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, 1998.
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)
(651) 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, 1998, there were 1,200,000 shares of class A common
stock and 10,800,000 shares of class B common stock outstanding.
<PAGE>
BREMER FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
PART I -- FINANCIAL INFORMATION Page
Item 1 -- Financial Statements 2
Item 2 -- Management's Discussion and Analysis 9
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
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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June 30 December 31 June 30
(IN THOUSANDS) 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 123,415 135,966 114,908
Interest bearing deposits 2,167 1,886 1,733
Investment securities held to maturity (fair value of $168,123,
$185,402 and $186,289, respectively) 162,016 179,631 182,229
Mortgage-backed securities held to maturity (fair value of $49,942,
$91,508 and $102,688, respectively) 50,162 91,994 103,671
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY 212,178 271,625 285,900
Investment securities available for sale (amortized cost of $105,988,
$141,147 and $178,653, respectively) 107,155 142,051 178,926
Mortgage-backed securities available for sale (amortized cost of $616,822,
$570,363 and $549,361, respectively) 623,951 578,573 553,128
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE 731,106 720,624 732,054
Loans and leases 2,134,625 1,969,085 1,865,368
Reserve for credit losses (36,032) (34,253) (32,519)
Unearned discount (5,408) (4,958) (4,234)
- ------------------------------------------------------------------------------------------------------------------------
NET LOANS AND LEASES 2,093,185 1,929,874 1,828,615
Premises and equipment, net 53,110 51,879 48,833
Interest receivable and other assets 56,848 61,847 55,917
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,272,009 3,173,701 3,067,960
========================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 304,402 344,521 299,416
Interest bearing deposits 2,136,965 2,097,977 1,972,506
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 2,441,367 2,442,498 2,271,922
Federal funds purchased and repurchase agreements 217,094 167,174 196,957
Other short-term borrowings 204,620 198,090 210,603
Long-term debt 65,091 30,238 72,657
Accrued expenses and other liabilities 47,971 44,697 40,097
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,976,143 2,882,697 2,792,236
Minority interests 3,453 10,011 9,658
Redeemable preferred stock, $100 par, 80,000 shares authorized;
71,594 shares issued; and outstanding shares of 20,837,
21,437 and 21,437, respectively 2,084 2,144 2,144
Redeemable class A common stock, 960,000 shares
issued and outstanding 23,226 22,308 21,114
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 260,064 249,079 238,050
Net unrealized gain on securities available for sale 4,420 4,843 2,139
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY 267,103 256,541 242,808
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,272,009 3,173,701 3,067,960
========================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
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Six Months Ended June 30
------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
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<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 90,141 78,193 73,716
Securities
Taxable 24,348 24,039 23,899
Tax-exempt 5,479 5,533 5,571
Federal funds sold 322 -- --
Other 58 50 72
- --------------------------------------------------------------------------------------------
Total interest income 120,348 107,815 103,258
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 48,734 43,543 42,739
Federal funds purchased and repurchase agreements 4,359 3,732 4,207
Other short term borrowings 5,370 3,051 2,497
Long term debt 1,413 1,843 889
- --------------------------------------------------------------------------------------------
Total interest expense 59,876 52,169 50,332
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Net interest income 60,472 55,646 52,926
Provision for credit losses 2,462 2,598 1,304
- --------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 58,010 53,048 51,622
- --------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges 8,314 7,544 6,239
Insurance 3,192 3,121 2,848
Trust 3,444 3,011 2,608
Gain on sale of loans 2,343 849 1,108
Gain / (loss) on sale of securities 1,138 (193) 189
Other 5,462 3,232 3,038
- --------------------------------------------------------------------------------------------
Total noninterest income 23,893 17,564 16,030
- --------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 24,074 21,515 19,577
Employee benefits 6,137 5,883 5,467
Occupancy 3,131 2,929 2,949
Furniture and equipment 3,650 3,307 2,988
Data processing fees 2,984 3,541 3,687
FDIC premiums and examination fees 593 50 891
Other 11,093 9,687 9,361
- --------------------------------------------------------------------------------------------
Total noninterest expense 51,662 46,912 44,920
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 30,241 23,700 22,732
Income tax expense 10,381 7,827 7,373
- --------------------------------------------------------------------------------------------
NET INCOME $ 19,860 15,873 15,359
============================================================================================
Per common share amounts:
Net income-basic $ 1.66 1.32 1.28
Dividends paid 0.66 0.60 0.50
============================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended June 30
-------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 46,374 40,231 37,310
Securities
Taxable 12,120 12,496 11,897
Tax-exempt 2,739 2,775 2,815
Federal funds sold 100 -- --
Other 31 27 32
- --------------------------------------------------------------------------------------------
Total interest income 61,364 55,529 52,054
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 24,710 21,953 21,139
Federal funds purchased and repurchase agreements 2,378 2,077 2,255
Other short term borrowings 2,709 1,863 1,396
Long term debt 757 954 458
- --------------------------------------------------------------------------------------------
Total interest expense 30,553 26,847 25,248
- --------------------------------------------------------------------------------------------
Net interest income 30,811 28,682 26,806
Provision for credit losses 1,253 1,740 693
- --------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 29,558 26,942 26,113
- --------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges 4,313 3,941 3,214
Insurance 1,507 1,457 1,396
Trust 1,702 1,516 1,297
Gain on sale of loans 1,231 521 638
(Loss)/gain on sale of securities (72) 72 31
Other 3,193 1,493 1,461
- --------------------------------------------------------------------------------------------
Total noninterest income 11,874 9,000 8,037
