest income and net interest margins.
For both the second quarter and year-to-date 1997, the net interest margin
improved, as presented in Table IV, resulting from both an increase in the
spread between yields on earning assets and
<PAGE>
cost on interest bearing liabilities and a more favorable product mix. Adversely
impacting the margin for both the quarter and year-to-date were less interest
recoveries on problem loans, as compared with the same periods in 1996.
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 June 30, 1997, simulation modeling
results indicated the amount of net interest income at risk as a result of any
substantial change in market interest rates was within the Company's acceptable
policy limits.
Nonperforming Assets
Table VI shows the details of nonperforming assets at June 30, 1997, December
31, 1996 and June 30, 1996. Nonperforming assets, which include nonperforming
loans and other real estate owned (OREO), were $11.1 million at June 30, 1997.
This total represents a decrease of $400 thousand from December 31, 1996 and an
increase of $1.9 million from June 30, 1996. Nonperforming assets as a
percentage of total loans and OREO declined slightly to .60% as of June 30, 1997
from .65% as of December 31, 1996, and have increased from .53% as of June 30,
1996.
Nonperforming loans, which include nonaccrual and restructured loans, were $10.2
million at June 30, 1997, a decrease of $1.1 million from December 31, 1996 and
an increase of $1.2 million from June 30, 1996. The ratio of nonperforming loans
to total loans improved to .55% at June 30, 1997 from .64% as of December 31,
1996, and increased slightly from .52% at June 30, 1996. The ratio of
nonperforming assets and past due loans to total loans and OREO improved
slightly from .78% at December 31, 1996 to .76% at June 30, 1997, and increased
from .70% at June 30, 1996. The level of at-risk performing loans (with an
internal loan review rating of either substandard, doubtful or loss) increased
$1.7 million or 1.9% from $89.6 million at June 30, 1996 to $91.3 million at
June 30, 1997. However, the ratio of classified loans to total loans has
decreased from 5.2% at June 30, 1996 to 4.9% at June 30, 1997 as total loans
grew 8.0% during the same period. Net charge-offs were $561 thousand for the
first six months of 1997 as compared to net recoveries of $442 thousand in the
same period in 1996.
Other real estate owned, which includes real estate acquired in loan
settlements, increased $673 thousand from December 31, 1996 and $644 thousand
from June 30, 1996 to $913 thousand at June 30, 1997.
Reserve for Loan Losses
The Company's reserve for loan losses was 319.7% of nonperforming loans at June
30, 1997 compared to 271.1% at December 31, 1996 and 335.5% at June 30, 1996.
The Company continues to assess the situation in the Red River Valley of North
Dakota and Minnesota, and while a final determination of the damages caused by
the April 1997 flooding is not possible as yet, 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 $30.0 million at June 30, 1996 to
$32.5 million at June 30, 1997. Contributing to the increase in the reserve for
loan losses was an addition of $600
<PAGE>
thousand of provision during June 1997 in anticipation of potential losses
relating to the April 1997 flooding in the Red River Valley. This additional
provision was determined to be appropriate given the current assessment of the
situation in the Red River Valley. As the Company continues to complete its
assessment, further adjustments may be necessary. See also Item 5 of Part II of
this Quarterly Report on Form 10-Q. The increase in the reserve for loan losses
contributed to an overall increase in the reserve to outstanding loans ratio
from 1.74% at June 30, 1996 and December 31, 1996 to 1.75% at June 30, 1997.
Table VII present the activity in the reserve for loan losses.
Noninterest Income
As presented in Table VIII, noninterest income was $9.0 million for the second
quarter of 1997 compared to $8.0 million for the second quarter of 1996,
representing a $1.0 million or 12.0% improvement. On a year-to-date basis,
noninterest income was $17.6 million compared to $16.0 million in 1996, an
increase of $1.6 million or 9.6%. On a year-to-date basis, operating noninterest
income, which excludes investment securities gains and losses, increased 12.1%
over 1996, with most categories posting increases. Service charge fees, trust
fees, insurance commissions, 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 $259 thousand as
residential real estate activity continued to be slower than during the same
time in 1996, as a result of a less favorable interest rate environment and
unfavorable weather conditions in many of the Company's markets.
