FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
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 March 31, 2000, 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 MARCH 31, 2000
INDEX
PART I -- FINANCIAL INFORMATION Page
----
Item 1 -- Financial Statements 2
Item 2 -- Management's Discussion and Analysis 8
of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 5 -- Other information 23
Item 6 -- Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1999
------------ ------------ ------------
(UNAUDITED) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 130,288 $ 145,407 $ 111,609
Interest bearing deposits 5,230 4,886 1,807
Federal funds sold 7,805 -- --
Investment securities available for sale (amortized cost of
$203,771, $188,683 and $82,365 respectively) 202,992 187,857 83,875
Mortgage-backed securities available for sale (amortized cost of
$673,831, $688,649 and $723,463 respectively) 652,351 671,985 726,372
------------ ------------ ------------
TOTAL SECURITIES AVAILABLE FOR SALE 855,343 859,842 810,247
Investment securities held to maturity (fair value of
$170,511, $170,788, and $169,517 respectively) 171,586 171,720 164,398
Mortgage-backed securities held to maturity (fair value of
$3,934, $6,769 and $22,694 respectively) 3,962 6,810 22,732
------------ ------------ ------------
TOTAL SECURITIES HELD TO MATURITY 175,548 178,530 187,130
Loans and leases 2,695,751 2,550,156 2,152,442
Reserve for credit losses (43,380) (41,895) (37,969)
Unearned discount (6,992) (7,259) (5,005)
------------ ------------ ------------
NET LOANS AND LEASES 2,645,379 2,501,002 2,109,468
Interest receivable 35,072 34,160 31,198
Premises and equipment, net 60,575 59,821 55,881
Other assets 78,385 67,837 30,865
------------ ------------ ------------
TOTAL ASSETS $ 3,993,625 $ 3,851,485 $ 3,338,205
============ ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest bearing deposits $ 392,470 $ 406,478 $ 306,266
Interest bearing deposits 2,588,983 2,444,214 2,211,488
------------ ------------ ------------
TOTAL DEPOSITS 2,981,453 2,850,692 2,517,754
Federal funds purchased and repurchase agreements 259,449 300,737 247,001
Other short-term borrowings 178,598 125,948 104,372
Long-term debt 213,826 215,832 116,865
Accrued expenses and other liabilities 42,301 44,486 41,282
------------ ------------ ------------
TOTAL LIABILITIES 3,675,627 3,537,695 3,027,274
Minority interests 921 914 907
Redeemable preferred stock, $100 par, 20,187 shares outstanding -- -- 2,019
Redeemable class A common stock, 960,000 shares
issued and outstanding 25,366 25,029 24,640
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 301,518 295,026 278,460
Accumulated other comprehensive income (12,426) (9,798) 2,286
------------ ------------ ------------
TOTAL SHAREHOLDER'S EQUITY 291,711 287,847 283,365
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,993,625 $ 3,851,485 $ 3,338,205
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME
Loans and leases, including fees $ 55,968 $ 45,443 $ 43,766
Securities
Taxable 13,795 12,016 12,228
Tax-exempt 2,780 2,630 2,740
Federal funds sold 114 131 222
Other 40 27 28
---------- ---------- ----------
Total interest income 72,697 60,247 58,984
---------- ---------- ----------
INTEREST EXPENSE
Deposits 26,739 22,971 24,024
Federal funds purchased and repurchase agreements 3,433 2,421 1,981
Other short term borrowings 2,112 1,635 2,662
Long term debt 3,478 1,502 656
---------- ---------- ----------
Total interest expense 35,762 28,529 29,323
---------- ---------- ----------
Net interest income 36,935 31,718 29,661
Provision for credit losses 1,838 1,690 1,209
---------- ---------- ----------
Net interest income after provision for credit losses 35,097 30,028 28,452
---------- ---------- ----------
NONINTEREST INCOME
Service charges 5,127 4,224 3,976
Insurance 2,263 2,133 1,686
Trust 2,214 1,858 1,742
Brokerage 1,359 1,043 745
Gain on sale of loans 399 1,091 1,112
Gain on sale of securities 52 1,774 1,210
Other 1,017 1,548 1,523
---------- ---------- ----------
Total noninterest income 12,431 13,671 11,994
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and wages 14,108 12,779 11,734
Employee benefits 3,510 3,355 3,022
Occupancy 1,925 1,708 1,580
Furniture and equipment 2,397 2,122 1,797
Data processing fees 1,736 1,539 1,497