- --------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 12,340 11,139 10,032
Employee benefits 3,116 2,956 2,705
Occupancy 1,526 1,447 1,428
Furniture and equipment 1,853 1,639 1,458
Data processing fees 1,487 1,542 1,830
FDIC premiums and examination fees 293 134 456
Other 5,903 5,023 5,320
- --------------------------------------------------------------------------------------------
Total noninterest expense 26,518 23,880 23,229
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 14,914 12,062 10,921
Income tax expense 5,055 3,993 3,578
- --------------------------------------------------------------------------------------------
NET INCOME $ 9,859 8,069 7,343
============================================================================================
Per common share amounts:
Net income-basic $ 0.83 0.67 0.61
Dividends paid 0.33 0.30 0.25
============================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
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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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 35,060 35,060
Dividends, $1.20 per share (14,400) (14,400)
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 (319) (1,652) (1,971)
Change in net unrealized gain (loss) on securities available for sale 3,982 3,982
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 57 2,562 4,843 249,079 256,541
Net income 19,860 19,860
Dividends, $.66 per share (7,920) (7,920)
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 36 (955) (919)
Change in net unrealized gain (loss) on securities available for sale (459) (459)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 $ 57 2,562 4,420 260,064 267,103
===============================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
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Six Months Ended June 30
------------------------------------
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,860 15,873 15,359
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 2,462 2,598 1,304
Depreciation and amortization 4,221 3,446 3,460
Minority interests in earnings of subsidiaries 595 709 683
(Gain) loss on sale of securities (1,138) 193 (189)
Gain on sale of other real estate owned, net (17) (24) (7)
Other assets and liabilities, net 7,089 542 680
Proceeds from sales of other real estate owned 497 135 273
Cash receipts related to loans originated specifically for resale 120,956 44,767 59,059
Cash payments related to loans originated specifically for resale (121,506) (44,907) (58,722)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,019 23,332 21,900
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net (281) 45 1,203
Purchases of securities available for sale (193,122) (241,905) (116,494)
Purchases of securities held to maturity (6,683) (19,885) (15,491)
Proceeds from maturities of securities available for sale 116,321 70,017 64,712
Proceeds from maturities of securities held to maturity 65,498 18,655 34,777
Proceeds from sales of securities available for sale 67,179 92,763 49,378
Loans and leases, net (165,222) (105,799) (95,783)
Acquisition of premises and equipment (4,504) (5,817) (4,263)
- ----------------------------------------------------------------------------------------------------------
Net cash used by investing activities (120,814) (191,926) (81,961)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (40,119) (32,727) (29,594)
Interest bearing deposits (excluding certificates of deposit), net 38,687 (8,799) (15,490)
Certificates of deposits, net 301 30,002 30,469
Federal funds purchased and repurchase agreements, net 49,920 8,828 19,025
Other short-term borrowings, net 6,530 123,711 66,655
Long-term debt, net 34,853 10,268 (9,091)
Acquisition of and dividends paid to minority interests (6,948) (413) (554)
Redeemable preferred stock (60) -- --
Dividends paid (7,920) (7,200) (6,000)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 75,244 123,670 55,420
- ----------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (12,551) (44,924) (4,641)
Cash and due from banks
Beginning of year 135,966 159,832 127,786
- ----------------------------------------------------------------------------------------------------------
End of period $ 123,415 114,908 123,145
==========================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<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, 1997 and included in its Annual Report
on Form 10-K for the year ended December 31, 1997 filed on March 13,
1998.
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. Basic earnings per common share have
been computed using 12,000,000 common shares outstanding for all
periods. The Company does not have any dilutive securities.
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, 1998, the 960,000 class A
shares were generally redeemable at $24.19 per share. Since January 1,
1998 and through June 30, 1998, options to call 14,170.5153 shares had
been exercised and the shares subsequently purchased by the Company's
ESOP and profit sharing plan from employees and non-employee directors
of the Company and the Company's Subsidiaries. During the same period,
a total of 3,000 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.
<PAGE>
H. COMPREHENSIVE INCOME. In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (FAS) No. 130,
"Reporting Comprehensive Income." The Company adopted FAS No. 130 on
January 1, 1998, and reported comprehensive income for the second
quarter of 1998 of $9.7 million as compared to the $11.0 million
reported for the second quarter of 1997. On a year-to-date basis,
comprehensive income was $19.4 million, as compared to the $16.9
million earned in the first six months of 1997. Comprehensive income is
defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to
owners. For the Company, comprehensive income consists of net income,
as reported in the financial statements, and other comprehensive
income, which consists of the change in unrealized gains and losses on
securities available for sale.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Earnings Summary
Bremer Financial Corporation (the "Company") recorded net income of $9.9 million
for the second quarter of 1998, a 22.2% increase from the $8.1 million earned in
the second quarter of 1997. On a year-to-date basis, earnings were $19.9
million, up 25.1% or $4.0 million from the $15.9 million earned in the first six
months of 1997. Contributing positively to earnings in the first six months of
1998 were an 8.7% or $4.8 million increase in net interest income coupled with
an increase in noninterest income of 36.0% or $6.3 million and a $136 thousand
decrease in the provision for credit losses. Partially offsetting these positive
increases were a 10.1% or $4.8 million increase in noninterest expense.
Return on average assets (ROA) was 1.25% for the second quarter of 1998,
compared to 1.16% for the same period in 1997. For the first six months of 1998,
ROA increased from 1.16% to 1.29%, as compared to the first six months of 1997.
