FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
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
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Bremer Financial Corporation
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(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
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(Address of principal executive offices)
(Zip Code)
(651) 227-7621
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(Registrant's telephone number, including area code)
Not applicable.
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of September 30, 1999, 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 SEPTEMBER 30, 1999
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 27
Item 6 -- Exhibits and Reports on Form 8-K 27
Signatures 28
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1998
------------ ------------ ------------
(UNAUDITED) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 135,392 $ 143,831 $ 108,656
Interest bearing deposits 2,812 1,712 2,325
Federal funds sold 3,643 -- --
Investment securities held to maturity (fair value of $168,347
$185,398, and $168,123 respectively) 167,806 179,359 157,829
Mortgage-backed securities held to maturity (fair value of $10,839
$27,070, and $49,942 respectively) 10,880 27,143 34,167
------------ ------------ ------------
TOTAL SECURITIES HELD TO MATURITY 178,686 206,502 191,996
Investment securities available for sale (amortized cost of $188,387
$103,872, and $105,988 respectively) 188,928 105,491 107,447
Mortgage-backed securities available for sale (amortized cost of $682,580
$679,134, and $616,822 respectively) 673,880 684,680 616,095
------------ ------------ ------------
TOTAL SECURITIES AVAILABLE FOR SALE 862,808 790,171 723,542
Loans and leases 2,505,171 2,177,787 2,186,512
Reserve for credit losses (40,801) (37,019) (36,301)
Unearned discount (5,929) (5,153) (5,526)
------------ ------------ ------------
NET LOANS AND LEASES 2,458,441 2,135,615 2,144,685
Premises and equipment, net 60,867 54,390 54,329
Interest receivable and other assets 102,599 65,858 64,128
------------ ------------ ------------
TOTAL ASSETS $ 3,805,248 $ 3,398,079 $ 3,289,661
============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 381,281 $ 369,215 $ 315,857
Interest bearing deposits 2,435,291 2,201,435 2,160,730
------------ ------------ ------------
TOTAL DEPOSITS 2,816,572 2,570,650 2,476,587
Federal funds purchased and repurchase agreements 256,242 221,419 227,282
Other short-term borrowings 202,800 131,794 136,990
Long-term debt 169,579 116,286 94,998
Accrued expenses and other liabilities 46,171 51,568 51,292
------------ ------------ ------------
TOTAL LIABILITIES 3,491,364 3,091,717 2,987,149
Minority interests 976 905 3,488
Redeemable preferred stock, $100 par, 80,000 shares authorized;
71,594 shares issued; and outstanding shares of 16,152
20,787, and 20,837 respectively 1,615 2,079 2,084
Redeemable class A common stock, 960,000 shares
issued and outstanding 24,904 24,270 23,755
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 288,425 272,696 265,541
Accumulated other comprehensive income (4,655) 3,793 5,026
------------ ------------ ------------
TOTAL SHAREHOLDER'S EQUITY 286,389 279,108 273,186
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,805,248 $ 3,398,079 $ 3,289,661
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 145,863 $ 138,740 $ 121,407
Securities
Taxable 38,398 35,387 36,744
Tax-exempt 7,796 8,261 8,408
Federal funds sold 387 567 --
Other 73 93 99
------------ ------------ ------------
Total interest income 192,517 183,048 166,658
------------ ------------ ------------
INTEREST EXPENSE
Deposits 70,849 73,585 66,457
Federal funds purchased and repurchase agreements 7,931 7,135 5,506
Other short term borrowings 6,353 7,734 6,284
Long term debt 6,105 2,773 2,728
------------ ------------ ------------
Total interest expense 91,238 91,227 80,975
------------ ------------ ------------
Net interest income 101,279 91,821 85,683
Provision for credit losses 6,504 3,769 4,029
------------ ------------ ------------
Net interest income after provision for credit losses 94,775 88,052 81,654
------------ ------------ ------------
NONINTEREST INCOME
Service charges 14,071 12,631 11,607
Insurance 6,779 5,239 4,907
Trust 5,804 5,145 4,574
Brokerage 3,547 2,826 2,111
Gain on sale of loans 2,788 3,491 1,628
Gain / (loss) on sale of securities 1,851 1,292 (133)
Other 3,843 4,670 2,880
------------ ------------ ------------
Total noninterest income 38,683 35,294 27,574
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and wages 40,649 36,469 32,744
Employee benefits 10,451 9,191 8,740
Occupancy 4,976 4,585 4,413
Furniture and equipment 6,733 5,584 5,042
Data processing fees 5,167 4,516 5,044
FDIC premiums and examination fees 953 888 352
Goodwill and other intangibles 1,971 1,292 1,088
Other 18,880 15,532 14,042
------------ ------------ ------------
Total noninterest expense 89,780 78,057 71,465
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 43,678 45,289 37,763
Income tax expense 14,701 15,516 12,524
------------ ------------ ------------
NET INCOME $ 28,977 $ 29,773 25,239
============ ============ ============
Per common share amounts:
Net income-basic $ 2.41 $ 2.48 $ 2.10
Dividends paid 0.99 0.99 0.90
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 53,297 $ 48,599 $ 43,214
Securities
Taxable 13,784 11,038 12,705
Tax-exempt 2,611 2,782 2,875
Federal funds sold 158 245 --
Other 22 36 49
------------ ------------ ------------
Total interest income 69,872 62,700 58,843
------------ ------------ ------------
INTEREST EXPENSE
Deposits 25,196 24,851 22,914
Federal funds purchased and repurchase agreements 2,857 2,776 1,774