FDIC premiums and examination fees 388 310 300
Goodwill and other intangibles 863 442 413
Other 5,589 6,031 4,776
---------- ---------- ----------
Total noninterest expense 30,516 28,286 25,119
---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 17,012 15,413 15,327
Income tax expense 5,996 5,188 5,325
---------- ---------- ----------
NET INCOME $ 11,016 $ 10,225 $ 10,002
========== ========== ==========
Per common share amounts:
Net income-basic $ 0.92 $ 0.85 $ 0.83
Dividends paid 0.33 0.33 0.33
</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 COMPRE-
--------------------- COMPREHENSIVE HENSIVE 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, 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 40,111 40,111 40,111
Other comprehensive income
Change in net unrealized gain (loss) on securities
available for sale, net of $9,849 tax benefit (14,774) (14,774) (14,774)
---------
Comprehensive income $ 25,337
=========
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 1,183 (1,941) (758)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 57 2,562 (9,798) 295,026 287,847
Comprehensive income
Net income 11,016 11,016 11,016
Other comprehensive income
Change in net unrealized gain (loss) on securities
available for sale, net of $1,904 tax benefit (2,856) (2,856) (2,856)
---------
Comprehensive income $ 8,160
=========
Dividends, $.33 per share (3,960) (3,960)
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 228 (564) (336)
--------- --------- --------- --------- ---------
BALANCE, MARCH 31, 2000 $ 57 $ 2,562 $ (12,426) $ 301,518 $ 291,711
========= ========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,016 $ 10,225 $ 10,002
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 1,838 1,690 1,209
Depreciation and amortization 2,825 2,451 2,033
Minority interests in earnings of subsidiaries 11 7 400
Gain on sale of securities (52) (1,774) (1,210)
Gain on sale of other real estate owned, net (10) (24) (1)
Other assets and liabilities, net (554) (5,951) (212)
Proceeds from sales of other real estate owned 200 148 286
Cash receipts related to loans originated specifically for resale 21,878 57,820 48,540
Cash payments related to loans originated specifically for resale (21,964) (58,169) (48,774)
------------ ------------ ------------
Net cash provided by operating activities 15,188 6,423 12,273
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits in other banks, net (344) (95) (36)
Purchases of securities available for sale (34,874) (181,982) (150,065)
Purchases of securities held to maturity (2,989) (18,452) (2,689)
Proceeds from maturities of securities available for sale 24,535 85,519 38,504
Proceeds from maturities of securities held to maturity 6,194 37,791 35,233
Proceeds from sales of securities available for sale 9,889 75,219 55,027
Loans and leases, net (146,129) 24,805 (34,338)
Acquisitions, net of cash acquired (20,038) -- --
Acquisition of premises and equipment (2,704) (3,268) (2,304)
------------ ------------ ------------
Net cash (used in) provided by investing activities (166,460) 19,537 (60,668)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Noninterest bearing deposits, net (14,008) (62,949) (42,687)
Interest bearing deposits (excluding certificates of deposit), net 74,325 3,454 35,694
Certificates of deposits, net 70,444 6,599 7,567
Federal funds purchased and repurchase agreements, net (41,288) 25,582 12,495
Other short-term borrowings, net 52,650 (27,422) (6,738)
Proceeds from issuance of long-term debt 99 1,428 30,768
Repayments of long-term debt (2,105) (849) (5,887)
Dividends paid to minority interests (4) (5) (147)
Redeemable preferred stock -- (60) (60)
Dividends paid (3,960) (3,960) (3,960)
------------ ------------ ------------
Net cash provided by (used in) financing activities 136,153 (58,182) 27,045
------------ ------------ ------------
Net decrease in cash and due from banks (15,119) (32,222) (21,350)
Cash and due from banks
Beginning of period 145,407 143,831 135,966
------------ ------------ ------------
End of period $ 130,288 111,609 $ 114,616
============ ============ ============
</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, 1999 and included in its Annual Report
on Form 10-K for the year ended December 31, 1999 filed on March 13,
2000.