Noninterest Expense
As presented in Table IX, noninterest expense increased $651 thousand or 2.8%
compared to the second quarter of 1996. On a year-to-date basis, noninterest
expense increased $2.0 million or 4.4% compared to the first six months of 1996.
While operating expenses of acquired entities unfavorably impacted the
comparison of noninterest expense between the first six months of 1997 and 1996,
the Company experienced a significant decline in the FDIC insurance premiums, as
the assessment rate on savings and loan acquired deposits fell. Additionally, as
mentioned in last quarter's Form 10-Q, the Company's conversion of its banks'
charters to national charters regulated by the Office of Comptroller of Currency
(the "OCC"), during the first quarter of 1997, resulted in the reversal of
approximately $260 thousand in accruals set aside for state and other
examinations for 1997. Upon conversion to national charters, examinations by
state and other regulators were canceled, as the OCC became the examining
authority.
A common industry statistic used to measure the productivity of banking
organizations is the efficiency ratio. The efficiency ratio measures the cost
required to generate each dollar of revenue and is calculated by dividing
recurring noninterest expense by tax-equivalent net interest income and
recurring noninterest income. The Company's efficiency ratio was 58.81% for the
six months ending June 30, 1997 compared to 60.02% for the same period in 1996.
Contributing to this improvement were increases in the tax-equivalent net
interest income of 4.8% coupled with strong growth in recurring noninterest
income of 12.2% and modest growth in recurring noninterest expense of 4.4%.
<PAGE>
Taxes
Comparing the first six months of 1997 to the first six months of 1996, the
Company's effective tax rate increased from 32.4% to 33.0%. This results from
proportionately more taxable than tax-exempt income during the first six months
of 1997 compared to the same period in 1996.
Balance Sheet Growth
Assets
Average total assets increased $104.6 million or 3.8% from the first six months
of 1996 to the first six months of 1997, while average earning assets increased
$97.7 million or 3.8% when comparing the same two periods.
Loans
From the first six months of 1996 to the first six months of 1997, average loans
increased $112.8 million or 6.9%, driven by increases in all loan categories.
Average loans in the second quarter of 1997 increased $62.6 million from the
first quarter of 1997, resulting from seasonal activity.
On a year-to-date basis, the increase in average loan volume in 1997 over 1996
was driven by commercial real estate, residential real estate, agricultural,
consumer, commercial, and tax-exempt loans which increased $27.8 million, $27.3
million, $25.1 million, $21.1 million, $8.2 million, and $3.3 million,
respectively. The Company is not involved in highly leveraged transaction
lending or lending to foreign countries.
Securities
Average securities decreased $14.6 million or 1.5% from the first six months of
1996 to the first six months of 1997, as proceeds from maturities were utilized
to fund the continued strong loan growth. Taxable securities decreased $15.6
million or 2.0%, while tax-exempt securities increased a modest $975 thousand or
.5%. The average maturity of the portfolio was 53.7 months at June 30, 1997,
with an average yield to maturity on the $1.0 billion portfolio of 6.96%,
unrealized gains of $4.2 million and unrealized losses of $1.1 million for held
to maturity securities. In accordance with FAS No. 115, the available for sale
investments are recorded inclusive of any unrealized gain or loss.
<PAGE>
Liabilities
Comparing the first six months of 1997 to the first six months of 1996, average
interest bearing liabilities increased $87.3 million or 4.0%, while average
deposits increased $47.7 million or 2.2%. Average short-term borrowings, which
include federal funds purchased, securities sold under agreements to repurchase,
treasury tax and loan notes, and Federal Home Loan Bank (FHLB) advances,
increased $3.5 million or 1.4%. Average long-term debt, which includes long-term
FHLB advances and installment promissory notes issued in connection with
acquisitions, increased $35.2 million. Most of the increase in short-term and
long-term borrowings can be attributed to an increase in the Company's FHLB
advances over the first six months of 1996. Continued strong asset growth,
coupled with slower growth in deposits, has created the need for this funding
source. The associated interest rate risk was monitored closely and steps were
taken to match repricability of assets and liabilities prior to any funding
decisions.
