UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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### FORM 10-K

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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
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
(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdictionof incorporation or organization)
41-0715583
(IRS EmployerIdentification No.)


445 Minnesota Street
Suite 2000, St. Paul, MN
 (Address of principal executive offices)
55101
(Zip Code)


Registrants telephone number, including area code: (651) 227-7621

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Securities registered pursuant to Section 12(b) of the Act: None.

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Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, no par value

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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
[  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Rule 12b-2).   Yes
[  ]   No
[X]

Based upon the $39.97 per share price at which shares of class A common stock of the Company were last sold before June 30, 2004, the aggregate value of the Companys shares of class A common stock held by non-affiliates as of such date was approximately $30.5 million. All of the Companys class B common stock is owned by the Otto Bremer Foundation, an affiliate of the Company.

As of March 25, 2005, there were 1,200,000 shares of class A common stock and 10,800,000 shares of class B common stock outstanding.



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BREMER FINANCIAL CORPORATIONAnnual Report on Form 10-Kfor the year ended December 31, 2004INDEX PageDocuments Incorporated by Reference
iCross Reference Sheet
iiPart IItem  1.          Business

1Item  2.          Properties

8Item  3.          Legal Proceedings

9Item  4.          Submission of Matters to a Vote of Security Holders

9Part II

9Item  5.          Market for Registrants Common Equity and Related Stockholder Matters

9Item  6.          Selected Financial Data

12Item  7.          Managements Discussion and Analysis of Financial Condition and Results of Operations

13Item  7A.       Quantitative and Qualitative Disclosures About Market Risk

32Item  8.          Financial Statements and Supplementary Data

33Item  9.          Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

61Item  9A.       Controls and Procedures

61Part IIIItem 10 through Item 14.   See Documents Incorporated by Reference (Page ii)Part IVItem 15.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K

61Signatures

64


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DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference to the parts indicated of this Annual Report on Form 10-K:

Parts of Annual Report on Form 10-K
 Documents Incorporated by ReferencePart IIItem 5.

Market for Registrants Common Equity and Related Stockholder Matters

Reference is made to the portions described herein of the final Prospectus of the Company dated April 20, 1989 filed with the Securities and Exchange Commission on April 20, 1989.Part IIIItem 10.

Directors and Executive Officers of the Registrant

Reference is made to the Registrants definitive proxy statement (Proxy Statement), which will be filed with the Securities and Exchange Commission (Commission) within 120 days after December 31, 2004.Item 11.

Executive Compensation

Reference is made to the Registrants Proxy Statement.Item 12.

Security Ownership of Certain Beneficial Owners and Management

Reference is made to the Registrants Proxy Statement.Item 13.

Certain Relationships and Related Transactions

Reference is made to the Registrants Proxy Statement.Item 14.

Principal Accounting Fees and Services

Reference is made to the Registrants Proxy Statement.


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CROSS REFERENCE SHEET
Between Items in Part III
of Form 10-K and
Proxy Statement
Pursuant to Paragraph G-4 of General Instructions to Form 10-K

Item Number and Caption
Subject HeadingsIn Proxy StatementItem 10.   Directors and Executive Officers of the Registrant

Information About Nominees for Election as Directors; Information About Executive Officers of the CompanyItem 11.   Executive Compensation

Information About Nominees for Election as Directors; Compensation of Executive Officers; Long-Term Incentive Compensation of Executive OfficersItem 12.   Security Ownership of Certain Beneficial Owners                and Management

Principal ShareholdersItem 13.   Certain Relationships and Related Transactions

Certain TransactionsItem 14.   Principal Accounting Fees and Services

Accountants


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PART I

Certain statements in this Annual Report on Form 10-K and in the documents incorporated by reference
herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21B of the Securities Exchange Act of 1934, as amended (Exchange Act). For this purpose, any
statements contained herein or incorporated herein that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words believes, anticipates, plans,
intends, expects and similar expressions are intended to identify forward-looking statements. Because
these forward-looking statements involve risk and uncertainties, there are important factors, including the factors discussed in
Risk Factors filed with this Annual Report on Form 10-K as Exhibit 99. 1, that could cause actual results to differ
materially from those expressed or implied by these forward-looking statements.

ITEM 1.   BUSINESS

General

Bremer Financial Corporation is a regional financial services company with $6.1 billion in assets as of
December 31, 2004, operating 102 offices in Minnesota, Wisconsin and North Dakota. We offer a wide range of banking and
related products and services, including transaction and savings deposits, commercial, consumer, agricultural and real estate
loans, mortgage origination services, insurance, trust, and retail brokerage services. From December 31, 2000 to
December 31, 2004, we increased our asset base from $4.2 billion to $6.1 billion, resulting from a combination of internal
growth and growth through acquisition. During the same period, our loans and leases increased from $2.9 billion to $4.5 billion,
and our deposits increased from $3.1 billion to $4.2 billion. Our most recent acquisition was made in 2001, and acquisitions are
not a significant part of our current strategy.

History

Otto Bremer incorporated Bremer Financial Corporation in December 1943 to consolidate his majority stock
holdings in community banks located throughout Minnesota, Wisconsin and North Dakota. Mr. Bremer formed the Otto Bremer
Foundation in 1944 to own Bremer Financial Corporations stock. Today we are owned by the foundation and the employees and
directors of the company. The foundation is organized as a non-profit trust for charitable, educational and religious purposes for
the benefit of individuals and entities who are residents of or are located in Minnesota, Wisconsin, North Dakota and Montana. The
foundation is a key part of our community-based philosophy. Earnings from its investment in us and other investments are returned
to the bank communities in the form of grants and program-related investments. In 2004, the Otto Bremer Foundation made over $21.0
million in grants to over 600 community organizations and programs.

From our incorporation in 1943 and through the late 1980s, we relied on our existing community banks to
generate loan and deposit growth in our market area. From 1990 through 2001, we augmented this growth through 11 bank and branch
acquisitions. During this period, we used bank and branch acquisitions to fill in gaps in our geographic markets in order to
provide better customer service and leverage existing operations. Over the past few years, our expansion focus has been primarily
in higher growth metropolitan areas such as Minneapolis/St. Paul, Fargo/Moorhead and St. Cloud.

Our Strategy

We seek to be the preeminent community bank in the markets we serve. In order to achieve this objective,
we must create value for our clients and communities. We understand it is through our employees that value is created and
delivered. Our business model is to deliver individualized solutions to our clients total financial services needs through a
local, community bank network. This means our clients are interfacing directly with financial experts who are empowered to make
decisions on their behalf. Our strategic priorities are two-foldimproving sales effectiveness and enhancing
service excellence.

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| |  | Sales Effectiveness
| | - | -------------------

| |  | » | Providing personalized service through a relationship development approach
| |  | - | --------------------------------------------------------------------------

We seek to identify the total financial services needs of our clients and provide them with individualized solutions to meet those needs. We emphasize a client-centered sales approach in which an assigned relationship manager is responsible for selling the entire range of our services to our client base, as opposed to assigning sales people from each product area to a specific client. In this role, our relationship managers work in tandem with representatives from our product areas to develop an effective overall client solution. As a result, our relationship managers gain a more thorough understanding of their clients needs, and clients gain more convenient access to our diverse product line.

| |  | » | Offering a wide variety of innovative financial products to our clients
| |  | - | -----------------------------------------------------------------------

Bremer is more than a bank. We are a total financial services provider for families,
businesses, non-profits, and agricultural producers. The company offers traditional banking products and services, along with a
comprehensive line of brokerage, investment management and trust, and insurance services. Additionally, Bremer offers a
competitive range of convenient access options for clients, including 102 branch locations across the three-state region, 24-hour
Internet and telephone banking, and over 3,200 free ATMs. We continue to invest significantly in technology and product
development to ensure our clients have access to competitive products and services to meet their changing needs.

| |  | » | Empowering employees to make decisions locally
| |  | - | ----------------------------------------------

We believe clients in our markets seek financial services relationships managed by a
trusted financial advisor who can deliver prompt and professional responses to their requests. As smaller, independent banks have
been acquired by national, multi-bank holding companies, we believe that the personal relationships that these clients maintained
with the management of such banks have increasingly eroded, and the banks responsiveness and general service levels have
declined. Consistent with our long heritage of community banking, we operate under a philosophy of local market decision-making,
which means our clients are working directly with individuals that can make things happen for them.

| |  | Service Excellence
| | - | ------------------

| |  | » | Delivering exceptional client experiences in every interaction
| |  | - | --------------------------------------------------------------

In order to earn the right to ask for the clients business, Bremer knows it must
first demonstrate an ability to deliver consistent and reliable service in a highly professional and responsive manner. The
company continues to make significant investments in employee training, as well as ongoing research to measure and monitor client
satisfaction and loyalty. The company has recently developed a program called Exceptional Client Experience which is
intended to help the organization and its employees stay closely linked to our clients, their service expectations, and how we are
performing against those expectations. To be a premier financial services company, we believe you have to be exemplary at
delivering high quality service.

| |  | » | Managing, minimizing, and solving problems
| |  | - | ------------------------------------------

We believe that one of the best tests of whether an organization delivers exceptional
service is how they respond when a problem arises. Obviously, our goal is to proactively manage and minimize any problems from
occurring in the first place. However, its inevitable in any business as complex as financial services that some issue could
surface. We use the phrase internally, Ill take care of it, to describe the service culture at Bremer. If and
when a problem occurs, our employees are empowered to own and resolve that issue on behalf of our clients. We hope our clients
never experience a problem at Bremer, but if they do they can rest assured that it will be taken care of in a highly responsive
and professional manner.

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Our Banks

Our 10 subsidiary banks, which are organized into four banking regions, are located in Minnesota,
Wisconsin and North Dakota. At December 31, 2004, the individual banks ranged in size from $75.2 million to $2.1 billion in
total assets and from $60.3 million to $1.5 billion in total deposits. Each of our banks is a community bank that provides a full
range of commercial and consumer banking services, primarily to customers within its market area. All of our banks are nationally
chartered, operate under the name of Bremer Bank, National Association, and are regulated by the Office of the Comptroller of the
Currency. The locations, total assets and total deposits of our banks are as follows:

Region/Location of Subsidiary Bank Charter
Branch Locations
Assets
Deposits(in thousands as of December 31, 2004)Greater Minnesota RegionAlexandria, MN

Alexandria, MN (2)Brandon, MNBreckenridge, MNFergus Falls, MNMorris, MNStarbuck, MNWahpeton, ND

$   499,729

$336,702Brainerd, MN

Brainerd, MN (2)Aitkin, MNBaxter, MN (2)

$   310,105

$215,191International Falls, MN

International Falls, MN

$     75,224

$60,323Marshall, MN

Marshall, MNRedwood Falls, MN

$   203,430

$163,056St. Cloud, MN

St. Cloud, MN (2)Rice, MNSartell, MNSauk Rapids, MN

$   609,646

$339,402Willmar, MN

Willmar, MN (2)

$   223,321

$151,464North Dakota RegionFargo, ND

Fargo, ND (2)Berthold, NDCarrington, NDCasselton, NDDetroit Lakes, MNDevils Lake, NDLeonard, NDLisbon, NDMax, NDMinnewaukan, NDMinot, ND (3)Moorhead, MNPerham, MNRichardton, NDRugby, ND

$1,025,957

$647,199      3   Region/Location of Subsidiary Bank Charter
 Branch Locations

Assets

Deposits(in thousands as of December 31, 2004)Grand Forks, ND

Grand Forks, ND (2)Crookston, MNFisher, MNFordville, NDGilby, NDGrafton, NDHoople, NDLarimore, NDSt. Thomas, NDShelly, MNWarren, MN

$   637,462

$   418,732Twin Cities RegionSouth St. Paul, MN

South St. Paul, MNSt. Paul, MN (4)Minneapolis, MN (3)Arden Hills, MNBrooklyn Center, MNBrooklyn Park, MNEagan, MNEden Prairie, MNEdina, MNInver Grove Heights, MNMaplewood, MNMilaca, MNMinnetonka, MNOgilvie, MNPlymouth, MNPrinceton, MNRichfield, MNRoseville, MNSt. Anthony, MNSt. Louis Park, MNWatertown, MNWhite Bear Lake, MNZimmerman, MN

$2,072,154

$1,501,989            4   Region/Location of Subsidiary Bank Charter
 Branch Locations

Assets

Deposits(in thousands as of December 31, 2004)Wisconsin RegionMenomonie, WI

Menomonie, WI (3)Amery, WIBayfield, WIColfax, WIDanbury, WIDeer Park, WIEau Galle, WIElk Mound, WIFrederic, WIKnapp, WILa Pointe, WINew Richmond, WIRock Falls, WISiren, WIWashburn, WI

$524,401

$404,547


Communities Served By Our Banks

We operate in 83 communities across Minnesota, Wisconsin and North Dakota. Over the past few years, we
have been expanding significantly in more urban metropolitan areas, including Minneapolis/St. Paul, Fargo/Moorhead, and St. Cloud.
Before that time, we had our strongest market presence in communities outside major metropolitan areas. In Minnesota, these
non-metropolitan communities are a blend of agricultural-based areas in the southwestern portion of the state and more
recreational and resort-based communities in west central Minnesota. Our North Dakota communities are in primarily
agricultural-based areas located along the Red River Valley and in western North Dakota surrounding the Minot trade area. In
Wisconsin, our locations are concentrated on the western side of the state. In our markets located outside the major metropolitan
areas, we generally are first or second in deposit market share.