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 March 31, 2000, the 960,000 class A
shares were generally redeemable at $26.42 per share. Since January 1,
2000 and through March 31, 2000, options to call 28,984.0018 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 1,185 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. The Company reported comprehensive income for the
first quarter of 2000 of $8.2 million, down from the $8.6 million
reported for the first quarter of 1999. 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 $11.0
million for the first quarter of 2000, a 7.7% increase from the $10.2 million
earned in the first quarter of 1999. Contributing positively to earnings in the
first three months of 2000 was a 16.4% or $5.2 million increase in net interest
income. Partially offsetting this positive increase were a 9.1% or $1.2 million
decrease in noninterest income and a 7.9% or $2.2 million increase in
noninterest expenses.
Return on average assets ("ROA") was 1.15% for the first quarter of 2000,
compared to 1.25% reported for the same period in 1999. Return on average
realized equity ("RORE") was 13.55% for the first quarter of 2000, compared to
13.71% for the same quarter of 1999. Table I presents a summary of the
components affecting the change in year-to-date return on assets from March 31,
1999 to March 31, 2000.
Shareholder's Equity and Dividends
Shareholder's equity and redeemable class A common stock totaled $317.1 million
at March 31, 2000, representing a book value per share of $26.42, a 2.9%
increase from $25.67 at March 31, 1999. A dividend of $.33 per share was paid
during the first quarter of 2000, remaining unchanged since the first quarter of
1999. 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 $1.13 as of March 31,
2000 and increasing the book value per share by $.21 as of March 31, 1999.
Net Interest Income
Tax-equivalent net interest income for the first quarter of 2000 was $38.9
million, an increase of $5.3 million or 15.9% from the first quarter of 1999.
The net interest margin dropped one basis point to 4.32% in the first quarter of
2000 from 4.33% reported in the first quarter of 1999. Table III presents the
quarter-to-quarter comparison of tax-equivalent net interest income and net
interest margins.
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 March 31, 2000, the valuation
model indicates that the value of assets would decline 3.6% 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 12.7%.
<PAGE>
Nonperforming Assets
Table VI shows the details of nonperforming assets at March 31, 2000, December
31, 1999 and March 31, 1999. Nonperforming assets, which include nonperforming
loans and leases and other real estate owned ("OREO"), were $15.8 million at
March 31, 2000. This total represents a decrease of $1.4 million from December
31, 1999 and $432 thousand from March 31, 1999. Nonperforming assets as a
percentage of total loans, leases and OREO decreased to .59% as of March 31,
2000 from .68% as of December 31, 1999, and from .76% as of March 31, 1999,
while the level of at-risk performing loans and leases (with an internal loan
review rating of either substandard, doubtful or loss) increased $900 thousand
or 1.0% to $92.4 million at March 31, 2000 from $91.5 million at March 31, 1999.
Nonperforming loans and leases, which include nonaccrual and restructured loans
and leases, were $15.4 million at March 31, 2000, a decrease of $1.3 million and
$216 thousand from December 31, 1999 and March 31, 1999, respectively. The ratio
of nonperforming loans and leases to total loans and leases decreased to .57% at
March 31, 2000 from .65% as of December 31, 1999, and .73% at March 31, 1999.
The ratio of nonperforming assets and past due loans and leases to total loans,
leases and OREO decreased to .84% at March 31, 2000 from .86% at December 31,
1999, and from .93% reported at March 31, 1999. The ratio of classified loans
and leases to total loans and leases declined to 4.0% as of March 31, 2000 from
5.0% as of March 31, 1999. Net charge-offs were $647 thousand during the first
three months of 2000 as compared to $740 thousand for the same period in 1999.
OREO, which includes real estate acquired in loan settlements, decreased to $435
thousand at March 31, 2000 from $527 thousand at December 31, 1999 and from the
$651 thousand reported at March 31, 1999.
Reserve for Credit Losses
The reserve for credit losses increased by $5.4 million from the $38.0 million
reported on March 31, 1999, while the reserve to outstanding loans and leases
ratio decreased to 1.61% on March 31, 2000 from 1.77% reported on March 31,
1999. Table VII presents the activity in the reserve for credit losses.
The Company's reserve for credit losses was 281.9% of nonperforming loans and
leases at March 31, 2000 compared to 251.5% at December 31, 1999 and 243.3% at
March 31, 1999. 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.
Noninterest Income
As presented in Table VIII, noninterest income was $12.4 million during the
first quarter of 2000 compared to $13.7 million for the first quarter of 1999,
representing a $1.3 million or 9.1% decline. Excluding a $1.8 million gain on
sale of securities recognized in the first quarter of 1999, noninterest income
increased by $482 thousand or 4.1% when comparing the first quarters of 1999 and
2000.