Core deposits, which generally include all deposits and repurchase agreements
except for those greater than $100 thousand of nonpersonal and public entities,
and certain other public funds, historically have provided a stable source of
funding. Between the first six months of 1996 and the first six months of 1997,
average core deposits increased $61.9 million or 2.9%. The growth in core
deposits can be attributed to the Company's expanded presence in its markets.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
-------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 CHANGE 1997 1996 CHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C> <C>
Total interest income $107,815 103,258 4.4% $55,529 52,054 6.7%
Net interest income 55,646 52,926 5.1 28,682 26,806 7.0
Net interest income (1) 59,405 56,711 4.8 30,570 28,734 6.4
Provision for loan losses 2,598 1,304 99.2 1,740 693 151.1
Noninterest income 17,564 16,030 9.6 9,000 8,037 12.0
Noninterest expense 46,912 44,920 4.4 23,880 23,229 2.8
Net income 15,873 15,359 3.3 8,069 7,343 9.9
Dividends 7,200 6,000 20.0 3,600 3,000 20.0
AVERAGE BALANCES
Assets 2,879,147 2,774,540 3.8 2,925,343 2,796,451 4.6
Loans 1,750,900 1,638,130 6.9 1,781,801 1,666,677 6.9
Securities 951,956 966,558 (1.5) 972,628 964,174 0.9
Deposits 2,241,335 2,193,666 2.2 2,251,462 2,194,732 2.6
Redeemable class A common stock 20,725 19,173 8.1 20,817 19,237 8.2
Shareholder's equity 238,339 220,486 8.1 239,396 221,224 8.2
PERIOD-END BALANCES
Assets 3,067,960 2,876,711 6.6
Loans 1,861,134 1,722,504 8.0
Securities 1,017,954 957,834 6.3
Deposits 2,271,922 2,227,692 2.0
Redeemable class A common stock 21,114 19,310 9.3
Shareholder's equity 242,808 222,067 9.3
FINANCIAL RATIOS
Return on assets (2) 1.16% 1.16 0.0 1.16% 1.10 5.5
Return on realized equity (3)(4) 12.44 12.96 (4.0) 12.48 12.23 2.0
Average equity/assets (3) 9.00 8.64 4.2 8.90 8.60 3.5
Dividend payout 45.36 39.07 16.1 44.62 40.86 9.2
Net interest margin (1) 4.43 4.37 1.4 4.45 4.38 1.6
Net charge-offs/average loans 0.06 (0.05) (220.0) 0.08 (0.12) (166.7)
Reserve/period-end loans 1.75 1.74 0.6 1.75 1.74 0.6
PER SHARE OF COMMON STOCK (3)
Net income 1.32 1.28 3.3 $0.67 0.61 9.9
Dividends paid 0.60 0.50 20.0 0.30 0.25 20.0
Period-end book value 21.99 20.11 9.3 21.99 20.11 9.3
Period-end realized book value (4) 21.80 20.26 7.6 21.80 20.26 7.6
</TABLE>
(1) Tax-equivalent basis (TEB).
(2) Calculation is based on income before minority interests.
(3) Calculation is based on 12,000,000 shares, including redeemable class A
common stock.