Return on average realized equity (RORE) was 13.99% for the second quarter of
1998, compared to 12.48% for the same quarter of 1997. On a year-to-date basis,
RORE was 14.33%, compared to 12.44% recorded for the first six months of 1997.
Table I presents a summary of the components affecting the change in
year-to-date return on assets from June 30, 1997 to June 30, 1998.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $290.3 million
at June 30, 1998, representing a book value per share of $24.19, a 10.0%
increase from $21.99 at June 30, 1997. Dividends paid per share of $.33 in the
second quarter of 1998 remained unchanged from the first quarter of 1998, and
are up from the $.30 dividend paid in each of the four quarters of 1997. The
Company maintains a very strong capital position compared to industry standards.
Table II presents various regulatory capital ratios.
Securities classified as available for sale are recorded at market value on the
Company's balance sheet, with unrealized gains or losses, net of tax, included
in shareholder's equity. The net unrealized gain or loss in shareholder's equity
had the effect of increasing the book value per share by $.40 as of June 30,
1998 and increasing the book value per share by $.19 as of June 30, 1997.
Net Interest Income
Tax-equivalent net interest income for the second quarter of 1998 was $32.7
million, an increase of $2.1 million or 6.9% from the second quarter of 1997.
This increase in net interest income resulted from a 10.4% increase in average
earning assets, enhanced by acquisitions. The increase in earning assets more
than offset the decline in the net interest margin from 4.45% in the second
quarter of 1997 to 4.31% in the second quarter of 1998. On a year-to-date basis,
tax-equivalent net interest income was $64.2 million, an increase of $4.8
million or 8.1% over the $59.4 million realized in the first six months of 1997.
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 1998, the net interest margin
declined, as presented in Table IV, resulting from a decrease in the spread
between yields on earning assets and cost on interest bearing liabilities.
Positively impacting the margin for both the quarter and year-to-date
<PAGE>
were a more favorable product mix and increases in both yield-related loan fees
and interest recoveries on problem loans, as compared to the same periods in
1997.
The Company uses various tools to assess its current interest rate sensitivity
position, such as gap analysis, simulation of future net interest income, and a
valuation model which measures the sensitivity of balance sheet valuations to
changes in interest rates. In the valuation model, the market value of each
asset and liability as of the reporting date is calculated by computing the
present value of all cash flows generated. The impact on valuations is then
calculated for a 200 basis point rate shock. At June 30, 1998, the valuation
model indicates that the value of assets would decline 3% with a 200 basis point
increase in interest rates. After considering the impact on liabilities and tax
effects, the market value of equity impact from this 200 basis point increase in
interest rates would be a decrease of 9%.
Nonperforming Assets
Table VI shows the details of nonperforming assets at June 30, 1998, December
31, 1997 and June 30, 1997. Nonperforming assets, which include nonperforming
loans and leases and other real estate owned (OREO), were $10.3 million at June
30, 1998. This total represents a decrease of $267 thousand from December 31,
1997 and a decrease of $793 thousand from June 30, 1997. Nonperforming assets as
a percentage of total loans, leases and OREO declined to .48% as of June 30,
1998 from .54% as of December 31, 1997, and have decreased from .60% as of June
30, 1997.
Nonperforming loans and leases, which include nonaccrual and restructured loans
and leases, were $9.9 million at June 30, 1998, an increase of $33 thousand from
December 31, 1997 and a decrease of $271 thousand from June 30, 1997. The ratio
of nonperforming loans and leases to total loans and leases improved to .47% at
June 30, 1998 from .50% as of December 31, 1997, and improved from .55% at June
30, 1997. The ratio of nonperforming assets and past due loans and leases to
total loans, leases and OREO increased slightly from .72% at December 31, 1997
to .74% at June 30, 1998, and decreased from .76% at June 30, 1997. The level of
at-risk performing loans and leases (with an internal loan review rating of
either substandard, doubtful or loss) increased $22.3 million or 27.5% from
$81.1 million at June 30, 1997 to $103.4 million at June 30, 1998. Similarly,
the ratio of classified loans and leases to total loans and leases has increased
from 4.9% at June 30, 1997 to 5.3% at June 30, 1998. Net charge-offs were $683
thousand for the first six months of 1998 as compared to net charge-offs of $561
thousand in the same period in 1997.
OREO, which includes real estate acquired in loan settlements, decreased $300
thousand from December 31, 1997 and $522 thousand from June 30, 1997 to $391
thousand at June 30, 1998.
Reserve for Credit Losses
The Company's reserve for credit losses was 363.9% of nonperforming loans and
leases at June 30, 1998 compared to 347.1% at December 31, 1997 and 319.7% at
June 30, 1997. Management believes the current reserve is adequate to cover the
risks inherent in the portfolio, including the risk of nonperforming loans and
leases that have been identified for careful monitoring.
The reserve for credit losses increased from $32.5 million at June 30, 1997 to
$36.0 million at June 30, 1998. While the reserve for credit losses increased
$3.5 million or 10.8% from June 30, 1997 to June 30, 1998, the loan portfolio
increased 14.4%, causing the reserve to outstanding loans and leases ratio to
decline from 1.75% to 1.69%. Table VII presents the activity in the reserve for
credit losses.