<PAGE>
Noninterest Expense
As presented in Table IX, noninterest expense increased $2.2 million or 7.9% in
the first quarter of 2000 compared to the first quarter of 1999.
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 57.84% for the
first three months of 2000 compared to 61.18% for the same period in 1999.
Increases in tax-equivalent net interest income and recurring noninterest income
of 15.9% and 8.2%, respectively, more than offset the 7.7% increase in recurring
noninterest expense.
Taxes
Comparing the first three months of 2000 to the first three months of 1999, the
Company's effective tax rate increased from 33.7% to 35.2%.
Balance Sheet Growth
Assets
Average total assets increased $511.8 million or 15.4% from the first three
months of 1999 to the first three months of 2000, while average earning assets
increased by $477.4 million or 15.2% when comparing the same two periods.
Acquired entities accounted for a significant portion of this increase.
Loans and Leases
In the first three months of 2000, average loans and leases increased $424.0
million or 19.9% when compared to the first three months of 1999. Average loan
volume during 2000 compared to 1999 was driven by commercial real estate,
commercial, and residential real estate loans, which increased $165.8 million,
$139.8 million, and $100.4 million, respectively. Consumer and tax exempt loans
increased $29.3 million and $7.0 million, respectively, while agricultural loans
decreased by $18.3 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 $52.3
million or 5.2% during the first three months of 2000 from the first three
months of 1999. During this same period, taxable and tax-exempt securities
increased by $43.8 million and $8.5 million, respectively. The average maturity
of the portfolio was 73 months at March 31, 2000, with an average yield to
maturity on the $1 billion portfolio of 6.9%. The held to maturity securities
had unrealized gains of $1.1 million and unrealized losses of $2.2 million as of
March 31, 2000. In accordance with FAS No. 115, the available for sale
investments are recorded inclusive of any unrealized gains or losses.
<PAGE>
Liabilities
Comparing the first three months of 2000 to the first three months of 1999,
average interest bearing liabilities increased $447.5 million or 16.8%, while
average deposits increased $319.1 million or 12.6%. 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 $85.7 million or
25.7%. Average long-term debt, which consists primarily of Federal Home Loan
Bank advances and $65 million of privately-placed senior debt, increased $103.3
million or 93.9%.
The senior 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, was used
primarily to fund acquisition activity.
<PAGE>
BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------------------------
2000 1999 CHANGE
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING RESULTS
Total interest income $ 72,697 $ 60,247 20.7%
Net interest income 36,935 31,718 16.4
Net interest income (1) 38,863 33,531 15.9
Provision for credit losses 1,838 1,690 8.8
Noninterest income 12,431 13,671 (9.1)
Noninterest expense 30,516 28,286 7.9
Net income 11,016 10,225 7.7
Dividends 3,960 3,960 --
AVERAGE BALANCES
Assets 3,844,855 3,333,083 15.4
Loans and leases 2,549,423 2,125,446 19.9
Securities 1,050,867 998,557 5.2
Deposits 2,847,640 2,528,519 12.6
Redeemable class A common stock 25,198 24,455 3.0
Shareholder's equity 289,779 281,237 3.0
PERIOD-END BALANCES
Assets 3,993,625 3,338,205 19.6
Loans and leases 2,688,759 2,147,437 25.2
Securities 1,030,891 997,377 3.4
Deposits 2,981,453 2,517,754 18.4
Redeemable class A common stock 25,366 24,640 2.9
Shareholder's equity 291,711 283,365 2.9
FINANCIAL RATIOS
Return on assets (2) 1.15% 1.25% --
Return on realized equity (3)(4) 13.55 13.71 --
Average equity/assets (3)(4) 8.51 9.07 --
Dividend payout 35.95 38.73 --
Net interest margin (1) 4.32 4.33 --
Efficiency ratio 57.84 61.18 --
Net charge-offs/average loans and leases 0.10 0.14 --
Reserve/period-end loans and leases 1.61 1.77 --
PER SHARE OF COMMON STOCK (3)
Net income-basic $ 0.92 $ 0.85 7.7%
Dividends paid 0.33 0.33 --
Book value 26.42 25.67 2.9
Realized book value (4) 27.55 25.46 8.2
</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
March 31