(4) Excluding net unrealized gain (loss) on securities available for sale.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
<PAGE>
TABLE I
CHANGES IN RETURN ON ASSETS
Year-To-Date
June 30
1997 vs 1996
- -------------------------------------------------------------------------------
Return on assets, prior period 1.16%
- -------------------------------------------------------------------------------
Increases
Net interest income (TEB) 0.05
Service charges 0.08
Insurance 0.01
Trust fees 0.02
Brokerage 0.01
Data processing fees 0.01
FDIC premiums and examination fees 0.06
Other noninterest income, net 0.03
- -------------------------------------------------------------------------------
Total increases 0.27
- -------------------------------------------------------------------------------
Decreases
Provision for loan loss 0.09
Gain on sale of loans 0.02
Gain on sale of securities 0.03
Salaries and wages 0.09
Employee benefits 0.02
Furniture and equipment 0.01
Marketing 0.01
- -------------------------------------------------------------------------------
Total decreases 0.27
- -------------------------------------------------------------------------------
Return on assets, current period 1.16%
===============================================================================
<PAGE>
TABLE II
CAPITAL RATIOS (1)
<TABLE>
<CAPTION>
June 30 December 31 June 30 Regulatory
1997 1996 1996 Minimums
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Equity to assets (2) 8.60% 8.69 8.39 --
Equity to tangible assets (2) 8.55 8.62 8.30 --
Tier I capital (3) 13.04 12.89 12.68 4.00
Tier I and tier II capital (3) 14.29 14.15 13.94 8.00
Leverage ratio (3) 8.89 8.79 8.60 3.00
</TABLE>
(1) Calculations include redeemable class A common stock.
(2) Computed in accordance with generally accepted accounting principles,
including the unrealized market value adjustment of securities available
for sale.
(3) Computed exclusive of the unrealized market value adjustment of securities
available for sale.
<PAGE>
TABLE III
NET INTEREST INCOME / MARGINS (TEB)
Net Net
Interest Interest
(DOLLARS IN THOUSANDS) Income Margin
- ----------------------------------------------------------------------------
Quarter
- ----------
1997
Second $30,570 4.45%
First 28,835 4.41
1996
Fourth 29,732 4.40
Third 29,419 4.33
Second 28,734 4.38
First 27,977 4.35
1995
Fourth 28,405 4.37
Third 27,637 4.31
Second 26,369 4.31
First 25,487 4.36
1994
Fourth 26,532 4.51
Third 25,911 4.53
Second 24,820 4.56
First 23,435 4.48
<PAGE>
TABLE IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
(IN THOUSANDS) 1997 vs 1996 1997 vs 1996
- ---------------------------------------------------------------------------------------------------
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
CHANGE IN VOLUME
Earning assets $ 4,009 $ 2,530
Interest bearing liabilities (1,988) (1,217)
-------- ---------
2,021 1,313
CHANGE IN INTEREST RATE SPREAD
Earning assets 442 0.03% 754 0.11%
Interest bearing liabilities 13 0.00 (362) (0.05)
-------- --------- -------- ---------
455 0.03 392 0.06
CHANGE IN PRODUCT MIX
Earning assets 719 0.06 230 0.03
Interest bearing liabilities (138) (0.01) (20) 0.00
-------- --------- -------- ---------
581 0.05 210 0.03
CHANGE DUE TO NUMBER OF DAYS
Earning assets (588) -- -- --
Interest bearing liabilities 276 -- -- --
-------- --------- -------- ---------
(312) -- -- --
OTHER CHANGES
Nonaccruing loans (88) (0.01) (107) (0.02)
Yield-related loan fees (78) 0.00 28 0.00
30/360 investment adjustment 115 0.01 -- --
Free funds -- (0.02) -- 0.00
-------- --------- -------- ---------
(51) (0.02) (79) (0.02)
CHANGE IN NET INTEREST INCOME 2,694 0.06 1,836 0.07
Net interest income, prior period 56,711 4.37 28,734 4.38
-------- --------- -------- ---------
Net interest income, current period $ 59,405 4.43% $ 30,570 4.45%
======== ========= ======== =========
</TABLE>
<PAGE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------------------------------------
(IN THOUSANDS) 1997 vs 1996
- --------------------------------------------------------------------------------------------------
Volume Yield/Rate (1) Total
--------------- ---------------- ----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans $2,794 1,671 4,465
Taxable securities 896 (756) 140
Tax-exempt securities 316 (376) (60)
Interest bearing deposits -- -- --
Federal funds sold -- -- --
Other earning assets 3 (17) (14)
--------------- ---------------- ----------------
Total 4,009 522 4,531
INTEREST EXPENSE
Savings deposits 298 (150) 148
Other time deposits 1,390 (734) 656
Short-term borrowings 265 (187) 78
Long-term debt 35 920 955
--------------- ---------------- ----------------
Total 1,988 (151) 1,837
--------------- ---------------- ----------------
NET INTEREST INCOME $2,021 673 2,694
==================================================================================================
</TABLE>
(1) ALL CHANGES IN NET INTEREST INCOME, OTHER THAN THOSE DUE TO VOLUME, HAVE
BEEN ALLOCATED TO YIELD/RATE.