Lending Activities

We maintain a diversified loan portfolio consisting of commercial, commercial and residential real
estate, agricultural, consumer and tax-exempt loans.

Commercial Loans.   Loans in this category include term loans and operating lines
of credit primarily for manufacturing, wholesale, or retail businesses. Although we rely on the borrowers business
operations as the principal source of repayment, we also generally obtain personal guarantees and security interests in inventory,
receivables, and equipment as collateral support for the loans. We utilize standard advance rates in determining amounts that can
be advanced for each collateral type. Approximately 72% of our commercial loan portfolio consists of short-term floating rate
advances that are normally secured by inventory and receivables. The remaining 28% of the commercial loan portfolio consists of
fixed rate loans typically amortizing over approximately five years and secured by equipment.

Commercial Real Estate Loans.   Our commercial real estate portfolio, which
includes interim commercial real estate construction, consists primarily of loans to business customers who occupy the property or
use the property for income production. Commercial real estate loans generally are made for up to 80% of appraised value or cost
and typically have a term of five years with 15 to 20 year amortization. Approximately 44% of our commercial real estate loans are
fixed rate loans and 56% are adjustable rate loans.

Agricultural Loans.   Our agricultural loans include term loans secured by farm
property or equipment and operating loans used for commodity production. Our agricultural customers and

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agricultural-based communities are diversified across the three states we serve, and we extend credit to
12 different areas of commodity production, including crops, dairy, and livestock. Approximately 75% of our agricultural loans are
short-term floating rate loans. The remainder of the agricultural loans are fixed rate loans with terms generally under five
years.

Residential Real Estate Loans.   The residential real estate portfolio includes
home equity loans, first mortgage residential real estate loans, and some construction loans. The construction loans are typically
made to builders on homes under construction that have been pre-sold. Loan to value ratios for home equity loans typically range
from 80% to 100%. Approximately 23% of our home equity loans are fixed rate loans with terms of five to 12 years. The remaining
77% of our home equity loans are floating rate lines of credit. First mortgage residential real estate lending is generally
conducted in compliance with secondary market underwriting guidelines, and most newly originated fixed rate first mortgage loans
are sold into the secondary market. The first mortgage residential real estate loans that we keep in our portfolio are generally
adjustable rate loans and often involve vacation homes in our recreational and resort-based communities.

Consumer Loans.   Loans in this category include automobile loans, student loans
and personal lines of credit. In addition to our direct lending operations, our subsidiary banks also purchase indirect retail
installment sales contracts primarily from automobile dealers, certain recreational vehicle dealers, and certain sport recreation
dealers where the selling dealer is well known to us and located in our primary trade area. Approximately 72% of our consumer
loans are fixed rate loans with terms of three to five years.

Tax-Exempt Loans.   Tax-exempt loans and leases are made to qualifying
organizations located within our primary trade area.

Deposits

We emphasize developing relationships with individuals and business customers in order to increase our
deposit base. We offer a broad range of competitively priced deposit products designed to meet the individual needs of our
customers, including checking accounts, money market accounts, savings accounts and certificates of deposit. Deposits in our banks
are insured by the Federal Deposit Insurance Corporation (FDIC) up to statutory limits (currently $100,000). Deposit
product development is the primary responsibility of our holding company marketing department, with input and feedback from the
subsidiary banks market managers. Pricing of products is generally consistent among all of our banks, with bank market
managers having some local authority to modify pricing on certain products to meet the market and/or the local competition.

Other Products and Services

We operate various financial services subsidiaries, which provide insurance, trust and other fiduciary
services. The subsidiaries allow us to offer a full range of products and services to our customers. On a consolidated basis,
these other financial services subsidiaries historically have accounted for less than 10% of our annual earnings.

Bremer Trust, National Association.   Bremer Trust, National Association has trust
powers and offers trust and other fiduciary services in the majority of our markets. Services that Bremer Trust provides to our
customers include serving as trustee, investment agent, custodian, personal representative, and as a conservator for individuals,
businesses, and public and tax-exempt organizations. Bremer Trust directly serves as an investment advisor for the proprietary
stock and bond mutual funds we offer to our trust client accounts. It also operates on a limited basis as a registrar and transfer
agent. As of December 31, 2004, Bremer Trust had 74 employees. Our total trust revenues for 2004 were $11.0 million.

Bremer Insurance Agencies, Inc.   Bremer Insurance Agencies, Inc. is an
independent insurance agency with offices in Minnesota, Wisconsin and North Dakota, representing many different insurance
companies. This gives agency personnel the ability to tailor coverage to meet the differing needs of our diverse customer base.
The agencys book of business is generated by selling personal, life, health,

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commercial and agricultural insurance products. In 2004, Bremer Insurance generated insurance
commissions of $11.1 million and, as of December 31, 2004, it had 94 employees.

Brokerage Services.   Bremer Investments provides consumer investment products and
services at our subsidiary bank offices through INVEST Financial Corporation of Tampa, Florida. We have an agreement with
INVEST to deliver investment services to our customers through our branch network, and we receive a portion of the
commissions earned by the investment representatives in those branches. We had $6.2 million in brokerage commissions in 2004.

Subsidiaries No Longer Conducting New Business Activities.   Bremer Life Insurance
Company was formed as a reinsurer of credit life and credit accident and health insurance sold by the Bremer banks. In 2003, we
discontinued selling credit life and disability insurance products through Bremer Life Insurance Company and replaced them with a
bank product. Bremer Business Finance Corporation is a subsidiary originally formed in 1996 that was engaged in secured lending
activities. Bremer Business Finance Corporation discontinued accepting new loan applications in 2003, and its loan portfolio has
declined to $12.2 million at December 31, 2004 from $20.0 million at December 31, 2003.

Operations and Administration

We provide a broad range of services to the individual subsidiaries in order to augment the capacities
of the subsidiary banks management and to achieve many of the synergies of a larger company.

Operations Center.   Back-office operations for all banks are housed in an
operations center in Lake Elmo, Minnesota. We use a third-party provider for delivery of most data and item processing services
for Bremer and its subsidiaries. We have entered into contracts for these services that extend through May 2008. Some of the
operations of this third party provider are located in our operations center.

Credit.   The credit administration division, under the leadership of the Chief
Credit Officer, is responsible for managing the Companys credit granting process. We evaluate and approve credit through a
system of credit authorities that provides market personnel and market executives with authority levels that are designed to
balance responsiveness to the customer, efficiency, and soundness of credit decisions. We assign credit authorities in the markets
at the individual lender, market manager, and region credit manager levels. Each region has a credit committee which approves
larger credits. An executive credit committee approves those extensions of credit that exceed the limits established for the
region credit committees and approves all credit policy and guideline changes. Membership of the executive credit committee
includes the Companys Chief Credit Officer, the four regional credit managers, the special assets manager, and the
Companys business loan portfolio manager.

Risk Management.   The risk management division is an independent unit that
assists us in managing and controlling risk throughout the organization. This is done through risk assessments, consulting,
monitoring, and performing internal audits and examinations of banks, other subsidiaries, and corporate support functions. The
chief risk officer has a direct reporting relationship to the holding companys board of directors and its audit committee as
well as the boards of the operating entities. Risk management consists of credit examination, internal audit, compliance
administration and counsel, and information security.

| |  | Credit examination provides an independent assessment of our credit process and quality on a regular basis. The
frequency of examination is based on a risk assessment and provides for more frequent examinations for units exhibiting higher
risk factors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Internal audit conducts periodic operational, financial, and internal control reviews of all of our affiliates and system-wide
operations and reports its findings to the audit committee and, where applicable, bank boards of directors.                  
| |  | Compliance administration and compliance counsel provide assistance to the centralized functions and banks in meeting their
compliance responsibilities and provides centralized Bank Secrecy Act/Anti-money Laundering support.                            

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| |  | Information security provides risk oversight of information technology activities by monitoring internal and external
environments, reporting findings to the audit committee, and ensuring appropriate responses to findings.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Asset Liability and Investment Portfolio Management.   We operate using a
centralized treasury function. The asset liability committee of the holding company is responsible for developing appropriate risk
management policies and for monitoring asset liability activities to assure that they are conducted within established risk
parameters. The treasurer has day-to-day responsibility for our overall interest rate risk, liquidity, and investment portfolio
management.

Finance.   We have established policies for capital expenditures, accounting
policy, capital adequacy and dividends. In addition, we monitor the performance of our individual subsidiaries and coordinate the
reporting process, the strategic planning process and annual profit planning.

Human Resources.   Our human resources division has established standard salary
administration procedures, and our operating regions administer these standards at their level. Employee benefits are standardized
and administered by the holding company.

Marketing.   Our marketing division manages our branding efforts to assure that
consistent messages are communicated in all of our external communications.

Competition

We conduct business in the highly competitive financial services industry. The financial services
industry in which we compete is comprised of commercial banks, thrifts, credit unions, investment banks, brokerage houses, money
managers, mortgage banks, insurance companies and other providers of financial products and services. These firms compete with us
for loans, deposits, trust services, investment products and a host of other financial products and services.

We believe that our success in competing effectively with these alternative providers of financial
services will be partly based on our ability to monitor the local economies, make decisions close to the marketplace, commit to
and be involved in the communities we serve, and fully develop our relationship management concepts. We must preserve our ability
to focus on providing personalized quality banking services to maintain or improve our competitive position in our markets. We
believe that our size, combined with our support services in specialized areas, adds to the strength of the individual banks,
enabling them to compete more effectively. Some of our competitors are not subject to the same degree of regulation as that
imposed on bank holding companies and national banks. In addition, the larger banking organizations, investment banks and
brokerage houses have significantly greater resources than we do. As a result, some of our competitors have advantages over us in
name recognition and market penetration.

Employees

As of February 28, 2005, we had 1,625 full-time equivalent employees. We provide our employees with
a comprehensive program of benefits, some of which are on a contributory basis, including comprehensive medical and dental plans,
life insurance plans, and 401(k) plans. In addition, all the employees have the opportunity to invest in our class A common stock.
None of our employees is a member of a collective bargaining unit. We consider our relationship with our employees to be good.