<PAGE>
Noninterest Income
As presented in Table VIII, noninterest income was $11.9 million for the second
quarter of 1998 compared to $9.0 million for the second quarter of 1997,
representing a $2.9 million or 31.9% improvement. On a year-to-date basis,
noninterest income was $23.9 million compared to $17.6 million in 1997, an
increase of $6.3 million or 36.0%. On a year-to-date basis, operating
noninterest income, which excludes investment securities gains and losses and a
non-recurring $1.1 million state tax refund, increased $3.9 million or 22.0%
over 1997, with all categories posting increases. This increase in operating
noninterest income was driven primarily by a $1.5 million increase in gain on
sale of loans, as residential real estate activity was more intense in the first
six months of 1998 versus 1997 due to a more favorable interest rate
environment, and a $770 thousand or 10.2% increase in service charge income. In
addition, gain on sale of other assets increased $469 thousand, related
primarily to insurance proceeds received from the damages sustained to bank
facilities in 1997 from the flooding in the Red River Valley area of North
Dakota and Minnesota.
Noninterest Expense
As presented in Table IX, noninterest expense increased $2.6 million or 11.0%
compared to the second quarter of 1997. On a year-to-date basis, noninterest
expense increased $4.8 million or 10.1% compared to the first six months of
1997. While operating expenses of acquired entities and market expansions
unfavorably impacted the comparison of noninterest expense between the first six
months of 1998 and 1997, the Company experienced a significant decline in data
processing fees as a result of a new data processing contract with a third party
provider.
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 58.77% for the
first six months of 1998 compared to 58.81% for the same period in 1997.
Contributing to this improvement were increases in tax-equivalent net interest
income of 8.1% coupled with strong growth in recurring noninterest income of
19.4% and growth in recurring noninterest expense of 10.6%.
Taxes
Comparing the first six months of 1998 to the first six months of 1997, the
Company's effective tax rate increased from 33.0% to 34.3%. This results from
proportionately more taxable than tax-exempt income during the first six months
of 1998 compared to the same period in 1997.
<PAGE>
Balance Sheet Growth
- --------------------
Assets
Average total assets increased $311.4 million or 10.8% from the first six months
of 1997 to the first six months of 1998, while average earning assets increased
$297.5 million or 11.0% when comparing the same two periods.
Loans and Leases
From the first six months of 1997 to the first six months of 1998, average loans
and leases increased $259.2 million or 14.8%, driven by increases in all loan
categories. Average loans in the second quarter of 1998 increased $88.1 million
from the first quarter of 1998, resulting from seasonal activity.
On a year-to-date basis, the increase in average loan volume in 1998 over 1997
was driven by commercial real estate, commercial, agricultural, residential real
estate, consumer, and tax-exempt loans which increased $95.1 million, $64.7
million, $54.6 million, $32.9 million, $11.0 million, and $755 thousand,
respectively. The Company is not involved in highly-leveraged transaction
lending or lending to foreign countries.
Securities
Average securities increased $26 thousand or 2.7% from the first six months of
1997 to the first six months of 1998. Taxable securities increased $26.9 million
or 3.6%, while tax-exempt securities decreased a modest $795 thousand or .4%.
The average maturity of the portfolio was 59 months at June 30, 1998, with an
average yield to maturity on the $943.3 million portfolio of 6.78%, unrealized
gains of $6.1 million and unrealized losses of $250 thousand for held to
maturity securities. In accordance with FAS No. 115, the available for sale
investments are recorded inclusive of any unrealized gains or losses.
Liabilities
Comparing the first six months of 1998 to the first six months of 1997, average
interest bearing liabilities increased $254.1 million or 11.1%, while average
deposits increased $190.0 million or 8.5%. Average short-term borrowings, which
include federal funds purchased, securities sold under agreements to repurchase,
treasury tax and loan notes, Federal Home Loan Bank (FHLB) advances and an
unsecured revolving credit facility, increased $101.8 million or 39.2%. Most of
the increase in short-term borrowings can be attributed to an increase in the
company's FHLB advances over the first six months of 1997, as continued strong
asset growth, coupled with slower growth in deposits, created the need for this
funding source. Average long-term debt, which includes long-term FHLB advances
and installment promissory notes issued in connection with acquisitions,
decreased $10.7 million or 16.9%.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30 Three Months Ended June 30
-------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 Change 1998 1997 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total interest income $ 120,348 107,815 11.6% $ 61,364 55,529 10.5%
Net interest income 60,472 55,646 8.7 30,811 28,682 7.4
Net interest income (1) 64,212 59,405 8.1 32,686 30,570 6.9
Provision for credit losses 2,462 2,598 (5.2) 1,253 1,740 (28.0)
Noninterest income 23,893 17,564 36.0 11,874 9,000 31.9
Noninterest expense 51,662 46,912 10.1 26,518 23,880 11.0
Net income 19,860 15,873 25.1 9,859 8,069 22.2
Dividends 7,920 7,200 10.0 3,960 3,600 10.0
AVERAGE BALANCES
Assets 3,190,509 2,879,147 10.8 3,232,681 2,925,343 10.5
Loans and leases 2,010,707 1,751,556 14.8 2,054,475 1,782,733 15.2
Securities 978,106 951,957 2.7 978,320 972,628 0.6
Deposits 2,431,295 2,241,336 8.5 2,452,456 2,251,461 8.9
Redeemable class A common stock 22,767 20,725 9.8 22,998 20,817 10.5
Shareholder's equity 261,812 238,339 9.8 264,457 239,396 10.5
PERIOD-END BALANCES
Assets 3,272,009 3,067,960 6.7
Loans and leases 2,129,217 1,861,134 14.4
Securities 943,284 1,017,954 (7.3)
Deposits 2,441,367 2,271,922 7.5
Redeemable class A common stock 23,226 21,114 10.0
Shareholder's equity 267,103 242,808 10.0
FINANCIAL RATIOS
Return on assets (2) 1.29% 1.16 11.2 1.25% 1.16 7.8
Return on realized equity (3)(4) 14.33 12.44 15.2 13.99 12.48 12.1
Average equity/assets (3)(4) 8.76 9.00 (2.7) 8.74 8.90 (1.8)
Dividend payout 39.88 45.36 (12.1) 40.17 44.62 (10.0)
Net interest margin (1) 4.31 4.43 (2.7) 4.31 4.45 (3.1)
Efficiency ratio 58.77 58.81 (0.1) 59.48 58.27 2.1
Net charge-offs/average loans and leases 0.07 0.06 16.7 0.08 0.08 0.0
Reserve/period-end loans and leases 1.69 1.75 (3.4) 1.69 1.75 (3.4)
PER SHARE OF COMMON STOCK (3)
Net income-basic $ 1.66 1.32 25.1% $ 0.83 0.67 22.2%
Dividends paid 0.66 0.60 10.0 0.33 0.30 10.0
Book value 24.19 21.99 10.0 24.19 21.99 10.0
Realized book value (4) 23.79 21.80 9.1 23.79 21.80 9.1
</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.