<PAGE>
TABLE VI
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
==================================================================================================
June 30 December 31 June 30
(DOLLARS IN THOUSANDS) 1997 1996 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $9,713 10,830 8,388
Restructured loans 459 414 555
- --------------------------------------------------------------------------------------------------
Total nonperforming loans 10,172 11,244 8,943
Other real estate owned (OREO) 913 240 269
- --------------------------------------------------------------------------------------------------
Total nonperforming assets $11,085 11,484 9,212
==================================================================================================
Past due loans * $3,101 2,205 2,928
==================================================================================================
Nonperforming loans to total loans 0.55% 0.64 0.52
Nonperforming assets to total loans and OREO 0.60 0.65 0.53
Nonperforming assets and past due loans* to
total loans and OREO 0.76 0.78 0.70
Reserve to nonperforming loans 319.69 271.10 335.45
Reserve to total loans 1.75 1.74 1.74
==================================================================================================
</TABLE>
* PAST DUE LOANS INCLUDE ACCRUING LOANS 90 DAYS OR MORE PAST DUE.
<PAGE>
TABLE VII
RESERVE FOR LOAN LOSSES
==================================================================
Six Months Ended
June 30
--------------------------
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------
Beginning of period $30,482 28,253
Charge-offs (1,019) (738)
Recoveries 458 1,180
- ------------------------------------------------------------------
Net charge-offs (561) 442
Provision for loan losses 2,598 1,304
- ------------------------------------------------------------------
End of period $32,519 29,999
==================================================================
<PAGE>
TABLE VIII
<TABLE>
<CAPTION>
NONINTEREST INCOME
=============================================================================================
Six Months Ended
June 30 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 DOLLAR Percent
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges $7,544 6,239 1,305 20.92%
Insurance 3,121 2,848 273 9.59
Trust 3,011 2,608 403 15.45
Brokerage 1,343 1,171 172 14.69
Gain on sale of loans 849 1,108 (259) (23.38)
Gain on sale of other assets 91 38 53 139.47
Other 1,798 1,829 (31) (1.69)
- ---------------------------------------------------------------------------------------------
Operating noninterest income 17,757 15,841 1,916 12.10
Gain / (loss) on sale of securities (193) 189 (382) (202.12)
- ---------------------------------------------------------------------------------------------
Total $17,564 16,030 1,534 9.57%
=============================================================================================
=============================================================================================
Three Months Ended
June 30 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- ---------------------------------------------------------------------------------------------
Service charges $3,941 3,214 727 22.62%
Insurance 1,457 1,396 61 4.37
Trust 1,516 1,297 219 16.89
Brokerage 700 658 42 6.38
Gain on sale of loans 521 638 (117) (18.34)
Gain on sale of other assets 20 14 6 42.86
Other 773 789 (16) (2.03)
- ---------------------------------------------------------------------------------------------