2000 vs 1999
------------
Return on assets, prior year 1.25%
------
Increases
Salaries and wages 0.08
Employee benefits 0.04
Marketing expenses 0.02
Printing, postage, and office supplies 0.02
Brokerage commissions 0.02
Insurance commissions 0.02
Service charges 0.02
Trust income 0.01
Occupancy 0.01
Furniture and equipment 0.01
Data processing 0.01
Other items (net) 0.05
------
Total increases 0.31
------
Decreases
Security gains/losses 0.21
Fees on loans/leases 0.10
Gain on sale of other assets 0.05
Goodwill amortization 0.05
------
Total decreases 0.41
------
Return on assets, current period 1.15%
======
<PAGE>
TABLE II
CAPITAL RATIOS (1)
<TABLE>
<CAPTION>
March 31 December 31 March 31 Regulatory
2000 1999 1999 Minimums
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity to assets (2) 8.28% 8.40% 9.15% --%
Tangible equity to assets (2) 7.11 7.40 8.68 --
Tier I capital (3) 9.79 10.42 12.65 4.00
Tier I and tier II capital (3) 11.04 11.67 13.90 8.00
Leverage ratio (3) 7.35 7.48 8.70 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
- -------
2000
First $ 38,863 4.32%
1999
Fourth 39,687 4.43
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
<PAGE>
TABLE IV
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
--------------------------------
Three Months Ended March 31
2000 vs 1999
--------------------------------
(DOLLARS IN THOUSANDS)
Net Net
Interest Interest
Income Margin
------------- ------------
<S> <C> <C>
CHANGE IN VOLUME
Earning assets $ 9,443
Interest bearing liabilities (4,789)
-------------
4,654
CHANGE IN INTEREST RATE SPREAD
Earning assets 2,220 0.25%
Interest bearing liabilities (2,036) (0.23)
------------- ------------
184 0.02
CHANGE IN PRODUCT MIX
Earning assets 439 0.05
Interest bearing liabilities (91) (0.01)
------------- ------------
348 0.04
CHANGE DUE TO NUMBER OF DAYS
Earning assets 687 0.08
Interest bearing liabilities (317) (0.04)
------------- ------------
370 0.04
OTHER CHANGES
Nonaccruing loans (43) (0.01)
Yield-related loan fees (50) (0.01)
30/360 Investment adjustment (131) (0.02)
Free Funds -- (0.07)
------------- ------------
(224) (0.11)
CHANGE IN NET INTEREST INCOME 5,332 (0.01)
Net interest income, prior period 33,531 4.33
------------- ------------
Net interest income, current period $ 38,863 4.32%
============= ============
</TABLE>
<PAGE>
TABLE V
CHANGES IN NET INTEREST INCOME (TEB)
<TABLE>
<CAPTION>
Three Months Ended March 31
2000 vs 1999
---------------------------------------------
(IN THOUSANDS)
Volume Yield/Rate (1) Total
------------ -------------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN:
INTEREST INCOME
Loans and leases $ 6,984 $ 3,582 $ 10,566
Taxable securities 1,828 (48) 1,780
Tax-exempt securities 607 (384) 223
Interest bearing deposits -- -- --
Federal funds sold 20 (37) (17)
Other earning assets 4 9 13
------------ ------------ ------------
Total 9,443 3,122 12,565
INTEREST EXPENSE
Savings deposits 865 1,156 2,021
Other time deposits 2,991 (1,244) 1,747
Short-term borrowings 681 808 1,489
Long-term debt 252 1,724 1,976
------------ ------------ ------------
Total 4,789 2,444 7,233
------------ ------------ ------------
NET INTEREST INCOME $ 4,654 $ 678 $ 5,332
============ ============ ============
</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>
MARCH 31 DECEMBER 31 MARCH 31
2000 1999 1999
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans and leases $ 14,002 $ 16,608 $ 15,550
Restructured loans and leases 1,388 48 56
------------ ------------ ------------
Total nonperforming loans and leases 15,390 16,656 15,606
Other real estate owned (OREO) 435 527 651
------------ ------------ ------------
Total nonperforming assets $ 15,825 17,183 16,257
============ ============ ============
Past due loans and leases * $ 6,793 $ 4,753 $ 3,758
============ ============ ============
Nonperforming loans and leases to total loans and leases 0.57% 0.65% 0.73%
Nonperforming assets to total loans, leases and OREO 0.59 0.68 0.76
Nonperforming assets and past due loans and leases* to
total loans, leases and OREO 0.84 0.86 0.93
Reserve to nonperforming loans and leases 281.87 251.53 243.29
Reserve to total loans and leases 1.61 1.65 1.77
</TABLE>
* PAST DUE LOANS AND LEASES INCLUDE ACCRUING LOANS AND LEASES 90 DAYS OR MORE
PAST DUE.