<PAGE>
TABLE I
CHANGES IN RETURN ON ASSETS
- --------------------------------------------------------------------------------
Year-To-Date
June 30
1998 vs 1997
- --------------------------------------------------------------------------------
Return on assets, prior period 1.16%
- --------------------------------------------------------------------------------
Increases
Gain on sale of loans 0.09
Gain on sale of securities 0.09
State tax refund 0.07
Gain on sale of other assets 0.03
Brokerage 0.02
Provision for credit losses 0.03
Employee benefits 0.02
Data processing fees 0.06
- --------------------------------------------------------------------------------
Total increases 0.41
- --------------------------------------------------------------------------------
Decreases
Net interest income (TEB) 0.10
Insurance commissions 0.02
Professional fees 0.03
FDIC premiums and examination fees 0.03
Provision for income taxes 0.08
Other noninterest expense, net 0.02
- --------------------------------------------------------------------------------
Total decreases 0.28
- --------------------------------------------------------------------------------
Return on assets, current period 1.29%
================================================================================
<PAGE>
TABLE II
CAPITAL RATIOS (1)
- -------------------------------------------------------------------------------
June 30 December 31 June 30 Regulatory
1998 1997 1997 Minimums
--------- ---------- -------- ---------
Equity to assets (2) 8.87% 8.79 8.60 --
Equity to tangible assets (2) 8.53 8.67 8.55 --
Tier I capital (3) 12.12 12.69 13.04 4.00
Tier I and tier II capital (3) 13.37 13.94 14.29 8.00
Leverage ratio (3) 8.52 8.70 8.89 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.
<PAGE>
TABLE III
NET INTEREST INCOME / MARGINS (TEB)
- ---------------------------------------------------------------------------
Net Net
Interest Interest
(DOLLARS IN THOUSANDS) Income Margin
- ---------------------------------------------------------------------------
Quarter
- -------
1998
Second $ 32,686 4.31%
First 31,527 4.32
1997
Fourth 32,790 4.47
Third 31,974 4.40
Second 30,570 4.45
First 28,835 4.41
1996
Fourth 29,732 4.40
Third 29,419 4.33
Second 28,734 4.38
First 27,977 4.35
1995
Fourth 28,405 4.37
Third 27,637 4.31
Second 26,369 4.31
First 25,487 4.36
==========================================================================
<PAGE>
TABLE IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Six Months Ended June 30 Three Months Ended June 30
(IN THOUSANDS) 1998 vs 1997 1998 vs 1997
- -------------------------------------------------------------------------------------------
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
---------- ------- ----------- --------
<S> <C> <C> <C> <C>
CHANGE IN VOLUME
Earning assets $ 12,267 $ 5,951
Interest bearing liabilities (5,767) (2,878)
-------- ----------
6,500 3,073
CHANGE IN INTEREST RATE SPREAD
Earning assets (621) (0.04%) (894) (0.12)%
Interest bearing liabilities (1,983) (0.13) (884) (0.12)
------ ---- --------- -----
(2,604) (0.17) (1,778) (0.24)
CHANGE IN PRODUCT MIX
Earning assets 358 0.02 400 0.05
Interest bearing liabilities 43 -- 56 0.01
------ ---- --------- -----
401 0.02 456 0.06
OTHER CHANGES
Nonaccruing loans 120 0.01 219 0.03
Yield-related loan fees 389 0.02 144 0.02
Free funds -- -- -- (0.01)
------ ---- --------- -----
509 0.03 363 0.04
CHANGE IN NET INTEREST INCOME 4,806 (0.12) 2,114 (0.14)
Net interest income, prior period 59,406 4.43 30,572 4.45
------ ---- --------- -----
Net interest income, current period $ 64,212 4.31% $ 32,686 4.31%
======== ==== ========= =====
</TABLE>
<PAGE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
- ----------------------------------------------------------------------
Six Months Ended June 30
--------------------------------------
(IN THOUSANDS) 1998 vs 1997
- ----------------------------------------------------------------------
Volume Yield/Rate (1) Total
--------- -------------- ---------
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans and leases $ 11,702 251 11,953
Taxable securities 944 (634) 310
Tax-exempt securities (32) (49) (81)
Interest bearing deposits -- -- --
Federal funds sold -- 322 322
Other earning assets 11 (2) 9
-------- -------- --------
Total 12,625 (112) 12,513
INTEREST EXPENSE
Savings deposits 1,077 1,296 2,373
Other time deposits 2,302 518 2,820
Short-term borrowings 2,657 288 2,945
Long-term debt (312) (119) (431)
-------- -------- --------
Total 5,724 1,983 7,707
-------- -------- --------
NET INTEREST INCOME $ 6,901 (2,095) 4,806
======== ======== ========
(1) ALL CHANGES IN NET INTEREST INCOME, OTHER THAN THOSE DUE TO VOLUME, HAVE
BEEN ALLOCATED TO YIELD/RATE.