Operating noninterest income 8,928 8,006 922 11.52
Gain on sale of securities 72 31 41 132.26
- ---------------------------------------------------------------------------------------------
Total $9,000 8,037 963 11.99%
=============================================================================================
</TABLE>
<PAGE>
TABLE IX
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
=============================================================================================
Six Months Ended
June 30 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and wages $21,515 19,577 1,938 9.90%
Employee benefits 5,883 5,467 416 7.61
Occupancy 2,929 2,949 (20) (0.68)
Furniture and equipment 3,078 2,876 202 7.02
Printing, postage and office supplies 2,544 2,398 146 6.09
Marketing 1,718 1,579 139 8.80
Data processing fees 3,755 3,792 (37) (0.98)
Professional fees 261 339 (78) (23.01)
Other real estate owned 61 19 42 221.05
Minority interest in earnings 709 683 26 3.81
FDIC premiums and examination fees 50 891 (841) (94.39)
Other 4,409 4,350 59 1.36
- ---------------------------------------------------------------------------------------------
Total $46,912 44,920 1,992 4.43%
=============================================================================================
=============================================================================================
Three Months Ended
June 30 Increase/(Decrease)
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS) 1997 1996 Dollar Percent
- ---------------------------------------------------------------------------------------------
Salaries and wages $11,139 10,032 1,107 11.03%
Employee benefits 2,956 2,705 251 9.28
Occupancy 1,447 1,428 19 1.33
Furniture and equipment 1,524 1,414 110 7.78
Printing, postage and office supplies 1,233 1,239 (6) (0.48)
Marketing 926 1,162 (236) (20.31)
Data processing fees 1,652 1,873 (221) (11.80)
Professional fees 122 199 (77) (38.69)
Other real estate owned 45 8 37 462.50
Minority interest in earnings 369 337 32 9.50
FDIC premiums and examination fees 134 456 (322) (70.61)
Other 2,333 2,376 (43) (1.81)
- ---------------------------------------------------------------------------------------------
Total $23,880 23,229 651 2.80%
=============================================================================================
</TABLE>
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Tax Equivalent Basis-In Thousands)
<TABLE>
<CAPTION>
JUNE YTD 1997 JUNE YTD 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 $348,974 $15,853 9.16% $340,791 $15,648 9.23% 2.40%
COMMERCIAL REAL ESTATE 375,629 16,937 9.09 347,825 15,805 9.14 7.99
AGRICULTURAL 365,028 16,718 9.24 339,907 15,747 9.32 7.39
RESIDENTIAL REAL ESTATE 363,775 15,890 8.81 336,449 14,555 8.70 8.12
CONSUMER 245,528 11,037 9.06 224,467 10,208 9.15 9.38
TAX-EXEMPT 51,966 2,638 10.24 48,691 2,645 10.92 6.73
------------- ----------- ------------ ----------
TOTAL LOANS 1,750,900 79,073 9.11 1,638,130 74,608 9.16 6.88
RESERVE FOR LOAN LOSSES (31,128) (28,968) 7.46
------------- ------------
NET LOANS 1,719,772 1,609,162 6.87
SECURITIES
MORTGAGE BACKED 599,928 19,414 6.53 579,056 18,324 6.36 3.60
OTHER TAXABLE 144,871 4,625 6.44 181,320 5,575 6.18 (20.10)
TAX EXEMPT 207,157 8,389 8.17 206,182 8,449 8.24 0.47
------------- ----------- ------------ ----------
TOTAL SECURITIES 951,956 32,428 6.87 966,558 32,348 6.73 (1.51)
FEDERAL FUNDS SOLD 0 0 -- 0 0 -- --
OTHER EARNING ASSETS 2,411 73 6.11 2,905 87 6.02 (17.01)
------------- ----------- ------------ ----------