Other short term borrowings 2,664 2,363 3,233
Long term debt 2,616 1,361 885
------------ ------------ ------------
Total interest expense 33,333 31,351 28,806
------------ ------------ ------------
Net interest income 36,539 31,349 30,037
Provision for credit losses 1,799 1,307 1,431
------------ ------------ ------------
Net interest income after provision for credit losses 34,740 30,042 28,606
------------ ------------ ------------
NONINTEREST INCOME
Service charges 5,156 4,373 4,063
Insurance 2,551 2,047 1,786
Trust 2,072 1,701 1,563
Brokerage 1,232 1,025 769
Gain on sale of loans 776 1,147 779
Gain / (loss) on sale of securities 4 154 60
Other 1,005 1,009 990
------------ ------------ ------------
Total noninterest income 12,796 11,456 10,010
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and wages 14,262 12,395 11,229
Employee benefits 3,509 3,054 2,857
Occupancy 1,654 1,510 1,484
Furniture and equipment 2,343 1,934 1,735
Data processing fees 1,759 1,532 1,503
FDIC premiums and examination fees 319 295 302
Goodwill and other intangibles 884 447 371
Other 6,750 5,283 5,072
------------ ------------ ------------
Total noninterest expense 31,480 26,450 24,553
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 16,056 15,048 14,063
Income tax expense 5,701 5,135 4,697
------------ ------------ ------------
NET INCOME $ 10,355 $ 9,913 $ 9,366
============ ============ ============
Per common share amounts:
Net income-basic $ 0.86 $ 0.83 $ 0.78
Dividends paid 0.33 0.33 0.30
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
-------------------- COMPREHENSIVE COMPREHENSIVE RETAINED
CLASS A CLASS B INCOME INCOME EARNINGS TOTAL
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 57 $ 2,562 $ 1,180 $230,071 $233,870
Comprehensive income
Net income $ 35,060 35,060 35,060
Other comprehensive income
Change in net unrealized gain (loss) on securities
available for sale, net of $2,655 tax expense 3,982 3,982 3,982
--------
Comprehensive income $ 39,042
========
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)
-------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 57 2,562 4,843 249,079 256,541
Comprehensive income
Net income 41,511 41,511 41,511
Other comprehensive income
Change in net unrealized gain (loss) on securities
available for sale, net of $761 tax benefit (1,141) (1,141) (1,141)
--------
Comprehensive income $ 40,370
========
Dividends, $1.32 per share (15,840) (15,840)
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 91 (2,054) (1,963)
-------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1998 57 2,562 3,793 272,696 279,108
Comprehensive income
Net income 28,977 28,977 28,977
Other comprehensive income
Change in net unrealized gain (loss) on securities
available for sale, net of $6,122 tax benefit (9,183) (9,183) (9,183)
--------
Comprehensive income $ 19,794
========
Dividends, $.99 per share (11,880) (11,880)
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 735 (1,368) (633)
-------- -------- -------- -------- --------
BALANCE, SEPTEMBER 30, 1999 $ 57 $ 2,562 $ (4,655) $288,425 $286,389
======== ======== ======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,977 $ 29,773 $ 25,239
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 6,504 3,769 4,029
Depreciation and amortization 8,185 6,564 5,072
Minority interests in earnings of subsidiaries 26 703 1,090
(Gain) loss on sale of securities (1,851) (1,292) 133
Gain on sale of other real estate owned, net (91) (26) (55)
Other assets and liabilities, net 2,124 2,196 109
Proceeds from sales of other real estate owned 519 543 557
Cash receipts related to loans originated specifically for resale 156,647 188,677 87,129
Cash payments related to loans originated specifically for resale (157,457) (189,451) (87,362)
------------ ------------ ------------
Net cash provided by operating activities 43,583 41,456 35,941
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net (1,100) (439) 32
Purchases of securities available for sale (351,651) (234,000) (253,363)
Purchases of securities held to maturity (35,041) (7,425) (28,188)
Proceeds from maturities of securities available for sale 182,625 165,340 95,876
Proceeds from maturities of securities held to maturity 56,500 86,918 24,531
Proceeds from sales of securities available for sale 92,302 67,179 130,031
Loans and leases, net (328,520) (217,805) (153,381)
Acquisitions, net of cash acquired (47,789) -- (8,203)
Acquisition of premises and equipment (12,092) (7,430) (9,357)
------------ ------------ ------------
Net cash used in investing activities (444,766) (147,662) (202,022)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net 12,066 (28,664) (10,637)
Interest bearing deposits (excluding certificates of deposit), net 149,798 73,565 21,087
Certificates of deposits, net 84,058 (10,812) 33,101
Federal funds purchased and repurchase agreements, net 34,823 60,108 (40,410)
Other short-term borrowings, net 71,006 (61,100) 169,273
Proceeds from issuance of long-term debt 72,721 81,846 14,732
Repayments of long-term debt (19,429) (17,086) (45,491)
Dividends paid to minority interests 45 (7,021) (850)
Redeemable preferred stock (464) (60) --
Dividends paid (11,880) (11,880) (10,800)
------------ ------------ ------------
Net cash provided by financing activities 392,744 78,896 130,005
------------ ------------ ------------
Net decrease in cash and due from banks (8,439) (27,310) (36,076)
Cash and due from banks
Beginning of period 143,831 135,966 159,832
------------ ------------ ------------
End of period $ 135,392 $ 108,656 $ 123,756
============ ============ ============
</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, 1998 and included in its Annual Report
on Form 10-K for the year ended December 31, 1998 filed on March 12,
1999.