ITEM 2.   PROPERTIES

We lease our principal offices at 445 Minnesota Street, Suite 2000, St. Paul, Minnesota 55101,
which consist of approximately 25,000 square feet. In addition, the centralized service operations of the holding company occupy
approximately 83,900 square feet of owned property in Lake Elmo, Minnesota, a suburb of St. Paul. An additional 17,000 square feet
of that property is occupied by one of our third party providers of data and item processing services. We believe that the
principal offices at 445 Minnesota Street in St. Paul and our service operations facility will be sufficient for our needs in the
foreseeable future.

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Substantially all of the offices and branches of the subsidiary banks outside of the Minneapolis/St.
Paul market are owned, with the primary exception of small leased spaces in supermarkets. Within the St. Paul/Minneapolis market
area, we lease 13 of our 28 banking offices. Our bank facilities range in size from less than 400 square feet to more than 52,000
square feet.

ITEM 3.   LEGAL PROCEEDINGS

There are no legal proceedings pending other than ordinary routine litigation incidental to our
business, the resolution of which, either individually or in the aggregate, will not have a material adverse effect on the company
or its financial condition.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the year ended December 31, 2004 to a vote
of our security holders, through the solicitation of proxies or otherwise.

PART II

ITEM 5.   MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

There is no established trading market for the shares of our class A common stock. To the best of our
knowledge, during the period from May 18, 1989 (the closing date of the registered initial public offering of Bremers
class A common stock) through February 28, 2005, a majority of the purchases and sales of shares of the class A common stock
have consisted of transfers effected upon the exercise of the options described in the portions of Bremers Prospectus dated
April 20, 1989 (Prospectus) entitled Description of Capital Stock  Description of Class A Common
Stock  Restrictions on Transfer on page 62 of the Prospectus and Description of Capital Stock  Description
of Class A Common Stock First Call Option to Company on page 64 of the Prospectus (which portions are hereby
incorporated by reference pursuant to Rule 12b-23 under the Securities Exchange Act of 1934). We are not obligated to purchase
any shares of class A common stock from a holder upon the exercise of a put option if the purchase price paid for the shares
subject to the put option, when added to the purchase price paid for all previous purchases of class A common stock during the
preceding twelve-month period, would exceed 10% of our net worth as of the date of such purchase. As of December 31, 2004,
our net worth, including redeemable class A common stock, was $504.2 million, and 10% of our net worth and redeemable class A
common stock was $50.4 million.

During the period from January 1, 2004 through February 28, 2005, we did not directly purchase
any shares of class A common stock but assigned to various parties our options to purchase a total of 121,032.9244 shares. These
options were assigned to the Bremer Financial Corporation Employee Stock Ownership Plan (ESOP) (8,971.3837 shares),
the Bremer Banks Profit Sharing Plus Plan (64,969.8697 shares), executives and directors under the Executive Stock Purchase Plan
(47,174.0000 shares), and certain directors of subsidiary banks (50.0000 shares). To the best of our knowledge, shares purchased
by these parties upon exercise of these assigned options were the only transfers of shares of class A common stock effected during
the period from January 1, 2004 through February 28, 2005. The sales price of the shares of class A common stock in such
transactions occurring during that period ranged from $38.95 to $56 .50 per share. These prices were equal to either the per share
book value of the class A common stock as shown in our consolidated balance sheet dated as of the last day of the immediately
preceding fiscal quarter or, and only with respect to shares transferred that had been held for employees in the ESOP, the per
share fair market value as determined by an independent appraiser. At December 31, 2004, the most recent date for which a per
share book value for the class A common stock is available, such value was $42.02.

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To the best of our knowledge, no brokers are used to sell the shares of class A common stock, and there
are no market makers for the class A common stock. The Company has sold none of its equity securities during the three years ended
December 31, 2004.

Holders

As of February 28, 2005, there were 1,429 holders of record of the shares of class A common
stock.

Dividends

The subsidiary banks ability to pay dividends to the parent and the parents ability to pay
dividends to holders of the class A common stock are restricted and limited. The restrictions on payments of dividends are
described in Note Q of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. Each
of the subsidiary banks is subject to extensive regulation regarding the payment of dividends and other matters. All subsidiary
banks are nationally chartered and are regulated by the Office of the Comptroller of the Currency. In addition, because the
deposits of our subsidiary banks are insured up to the applicable limit (currently $100,000) by the FDIC, all of the subsidiary
banks are subject to regulation by the FDIC. The parent and the foundation, as bank holding companies, are regulated by the Board
of Governors of the Federal Reserve System.

Dividends from Subsidiary Banks.   A substantial portion of our cash flow and
income is derived from dividends paid to us by the subsidiary banks, and restrictions on the payment of such dividends could
affect the payment of dividends by the parent. With regard to the subsidiary banks, and in addition to the statutory prohibition
against the withdrawal of any portion of a national banks capital and certain statutory limitations on the payment of
dividends, the approval of the Comptroller is required for the payment of any dividend by any national bank if the total of all
dividends declared by the bank in any calendar year exceeds the total of its net profits (as defined) for that year combined with
its retained net profits for the preceding two calendar years, less any required transfer to surplus. The Comptroller also has
issued a banking circular emphasizing that the level of cash dividends should bear a direct correlation to the level of a national
banks current and expected earnings stream, the banks need to maintain an adequate capital base, and other
factors.

In addition to the foregoing limitations, the appropriate federal banking agency could take the position
that it has the power to prohibit a national bank from paying dividends if, in its view, such payments would constitute unsafe or
unsound banking practices.

The payment of dividends by any national bank also is affected by the requirements to maintain adequate
capital pursuant to the capital adequacy guidelines issued by the Comptroller. The Comptroller has issued capital adequacy
regulations for national banks subject to the Comptrollers primary supervision. These regulations provide for a minimum Tier
1 capital to total assets (leverage) ratio of 4.00% for the most highly-rated banks and a minimum total capital to risk-weighted
assets (total capital) ratio of 8.00%. These guidelines and regulations further provide that capital adequacy is to be considered
on a case-by-case basis in view of various qualitative factors that affect a banks overall financial condition. Most banking
organizations are expected to maintain a leverage ratio of 100 to 200 basis points above this minimum, depending on their
financial condition. The subsidiary banks are in compliance with the Comptrollers minimum capital guidelines. See the
discussion of the capital adequacy guidelines set forth in the portion of Part II of this Annual Report on Form 10-K entitled
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations  Capital
Management.

The above regulations and restrictions on dividends paid by the subsidiary banks may limit our ability
to obtain funds from such dividends for our cash needs, including funds for payment of operating expenses and for the payment of
dividends on the class A and class B common stock, as well as funds necessary to facilitate acquisitions. However, because of the
capital positions of the subsidiary banks, we have been able to obtain dividends sufficient to meet our cash flow needs.

As of December 31, 2004, the subsidiary banks had retained earnings of $29.9 million which were
available for distribution to the parent as dividends in 2005 subject to regulatory and administrative

10

---

restrictions. Of this amount, approximately $27.2 million was available for distribution without obtaining the prior approval of the appropriate bank regulator. The subsidiary banks paid total dividends of $23.0 million in 2004 and $32.2 million in 2003 to the parent. The range of dividend payouts (dividends paid divided by net income) was 0.0% to 82.0% in 2004 and 0.0% to 137.5% in 2003.

Under the ESOP, and at the option of the ESOPs Administrator, cash dividends declared on the shares of class A common stock held by the ESOP will be allocated to the ESOP participants. To the extent that cash dividends declared on the class A common stock held by the ESOP are distributed to the participants (whether directly or indirectly), the dividends will be deductible to us for income tax purposes. Any dividends paid in the form of class A common stock with respect to shares allocated to the individual participants accounts will be allocated to such accounts.

Under the Profit Sharing Plan, all cash dividends paid on the class A common stock are allocated to the accounts of the participants holding shares of the class A common stock in their profit sharing accounts. All such proceeds are available to the participants for investment under the Profit Sharing Plan in accordance with the terms and conditions of the Profit Sharing Plan. All dividends paid in the form of class A common stock will be allocated to the account of the participant in which the shares are held. In no event will dividends paid on the class A common stock held by the participants accounts within the Profit Sharing Plan be forfeited or otherwise allocated and held by the trustees of the Profit Sharing Plan.

Dividends from the Company.   Our payment of dividends is limited by, among other things, the requirement to maintain adequate capital pursuant to the capital adequacy guidelines issued by the Federal Reserve Board. These guidelines are substantially similar to those promulgated by the Comptroller with respect to national banks, which are discussed above. The payment of dividends by a bank holding company also is subject to the general limitation that the Federal Reserve Board could take the position that it has the power to prohibit the bank holding company from paying dividends if, in its view, such payments would constitute an unsafe or unsound practice.

We declared and paid dividends to the foundation and all other holders of our class A common stock of $22.8 million in 2004 and $21.6 million in 2003. We paid $6.0 million of dividends in each of the last two quarters of 2004 and $5.4 million of dividends in each of the first two quarters of 2004 and all four quarters of 2003. The dividend yield, which consists of dividends paid during the year divided by shareholders equity as of the last day of the preceding year, was 4.9% and 5.0% for the years ended December 31, 2004 and 2003.

11

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ITEM 6.   SELECTED FINANCIAL DATA

BREMER FINANCIAL CORPORATION AND SUBSIDIARIES

At or for the year ended December 31,2004
 2003
 2002
 2001

                                2000(dollars in thousands, except per share data)Operating resultsTotal interest income



$
286,895


$
274,381


$
298,960


$
329,230


$
314,171Net interest income




198,056



185,770



195,059



171,666



150,989Net interest income (1)




206,610



193,973



203,374



179,806



159,051Provision for credit losses




7,042



14,805



18,161



12,054



8,338Noninterest income




79,720



86,780



74,643



67,738



54,217Noninterest expense




172,470



164,543



159,129



148,673



126,630Net income




64,177



61,092



61,649



51,626



45,781Dividends




22,800



21,600



19,800



19,200



16,680Average balancesTotal assets



$
5,829,367


$
5,357,353


$
5,000,244


$
4,657,716


$
4,010,098Securities (2)




1,249,306



1,165,642



1,088,518



1,104,541



1,001,031Loans and leases (3)




4,213,097



3,802,654



3,540,323



3,210,537



2,749,662Total deposits




4,069,376



3,788,738



3,647,435



3,461,900



2,982,220Short-term borrowings




798,611



573,608



427,309



450,407



423,258Long-term debt




429,505



482,115



447,912



307,708



215,009Redeemable class A common stock




38,865



36,061



32,960



29,758



26,677Shareholders equity




446,944



414,700



379,044



342,216



306,781Period-end balancesTotal assets



$
6,141,519


$
5,673,709


$
5,261,963


$
5,096,484


$
4,192,596Securities (2)




1,193,446



1,314,440



1,126,501



1,201,645



951,627Loans and leases (3)




4,541,993



3,964,015



3,679,669



3,498,839



2,915,601Total deposits




4,210,096



4,050,976



3,750,329



3,806,018



3,106,082Short-term borrowings




988,457



639,358



511,476



448,912



441,746Long-term debt




380,700



460,158



496,545



394,790



232,660Redeemable class A common stock




40,335



37,394



34,728



31,193



28,324Shareholders equity




463,856



430,033



399,368



358,719



325,715Financial ratiosReturn on average assets (4)




1.10
%


1.14
%


1.23
%


1.11
%


1.14
                                %Return on average equity (5)




13.21



13.55



14.96



13.88



13.73Average equity to average assets (5)




8.33



8.41



8.24



7.99



8.32Tangible equity to assets (5)




6.72



6.58



6.39



5.67



7.37Dividend payout




35.53



35.36



32.12



37.19



36.43Net interest margin (1)




3.77



3.89



4.38



4.15



4.22Operating efficiency ratio (6)




60.23



58.61



57.24



60.06



59.38Reserve for credit losses to total loans and leases




1.35



1.49



1.60



1.54



1.57Net charge-offs to average loans and leases




0.11



0.39



0.37



0.26



0.17Per share of common stock(5)Net income-basic and diluted



$
5.35


$
5.09


$
5.14


$
4.30


$
3.82Dividends paid per share




1.90



1.80



1.65



1.60



1.39Book value




42.02



38.95



36.17



32.49



29.50(1)        Tax-equivalent basis (TEB).
                                        (2)       Includes securities held-to-maturity and securities available-for-sale.