<PAGE>
TABLE VI
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
June 30 December 31 June 30
(DOLLARS IN THOUSANDS) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans and leases $ 9,300 8,958 9,713
Restructured loans and leases 601 910 459
- -----------------------------------------------------------------------------------------------------
Total nonperforming loans and leases 9,901 9,868 10,172
Other real estate owned (OREO) 391 691 913
- -----------------------------------------------------------------------------------------------------
Total nonperforming assets $10,292 10,559 11,085
=====================================================================================================
Past due loans and leases * $ 5,438 3,573 3,101
=====================================================================================================
Nonperforming loans and leases to total loans and leases 0.47% 0.50 0.55
Nonperforming assets to total loans, leases and OREO 0.48 0.54 0.60
Nonperforming assets and past due loans and leases* to
total loans, leases and OREO 0.74 0.72 0.76
Reserve to nonperforming loans and leases 363.91 347.11 319.69
Reserve to total loans and leases 1.69 1.74 1.75
=====================================================================================================
</TABLE>
* PAST DUE LOANS AND LEASES INCLUDE ACCRUING LOANS AND LEASES 90 DAYS OR MORE
PAST DUE.
<PAGE>
TABLE VII
RESERVE FOR CREDIT LOSSES
- ------------------------------------------------------------------------------
Six Months Ended June 30
-------------------------------
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------
Beginning of period $ 34,253 30,482
Charge-offs (1,378) (1,019)
Recoveries 695 458
- ------------------------------------------------------------------------------
Net charge-offs (683) (561)
Provision for credit losses 2,462 2,598
- ------------------------------------------------------------------------------
End of period $ 36,032 32,519
==============================================================================
<PAGE>
TABLE VIII
<TABLE>
<CAPTION>
NONINTEREST INCOME
- --------------------------------------------------------------------------------------
Six Months Ended June 30 Increase/(Decrease)
--------------------------------------------------
(IN THOUSANDS) 1998 1997 Dollar Percent
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges $ 8,314 7,544 770 10.21%
Insurance 3,192 3,121 71 2.27
Trust 3,444 3,011 433 14.38
Brokerage 1,802 1,343 459 34.18
Gain on sale of loans 2,343 849 1,494 175.97
Gain on sale of other assets 560 91 469 NM
Other 1,999 1,798 201 11.18
- --------------------------------------------------------------------------------------
Operating noninterest income 21,654 17,757 3,897 21.95
Gain / (loss) on sale of securities 1,138 (193) 1,331 NM
State tax refund 1,101 -- 1,101 NM
- --------------------------------------------------------------------------------------
Total $ 23,893 17,564 6,329 36.03%
======================================================================================
- --------------------------------------------------------------------------------------
Three Months Ended June 30 Increase/(Decrease)
--------------------------------------------------
(IN THOUSANDS) 1998 1997 Dollar Percent
- --------------------------------------------------------------------------------------
Service charges $ 4,313 3,941 372 9.44%
Insurance 1,507 1,457 50 3.43
Trust 1,702 1,516 186 12.27
Brokerage 1,057 700 357 51.00
Gain on sale of loans 1,231 521 710 136.28
Gain on sale of other assets 130 20 110 NM
Other 905 773 132 17.08
- --------------------------------------------------------------------------------------
Operating noninterest income 10,845 8,928 1,917 21.47
Gain / (loss) on sale of securities (72) 72 (144) (200.00)
State tax refund 1,101 -- 1,101 NM
- --------------------------------------------------------------------------------------
Total $ 11,874 9,000 2,874 31.93%
======================================================================================
</TABLE>
<PAGE>
TABLE IX
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Six Months Ended June 30 Increase/(Decrease)
-----------------------------------------------
(IN THOUSANDS) 1998 1997 Dollar Percent
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and wages $24,074 21,515 2,559 11.89%
Employee benefits 6,137 5,883 254 4.32
Occupancy 3,131 2,929 202 6.90
Furniture and equipment 3,650 3,307 343 10.37
Printing, postage and office supplies 2,589 2,529 60 2.37
Marketing 2,097 1,718 379 22.06
Data processing fees 2,984 3,541 (557) (15.73)
Professional fees 710 261 449 172.03
Other real estate owned 60 61 (1) (1.64)
Minority interest in earnings 595 709 (114) (16.08)
FDIC premiums and examination fees 593 50 543 NM