TOTAL EARNING ASSETS 2,705,267 111,574 8.32 2,607,593 107,043 8.26 3.75
CASH & DUE FROM BANKS 97,267 94,709 2.70
NONEARNING ASSETS 107,741 101,206 6.46
------------- ------------
$2,879,147 $2,774,540 3.77
============= ============
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $265,833 $266,771 (0.35)
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 297,446 2,457 1.67 254,475 2,167 1.71 16.89
MONEY MARKET CHECKING 152,266 1,165 1.54 180,551 1,539 1.71 (15.67)
MONEY MARKET SAVINGS 247,840 4,056 3.30 245,216 3,824 3.14 1.07
SAVINGS CERTIFICATES 1,115,595 31,388 5.67 1,093,358 31,012 5.70 2.03
CERTIFICATES OVER $100,000 162,355 4,477 5.56 153,295 4,197 5.51 5.91
------------- ----------- ------------ ----------
TOTAL TIME DEPOSITS 1,975,502 43,543 4.44 1,926,895 42,739 4.46 2.52
------------- ------------
TOTAL DEPOSITS 2,241,335 2,193,666 2.17
CORE DEPOSITS 2,172,318 2,110,412 2.93
SHORT-TERM BORROWINGS 259,887 6,783 5.26 256,419 6,705 5.26 1.35
LONG-TERM DEBT 63,302 1,843 5.87 28,098 888 6.36 125.29
------------- ----------- ------------ ----------
TOTAL INTEREST BEARING LIABILITIES 2,298,691 52,169 4.58 2,211,412 50,332 4.58 3.95
OTHER LIABILITIES 43,905 45,470 (3.44)
------------- ------------
TOTAL LIABILITIES 2,608,429 2,523,653 3.36
MINORITY INTEREST 9,489 9,063 4.70
REDEEMABLE PREFERRED STOCK 2,165 2,165 0.00
REDEEMABLE CLASS A COMMON STOCK 20,725 19,173 8.09
SHAREHOLDER'S EQUITY 238,339 220,486 8.10
------------- ------------
$2,879,147 $2,774,540 3.77
============= ============
NET INTEREST INCOME $59,405 $56,711
=========== ==========
NET INTEREST MARGIN 4.43% 4.37%
GROSS SPREAD 3.74 3.68
</TABLE>
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEET
AND RELATED YIELDS AND RATES
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Tax Equivalent Basis-In Thousands)
<TABLE>
<CAPTION>
SECOND QUARTER 1997 SECOND 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 $362,000 $8,362 9.27% $352,475 $7,980 9.08% 2.70%
COMMERCIAL REAL ESTATE 379,833 8,636 9.12 349,394 7,875 9.04 8.71
AGRICULTURAL 371,869 8,638 9.32 346,452 8,008 9.27 7.34
RESIDENTIAL REAL ESTATE 368,499 8,099 8.82 339,424 7,368 8.71 8.57
CONSUMER 247,935 5,604 9.07 228,404 5,158 9.06 8.55
TAX-EXEMPT 51,665 1,334 10.36 50,528 1,388 11.02 2.25
------------- ----------- ------------ ----------
TOTAL LOANS 1,781,801 40,673 9.16 1,666,677 37,777 9.09 6.91
RESERVE FOR LOAN LOSSES (31,480) (29,340) 7.29
------------- ------------
NET LOANS 1,750,321 1,637,337 6.90
SECURITIES
MORTGAGE BACKED 622,237 10,180 6.56 585,729 9,263 6.34 6.23
OTHER TAXABLE 143,009 2,316 6.50 171,556 2,634 6.16 (16.64)
TAX EXEMPT 207,382 4,206 8.13 206,889 4,267 8.27 0.24
------------- ----------- ------------ ----------
TOTAL SECURITIES 972,628 16,702 6.89 964,174 16,164 6.72 0.88
FEDERAL FUNDS SOLD 0 0 -- 0 0 -- --
OTHER EARNING ASSETS 2,597 42 6.49 2,770 41 5.94 (6.25)
------------- ----------- ------------ ----------
TOTAL EARNING ASSETS 2,757,026 57,417 8.35 2,633,621 53,982 8.22 4.69
CASH & DUE FROM BANKS 95,395 94,851 0.57
NONEARNING ASSETS 104,402 97,319 7.28
------------- ------------
$2,925,343 $2,796,451 4.61
============= ============
LIABILITIES & SHAREHOLDER'S EQUITY
NONINTEREST BEARING DEPOSITS $272,021 $270,712 0.48
INTEREST BEARING DEPOSITS
SAVINGS AND NOW ACCOUNTS 297,762 1,230 1.66 251,997 1,049 1.67 18.16
MONEY MARKET CHECKING 153,039 581 1.52 180,707 752 1.67 (15.31)
MONEY MARKET SAVINGS 250,216 2,082 3.34 242,966 1,885 3.11 2.98
SAVINGS CERTIFICATES 1,114,225 15,765 5.68 1,093,640 15,357 5.63 1.88