                                        (3)       Net of unearned discount and includes nonaccrual loans and leases.
                                        (4)       Calculation is based on income before minority interests.
                                        (5)       Calculation includes shareholders equity and redeemable class A common stock.
                                        (6)       Noninterest expense as a percentage of tax-equivalent net interest income and noninterest income.


12

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ITEM 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Application of Critical Accounting Policies

In preparing the financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. A summary of our significant accounting policies can be found in Note A to the consolidated financial statements, and many of these policies are relatively straightforward. However, management has identified the accounting policies described below as those that are critical to an understanding of our consolidated financial statements and managements discussion and analysis due to the judgments, estimates and assumptions inherent in those policies.

The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated. We base our assumptions, estimates and judgments on a combination of historical experiences and other reasonable factors.

Reserves for Credit Losses.   In general, determining the amount of the reserve for credit losses requires the use of significant judgment and estimates by management. We maintain an allowance for credit losses to absorb probable losses in the loan and lease portfolio based on a quarterly analysis of the portfolio and expected future losses. Reserves for credit losses include charges to reduce the recorded balances of loans receivable and real estate to their estimated net realizable value or fair value, as applicable. The policy for accounting for the reserves for credit losses is described in the later section entitled  Financial Condition  Reserve for Credit Losses and in Note A to the consolidated financial statements.

Investment Securities.   Investments in marketable equity and debt securities are classified into three categories  held-to-maturity, available-for-sale, or trading  pursuant to Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of December 31, 2004, no investments were classified as trading securities. Held-to-maturity securities, which are valued at amortized historical cost, represent investments for which we have the ability and intent to hold to maturity and may be sold only under very limited circumstances. We currently classify our investments in certain municipal bond obligations and certain U.S. government agency obligations as held-to-maturity securities. Available-for-sale securities consist of debt and equity securities that will be held for indefinite periods of time, including securities
that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, or changes in the availability or yield of alternative investments. These securities 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 shareholders equity until realized. A portion of the unrealized holding gains and losses is allocated to redeemable class A common stock. Gains or losses on these securities are computed based on the amortized cost of the specific securities when sold.

Management periodically evaluates investment and mortgage-backed securities for other than temporary declines in fair value. Declines in fair value of individual investment and mortgage-backed securities below their amortized cost that are deemed to be other than temporary are written down to current market value and included in earnings as realized losses in the period the securities are deemed to be impaired. The initial indicator of impairment is a sustained decline in market price below the amount recorded for the investment. We consider the length of time and the extent to which market value has been less than cost, the cause of the price decline, the extent to which the price decline is due to the general level of interest rates or other issuer specific factors, the issuers financial condition and ability to make future payments in a timely manner, and our investment horizon. Our analysis as of December 31, 2004
indicates that our unrealized losses were caused by market interest rate increases. We intend to hold these investments until a recovery of fair value, which may be at maturity, and, as a result, there were no investment and mortgage-backed securities

13

---

which management identified to be other-than-temporarily impaired for the year ended December 31, 2004. If the financial markets experience deterioration and investments decline in fair value, charges to income could occur in future periods. See Note C to the consolidated financial statements.

Goodwill and Other Intangible Assets.   SFAS No. 142, Accounting for Goodwill and Other Intangible Assets, establishes standards for the amortization of acquired intangible assets and the non-amortization and impairment assessment of goodwill. In addition, SFAS No. 147, Acquisitions of Certain Financial Institutions, establishes standards for unidentifiable intangible assets acquired specifically in branch purchases that qualify as business combinations. At December 31, 2004, we had $84.2 million of goodwill, which is not subject to periodic amortization, and $15.4 million in other intangible assets, which is subject to periodic amortization. The largest components of our other intangible assets at December 31, 2004 were core deposit premiums at $11.7 million and mortgage servicing rights at $1.6 million. The core deposit premiums are being amortized over an estimated deposit
 life of 10 years from the date of acquisition. Other intangibles are being amortized on the basis of estimated remaining life.

We performed the annual impairment tests on our goodwill assets and have concluded that the recorded value of goodwill was not impaired as of December 31, 2004. There are many assumptions and estimates underlying the determination of impairment. Impairment testing is based on a determination of the value of each reporting unit, using readily available market and earnings data for comparable publicly-traded organizations within the same time period, and comparing that calculation of value to the current book value of the unit. Another estimate using different, but still reasonable, assumptions could produce a significantly different result. Additionally, future events could cause management to conclude impairment indicators exist and our goodwill is impaired, which would result in us recording an impairment loss. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Retirement Plan Accounting.   As discussed in Note L of the Notes to the Consolidated Financial Statements, we provide pension benefits to substantially all employees. As of December 31, 2004, the fair value of the qualified pension plan assets was $65.3 million, compared to an accumulated benefit obligation at that date of $53.2 million. We account for these plans in accordance with SFAS No. 87 Employers Accounting for Pensions, which requires us to make a number of economic and other assumptions that can have a significant impact on amounts recorded in our income statement and statement of financial position. Assumptions regarding long-term discount rates and the expected return on pension plan assets can have the most material impact on our financial results and funding requirements.

The SFAS No. 87 discount rate is used to calculate the present value of pension obligations and the service cost and interest components of net periodic pension cost. It is intended to represent the rate at which pension benefit obligations could be settled by purchase of an annuity contract. Lower discount rate assumptions have the effect of increasing the service cost and interest cost components of pension expense, while higher discount rates have the opposite effect. The SFAS No. 87 discount rate used in calculating the 2004 pension expense was 6.00% compared to 6.75% for 2003. The SFAS No. 87 discount rate which will be used in calculating 2005 pension expense is 6.00%. Each 25 basis point reduction in the 2005 discount rate assumption of 6.0% would increase our 2005 pension expense by approximately $390 thousand.

The SFAS No. 87 expected return on pension plan assets is our long-term expectation of the annual earnings rate on the pension fund and is determined by looking at historical trends, current expectations for certain asset categories based on broad equity and bond indices and our actual and targeted asset allocation. Higher expected return assumptions have the effect of decreasing pension costs while lower assumptions have the opposite effect. As of December 31, 2004, 66% of our pension plan assets were invested in a diversified mix of domestic and foreign equity securities and 34% in debt and other investments. Our expected return on pension assets used to determine 2004 pension expense was 8.5% compared to 9.0% for 2003. Our expected return as of January 1, 2005 used to determine 2005 pension expense was 8.5%. Each 25 basis point reduction in the 2005 expected rate of return would increase our 2005 pension expense by
approximately $162 thousand.

14

---

Recent Accounting Pronouncements and Developments

Note A to the consolidated financial statements discusses new accounting policies adopted by us during 2004 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects our financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section(s) of the financial review and the Notes to the consolidated financial statements.

Overview

Earnings.   We reported net income of $64.2 million or $5.35 basic and diluted earnings per share for the year ended December 31, 2004. This compares to net income of $61.1 million or $5.09 basic and diluted earnings per share in 2003 and $61.6 million or $5.14 basic and diluted earnings per share in 2002. Return on average equity was 13.21% in 2004, as compared to 13.55% in 2003 and 14.96% in 2002. Return on average assets was 1.10% in 2004, 1.14% in 2003 and 1.23% in 2002.

Assets.   Total assets at December 31, 2004 increased $467.8 million, or 8.2%, to $6.1 billion from $5.7 billion at December 31, 2003. During 2003, assets increased $411.7 million, or 7.8%, from $5.3 billion at December 31, 2002. Loans and leases, net of unearned discount, as a percentage of total assets were 74.0% at December 31, 2004, compared to 69.9% at December 31, 2003 and 70.0% at December 31, 2002.

Results of Operations

Net Interest Income.   We derive our net income primarily from net interest income. Net interest income is the difference between interest income, principally from loans and investment securities, and interest expense, principally on borrowings and customer deposits. Changes in net interest income result from changes in volume, net interest spread, and net interest margin. Volume refers to the average dollar levels of interest earning assets and interest bearing liabilities. Net interest spread refers to the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities. Net interest margin refers to the net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities.

15

---

The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities and the total dollar amounts of interest income from interest bearing assets and interest expense on interest bearing liabilities. In addition, the table shows resultant yields or costs, net interest income, net interest spread and net interest margin:

Years ended December 31,2004
 2003
 2002AverageBalance

Interest (1)

AverageRate/Yield

AverageBalance

Interest (1)

AverageRate/Yield

AverageBalance

Interest (1)

AverageRate/Yield(dollars in thousands)AssetsLoans and leases (2)Commercial and other



$
934,294


$
50,516



5.41
%

$
889,830


$
50,001



5.62
%

$
856,382


$
53,890



6.29
%Commercial real estate




1,443,719



86,668



6.00



1,225,989



77,215



6.30



1,067,489



77,308



7.24Agricultural




474,376



27,434



5.78



444,097



26,011



5.86



421,631



28,205



6.69Residential real estate




851,213



48,719



5.72



779,172



46,635



5.99



749,459



52,623



7.02Consumer




354,912



22,503



6.34



336,321



23,523



6.99



335,661



26,704



7.96Tax-exempt




154,583



11,567



7.48



127,245



10,190



8.01



109,701



9,395



8.56Total Loans and Leases




4,213,097



247,407



5.87



3,802,654



233,575



6.14



3,540,323



248,125



7.01Reserve for loan losses




(61,683
)










(61,984
)










(57,122
)Net Loans and Leases




4,151,414











3,740,670











3,483,201Securities (3)Taxable




1,062,961



34,359



3.23



981,430



34,972



3.56



892,540



43,815



4.91Tax-exempt




186,345



13,448



7.22



184,212



13,795



7.49



195,978



14,940



7.62Total Securities




1,249,306



47,807



3.83



1,165,642



48,767



4.18



1,088,518



58,755



5.40Federal funds sold




12,373



146



1.18



12,593



128



1.02



15,031



244



1.62Other earning assets




4,347



89



2.05



4,249



114



2.68



4,194



151



3.60Total Earning Assets (4)



$
5,479,123


$
295,449



5.39
%

$
4,985,138


$
282,584



5.67
%

$
4,648,066


$
307,275



6.61
%Cash and due from banks




154,520











152,753











145,321Other noninterest earning assets




257,407











281,446











263,979Total Assets



$
5,829,367










$
5,357,353










$
5,000,244Liabilities and Shareholders EquityNoninterest bearing deposits



$
745,134










$
668,457










$
584,071Interest bearing depositsSavings and NOW accounts




486,802


$
1,457



0.30
%


468,406


$
1,386



0.30
%


424,950


$
2,134



0.50
%Other interest bearing checking




265,257



318



0.12



250,228



334



0.13



238,338



574



0.24Money market savings




1,451,353



19,713



1.36



1,202,457



15,954



1.33



952,847



10,596



1.11Savings certificates




871,310



23,101



2.65



979,158



27,885



2.85



1,177,926



45,125



3.83Certificates over $100,000




249,520



6,615



2.65



220,032



6,005



2.73



269,303



10,153



3.77Total Interest Bearing Deposits




3,324,242



51,204



1.54



3,120,281



51,564



1.65



3,063,364



68,582



2.24Total Deposits




4,069,376











3,788,738











3,647,435Short-term borrowings




798,611



11,042



1.38



573,608



7,202



1.26



427,309



6,587



1.54Long-term debt




429,505



26,593



6.19



482,115



29,845



6.19



447,912



28,732



6.41Total Interest Bearing Liabilities



$
4,552,358


$
88,839



1.95
%

$
4,176,004


$
88,611



2.12
%

$
3,938,585


$
103,901



2.64
%Noninterest bearing liabilities




45,916











61,981











65,434Total Liabilities




5,343,408











4,906,442











4,588,090Minority interest




150











150











150Redeemable class A common stock




38,865











36,061











32,960Shareholders equity




446,944











414,700











379,044Total Liabilities and Equity



$
5,829,367










$
5,357,353










$
5,000,244Net interest income







$
206,610










$
193,973










$
203,374Net interest spread












3.44
%










3.55
%










3.97
%Net interest margin












3.77
%










3.89
%










4.38
%


---

|(1) | Interest income includes $8,554, $8,203 and $8,315 in 2004, 2003 and 2002 to adjust to a fully taxable basis using the federal statutory rate of 35%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Net of unearned discount and includes nonaccrual loans and leases.
|--- | ------------------------------------------------------------------

|(3) | Excluding net unrealized gain (loss) on available-for-sale securities.
|--- | ----------------------------------------------------------------------

|(4) | Before deducting the reserve for credit losses.
|--- | -----------------------------------------------