Other 5,042 4,409 633 14.36
- ------------------------------------------------------------------------------------
Total $51,662 46,912 4,750 10.13%
====================================================================================
- ------------------------------------------------------------------------------------
Three Months Ended June 30 Increase/(Decrease)
-------------------------------------------------
(IN THOUSANDS) 1998 1997 Dollar Percent
- ------------------------------------------------------------------------------------
Salaries and wages $12,340 11,139 1,201 10.78%
Employee benefits 3,116 2,956 160 5.41
Occupancy 1,526 1,447 79 5.46
Furniture and equipment 1,853 1,639 214 13.06
Printing, postage and office supplies 1,300 1,228 72 5.86
Marketing 1,192 926 266 28.73
Data processing fees 1,487 1,542 (55) (3.57)
Professional fees 408 122 286 234.43
Other real estate owned 39 45 (6) (13.33)
Minority interest in earnings 194 369 (175) (47.43)
FDIC premiums and examination fees 293 134 159 118.66
Other 2,770 2,333 437 18.73
- ------------------------------------------------------------------------------------
Total $26,518 23,880 2,638 11.05%
====================================================================================
</TABLE>
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
TAX EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE YTD 1998 JUNE YTD 1997
----------------------------------- -------------------------------
ASSETS Average Rate/ Average Rate/ % Change
Loans and Leases (net of unearned discount) Balance Interest Yield Balance Interest Yield Avg Bal
------------ ----------- ------ --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 414,154 $ 18,928 9.22 $349,405 $ 15,871 9.16% 18.53%
Commercial Real Estate 470,700 21,407 9.17 375,629 16,937 9.09 25.31
Agricultural 419,655 19,170 9.21 365,028 16,718 9.24 14.97
Residential Real Estate 396,696 17,249 8.77 363,775 15,890 8.81 9.05
Consumer 256,557 11,634 9.14 245,528 11,037 9.06 4.49
Tax Exempt 52,945 2,664 10.15 52,190 1,741 6.73 1.45
------------ ----------- ---------- -----------
TOTAL LOANS AND LEASES 2,010,707 91,052 9.13 1,751,556 78,193 9.00 14.80
Reserve for Loan Losses (35,175) (31,128) 13.00
------------ ----------
NET LOANS AND LEASES 1,975,532 1,720,428 14.83
Mortgage Backed Securities 678,934 21,457 6.37 599,928 19,417 6.53 13.17
Taxable Other 92,810 2,892 6.28 144,871 4,622 6.43 (35.94)
Tax Exempt 206,362 8,308 8.12 207,157 8,389 8.17 (0.38)
------------ ----------- ---------- -----------
TOTAL SECURITIES 978,106 32,656 6.73 951,957 32,427 6.87 2.75
Total Fed Funds Sold 11,782 322 5.50 0 0 0.00 NM
Other earning assets 2,149 58 5.47 1,755 954 109.65 22.46
------------ ----------- ---------- -----------
TOTAL EARNING ASSETS 3,002,745 124,088 8.33 2,705,267 111,575 8.32 11.00
Total Cash & Due from Banks 102,427 97,267 5.31
Nonearning assets 120,513 107,740 11.85
------------ ----------
TOTAL ASSETS $ 3,190,509 $ 2,879,147 10.81
============ ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Non-Interest Bearing Deposits $ 292,823 $ 265,833 10.15
Interest Bearing Deposits
Savings and NOW accounts 292,711 2,331 1.61 297,471 2,457 1.67 (1.60)
Money Market Checking 157,737 1,119 1.43 152,267 1,166 1.54 3.59
Money Market Savings 327,947 6,599 4.06 247,840 4,054 3.30 32.32
Savings Certificates 1,179,800 33,618 5.75 1,115,594 31,389 5.67 5.76
Certificates over $100K 180,277 5,066 5.67 162,331 4,477 5.56 11.06
------------ ----------- ---------- -----------
TOTAL INTEREST BEARING DEPOSITS 2,138,472 48,734 4.60 1,975,502 43,542 4.44 8.25
TOTAL DEPOSITS 2,431,295 2,241,336 8.48
Total Short Term Borrowings 361,705 9,728 5.42 259,887 6,783 5.26 39.18
Total Long Term Debt 52,595 1,413 5.42 63,302 1,844 5.87 (16.91)
------------ ----------- ---------- -----------
TOTAL INTEREST BEARING LIABILITIES 2,552,772 59,876 4.73 2,298,691 52,169 4.58 11.05
Other liabilities 51,494 ----------- 43,905 17.28
------------ ----------
TOTAL LIABILITIES 2,897,089 2,608,429 11.07
Minority Interest 6,732 9,489 (29.05)
Redeemable Preferred Stock 2,109 2,165 (2.59)
Redeemable Class A Common Stock 22,767 20,725 9.85
Shareholder's equity 261,812 238,339 9.85
------------ ----------
TOTAL LIABILITIES AND EQUITY $ 3,190,509 $ 2,879,147 10.81
============ ==========
Net Interest Income $ 64,212 $ 59,406
============ ==========
Gross Spread 3.60% 3.74%
Percent of earning assets
Interest Income 8.33 8.32
Interest Cost 4.02 3.89
----- ----
NET INTEREST MARGIN 4.31% 4.43%
</TABLE>
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
TAX EQUIVALENT BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SECOND QUARTER 1998 SECOND QUARTER 1997
-------------------------------- --------------------------------
ASSETS Average Rate/ Average Rate/ % Change