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 September 30, 1999, the 960,000
class A shares were generally redeemable at $25.94 per share. Since
January 1, 1999 and through September 30, 1999, options to call
42,425.8048 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 2,100 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 third
quarter of 1999 of $8.7 million, down from the $10.6 million reported
for the third quarter of 1998. On a year-to-date basis, comprehensive
income was $19.8 million, as compared to the $30.0 million reported in
the first nine months of 1998. 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 $10.4
million for the third quarter of 1999, a 4.5% increase from the $9.9 million
earned in the third quarter of 1998. On a year-to-date basis, earnings were
$29.0 million, down 2.7% from the $29.8 million earned in the first nine months
of 1998. Contributing positively to earnings in the first nine months of 1999
were a 10.3% or $9.5 million increase in net interest income coupled with an
increase in noninterest income of 9.6% or $3.4 million. Offsetting these
positive increases were a 15.0% or $11.7 million increase in noninterest expense
and a $2.7 million increase in the provision for credit losses during the first
nine months of 1999.
Return on average assets ("ROA") was 1.09% for the third quarter of 1999,
compared to 1.21% reported for the same period in 1998. For the first nine
months of 1999, ROA fell to 1.10% from 1.26% reported in 1998. Return on average
realized equity ("RORE") was 13.12% for the third quarter of 1999, compared to
13.63% for the same quarter of 1998. On a year-to-date basis, RORE was 12.59%
for the first nine months of 1999, compared to 14.09% recorded for the first
nine months of 1998. Table I presents a summary of the components affecting the
change in year-to-date return on assets from September 30, 1998 to September 30,
1999.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $311.3 million
at September 30, 1999, representing a book value per share of $25.94, a 4.8%
increase from $24.75 at September 30, 1998. Dividends paid per share of $.33 in
the third quarter of 1999 remained unchanged since the third quarter of 1998.
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 decreasing the book value per share by $.42 as of September
30, 1999 and increasing the book value per share by $.46 as of September 30,
1998.
Net Interest Income
Tax-equivalent net interest income for the third quarter of 1999 was $38.4
million, an increase of $5.1 million or 15.3% from the third quarter of 1998.
The net interest margin increased to 4.29% in the third quarter of 1999 from
4.27% reported in the third quarter of 1998. On a year-to-date basis,
tax-equivalent net interest income was $106.7 million, an increase of $9.2
million or 9.4% over the $97.5 million realized in the first nine months of
1998, while the tax-equivalent net interest margin was at 4.30% for the nine
months ended September 30, 1999 and 1998. Table III presents the
quarter-to-quarter comparison of tax-equivalent net interest income and net
interest margins.
As presented in Table IV, the net interest margin for the third quarter of 1999
compared to 1998 increased due to positive changes in the interest rate spread
that offset the negative changes in product mix. On a year-to-date basis, the
net interest margin remained stable.
<PAGE>
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 September 30, 1999, the
valuation model indicates that the value of assets would decline 3.5% 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 11.2%.
Nonperforming Assets
Table VI shows the details of nonperforming assets at September 30, 1999,
December 31, 1998 and September 30, 1998. Nonperforming assets, which include
nonperforming loans and leases and other real estate owned ("OREO"), were $17.0
million at September 30, 1999. This total represents an increase of $3.2 million
from December 31, 1998 and an increase of $2.5 million from September 30, 1998,
primarily related to unfavorable economic conditions in a portion of the
Company's agricultural markets. Nonperforming assets as a percentage of total
loans, leases and OREO increased to .68% as of September 30, 1999 from .64% as
of December 31, 1998, and from .67% as of September 30, 1998, while the level of
at-risk performing loans and leases (with an internal loan review rating of
either substandard, doubtful or loss) increased $1.1 million or 1.1% to $99.5
million at September 30, 1999 from $98.4 million at September 30, 1998.
Nonperforming loans and leases, which include nonaccrual and restructured loans
and leases, were $16.5 million at September 30, 1999, an increase of $3.3
million from December 31, 1998 and an increase of $2.4 million from September
30, 1998. The ratio of nonperforming loans and leases to total loans and leases
increased to .66% at September 30, 1999 from .61% as of December 31, 1998, and
.65% at September 30, 1998. The ratio of nonperforming assets and past due loans
and leases to total loans, leases and OREO increased to .77% at September 30,
1999 from .69% at December 31, 1998, while declining from the .83% reported at
September 30, 1998. The ratio of classified loans and leases to total loans and
leases declined to 4.6% as of September 30, 1999 from 5.2% as of September 30,
1998. Net charge-offs were $4.9 million for the first nine months of 1999 as
compared to $1.7 million during the same period in 1998.
OREO, which includes real estate acquired in loan settlements, decreased to $525
thousand at September 30, 1999 from $620 thousand at December 31, 1998 but
increased from the $467 thousand at September 30, 1998.
Reserve for Credit Losses
The Company's reserve for credit losses was 247.0% of nonperforming loans and
leases at September 30, 1999 compared to 279.3% at December 31, 1998 and 257.5%
at September 30, 1998. 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.
<PAGE>
The reserve for credit losses increased to $40.8 million at September 30, 1999
from $36.3 million at September 30, 1998. The reserve for credit losses
increased $4.5 million or 6.3% from September 30, 1998 to September 30, 1999,
while the reserve to outstanding loans and leases ratio decreased to 1.63% on
September 30, 1999 from 1.66% reported on September 30, 1998. Table VII presents
the activity in the reserve for credit losses.
Noninterest Income
As presented in Table VIII, noninterest income was $12.8 million for the third
quarter of 1999 compared to $11.5 million for the third quarter of 1998,
representing a $1.3 million or 11.7% improvement. On a year-to-date basis,
noninterest income was $38.7 million compared to $35.3 million in 1998, an
increase of $3.4 million or 9.6%. Contributing to this increase in operating
noninterest income were a $1.5 million increase in insurance commissions, a $1.4
million increase in service charges, a $721 thousand or 25.5% increase in
brokerage income, and a $659 thousand or 12.8% increase in trust revenues.