16

---

The following table illustrates, on a tax-equivalent basis, for the periods indicated, the changes in our net interest income due to changes in volume and changes in interest rates. Changes in net interest income other than those due to volume have been included in changes due to rate:

Years ended December 31,2004 vs. 2003

                                2003 vs. 2002Increase (Decrease)Due to Change in

                                Increase (Decrease)Due to Change inVolume

Rate

Total

Volume

Rate

                                Total(in thousands)Interest earning assets:Loans and leases (1)



$
25,212


$
(11,380
)

$
13,832


$
18,385


$
(32,935
)

$
(14,550
                                )Taxable securities




2,905



(3,518
)


(613
)


4,364



(13,207
)


(8,843
                                )Tax-exempt securities (1)




160



(507
)


(347
)


(897
)


(248
)


(1,145
                                )Federal funds sold (2)








20



18



(40
)


(76
)


(116
                                )Other interest earning assets




3



(28
)


(25
)


2



(39
)


(37
                                )Total interest earning assets



$
28,278


$
(15,413
)

$
12,865


$
21,814


$
(46,505
)

$
(24,691
                                )Interest bearing liabilities:Savings and NOW accounts



$
204


$
(133
)

$
71


$
403


$
(1,151
)

$
(748
                                )Money market and other   interest bearing checking




2,394



1,349



3,743



2,108



3,010



5,118Savings certificates




(2,214
)


(1,960
)


(4,174
)


(9,474
)


(11,914
)


(21,388
                                )Short-term borrowings




2,825



1,015



3,840



2,255



(1,640
)


615Long-term debt




(3,257
)


5



(3,252
)


2,194



(1,081
)


1,113Total interest bearing   liabilities




(48
)


276



228



(2,514
)


(12,776
)


(15,290
                                )Change in net interest income



$
28,326


$
(15,689
)

$
12,637


$
24,528


$
(33,929
)

$
(9,401
                                )(1)       Interest income includes $8,554, $8,203 and $8,315 in 2004, 2003 and 2002 to adjust to a fully taxable basis using the federal
            statutory rate of 35%.


Tax-equivalent net interest income for 2004 was $206.6 million, an increase of 6.5% from the 2003 total
of $194.0 million. Our net interest margin declined to 3.77% in 2004 from 3.89% in 2003 and 4.38% in 2002. Net interest margin
increased in the quarter ended December 31, 2004 for the first quarter since the quarter ended September 30, 2002 as
short-term interest rates began to rise. The average yield on our earning assets declined 28 basis points when comparing 2004 with
2003. Meanwhile, we were able to reduce the average cost of our interest bearing liabilities by only 17 basis points when
comparing the same two periods. Offsetting some of the decline in net interest margin when comparing 2004 to 2003 was an increase
in average earning assets, which increased by $494.0 million or 9.9% in 2004 from 2003. Most of the increase in average earning
assets was due to growth in loans. Average loans and leases increased by $410.4 million, or 10.8%, in 2004 from 2003.

Tax-equivalent net interest income in 2003 decreased 4.6% from $203.4 million in 2002. The decrease in
net interest income in 2003, as our net interest margin declined to 3.89% in 2003 from 4.38% in 2002, was primarily due to the
effects of historically low interest rates. The average yield on our earning assets declined 94 basis points when comparing 2003
with 2002. Meanwhile, largely as a result of competitive pressure in deposit markets and already historically low deposit rates,
we were able to reduce the average cost of our interest bearing liabilities by only 52 basis points when comparing the same two
periods. Offsetting some of the decline in net interest margin when comparing 2003 to 2002 was an increase in average earning
assets, which increased by $337.1 million or 7.3% in 2003 from 2002. Most of this increase in average earning assets was also due
to growth in loans, which increased by $262.3 million, or 7.4%, in 2003 from 2002.

Provision for Credit Losses.   We establish the provision for credit losses based on a
quarterly assessment of the adequacy of the reserve for credit losses. The provision for credit losses was $7.0

17

---

million in 2004, $14.8 million in 2003 and $18.2 million in 2002. Net charge-offs were $4.5 million in 2004, $14.7 million in 2003 and $13.1 million in 2002. For further information regarding the provision for credit losses, see the section entitled  Financial Condition  Reserve for Credit Losses.

Noninterest Income.   Noninterest income was $79.7 million in 2004 compared to $86.8 million in 2003 and $74.6 million in 2002. The following table summarizes the components of noninterest income:

Years Ended December 31,2004

2003

2002(in thousands)Service charges



$
31,337


$
29,966


$
28,908Insurance




10,946



9,346



10,195Investment management and trust fees




11,031



9,933



9,418Brokerage




6,245



5,559



5,150Gain on sale of loans




10,510



19,302



12,640Gain on sale of securities




2,072



5,856



2,244Other noninterest income




7,579



6,818



6,088Total noninterest income



$
79,720


$
86,780


$
74,643


Service charge income increased by 4.6% in 2004 from 2003 and 3.7% in 2003 from 2002. Brokerage revenue increased by 12.3% in 2004 and 7.9% in 2003. Investment management and trust revenue increased by 11.1% in 2004 and 5.5% in 2003, while insurance revenue increased by 17.1% in 2004 following a decrease of 8.3% in 2003. The Company stopped selling most single premium credit life and disability insurance during 2002 and discontinued the product completely in 2003, which caused the decline in insurance revenue in 2003. Income from loan sales decreased by 45.5% in 2004 following an increase of 52.7% in 2003. Gains on sales of loans resulted primarily from the sale of fixed rate residential real estate first mortgages into the secondary market. The decline in gains on sale of loans in 2004 can be attributed to a reduced level of residential mortgage loan refinancing activity. The higher volume of loan sales and resulting income in 2003
was due in a large part to customer refinancing activity caused by historically low interest rates. Securities sales in early 2004 resulted in securities gains of $2.1 million compared to gains of $5.9 million in 2003.

Noninterest Expense.   Noninterest expense increased $7.9 million, or 4.8%, in 2004 and $5.4 million, or 3.4%, in 2003. The following table summarizes the components of noninterest expense:

Years ended December 31,2004

2003

2002(in thousands)Salaries and wages



$
81,651


$
76,247


$
72,740Employee benefits




22,501



21,603



20,801Occupancy




12,014



11,210



10,525Furniture and equipment




10,406



10,651



9,602Printing, postage and telephone




6,205



6,695



6,491Marketing




6,272



6,140



5,775Data processing fees




10,959



10,413



9,012Professional fees




4,339



3,360



4,821Other real estate owned




119



282



97FDIC premiums and examination fees




1,830



1,753



1,743Amortization of intangibles




2,739



2,866



2,986Other noninterest expense




13,435



13,323



14,536Total noninterest expense



$
172,470


$
164,543


$
159,129


Personnel costs, which include salaries, wages and employee benefits, accounted for 60.4% of noninterest expense in 2004 and increased by $6.3 million, or 6.4%, from 2003 and $4.3 million, or 4.6%, from 2002 to 2003. During 2004, we added additional staff to support higher rates of growth

18

---

and incurred higher costs associated with our variable pay programs. Personnel expenses in 2003 increased due in part to the opening of three new branches during the year.

Excluding personnel costs, noninterest expense increased $1.6 million, or 2.4%, from 2003 to 2004. Other noninterest expense increased by only $112.0 thousand when comparing these two periods. Excluding personnel costs, noninterest expense increased $1.1 million, or 1.7%, in 2003 from 2002. Other noninterest expense declined by $1.2 million when comparing these two periods. The higher level of other noninterest expense in 2002 was primarily related to transition costs associated with our move to a new operations center in 2002.

A common industry statistic used to measure the productivity of banking organizations is the operating efficiency ratio. The operating efficiency ratio measures the cost required to generate each dollar of revenue and is calculated by dividing noninterest expense by tax-equivalent net interest income and noninterest income. Our operating efficiency ratio was 60.2% in 2004, 58.6% in 2003 and 57.2% in 2002. Our strategic goal is to move the operating efficiency ratio to 55.0% or below.

Income Taxes.   Income tax expense, which consists of provisions for federal and state income taxes, was $34.1 million for 2004 compared to $32.1 million in 2003 and $30.8 million in 2002. Our effective tax rate was 34.7% in 2004, 34.5% in 2003 and 33.3% in 2002. Our effective tax rate increased in 2004 primarily as a result of higher state income taxes, including a provision for expense associated with the expected settlement of open audit issues with the Wisconsin Department of Revenue. Our effective tax rate increased in 2003 primarily as a result of a branch sale that occurred during the second quarter of 2003.

Financial Condition

Loan and Lease Portfolio.   We maintain a diversified loan and lease portfolio consisting of commercial, commercial real estate, agricultural, residential real estate, consumer and tax-exempt loans and leases. The following table summarizes the components of our gross loan and lease portfolio:

At December 31,2004
 2003
 2002
 2001
 2000Amount

%

Amount

%

Amount

%

Amount

%

Amount

%(dollars in thousands)Commercial and other



$
1,001,508



22.1
%

$
900,395



22.7
%

$
872,597



23.7
%

$
883,099



25.2
%

$
717,936



24.6
%Commercial real estate




1,432,738



31.5



1,230,752



31.0



1,052,194



28.6



957,318



27.3



733,746



25.1Construction




145,071



3.2



99,213



2.5



76,460



2.1



83,388



2.4



68,296



2.3Agricultural




496,019



10.9



449,765



11.4



436,364



11.9



417,069



11.9



416,660



14.3Residential real estate




910,352



20.0



780,351



19.7



768,068



20.9



708,334



20.2



578,876



19.8Construction




30,139



0.7



23,041



0.6



23,546



0.6



19,300



0.6



18,051



0.6Consumer




362,620



8.0



337,449



8.5



331,975



9.0



333,023



9.6



298,954



10.4Tax-exempt




163,546



3.6



143,049



3.6



118,465



3.2



97,308



2.8



83,082



2.9Total loans and leases



$
4,541,993



100.0
%

$
3,964,015



100.0
%

$
3,679,669



100.0
%

$
3,498,839



100.0
%

$
2,915,601



100.0
%


At December 31, 2004, our loan and lease portfolio of $4.5 billion was comprised of 60.4% commercial credit, 28.7% consumer credit and 10.9% agricultural credit. The loan and lease portfolio increased $578.0 million, or 14.6%, in 2004 and $284.3 million, or 7.7%, in 2003.

Our commercial portfolio is primarily secured with collateral consisting of inventory, receivables and equipment. We utilize standard advance rates in determining amounts that can be advanced for each collateral type. Advances secured by inventory and receivables are normally short-term floating rate advances. Equipment loans typically amortize over five years. The commercial portfolio increased by $101.1 million, or 11.2%, to $1.0 billion as of December 31, 2004 following an increase of $27.8 million in 2003 from 2002.