<PAGE>
TABLE VII
RESERVE FOR CREDIT LOSSES
THREE MONTHS ENDED MARCH 31
-----------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
Beginning of period $ 41,895 $ 37,019
Charge-offs (931) (1,002)
Recoveries 284 262
------------ ------------
Net charge-offs (647) (740)
Provision for credit losses 1,838 1,690
Reserve related to acquired assets 294 --
------------ ------------
End of period $ 43,380 $ 37,969
============ ============
<PAGE>
TABLE VIII
NONINTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 INCREASE/(DECREASE)
---------------------------- ------------------------------
2000 1999 DOLLAR PERCENT
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges $ 5,127 $ 4,224 $ 903 21.38 %
Insurance 2,263 2,133 130 6.09
Trust 2,214 1,858 356 19.16
Brokerage 1,359 1,043 316 30.30
Gain on sale of loans 399 1,091 (692) (63.43)
Gain on sale of other assets 20 474 (454) (95.78)
Other 997 1,074 (77) (7.17)
------------ ------------ ------------
Operating noninterest income 12,379 11,897 482 4.05
Gain on sale of securities 52 1,774 (1,722) (97.07)
------------ ------------ ------------
Total $ 12,431 $ 13,671 $ (1,240) (9.07)%
============ ============ ============
</TABLE>
<PAGE>
TABLE IX
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 INCREASE/(DECREASE)
---------------------------- -----------------------------
2000 1999 DOLLAR PERCENT
------------ ------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and wages $ 14,108 $ 12,779 $ 1,329 10.40%
Employee benefits 3,510 3,355 155 4.62
Occupancy 1,925 1,708 217 12.70
Furniture and equipment 2,397 2,122 275 12.96
Printing, postage and office supplies 1,412 1,379 33 2.39
Marketing 1,102 1,100 2 0.18
Data processing fees 1,736 1,539 197 12.80
Professional fees 716 644 72 11.18
Other real estate owned 20 17 3 17.65
Minority interest in earnings 11 7 4 57.14
FDIC premiums and examination fees 388 310 78 25.16
Goodwill and other intangibles 863 442 421 95.25
Other 2,328 2,884 (556) (19.28)
------------ ------------ ------------
Total $ 30,516 $ 28,286 $ 2,230 7.88%
============ ============ ============
</TABLE>
<PAGE>
BFC CORP - EXTERNAL
AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
March 2000 Actual - YTD March 1999 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 $ 612,598 $ 14,068 9.24% $ 472,831 $ 10,098 8.66% 29.56%
Commercial Real Estate 724,493 15,789 8.77 558,690 11,834 8.59 29.68
Agricultural 405,032 8,985 8.92 423,282 9,182 8.80 (4.31)
Residential Real Estate 474,100 10,147 8.61 373,750 8,020 8.70 26.85
Consumer 271,291 6,028 8.94 241,991 5,439 9.12 12.11
Tax Exempt 61,909 1,445 9.39 54,902 1,323 9.77 12.76
----------- ----------- ----------- -----------
TOTAL LOANS AND LEASES 2,549,423 56,462 8.91 2,125,446 45,896 8.76 19.95
Reserve for Credit Losses (42,705) (37,652) 13.42
----------- -----------
NET LOANS AND LEASES 2,506,718 2,087,794 20.07
Mortgage Backed Securities 685,787 11,227 6.58 726,810 10,987 6.13 (5.64)
Taxable Other 154,862 2,568 6.67 70,001 1,029 5.96 121.23
Tax Exempt 210,218 4,213 8.06 201,746 3,990 8.02 4.20
----------- ----------- ----------- -----------
TOTAL SECURITIES 1,050,867 18,008 6.89 998,557 16,006 6.50 5.24
Total Fed Funds Sold 8,507 114 5.39 10,852 131 4.90 (21.61)
Other earning assets 5,623 41 2.93 2,182 27 5.02 157.70
----------- ----------- ----------- -----------
TOTAL EARNING ASSETS 3,614,420 74,625 8.30 3,137,037 62,060 8.02 15.22
Total Cash & Due from Banks 121,783 107,717 13.06