Noninterest Expense
As presented in Table IX, noninterest expense increased $5.0 million or 19.0% in
the third quarter of 1999 compared to the third quarter of 1998. On a
year-to-date basis, noninterest expenses increased $11.7 million or 15.0% when
compared with the first nine months of 1998. Expenses associated with the
operations of acquired entities, as well as transitional integration expenses,
unfavorably impacted the comparison of noninterest expense between the third
quarter of 1999 and 1998.
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 61.17% for the
first nine months of 1999 compared to 58.57% for the same period in 1998, as the
increase in recurring noninterest expenses of 15.0% more than offset the 9.4%
and 12.1% increases in tax-equivalent net interest income and recurring
noninterest income, respectively.
Taxes
Comparing the first nine months of 1999 to the first nine months of 1998, the
Company's effective tax rate decreased slightly from 33.7% to 33.6%.
<PAGE>
Balance Sheet Growth
Assets
Average total assets increased $296.9 million or 9.2% from the first nine months
of 1998 to the first nine months of 1999, while average earning assets increased
by $283.4 million or 9.3% when comparing the same two periods.
Loans and Leases
In the first nine months of 1999, average loans and leases increased $199.1
million or 9.7% when compared to the first nine months of 1998. Average loans
and leases in the third quarter of 1999 increased $284.3 million or 13.2% from
the third quarter of 1998, with acquired entities accounting for a significant
portion of this increase.
On a year-to-date basis, the increase in average loan volume in 1999 over 1998
was driven by commercial and commercial real estate loans, which increased $99.5
million and $97.8 million respectively. Agricultural, residential real estate,
and tax exempt loans increased $4.7 million, $4.5 million, and $2.0 million,
respectively, while consumer loans decreased by $9.4 million. The Company is not
involved in highly-leveraged transaction lending or lending to foreign
countries.
Securities
Average securities, excluding any unrealized gains or losses, increased $85.9
million or 9.0% during the first nine months of 1999 from the first nine months
of 1998. During this same period, taxable securities increased $93.2 million or
12.4%, while tax-exempt securities decreased $7.2 million or 3.5%. The average
maturity of the portfolio was 70 months at September 30, 1999, with an average
yield to maturity on the $1 billion portfolio of 6.6%, unrealized gains of $2.2
million and unrealized losses of $1.7 million 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 nine months of 1999 to the first nine months of 1998,
average interest bearing liabilities increased $251.8 million or 9.8%, while
average deposits increased $187.4 million or 7.7%. Average short-term
borrowings, which include federal funds purchased, securities sold under
agreements to repurchase, treasury tax and loan notes, Federal Home Loan Bank
advances, and an unsecured revolving credit facility, increased $18.8 million or
5.1%. Average long-term debt, which consists primarily of Federal Home Loan Bank
advances, increased $80.8 million or 123.7%.
On November 10, 1999, the Company issued $65 million of senior debt in a private
placement transaction. The debt, which consists of $46 million of five year
notes with an 8.27% coupon and $19 million of seven year notes with an 8.47%
coupon, is non-amortizing. Interest will be payable semi-annually in arrears,
calculated on the basis of a 360-day year of twelve 30-day months. The proceeds
from the issuance will be used primarily to fund recent and anticipated future
acquisition activity as well as for general corporate purposes.
<PAGE>
Impact of the Year 2000 Issue
WHAT IS THE Y2K ISSUE?
The Year 2000 ("Y2K") issue is the result of computer systems that use two
digits rather than four to define the applicable year. Any of the computer
programs used by the Company that have date-sensitive software may recognize a
date using "00" for the year as the year 1900 rather than the year 2000 or vice
versa. This could result in a system failure or miscalculations causing
disruptions of operations, including an inability to process transactions,
calculate interest accruals, or engage in similar normal business activities.
THE COMPANY'S READINESS STATEMENT
The Company has a Y2K preparedness strategy in place to anticipate, correct, and
plan for the potential impact the Y2K issue may have on its systems, customers,
and business infrastructure. The Company's definition of Y2K readiness requires
all systems and services to be reasonably assured to function effectively
through all Y2K-related date issues with contingency plans for all medium and
high priority systems.
THE COMPANY'S CURRENT Y2K STATUS
The Company has made Y2K planning a top priority since 1997 and has completed
all four phases of its Y2K preparedness strategy. Additional communications to
customers and employees, testing of its contingency plan components, and testing
new hardware or software systems for Y2K compliance remain top priorities.
At September 30, 1999, the Company had completed all four phases of its Y2K
preparedness strategy and announced it was Y2K prepared. The four phases are
described below:
PHASE ONE: AWARENESS
The Company began phase one of the Y2K project in early 1997. It established a
central committee and a network of affiliate project managers to address Y2K
issues. The Company has sent quarterly updates to subsidiary banks, executives,
and Boards of Directors to keep everyone informed and the project on schedule.
Customer awareness included numerous community-based presentations, statement
stuffers, newsletters, Internet updates, and an information line available
through an 800 number.
PHASE TWO: ASSESSMENT
The Company performed extensive testing on its computer systems. This involved
identifying all date-impacted systems and equipment and establishing procedures
for modifying and maintaining those systems and equipment. In addition, the
Company worked closely with vendors and reviewed their compliance status and
plans.
PHASE THREE: TESTING
The Company started testing in September 1998 and finished in March 1999. These
tests uncovered some problems, which were addressed quickly and thoroughly. As a
result, the Company has updated and tested systems that will work with little or
no problems over the century change.
PHASE FOUR: CONTINGENCY
Although the Company is confident its systems have been properly prepared for
Y2K, contingency planning provides the safety net under the few weeks
surrounding the year end. The Company's plans have been designed to help it
through any kind of disruption of business, including Y2K.