Our commercial real estate portfolio, which includes interim commercial real estate construction loans, consists primarily of loans to business customers who occupy the property or use the property for income production. Commercial real estate loans are generally made for up to 80.0% of appraised value or cost and typically have a term of five years with a 15 to 20 year amortization. We

19

---

added additional experienced staff in this area over the past couple years, particularly in the Twin Cities market, and as a result the commercial real estate portfolio increased $247.8 million, or 18.6%, in 2004 and $201.3 million, or 17.8%, in 2003.

Our agricultural loans include term loans secured by farmland or equipment and operating loans used for commodity production. Our agricultural customers and agricultural-based communities are diversified across the three states we serve, and we extend credit to 12 different types of commodity producers. Agricultural loans increased to $496.0 million, an increase of $46.3 million, or 10.3%, in 2004 compared to an increase of $13.4 million, or 3.1%, in 2003. For our agricultural customers, 2004 was a fairly average year with respect to crop conditions and prices. Government support programs continue to play an important role in the overall economics of farm production. At December 31, 2004, agricultural loans represented 10.9% of our total loans and leases, down from 11.4% at December 31, 2003.

Residential real estate loans increased $137.1 million, or 17.1%, in 2004 and $11.8 million, or 1.5%, in 2003. The residential real estate portfolio includes home equity loans, first mortgage residential real estate loans, and some construction loans. The construction loans are typically made to builders on homes under construction that have been pre-sold. Home equity loans comprise approximately 83% of our $940.5 million in residential real estate loans as of December 31, 2004. Combined loan to value ratios for home equity loans typically range from 80.0% to 100.0%. Over 75% of the increase in residential real estate loans in 2004 was in home equity loans, and all of the increase in residential real estate loans in 2003 was in home equity loans. Home equity loans increased $114.8 million, or 17.3%, in 2004 and $58.3 million, or 9.6%, in 2003. First mortgage residential real estate loans declined during each of the last two years,
 as most newly originated first mortgage residential real estate loans are sold into the secondary market.

Our consumer loan portfolio increased by $25.2 million, or 7.5%, in 2004, and $5.2 million, or 1.6%, in 2003. As of December 31, 2004, approximately $155.9 million, or 43.0%, of the consumer portfolio consisted of indirect auto loans, generally to borrowers within our market area. The remainder of the portfolio consisted of direct consumer loans, with credit card loans making up only about 1.8% of the total consumer portfolio.

Tax-exempt loans and leases, which are made to qualifying organizations located within our primary trade area, increased by $20.5 million, or 14.3%, in 2004 and $24.6 million, or 20.8%, in 2003.

The following table summarizes the amount and maturity of the loan and lease portfolio as of December 31, 2004:

At December 31, 2004, Maturing inOne Yearor Less

One toFive Years

OverFive Years

Total(in thousands)Commercial and other



$
569,679


$
397,991


$
33,838


$
1,001,508Commercial real estate




256,068



897,707



278,963



1,432,738Construction




58,153



46,896



40,022



145,071Agricultural




227,385



204,030



64,604



496,019Residential real estate




47,507



717,634



145,211



910,352Construction




26,384



3,381



374



30,139Consumer




150,383



199,513



12,724



362,620Tax-exempt




22,890



32,350



108,306



163,546Total loans and leases



$
1,358,449


$
2,499,502


$
684,042


$
4,541,993Loans and leases maturing after one yearFixed interest rate







$
1,055,936


$
285,496


$
1,341,432Variable interest rate








1,443,566



398,546



1,842,112Total







$
2,499,502


$
684,042


$
3,183,544


20

---

Nonperforming Assets.   Nonperforming assets include nonaccrual loans, restructured loans, and other real estate acquired in loan settlements. The accrual of interest on loans and leases is suspended when the interest or principal payments are contractually past due 90 days or more, unless the loan is fully secured and in the process of collection. Payments received on nonaccrual loans are typically applied to principal and not recorded as income. Restructured loans generally continue to accrue interest but include concessions in terms as a result of the borrowers deteriorated financial condition.

The following table presents comparative data for nonperforming assets:

At December 31,2004

2003

2002

2001

2000(dollars in thousands)Nonaccrual loans and leases



$
9,933


$
20,058


$
28,782


$
20,307


$
13,941Restructured loans and leases




210



280



323



499



50Total nonperforming loans and leases




10,143



20,338



29,105



20,806



13,991Other real estate owned (OREO)




1,229



3,598



2,805



1,616



3,658Total nonperforming assets



$
11,372


$
23,936


$
31,910


$
22,422


$
17,649Accruing loans and leases 90 days or more past due



$
5,160


$
3,284


$
3,407


$
2,995


$
3,590Nonperforming loans and leases to   total loans and leases




0.22
%


0.51
%


0.79
%


0.60
%


0.48
%Nonperforming assets to total loans,   leases and OREO




0.25



0.60



0.87



0.64



0.61Nonperforming assets and accruing 
  loans and leases 90 days or more 
  past due to total loans, leases and OREO




0.36



0.69



0.96



0.73



0.73


Nonperforming assets were $11.4 million at December 31, 2004, compared to $23.9 million at the end of 2003 and $31.9 million at the end of 2002. Correspondingly, nonperforming assets as a percentage of total loans, leases, and other real estate owned decreased to 0.25% at December 31, 2004, compared to 0.60% in 2003 and 0.87% in 2002. Nonperforming loans and leases, including nonaccrual and restructured loans and leases, totaled $10.1 million, or 0.22% of total loans and leases, at December 31, 2004, versus $20.3 million, or 0.51% of total loans and leases, at December 31, 2003, and $29.1 million, or 0.79% of total loans and leases, at December 31, 2002. The $10.2 million decrease in nonperforming loans and leases between December 31, 2003 and December 31, 2004 as well as the $8.8 million decrease in nonperforming loans and leases between December 31, 2002 and December 31, 2003 were due to
an improving economy and a decline in the level of nonperforming commercial credits originated in our finance company subsidiary, which were largely responsible for the increase in nonperforming assets during 2002.

Other real estate owned (OREO) decreased to $1.2 million at December 31, 2004, compared to $3.6 million at December 31, 2003 and $2.8 million at December 31, 2002. The increase in OREO in 2003 was primarily due to the addition of one commercial real estate property with a carrying value of $1.4 million. We sold approximately $13.0 thousand of OREO properties during January 2005.

Reserve for Credit Losses.   We maintain a reserve for credit losses to absorb losses inherent in the loan and lease portfolio. The reserve for credit losses consists of two components, a reserve for loan losses and a reserve for unfunded credit commitments. The reserve is based on ongoing, quarterly assessments of the probable estimated losses inherent in the loan and lease portfolio and on unused commitments to provide financing. The reserve is increased by the provision for credit losses, which is charged against current period operating results, and decreased by the amount of charge-offs, net of recoveries. Our methodology for assessing the appropriateness of the reserve consists of several key elements, which include the formula reserve, specific reserves, and the unallocated reserve.

21

---

The formula reserve is calculated by applying loss factors to our outstanding loans and certain unused commitments. Loss factors for each loan type are based on our historical loss experience through the course of the business cycle and may be adjusted for significant factors that, in managements judgment, affect the collectibility of the portfolio as of the evaluation date. Specific reserves are established in cases where management has identified significant conditions or circumstances related to a particular credit that management believes indicate the probability that a loss has been incurred in excess of the amount determined by the application of the formula reserve.

The unallocated reserve is comprised of two elements. The first element recognizes the model and estimation risk associated with the formula and specific reserves. The second element is based upon managements evaluation of various conditions that are not directly measured in the determination of the formula and specific reserves. The conditions evaluated in connection with the unallocated reserve may include existing general economic and business conditions affecting our key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent duration of the current business cycle, and findings of our internal loan review examiners.

The reserve also incorporates the results of measuring impaired loans and leases as provided in SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures. These accounting standards prescribe the measurement methods, income recognition, and disclosures related to impaired loans and leases. A loan is considered impaired when management determines that it is probable that we will be unable to collect all amounts due according to the original contractual terms of the loan or lease agreement. Impairment is measured by the difference between the recorded investment in the loan or lease (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount) and the estimated present value of total expected future cash flows, discounted at the loans effective rate, or the fair
value of the collateral, if the loan is collateral dependent. Impairment is recognized by adjusting the reserve for credit losses.

22

---

The reserve for credit losses was $61.5 million, or 1.35% of total loans and leases, at December 31, 2004, compared to $58.9 million, or 1.49% of loans and leases, at December 31, 2003, and $58.8 million, or 1.60% of loans and leases, at December 31, 2002. Activity in the reserve for credit losses for the past five years is shown in the following table:

For the Years Ended December 31,2004

2003

2002

2001

                                2000(dollars in thousands)Beginning of period



$
58,906


$
58,799


$
53,716


$
45,895


$
41,895Charge-offs:Commercial and other




3,258



4,645



9,368



6,316



3,273Commercial real estate




167



7,728



2,510



174



287Construction




















24Agricultural




25



114



330



377



518Residential real estate




962



855



301



422



320Consumer




2,189



2,291



2,662



2,563



1,481Total charge-offs




6,601



15,633



15,171



9,852



5,903Recoveries:Commercial and other




275



194



874



555



320Commercial real estate




1,161



36



105



100



226Construction












6







5Agricultural




99



84



399



384



165Residential real estate




149



57



70



35



64Consumer




459



564



639



545



491Total recoveries




2,143



935



2,093



1,619



1,271Net charge-offs




4,458



14,698



13,078



8,233



4,632Provision for credit losses




7,042



14,805



18,161



12,054



8,338Reserve related to acquired assets
















4,000



294End of period



$
61,490


$
58,906


$
58,799


$
53,716


$
45,895Components:Reserve for loan losses



$
57,965


$
58,906


$
58,799


$
53,716


$
45,895Reserve for unfunded credit   commitments (1)




3,525















Reserve for credit losses



$
61,490


$
58,906


$
58,799


$
53,716


$
45,895Average loans and leases



$
4,213,097


$
3,802,654


$
3,540,323


$
3,210,537


$
2,749,662Annualized net charge-offs to  average loans and leases




0.11
%


0.39
%


0.37
%


0.26
%


0.17
                                %Reserve for loan losses as a percentage of:Period-end loans and leases




1.28
%


1.49
%


1.60
%


1.54
%


1.57
                                %Nonperforming loans and leases




571.51



289.63



202.02



258.17



328.03Nonperforming assets




509.73



246.09



184.27



239.57



260.04Reserve for credit losses as a percentage of:Period-end loans and leases




1.35
%


1.49
%


1.60
%


1.54
%


1.57
                                %Nonperforming loans and leases




606.27



289.63



202.02



258.17



328.03Nonperforming assets




540.72



246.09



184.27



239.57



260.04(1)       Effective December 31, 2004, we reclassified the portion of the reserve for loan losses related to unfunded loan commitments and
                                                     letters of credit in the amount of $3.5 million to other liabilities.


23

---

Net charge-offs were $4.5 million in 2004, $14.7 million in 2003, and $13.1 million in 2002. Expressed as a percentage of average loans and leases, net charge-offs decreased significantly to 0.11% in 2004 from 0.39% in 2003 and 0.37% in 2002. Charge-offs of commercial loans decreased to $3.3 million in 2004 from $4.6 million in 2003. Charge-offs of commercial real estate loans decreased to $167.0 thousand in 2004 from $7.7 million in 2003. We recovered $1.2 million related to two commercial real estate credits in 2004. These credits were originated in our finance company subsidiary. The higher levels of charge-offs in 2003 and 2002 were largely the result of credits originated in our finance company subsidiary, which is no longer making loans. The provision for credit losses was $7.0 million in 2004, $14.8 million in 2003, and $18.2 million in 2002.

The reserve for credit losses to nonperforming loans and leases increased to 606.27% at December 31, 2004 from 289.63% at December 31, 2003 and 202.02% at December 31, 2002. The ratio of classified loans and leases, which include those loans and leases with an internal loan review rating of substandard, doubtful or loss, to total loans and leases was 2.3% at December 31, 2004 compared to 2.9% at December 31, 2003 and 3.6% at December 31, 2002.