Loans and Leases (net of unearned discount) Balance Interest Yield Balance Interest Yield Avg Bal
------- -------- ----- ------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 437,408 $ 9,987 9.16% $ 362,721 $ 8,376 9.26% 20.59%
Commercial Real Estate 479,437 10,978 9.18 379,833 8,636 9.12 26.22
Agricultural 435,213 10,052 9.26 371,869 8,638 9.32 17.03
Residential Real Estate 392,891 8,647 8.83 368,499 8,099 8.82 6.62
Consumer 255,848 5,824 9.13 247,935 5,604 9.07 3.19
Tax Exempt 53,678 1,346 10.06 51,875 880 6.81 3.48
----------- ------- ---------- -------
TOTAL LOANS AND LEASES 2,054,475 46,835 9.14 1,782,733 40,233 9.05 15.24
Reserve for Loan Losses (35,611) (31,480) 13.12
----------- ----------
NET LOANS AND LEASES 2,018,864 1,751,253 15.28
Mortgage Backed Securities 691,804 10,867 6.30 622,237 10,183 6.56 11.18
Taxable Other 80,559 1,253 6.24 143,009 2,312 6.48 (43.67)
Tax Exempt 205,957 4,154 8.09 207,382 4,206 8.13 (0.69)
----------- ------- ---------- -------
TOTAL SECURITIES 978,320 16,274 6.67 972,628 16,701 6.89 0.59
Total Fed Funds Sold 7,692 100 5.21 0 0 0.00 NM
Other earning assets 2,239 30 5.40 1,665 484 116.70 34.48
----------- ------- ---------- -------
TOTAL EARNING ASSETS 3,042,726 63,239 8.34 2,757,026 57,418 8.35 10.36
Total Cash & Due from Banks 104,726 95,395 9.78
Nonearning assets 120,839 104,402 15.74
----------- ----------
TOTAL ASSETS $ 3,232,681 $2,925,343 10.51
=========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Non-Interest Bearing Deposits $ 297,241 $ 272,021 9.27
Interest Bearing Deposits
Savings and NOW accounts 289,582 1,122 1.55 297,762 1,231 1.66 (2.75)
Money Market Checking 156,849 551 1.41 153,039 582 1.53 2.49
Money Market Savings 343,417 3,502 4.09 250,216 2,080 3.33 37.25
Savings Certificates 1,183,346 16,958 5.75 1,114,225 15,765 5.68 6.20
Certificates over $100K 182,021 2,577 5.68 164,199 2,293 5.60 10.85
----------- ------- ---------- -------
TOTAL INTEREST BEARING DEPOSITS 2,155,215 24,710 4.60 1,979,441 21,952 4.45 8.88
TOTAL DEPOSITS 2,452,456 2,251,461 8.93
Total Short Term Borrowings 378,413 5,086 5.39 295,163 3,941 5.36 28.20
Total Long Term Debt 55,849 757 5.43 64,149 954 5.96 (12.94)
----------- ------- ---------- -------
TOTAL INTEREST BEARING LIABILITIES 2,589,477 30,553 4.73 2,338,753 26,847 4.60 10.72
------- -------
Other liabilities 49,638 42,627 16.45
----------- ----------
TOTAL LIABILITIES 2,936,356 2,653,401 10.66
Minority Interest 6,756 9,554 (29.29)
Redeemable Preferred Stock 2,113 2,175 (2.84)
Redeemable Class A Common Stock 22,998 20,817 10.48
Shareholder's equity 264,457 239,396 10.47
----------- ----------
TOTAL LIABILITIES AND EQUITY $ 3,232,681 $2,925,343 10.51
=========== ==========
Net Interest Income $ 32,686 $ 30,572
======== ========
Gross Spread 3.60% 3.75%
Percent of earning assets
Interest Income 8.34 8.35
Interest Cost 4.03 3.91
---- ----
NET INTEREST MARGIN 4.31% 4.45%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other information
On January 1, 1998, First American Insurance Agencies, Inc. of St. Paul,
Minnesota (a wholly-owned subsidiary of the Company) merged with First
American Insurance Agencies, Inc. of Casselton, North Dakota (a
wholly-owned subsidiary of the Company).
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,
1998 or during the period from June 30, 1998 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, 1998 BREMER FINANCIAL CORPORATION
By: /s/ Stan K. Dardis
--------------------------------
Stan K. Dardis
President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Stuart F. Bradt
--------------------------------
Stuart F. Bradt
Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000846616
<NAME> BREMER FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 123,415
<INT-BEARING-DEPOSITS> 2,167
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 731,106
<INVESTMENTS-CARRYING> 212,178
<INVESTMENTS-MARKET> 218,065
<LOANS> 2,129,217
<ALLOWANCE> 36,032
<TOTAL-ASSETS> 3,272,009
<DEPOSITS> 2,441,367
<SHORT-TERM> 421,714
<LIABILITIES-OTHER> 47,971
<LONG-TERM> 65,091
2,084
0
<COMMON> 25,845
<OTHER-SE> 267,937
<TOTAL-LIABILITIES-AND-EQUITY> 3,272,009
<INTEREST-LOAN> 90,141
<INTEREST-INVEST> 29,828
<INTEREST-OTHER> 379
<INTEREST-TOTAL> 120,348
<INTEREST-DEPOSIT> 48,734
<INTEREST-EXPENSE> 59,876
<INTEREST-INCOME-NET> 60,472
<LOAN-LOSSES> 2,462
<SECURITIES-GAINS> 1,138
<EXPENSE-OTHER> 51,662
<INCOME-PRETAX> 30,241
<INCOME-PRE-EXTRAORDINARY> 19,860
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,860
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 4.06
<LOANS-NON> 9,300
<LOANS-PAST> 5,438
<LOANS-TROUBLED> 601
<LOANS-PROBLEM> 113,280
<ALLOWANCE-OPEN> 34,253
<CHARGE-OFFS> 1,378
<RECOVERIES> 695
<ALLOWANCE-CLOSE> 36,032
<ALLOWANCE-DOMESTIC> 30,185
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,847
</TABLE>