<PAGE>
Additionally, it has established a "high alert" program to ensure a smooth
internal communications process. It has a series of "functional recovery plans"
in place which will allow it to manually proceed in case it has isolated
problems in any system. Finally, it has an extensive disaster recovery plan
which includes a full generator at its core service facility, alternative
communication routes to its data processing provider, and plans at every
facility to address interruptions.
COST OF Y2K TO THE COMPANY
The Company has spent in excess of $700 thousand for Y2K preparedness. These
costs were primarily for software upgrades, infrastructure changes, and testing.
The Company has also spent approximately $5 million on a new PC network
infrastructure, some of which is directly related to Y2K issues and some of
which is additional investments in technology. The Company estimates up to an
additional $20 thousand may be expended in 1999 for costs associated with Y2K
issues.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 THREE MONTHS ENDED SEPTEMBER 30
------------------------------------- -------------------------------------
1999 1998 CHANGE 1999 1998 CHANGE
---------- ---------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total interest income $ 192,517 $ 183,048 5.2% $ 69,872 $ 62,700 11.4%
Net interest income 101,279 91,821 10.3 36,539 31,348 16.6
Net interest income (1) 106,683 97,482 9.4 38,373 33,270 15.3
Provision for credit losses 6,504 3,769 72.6 1,799 1,307 37.6
Noninterest income 38,683 35,294 9.6 12,796 11,456 11.7
Noninterest expense 89,780 78,057 15.0 31,480 26,450 19.0
Net income 28,977 29,773 (2.7) 10,355 9,913 4.5
Dividends 11,880 11,880 -- 3,960 3,960 --
AVERAGE BALANCES
Assets 3,519,600 3,222,669 9.2 3,774,128 3,289,205 14.7
Loans and leases 2,259,485 2,060,385 9.7 2,442,482 2,158,121 13.2
Securities 1,042,518 956,597 9.0 1,091,801 914,280 19.4
Deposits 2,628,357 2,441,003 7.7 2,809,194 2,460,102 14.2
Redeemable class A common stock 24,587 23,032 6.8 24,551 23,491 4.5
Shareholder's equity 282,749 264,863 6.8 282,334 270,145 4.5
PERIOD-END BALANCES
Assets 3,805,248 3,289,661 15.7
Loans and leases 2,499,242 2,180,986 14.6
Securities 1,041,495 915,538 13.8
Deposits 2,816,572 2,476,587 13.7
Redeemable class A common stock 24,904 23,755 4.8
Shareholder's equity 286,389 273,186 4.8
FINANCIAL RATIOS
Return on assets (2) 1.10% 1.26% (12.7) 1.09% 1.21% (9.9)
Return on realized equity (3)(4) 12.59 14.09 (10.6) 13.12 13.63 (3.7)
Average equity/assets (3)(4) 8.75 8.77 (0.2) 8.31 8.77 (5.2)
Dividend payout 41.00 39.90 2.8 38.24 39.95 (4.3)
Net interest margin (1) 4.30 4.30 -- 4.29 4.27 0.5
Efficiency ratio 61.17 58.57 4.4 59.80 58.26 2.6
Net charge-offs/average loans and leases 0.29 0.11 163.6 0.21 0.19 10.5
Reserve/period-end loans and leases 1.63 1.66 (1.8) 1.63 1.66 (1.8)
PER SHARE OF COMMON STOCK (3)
Net income-basic $ 2.41 $ 2.48 (2.7)% $ 0.86 $ 0.83 4.5%
Dividends paid 0.99 0.99 -- 0.33 0.33 --
Book value 25.94 24.75 4.8 25.94 24.75 4.8
Realized book value (4) 26.36 24.29 8.5 26.36 24.29 8.5
</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
September 30
1999 vs 1998
------------
Return on assets, prior year 1.26%
------
Increases
Insurance 0.04
Minority interest earnings 0.03
Gain on sale of securities 0.02
Brokerage 0.02
Other service charges 0.01
------
Total increases 0.12
------
Decreases
Provision for credit losses 0.09
Fees on loans and leases 0.05
Gain on sale of fixed assets,
other real estate owned, and other assets 0.05
Salaries and wages 0.03
Professional fees 0.03
Other noninterest expenses, net 0.03
------
Total decreases 0.28
------
Return on assets, current period 1.10%
======
<PAGE>
TABLE II
CAPITAL RATIOS (1)
<TABLE>
<CAPTION>
September 30 December 31 September 30 Regulatory
1999 1998 1998 Minimums
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Equity to assets (2) 8.31% 8.81% 8.86% --%
Tangible equity to assets (2) 7.29 8.41 8.55 --
Tier I capital (3) 10.40 12.13 12.07 4.00
Tier I and tier II capital (3) 11.65 13.39 13.32 8.00
Leverage ratio (3) 7.33 8.58 8.56 3.00
</TABLE>
(1) Calculations include redeemable class A common stock.