CERTIFICATES OVER $100,000 164,199 2,294 5.60 154,710 2,096 5.43 6.13
------------- ----------- ------------ ----------
TOTAL TIME DEPOSITS 1,979,441 21,952 4.45 1,924,020 21,139 4.41 2.88
------------- ------------
TOTAL DEPOSITS 2,251,462 2,194,732 2.58
CORE DEPOSITS 2,183,196 2,112,471 3.35
SHORT-TERM BORROWINGS 295,163 3,941 5.36 277,038 3,652 5.29 6.54
LONG-TERM DEBT 64,149 954 5.96 30,130 457 6.08 112.91
------------- ----------- ------------ ----------
TOTAL INTEREST BEARING LIABILITIES 2,338,753 26,847 4.60 2,231,188 25,248 4.54 4.82
OTHER LIABILITIES 42,627 42,884 (0.60)
------------- ------------
TOTAL LIABILITIES 2,653,401 2,544,784 4.27
MINORITY INTEREST 9,554 9,031 5.79
REDEEMABLE PREFERRED STOCK 2,175 2,175 0.00
REDEEMABLE CLASS A COMMON STOCK 20,817 19,237 8.21
SHAREHOLDER'S EQUITY 239,396 221,224 8.21
------------- ------------
$2,925,343 $2,796,451 4.61
============= ============
NET INTEREST INCOME $30,570 $28,734
=========== ==========
NET INTEREST MARGIN 4.45% 4.38%
GROSS SPREAD 3.75 3.68
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other information
On July 22, 1997 the Company signed an agreement with the Halo
Bancorporation, Inc. ("HBI") of Devils Lake, North Dakota, for the
purchase of First National Bank of Devils Lake ("FNB-DL") and its
parent, HBI. The agreement is subject to the necessary regulatory
approvals. Subsequent to this acquisition, the Company intends to merge
FNB-DL into First American Bank, National Association, of Minot, North
Dakota ("FAB-Minot"), subject to regulatory approval and approval by
the shareholders of FAB-Minot. The FNB-DL bank has assets of over $60
million.
As previously reported in the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, the Company's 1997 results will
be impacted by the April 1997 floods in the Red River Valley of
Minnesota and North Dakota, 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 the flooding. The full extent of the flood damage
is not yet known, as the number of the Company's borrowers suffering
losses and the amount of assistance those customers might receive are
still being determined. In June 1997, the Company added $600 thousand
to its loan loss reserves, based upon initial assessments, and may add
additional amounts, as needed, after a full assessment of the loan
portfolio. Damage and losses associated with the Company's facilities
should not have a material impact on the Company's earnings. The
Company's management continues to believe that the combination of loan
loss reserves and high levels of capitalization should be adequate to
cover any losses ultimately realized by the Company from this flood.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS A NUMBER OF FORWARD-LOOKING
STATEMENTS WHICH REFLECT THE CURRENT VIEWS OF THE COMPANY'S MANAGEMENT
WITH RESPECT TO FUTURE EVENTS THAT WILL HAVE AN EFFECT ON ITS FUTURE
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY
ANTICIPATED. READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are being filed as part of this Quarterly Report on Form
10-Q.
(b) No Current Reports on Form 8-K were filed during the quarter ended June
30, 1997 or during the period from June 30, 1997 to the date of this
Quarterly Report on Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1997 BREMER FINANCIAL CORPORATION
By: /s/ Terry M. Cummings
Terry M. Cummings
President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Stuart F. Bradt
Stuart F. Bradt
Chief Accounting Officer
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