Management has allocated the reserve to sectors based on relative risk characteristics of the loan and lease portfolio. Commercial allocations are based on a quarterly review of individual loans outstanding and commitments to extend credit and letters of credit. Consumer allocations are based on an analysis of product mix, credit scoring and risk composition of the portfolio, fraud loss and bankruptcy experiences, historical and expected delinquency, and charge-off statistics for each homogenous category or group of loans.

The following table shows the allocation of the reserve for credit losses to sectors for each of the last five years:

At December 31,2004
 2003
 2002
 2001
 2000Amount

Percentof Loansand Leasesto TotalLoansand Leases

Amount

Percentof Loansand Leasesto TotalLoansand Leases

Amount

Percentof Loansand Leasesto TotalLoansand Leases

Amount

Percentof Loansand Leasesto TotalLoansand Leases

Amount

Percentof Loansand Leasesto TotalLoansand LeasesCommercial and other



$
17,310



22.1
%

$
18,052



22.7
%

$
22,400



23.7
%

$
18,800



25.2
%

$
12,800



24.6
%Commercial real estate




19,178



34.7



17,720



33.5



14,200



30.7



13,900



29.7



9,900



27.4Agricultural




8,807



10.9



8,304



11.4



8,400



11.9



8,700



11.9



9,300



14.3Residential real estate




4,816



20.7



4,639



20.3



4,400



21.5



3,600



20.8



1,900



20.4Consumer




2,888



8.0



2,981



8.5



2,800



9.0



2,800



9.6



2,500



10.4Tax-exempt




2,276



3.6



1,440



3.6



1,200



3.2



100



2.8



100



2.9Unallocated




6,215







5,770







5,399







5,816







9,395



Total reserve



$
61,490



100.0
%

$
58,906



100.0
%

$
58,799



100.0
%

$
53,716



100.0
%

$
45,895



100.0
%


At December 31, 2004, the commercial portfolio included $14.4 million of exposure to major U.S. airlines in the form of airplane leases, and $2.9 million of the commercial and other reserve allocation at that date is related to these airline leases. Approximately $6.2 million, or 10.1%, of the reserve for loan and lease losses is not allocated to specific credits at December 31, 2004, compared to $5.8 million, or 9.8%, at December 31, 2003, and $5.4 million, or 9.2%, at December 31, 2002.

Securities.   Our investment portfolio consists of investments and mortgage backed securities that we intend to hold to maturity which are valued at amortized cost. Our portfolio also includes debt and equity securities that are available-for-sale which are valued at current market value. The investment portfolio is maintained primarily for liquidity and collateral purposes and to generate interest income. Our investment portfolio consists primarily of low-risk government and government agency-backed securities and high-grade municipal bonds.

The securities portfolio decreased by $121.0 million, or 9.2%, to $1.2 billion at December 31, 2004 from $1.3 billion at December 31, 2003 and $1.1 billion at December 31, 2002. We sold $124.6 million of securities during 2004, resulting in a $2.1 million gain on sale of securities. An additional $332.5 million of securities matured during 2004. We used the proceeds from sales and maturities to purchase $349.3 million in securities in 2004. Proceeds not used for that purpose were used to fund loan growth.

24

---

The following table presents the amortized cost and fair value of securities held on December 31, 2004:

At December 31, 2004AmortizedCost

GrossUnrealizedGains

UnrealizedLosses

FairValue(in thousands)Securities available-for-sale:U. S. Treasury securities



$
1,309


$



$
2


$
1,307U. S. government agency obligations




129,732



231



523



129,440Obligations of state and political subdivisions




2,035



191







2,226Mortgage-backed securities




812,312



1,953



7,259



807,006Equity securities




53,664











53,664Other




4,255



2







4,257Total securities available-for-sale



$
1,003,307


$
2,377


$
7,784


$
997,900Securities held-to-maturity:U. S. government agency obligations



$
1,000


$



$



$
1,000Obligations of state and political subdivisions




194,546



7,623



402



201,767Total securities held-to-maturity



$
195,546


$
7,623


$
402


$
202,767


The following table presents the maturity of securities held at December 31, 2004 and the weighted average rates by range of maturity. The table includes projected payments on mortgage-backed securities. Certain equity securities, which include Federal Home Loan Bank stock and Federal Reserve Bank stock, do not have a stated face rate or maturity. Equity securities are presented in this table based on estimated rates at December 31, 2004:

At December 31, 2004Amortized CostWithin 1 Year
 15 Years
 510 Years
 After 10 Years
 TotalsAmount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield( dollars in thousands)U.S. Treasury securities  and obligations of U.S.  government agencies



$
71,543



2.25
%

$
60,498



3.25
%

$





%

$





%

$
132,041



2.71
%Obligations of states  and political  subdivisions (1)




5,135



7.68



34,477



7.18



60,029



7.44



96,940



6.66



196,581



7.08Mortgage-backed  securities




142,543



3.53



426,976



3.38



172,817



3.50



69,976



3.52



812,312



3.44Equity securities




































53,664



3.70Other securities




4,255



4.26



























4,255



4.26Total Investment  Securities



$
223,476



3.23
%

$
521,951



3.61
%

$
232,846



4.52
%

$
166,916



5.35
%

$
1,198,853



3.97
%


---

|(1) | Yields are presented on a tax-equivalent basis to reflect the tax-exempt nature of these securities. The incremental federal statutory rate applied is 35%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

The average maturity of the portfolio was 56 months at December 31, 2004, with an average tax-equivalent yield to maturity on the portfolio of 3.97%, unrealized gains of $10.0 million and unrealized losses of $8.2 million. This compares to an average maturity of 48 months at December 31, 2003 and an average tax-equivalent yield to maturity of 3.75%, unrealized gains of $15.0 million, and unrealized losses of $4.7 thousand. At December 31, 2004, the market value of our securities was $1.2 billion, or $1.8 million over their amortized cost. This compares to a market value of $1.3 billion, or $10.3 million over amortized cost, at December 31, 2003.

Total Deposits.   Deposits increased by $159.1 million, or 3.9%, in 2004, and $300.6 million, or 8.0%, in 2003. Noninterest bearing deposits increased by $42.5 million, or 5.4%, in 2004, and $59.2 million, or 8.2%, in 2003. Savings, NOW, and money market accounts increased $8.8 million, or 0.4%, in 2004,

25

---

and $491.0 million, or 29.3%, in 2003. The slowed growth in our savings, NOW, and money market accounts in 2004 was largely the result of competitive pressure in deposit markets and a deposit pricing strategy that was less aggressive than the pricing strategy used in 2003 to achieve higher growth rates.

Savings certificate balances increased by $107.8 million, or 9.8%, in 2004, reversing almost half of the decrease of $249.5 million, or 18.5%, in 2003. Savings certificates became a more attractive product to consumers in 2004 as interest rates began to rise. The decline in 2003 was due to the low level of interest rates which made this product area less attractive to consumers. At December 31, 2004, savings certificates included $66.3 million of deposits acquired through brokers, while at December 31, 2003 and 2002, savings certificates included $10.0 million of deposits acquired through brokers. The Company expects to increase its usage of brokered deposits in 2005.

The following table sets forth the distribution of our deposits by type:

At December 31,2004
 2003
 2002Amount

Percent

Amount

Percent

Amount

Percent(dollars in thousands)Noninterest bearing deposits



$
825,755



19.6
%

$
783,260



19.3
%

$
724,102



19.3
%Savings and NOW accounts




514,318



12.2



488,457



12.1



460,454



12.3Money market and other interest   bearing checking




1,661,612



39.5



1,678,678



41.4



1,215,674



32.4Time certificates of deposit:Less than $100,000




885,946



21.0



890,304



22.0



1,096,297



29.2$100,000 or more




322,465



7.7



210,277



5.2



253,802



6.8Total deposits



$
4,210,096



100.0
%

$
4,050,976



100.0
%

$
3,750,329



100.0
%


Included in interest bearing deposits at December 31, 2004 were $322.5 million of time deposits that had balances of $100,000 or more. Maturities of these time deposits are summarized as follows:

At December 31, 2004(in thousands)Three months or less



$
54,419Over three months to six months




42,510Over six months to 12 months




98,168Over 12 months




127,368Total



$
322,465


Short-Term Borrowings.   Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, treasury tax and loan notes, Federal Home Loan Bank (FHLB) advances with original maturities of one year or less, and advances under an unsecured revolving credit facility. Short-term borrowings increased 54.6% to $988.5 million at December 31, 2004 from $639.4 million at December 31, 2003 and from $511.5 million at December 31, 2002. Repurchase agreements with customers, which constitute 53.1% of short-term borrowings at December 31, 2004, increased to $524.4 million at December 31, 2004 from $446.8 million at December 31, 2003 and $404.0 million at December 31, 2002. At December 31, 2004, 85.4% of the customer repurchase agreements were related to daily checking account sweep mechanisms that are part of our cash management product line. FHL
B advances with maturities of one year or less increased to $461.0 million at December 31, 2004 from $118.0 million at December 31, 2003 and $60.0 million at December 31, 2002. The increased use of short-term borrowings as a funding source was the result of our use of short-term borrowings to fund growth in the loan portfolio. The total amount that can be borrowed currently under the unsecured revolving credit facility is $15.0 million. The facility is maintained primarily for contingency purposes. There were no advances outstanding under this short-term revolving credit facility at December 31, 2004, 2003 or 2002.

26

---

The following table presents a summary of our short-term borrowings for the periods ended on the dates indicated:

Federal Fundsand RepurchaseAgreements

Federal HomeLoan BankBorrowings

TreasuryTax and LoanNotes(dollars in thousands)Balance at December 312004



$
524,432


$
461,000


$
3,0252003




519,759



118,000



1,599Weighted average interest rate at December 312004




1.52
%


2.34
%


1.72
%2003




1.16



1.09



0.69Maximum amount outstanding at any month end2004



$
556,619


$
461,000


$
3,0822003




519,759



239,023



2,861Average amount outstanding during the year2004



$
474,294


$
322,708


$
1,6102003




430,374



142,300



934Weighted average interest rate during the year2004




1.28
%


1.53
%


1.10
%2003




1.26



1.19



0.88


Long-Term Debt.   Long-term debt, which includes senior notes, junior subordinated deferrable interest debentures, FHLB advances with original maturities of greater than one year, and installment promissory notes, decreased $79.5 million, or 17.3%, in 2004, and $36.4 million, or 7.3%, in 2003. The following table summarizes long-term debt for the last three years:

At December 31,2004

2003

2002(in thousands)Senior notes



$
19,000


$
65,000


$
65,000Junior subordinated deferrable interest debentures




78,867



78,867



78,867Federal Home Loan Bank borrowings




281,775



314,809



350,773Installment promissory notes




1,058



1,482



1,905Total



$
380,700


$
460,158


$
496,545


We issued the senior notes in November 1999. The proceeds were used in connection with acquisitions. The installment promissory note obligations were also incurred in connection with acquisitions. We paid off $46.0 million of the senior debt in November 2004.

The junior subordinated deferrable interest debentures were issued in 2001 in connection with the issuance by the Company of $76.5 million of mandatorily redeemable preferred securities in two separate transactions. In February 2001, the Company issued $16.5 million of 10.2% Capital Securities through Bremer Statutory Trust I (BST), and in May 2001, the Company issued $60.0 million of 9.0% Cumulative Capital Securities through Bremer Capital Trust I (BCT). The proceeds of both of these offerings, combined with the $2.4 million in proceeds from the sale by BST and BCT to the parent of their common securities, were invested by BST and BCT in Junior Subordinated Deferrable Interest Debentures (debentures) of the parent company. The debentures mature not earlier than July 15, 2006 and not later than July 15, 2031. At December 31, 2004, the $76.5 million in Capital Securities qualified as
Tier I capital under guidelines of the Federal Reserve.