(2) Computed in accordance with generally accepted accounting principles,
excluding 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
- -------
1999
Third $ 38,373 4.29%
Second 34,779 4.30
First 33,531 4.33
1998
Fourth 34,196 4.34
Third 33,270 4.27
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
<PAGE>
TABLE IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
------------------------------- -------------------------------
Nine Months Ended September 30 Three Months Ended September 30
1999 vs 1998 1999 vs 1998
------------------------------- -------------------------------
(DOLLARS IN THOUSANDS)
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN VOLUME
Earning assets $ 17,637 $ 9,536
Interest bearing liabilities (8,915) (4,945)
--------- ---------
8,722 4,591
CHANGE IN INTEREST RATE SPREAD
Earning assets (8,194) (0.33)% (2,313) (0.26)%
Interest bearing liabilities 8,183 0.33 2,699 0.30
--------- --------- --------- ---------
(11) 0.00 386 0.04
CHANGE IN PRODUCT MIX
Earning assets (125) (0.01) (474) (0.05)
Interest bearing liabilities 721 0.03 265 0.03
--------- --------- --------- ---------
596 0.02 (209) (0.02)
OTHER CHANGES
Nonaccruing loans (84) (0.00) 241 0.03
Yield-related loan fees (22) (0.00) 95 0.01
Free Funds -- (0.02) -- (0.04)
--------- --------- --------- ---------
(106) (0.02) 336 0.00
CHANGE IN NET INTEREST INCOME 9,201 0.00 5,104 0.02
Net interest income, prior period 97,482 4.30 33,269 4.27
--------- --------- --------- ---------
Net interest income, current period $ 106,683 4.30% $ 38,373 4.29%
========= ========= ========= =========
</TABLE>
<PAGE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1999 vs 1998
---------------------------------------------
(IN THOUSANDS)
Volume Yield/Rate(1) Total
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans and leases $ 13,097 $ (6,015) $ 7,082
Taxable securities 3,307 (296) 3,011
Tax-exempt securities 1,171 (1,865) (694)
Interest bearing deposits -- -- --
Federal funds sold 53 (233) (180)
Other earning assets 9 (16) (7)
------------ ------------ ------------
Total 17,637 (8,425) 9,212
INTEREST EXPENSE
Savings deposits 1,496 (458) 1,038
Other time deposits 5,695 (9,470) (3,775)
Short-term borrowings 1,453 (2,037) (584)
Long-term debt 271 3,061 3,332
------------ ------------ ------------
Total 8,915 (8,904) 11
------------ ------------ ------------
NET INTEREST INCOME $ 8,722 $ 479 $ 9,201
============ ============ ============
</TABLE>
(1) ALL CHANGES IN NET INTEREST INCOME, OTHER THAN THOSE DUE TO VOLUME, HAVE
BEEN ALLOCATED TO YIELD/RATE.
<PAGE>
TABLE VI
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
1999 1998 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans and leases $ 16,476 $ 13,077 $ 13,509
Restructured loans and leases 45 178 589
------------ ------------ ------------
Total nonperforming loans and leases 16,521 13,255 14,098
Other real estate owned (OREO) 525 620 467
------------ ------------ ------------
Total nonperforming assets $ 17,046 13,875 14,565
============ ============ ============
Past due loans and leases * $ 2,120 $ 1,142 $ 3,545
============ ============ ============
Nonperforming loans and leases to total loans and leases 0.66% 0.61% 0.65%
Nonperforming assets to total loans, leases and OREO 0.68 0.64 0.67
Nonperforming assets and past due loans and leases* to
total loans, leases and OREO 0.77 0.69 0.83
Reserve to nonperforming loans and leases 246.96 279.27 257.49
Reserve to total loans and leases 1.63 1.70 1.66
</TABLE>
* PAST DUE LOANS AND LEASES INCLUDE ACCRUING LOANS AND LEASES 90 DAYS OR MORE
PAST DUE.
<PAGE>
TABLE VII
RESERVE FOR CREDIT LOSSES
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1999 1998
------------ -------------
(IN THOUSANDS)
Beginning of period $ 37,019 $ 34,253
Charge-offs (5,758) (2,596)
Recoveries 829 875
------------ ------------
Net charge-offs (4,929) (1,721)
Provision for credit losses 6,504 3,769
Reserve related to acquired assets 2,207 --
------------ ------------
End of period $ 40,801 $ 36,301
============ ============
<PAGE>
TABLE VIII
NONINTEREST INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 INCREASE/(DECREASE)
------------------------------ ------------------------------
1999 1998 DOLLAR PERCENT
------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges $ 14,071 $ 12,631 $ 1,440 11.40%
Insurance 6,779 5,239 1,540 29.39
Trust 5,804 5,145 659 12.81
Brokerage 3,547 2,826 721 25.51
Gain on sale of loans 2,788 3,491 (703) (20.14)
Gain on sale of other assets 328 715 (387) (54.13)
Other 3,074 2,854 220 7.71
------------ ------------ ------------
Operating noninterest income 36,391 32,901 3,490 10.61
Gain on sale of securities 1,851 1,292 559 43.27
State tax refund 441 1,101 (660) (59.95)
------------ ------------ ------------
Total $ 38,683 $ 35,294 $ 3,389 9.60%
============ ============ ============
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 INCREASE/(DECREASE)
------------------------------- ------------------------------
1999 1998 DOLLAR PERCENT
------------- -------------- ------------ ------------
(IN THOUSANDS)
Service charges $ 5,156 $ 4,373 783 17.91%
Insurance 2,551 2,047 504 24.62
Trust 2,072 1,701 371 21.81
Brokerage 1,232 1,025 207 20.20
Gain on sale of loans 776 1,147 (371) (32.35)