Nonearning assets 151,357 125,981 20.14
----------- -----------
TOTAL ASSETS $3,844,855 $3,333,083 15.35
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Non-Interest Bearing Deposits $ 367,599 $ 307,021 19.73
Interest Bearing Deposits
Savings and NOW accounts 323,932 1,080 1.34 287,063 847 1.20 12.84
Money Market Checking 170,689 392 0.92 159,202 358 0.91 7.22
Money Market Savings 526,641 5,702 4.35 435,147 3,948 3.68 21.03
Savings Certificates 1,212,055 16,156 5.36 1,136,561 15,153 5.41 6.64
Certificates over $100K 246,724 3,409 5.56 203,525 2,665 5.31 21.23
----------- ----------- ----------- -----------
TOTAL INTEREST BEARING DEPOSITS 2,480,041 26,739 4.34 2,221,498 22,971 4.19 11.64
TOTAL DEPOSITS 2,847,640 2,528,519 12.62
Total Short Term Borrowings 419,337 5,545 5.32 333,648 4,056 4.93 25.68
Total Long Term Debt 213,324 3,478 6.56 110,028 1,502 5.54 93.88
----------- ----------- ----------- -----------
TOTAL INTEREST BEARING LIABILITIES 3,112,701 35,762 4.62 2,665,174 28,529 4.34 16.79
Other liabilities 48,661 52,242 (6.85)
TOTAL LIABILITIES 3,528,961 3,024,437 16.68
Minority Interest 917 906 1.21
Redeemable Preferred Stock 0 2,049 (100.00)
Redeemable Class A Common Stock 25,198 24,455 3.04
Shareholder's equity 289,779 281,237 3.04
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 3,844,855 $ 3,333,083 15.35
=========== ===========
Net Interest Income $ 38,863 $ 33,531
========== ==========
Gross Spread 3.68% 3.68%
Percent of earning assets
Interest Income 8.30 8.02
Interest Cost 3.98 3.69
------- --------
NET INTEREST MARGIN 4.32% 4.33%
Interest bearing liabilities to earning assets 86.12% 84.96%
</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,
regulatory delays in approving acquisitions, and economic conditions
and competition in the geographic and business areas in which the
Company conducts its operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) No exhibits are being filed as part of this Quarterly Report on Form
10-Q.
(b) No Current Reports on Form 8-K were filed during the quarter ended
March 31, 2000 or during the period from March 31, 2000 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: May 12, 2000 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
<LEGEND>
THREE MONTHS ENDED MARCH 31, 2000
</LEGEND>
<CIK> 0000846616
<NAME> BREMER FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 130,288
<INT-BEARING-DEPOSITS> 5,230
<FED-FUNDS-SOLD> 7,805
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 855,343
<INVESTMENTS-CARRYING> 175,548
<INVESTMENTS-MARKET> 174,452
<LOANS> 2,688,759
<ALLOWANCE> 43,380
<TOTAL-ASSETS> 3,993,625
<DEPOSITS> 2,981,453
<SHORT-TERM> 438,047
<LIABILITIES-OTHER> 42,301
<LONG-TERM> 213,826
0
0
<COMMON> 27,985
<OTHER-SE> 290,013
<TOTAL-LIABILITIES-AND-EQUITY> 3,993,625
<INTEREST-LOAN> 55,968
<INTEREST-INVEST> 16,575
<INTEREST-OTHER> 154
<INTEREST-TOTAL> 72,697
<INTEREST-DEPOSIT> 26,739
<INTEREST-EXPENSE> 35,761
<INTEREST-INCOME-NET> 36,935
<LOAN-LOSSES> 1,838
<SECURITIES-GAINS> 52
<EXPENSE-OTHER> 30,516
<INCOME-PRETAX> 17,012
<INCOME-PRE-EXTRAORDINARY> 11,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,016
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.92
<YIELD-ACTUAL> 4.11
<LOANS-NON> 14,002
<LOANS-PAST> 6,793
<LOANS-TROUBLED> 1,388
<LOANS-PROBLEM> 106,417
<ALLOWANCE-OPEN> 42,179
<CHARGE-OFFS> 931
<RECOVERIES> 294
<ALLOWANCE-CLOSE> 43,380
<ALLOWANCE-DOMESTIC> 34,955
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,425
</TABLE>