Gain on sale of other assets 76 155 (79) (50.97)
Other 929 854 75 8.78
------------ ------------ ------------
Operating noninterest income 12,792 11,302 1,490 13.18
Gain on sale of securities 4 154 (150) (97.40)
State tax refund -- -- -- --
------------ ------------ ------------
Total $ 12,796 $ 11,456 1,340 11.70%
============ ============ ============
</TABLE>
<PAGE>
TABLE IX
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 INCREASE/(DECREASE)
------------------------------ ------------------------------
1999 1998 DOLLAR PERCENT
------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and wages $ 40,649 $ 36,469 $ 4,180 11.46%
Employee benefits 10,451 9,191 1,260 13.71
Occupancy 4,976 4,585 391 8.53
Furniture and equipment 6,733 5,584 1,149 20.58
Printing, postage and office supplies 4,333 3,832 501 13.07
Marketing 3,393 3,224 169 5.24
Data processing fees 5,167 4,516 651 14.42
Professional fees 2,073 1,065 1,008 94.65
Other real estate owned 79 58 21 36.21
Minority interest in earnings 26 703 (677) (96.30)
FDIC premiums and examination fees 953 888 65 7.32
Goodwill and other intangibles 1,971 1,292 679 52.55
Other 8,976 6,650 2,326 34.98
------------ ------------ ------------
Total $ 89,780 $ 78,057 $ 11,723 15.02%
============ ============ ============
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 INCREASE/(DECREASE)
------------------------------- ------------------------------
1999 1998 DOLLAR PERCENT
------------- -------------- ------------ ------------
(IN THOUSANDS)
Salaries and wages $ 14,262 $ 12,395 1,867 15.06%
Employee benefits 3,509 3,054 455 14.90
Occupancy 1,654 1,510 144 9.54
Furniture and equipment 2,343 1,934 409 21.15
Printing, postage and office supplies 1,507 1,243 264 21.24
Marketing 1,132 1,127 5 0.44
Data processing fees 1,759 1,532 227 14.82
Professional fees 716 356 360 101.12
Other real estate owned 31 (2) 33 NM
Minority interest in earnings 11 109 (98) (89.91)
FDIC premiums and examination fees 319 295 24 8.14
Goodwill and other intangibles 884 447 437 97.76
Other 3,353 2,450 903 36.86
------------ ------------ ------------
Total $ 31,480 $ 26,450 5,030 19.02%
============ ============ ============
</TABLE>
<PAGE>
BFC CORP - EXTERNAL
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
FOR NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
September 1999 Actual - YTD September 1998 Actual - YTD
------------------------------ ---------------------------- --------
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 $ 525,302 $ 34,146 8.69% $ 425,778 $ 29,255 9.19% 23.37%
Commercial Real Estate 583,989 37,636 8.62 486,174 33,134 9.11 20.12
Agricultural 446,782 29,076 8.70 442,050 30,309 9.17 1.07
Residential Real Estate 400,129 25,756 8.61 395,679 25,898 8.75 1.12
Consumer 247,177 16,602 8.98 256,563 17,459 9.10 (3.66)
Tax Exempt 56,105 4,002 9.54 54,140 4,081 10.08 3.63
---------- -------- ---------- --------
TOTAL LOANS AND LEASES 2,259,484 147,218 8.71 2,060,384 140,136 9.09 9.66
Reserve for Credit Losses (38,861) (35,589) 9.19
---------- ----------
NET LOANS AND LEASES 2,220,623 2,024,795 9.67
Mortgage Backed Securities 757,582 34,545 6.10 667,912 31,604 6.33 13.43
Taxable Other 85,093 3,853 6.05 81,604 3,783 6.20 4.28
Tax Exempt 199,842 11,832 7.92 207,081 12,526 8.09 (3.50)
---------- -------- ---------- --------
TOTAL SECURITIES 1,042,517 50,230 6.44 956,597 47,913 6.70 8.98
Total Fed Funds Sold 11,251 387 4.60 12,787 567 5.93 (12.01)
Other earning assets 2,197 86 5.23 2,281 93 5.45 (3.68)
---------- -------- ---------- --------
TOTAL EARNING ASSETS 3,315,449 197,921 7.98 3,032,049 188,709 8.32 9.35
Total Cash & Due from Banks 115,717 104,097 11.16
Nonearning assets 127,295 122,112 4.24
---------- ----------
TOTAL ASSETS $3,519,600 $3,222,669 9.21
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Non-Interest Bearing Deposits $ 332,547 $ 297,409 11.81
Interest Bearing Deposits
Savings and NOW accounts 294,655 2,603 1.18 291,324 3,454 1.59 1.14
Money Market Checking 160,830 1,104 0.92 155,994 1,644 1.41 3.10
Money Market Savings 459,118 12,639 3.68 335,953 10,210 4.06 36.66
Savings Certificates 1,169,257 46,097 5.27 1,178,024 50,541 5.74 (0.74)
Certificates over $100K 211,950 8,406 5.30 182,299 7,737 5.67 16.27
---------- -------- ---------- --------
TOTAL INTEREST BEARING DEPOSITS 2,295,810 70,849 4.13 2,143,594 73,586 4.59 7.10
TOTAL DEPOSITS 2,628,357 2,441,003 7.68
Total Short Term Borrowings 386,646 14,284 4.94 367,836 14,868 5.40 5.11
Total Long Term Debt 146,056 6,105 5.59 65,303 2,773 5.68 123.66
---------- -------- ---------- --------
TOTAL INTEREST BEARING LIABILITIES 2,828,513 91,238 4.31 2,576,733 91,227 4.73 9.77
Other liabilities 48,349 51,782 (6.63)
TOTAL LIABILITIES 3,209,409 2,925,924 9.69
Minority Interest 940 6,750 (86.07)
Redeemable Preferred Stock 1,916 2,100 (8.76)
Redeemable Class A Common Stock 24,587 23,032 6.75
Shareholder's equity 282,749 264,863 6.75
---------- ----------
TOTAL LIABILITIES AND EQUITY $3,519,600 $3,222,669 9.21
========== ==========
Net Interest Income $106,683 $ 97,482
======== ========
Gross Spread 3.67% 3.59%
Percent of earning assets
Interest Income 7.98 8.32
Interest Cost 3.68 4.02
------- -------
NET INTEREST MARGIN 4.30% 4.30%
Interest bearing liabilities to earning assets 85.31% 84.98%
</TABLE>
<PAGE>
BFC CORP - EXTERNAL
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
FOR THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
September 1999 Actual - QTD September 1998 Actual - QTD
------------------------------ ---------------------------- --------
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 $ 589,466 $ 13,036 8.77% $ 448,648 $ 10,327 9.13% 31.39%
Commercial Real Estate 615,651 13,414 8.64 516,619 11,728 9.01 19.17
Agricultural 476,563 10,486 8.73 486,110 11,138 9.09 (1.96)
Residential Real Estate 442,538 9,610 8.62 393,678 8,649 8.72 12.41
Consumer 258,097 5,814 8.94 256,573 5,825 9.01 0.59
Tax Exempt 60,168 1,408 9.28 56,492 1,417 9.95 6.51
---------- -------- ---------- --------
TOTAL LOANS AND LEASES 2,442,483 53,768 8.73 2,158,120 49,084 9.02 13.18
Reserve for Credit Losses (40,732) (36,403) 11.89
---------- ----------
NET LOANS AND LEASES 2,401,751 2,121,717 13.20
Mortgage Backed Securities 757,081 11,724 6.14 646,227 10,147 6.23 17.15
Taxable Other 134,248 2,060 6.09 59,558 892 5.94 125.41
Tax Exempt 200,473 3,964 7.84 208,495 4,218 8.03 (3.85)
---------- -------- ---------- --------
TOTAL SECURITIES 1,091,802 17,748 6.45 914,280 15,257 6.62 19.42
Total Fed Funds Sold 12,790 158 4.90 18,031 245 5.39 (29.07)
Other earning assets 2,371 32 5.35 2,538 35 5.47 (6.58)
---------- -------- ---------- --------
TOTAL EARNING ASSETS 3,549,446 71,706 8.01 3,092,969 64,621 8.29 14.76
Total Cash & Due from Banks 126,660 107,383 17.95
Nonearning assets 138,754 125,256 10.78
---------- ----------
TOTAL ASSETS $3,774,128 $3,289,205 14.74
========== ========== =====
LIABILITIES AND STOCKHOLDERS EQUITY
Non-Interest Bearing Deposits $ 371,129 $ 306,431 21.11
Interest Bearing Deposits
Savings and NOW accounts 318,563 988 1.23 288,595 1,123 1.54 10.38
Money Market Checking 165,836 384 0.92 152,566 525 1.37 8.70
Money Market Savings 494,479 4,629 3.71 351,704 3,610 4.07 40.60
Savings Certificates 1,235,592 16,165 5.19 1,174,529 16,923 5.72 5.20
Certificates over $100K 223,595 3,030 5.38 186,277 2,670 5.69 20.03
---------- -------- ---------- --------
TOTAL INTEREST BEARING DEPOSITS 2,438,065 25,196 4.10 2,153,671 24,851 4.58 13.21
TOTAL DEPOSITS 2,809,194 2,460,102 14.19
Total Short Term Borrowings 437,497 5,521 5.01 383,164 5,140 5.32 14.18
Total Long Term Debt 165,878 2,616 6.26 90,305 1,361 5.98 83.69
---------- -------- ---------- --------
TOTAL INTEREST BEARING LIABILITIES 3,041,439 33,333 4.35 2,627,140 31,351 4.73 15.77
Other liabilities 52,058 56,445 (7.77)
TOTAL LIABILITIES 3,464,626 2,990,016 15.87
Minority Interest 934 3,470 (73.08)
Redeemable Preferred Stock 1,683 2,084 (19.24)
Redeemable Class A Common Stock 24,551 23,491 4.51
Shareholder's equity 282,334 270,145 4.51
---------- ----------
TOTAL LIABILITIES AND EQUITY $3,774,128 $3,289,205 14.74
========== ========== =====
Net Interest Income $ 38,373 $ 33,270
======== ========
Gross Spread 3.67% 3.55%
Percent of earning assets
Interest Income 8.01 8.29
Interest Cost 3.73 4.02
------- -------
NET INTEREST MARGIN 4.29% 4.27%
Interest bearing liabilities to earning assets 85.69% 84.94%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other information.
(a) This Quarterly Report on Form 10-Q contains forward-looking statements
that involve inherent risks and uncertainties. Bremer Financial
Corporation cautions readers that a number of important factors could
cause actual results to differ materially from those in the
forward-looking statements. Those factors included fluctuations in
interest rates, inflation, government regulations, technology changes
(including the Year 2000 issue), regulatory delays in approving
acquisitions, and economic conditions and competition in the geographic
and business areas in which the Company conducts its operations.
(b) In a Current Report on Form 8-K filed on January 28, 1999, the Company
reported that it had entered into a Stock Purchase Agreement dated
January 25, 1999 ("Dean Agreement") with the shareholders of Dean
Financial Services, Inc. ("Dean") under which the Company was to
acquire all of the shares of capital stock of Dean. The transactions
described in the Dean Agreement closed on July 8, 1999.
(c) In a Current Report on Form 8-K filed on February 22, 1999, the Company
reported that it had entered into an Agreement and Plan of Merger dated
February 16, 1999 under which Bremer Acquisition Corporation, a
wholly-owned subsidiary of the Company, would acquire Northwest Equity
Corporation ("Northwest") and its wholly owned subsidiary Northwest
Savings Bank, in a merger ("Merger") in which Northwest would become a
wholly-owned subsidiary of the Company. It is now anticipated that due
to unanticipated regulatory delays, the Merger will likely close no
earlier than the first quarter of 2000 rather than in the third quarter
of 1999, as originally reported.
Item 6. Exhibits and Reports on Form 8-K.
(a) No exhibits are being filed as part of this Quarterly Report on Form
10-Q.
(b) No Current Reports on Form 8-K were filed during the quarter ended
September 30, 1999 or during the period from September 30, 1999 to the
date of this Quarterly Report on Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1999 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)
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