Equity of Shareholders and Redeemable Class A Common Stock.   Shareholders equity and redeemable class A common stock was $504.2 million at December 31, 2004 compared to $467.4 million at December 31, 2003 and $434.1 million at December 31, 2002. Book value per share increased to $42.02 at December 31, 2004 from $38.95 at December 31, 2003 and $36.17 at December 31, 2002. Dividends paid per share increased to $1.90 in 2004 from $1.80 in 2003 and $1.65

27

---

in 2002. The dividends paid in 2004 of $22.8 million represented 4.9% of the equity of shareholders at December 31, 2003 and 35.5% of 2004 net income.

Capital Management.   The Federal Deposit Insurance Corporation Improvement Act (FDICIA) required the establishment of a capital-based supervisory system of prompt corrective action for all depository institutions. The Federal Reserve Boards implementation of FDICIA defines well-capitalized institutions as those whose Tier I capital ratio equals or exceeds 6%, total risk-based capital ratio equals or exceeds 10%, and leverage ratio equals or exceeds 5%. We have maintained our capital at the well-capitalized level in each of these categories in the past and expect to do so in the future. The capital ratios of our subsidiary banks in each of these categories met or exceeded the well-capitalized ratios as of December 31, 2004.

The following table compares the consolidated capital ratios with the minimum requirements for well capitalized and adequately capitalized banks:

At December 31, 2004Minimum RequirementsCapital Category
 Actual

WellCapitalized

AdequatelyCapitalizedTier I capital to risk-weighted assets




10.13
%


6.00
%


4.00
%Total capital to risk-weighted assets




11.38



10.00



8.00Tier I capital to average tangible assets




8.21



5.00



4.00


Payment of dividends to us by the subsidiary banks is subject to various limitations by bank regulators, which includes maintenance of certain minimum capital ratios.

Risk Management

Liquidity Management.   The objective of liquidity management is to ensure the continuous availability of funds to meet our financial commitments. We use an asset liability management committee (ALCO) as part of our risk management process. ALCO is responsible for managing balance sheet and off-balance sheet commitments to meet the needs of customers while achieving our financial objectives. ALCO meets regularly to review funding capacity, current and forecasted loan demand, investment opportunities, and liquidity positions as outlined in our asset liability policy. With this information, ALCO guides changes in the balance sheet structure to provide for adequate ongoing liquidity.

Our primary source of funding is through the acquisition and retention of funds in the local markets we serve. This in-market funding provides a historically stable source of funding. The combination of in-market funding and capital funded 85% of average total assets during 2004. While we prefer to fund the balance sheet with in-market funding sources, another source of liquidity is our ready access to regional and national wholesale funding markets, including Federal Home Loan Bank (FHLB) advances, brokered deposits, and federal funds purchased. As of December 31, 2004, we had short term and long term borrowings from the FHLB in the amount of $742.8 million. In order to secure those borrowings, we had pledged $1.9 billion in loan assets to the FHLB. In addition to the amounts borrowed as of December 31, 2004, we had the capacity to borrow an additional $193.7 million from the FHLB without the need to provide
additional collateral. In the brokered deposit market, we maintain relationships with six major securities dealers that function as intermediaries between investors and banks in the national market for FDIC insured time savings certificates. Our deposit balances at December 31, 2004, include $66.3 million acquired through these broker sources and we have the capacity to add significant additional funding from these sources as needed. As our loan growth exceeded our local market deposit growth in 2004, our use of wholesale funding markets increased. Our liquidity management plans for 2005 include the development of new deposit products and programs which are expected to increase local market deposit growth, and the securitization of certain home equity loan assets. As of December 31, 2004, we also had available $15.0 million of borrowing capacity under an unsecured credit facility. As of December 31, 2004, there were no advances outstanding under this facility.
This credit facility is used primarily for contingency purposes.



28

---

Interest Rate Risk Management.   Interest rate risk is the risk that changing interest rates will adversely affect net income and balance sheet valuations. The objective of interest rate risk management is to control this risk exposure. The responsibility for this process rests with ALCO. ALCO establishes appropriate risk management policies and monitors asset liability activities to minimize our exposure to adverse interest rate trends. The tools used to measure interest rate risk include a valuation model which measures the sensitivity of balance sheet valuations to changes in interest rates, gap analysis, and simulation of future net income.

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 to be generated. In each case, the cash flows are discounted by a market interest rate chosen to reflect as closely as possible the characteristics of the given asset or liability as obtained from independent broker quotations and other public sources. The impact on valuations is then calculated for a 200 basis point rate shock. The rate shock is an instantaneous change in market rates across the yield curve. Significant assumptions required in the use of the valuation model include estimates regarding prepayment activity and the behavior of non-maturity deposits in various interest rate environments. The model does not reflect actions that ALCO could initiate in response to a change in interest rates.
The valuation model indicates that the value of assets would decline approximately 2.7% 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 rates would be a decline of approximately 6.1%, which is within our maximum risk limit of 20.0% for this risk measure.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are interest rate sensitive and by monitoring an institutions interest rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific time period if it matures or reprices within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest earning assets anticipated, based on certain assumptions, to mature or reprice within a specific time period and the amount of interest bearing liabilities anticipated, based on certain assumptions, to mature or reprice within that same time period. An interest rate sensitivity gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities that mature or reprice within a specified time period.
An interest rate gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets that mature or reprice within a specified time period.

29

---

The following table sets forth the amounts of interest earning assets and interest bearing liabilities maturing or repricing within the time periods indicated, based on the information and assumptions set forth in the notes thereto:

At December 31, 2004Amount Repricing or MaturingWithin3 Months

3 - 12Months

1 - 5Years

Over 5Years

                                Total(dollars in thousands)Interest earning assets (1)Loans and leases



$
2,566,807


$
603,813


$
1,188,607


$
182,766


$
4,541,993Securities




162,646



354,056



454,625



222,119



1,193,446Other earning assets




34,606















34,606Total interest earning assets



$
2,764,059


$
957,869


$
1,643,232


$
404,885


$
5,770,045Interest bearing liabilitiesInterest bearing deposits (2)



$
1,500,768


$
653,549


$
1,229,506


$
518


$
3,384,341Short-term borrowings (3)




937,748



37,016



13,693







988,457Long-term debt




11,000



47,648



198,185



123,867



380,700Total interest bearing liabilities



$
2,449,516


$
738,213


$
1,441,384


$
124,385


$
4,753,498Rate sensitive gap



$
314,543


$
219,656


$
201,848


$
280,500


$
1,016,547Cumulative rate sensitive gap



$
314,543


$
534,199


$
736,047


$
1,016,547Rate sensitive gap % to total assets




5.1
%


3.6
%


3.3
%


4.6
%


16.6
                                %Cumulative rate sensitive gap % to total assets




5.1
%


8.7
%


12.0
%


16.6
%


(1)      Adjustable and floating rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the
            period in which they are due. Fixed rate assets are included in the periods in which they are scheduled to be repaid based on
           scheduled amortization, except for mortgage backed securities, which are adjusted for prepayment assumptions.
(2)       Includes non-maturity savings and NOW accounts positioned to run off evenly over 60 months and money market savings accounts,
            most of which are positioned to reprice within three months.
(3)       Adjustable and floating rate borrowings are included in the period in which their interest rates are next scheduled to adjust rather
            than in the period in which they are due.


The repricing gaps are within our risk tolerances, which limit the maximum 90-day and one-year gaps to 15.0% of total assets.

We also use simulation modeling of future net interest income and net income as a risk management tool. Simulation modeling results indicate that net income would decrease by approximately 0.9% over the next year with a 300 basis point increase in the level of rates. Modeling results indicate that net income would decrease by approximately 1.3% over the next year with a 50 basis point decrease in the level of rates and by approximately 10.7% over the next year with a 300 basis point decrease in rates. Our current policy requires that the projected change in net income over the next 12 months from a 300 basis point movement in rates not exceed 8%. Because of the low likelihood of a 300 basis point decline in rates from their current low levels, we are comfortable operating outside the normal policy boundaries on a temporary basis in the existing market conditions.

Other Market Risk.   Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of our business activities.

Bank Secrecy Act Compliance Risk.   An organization-wide formal Bank Secrecy Act/Anti-money Laundering program has been adopted that is managed by a centralized risk management unit that provides services on behalf of our banks. The unit provides training for bank personnel, centralized monitoring of high risk accounts with automated assistance, review of required filings, independent testing of transactions, and follow-up of findings from regulatory examinations or internal audits. Internal audit conducts a regular review of this function. The centralized function provides a quarterly status report to the audit committee.

30

---

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The assets and liabilities of a financial institution are primarily monetary in nature. As a result, interest rates have more impact on our performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. The liquidity and the maturity structure of our assets and liabilities are important to the maintenance of acceptable performance levels. We disclose the estimated fair values of our financial instruments in accordance with SFAS No. 107,
Disclosures about Fair Value of Financial Instruments.

Effects of the Economic Environment

During the past year, the economy has improved, leading to a significant reduction in the level of classified and nonperforming assets. The economic recovery has been aided by historically low interest rates. We expect that increasing interest rates will begin to place additional pressures on the cash flow of borrowers and that the level of classified and nonperforming assets are likely to increase from their current low levels as a result.

Off-Balance Sheet Commitments, Contingencies, and Contractual Obligations

We utilize various off-balance sheet instruments to satisfy the financing needs of customers. These instruments represent our contractual obligations to provide funding, within a specified time period, to a customer. The following represents the outstanding obligations:

At December 31,2004

2003(in thousands)Standby letters of credit



$
52,772


$
54,795Commercial letters of credit




47,772



43,689Loan commitments




1,386,761



1,093,759


Standby letters of credit represent a conditional commitment to satisfy an obligation to a third party, generally to support public and private borrowing arrangements, on behalf of the customer. Commercial letters of credit facilitate trade or commerce. Under the terms of a commercial letter of credit, as a general rule, drafts will be drawn when the underlying transaction is consummated as intended. Loan commitments represent contractual agreements to provide funding to customers over a specified time period as long as there is no violation of any condition of the contract. These loans generally will take the form of operating lines.

Our potential exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. The credit risk associated with letters of credit and loan commitments is substantially the same as extending credit in the form of a loan; therefore, the same credit policies apply in evaluating potential letters of credit or loan commitments. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on managements credit evaluation. The type of collateral held varies, but includes accounts receivable, inventory, and productive assets.

We are routinely involved in legal actions which are incidental to our business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or operations.

31

---

We enter into contractual obligations in the ordinary course of business, including long-term debt issuance for the funding of operations and leases for premises and equipment. The following table summarizes our significant contractual obligations at December 31, 2004:

Contractual Payments by Period(in thousands)
 Less than 1 Year

1-3 Years

3-5 Years

More than 5 Years

                                TotalLong-term debt



$
58,648


$
123,455


$
74,730


$
123,867


$
380,700Operating leases




3,598



5,158



2,116



1,859



12,731Purchase obligations (1)




4,800



9,600



2,000







16,400Total Contractual Obligations



$
67,046


$
138,213


$
78,846


$
125,726


$
409,831(1)       Represents agreements to purchase item processing and data processing services.


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the information regarding disclosures about market risk under Managements Discussion and Analysis of Financial Condition and Results of Operations on pages 28 through 32 and in Risk Factors attached as Exhibit 99.1.

32

---

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BREMER FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 2004 and 2003(in thousands except share data)

2004

2003AssetsCash and due from banks



$
203,930


$
195,165Investment securities available-for-sale  (cost: 12/31/04  $1,003,307; 12/31/03  $1,133,958)




997,900



1,135,928Investment securities held-to-maturity  (fair value: 12/31/04  $202,767; 12/31/03  $186,890)




195,546



178,512Loans and leases




4,541,993



3,964,015Reserve for loan losses




(57,965
)


(58,906
)Net loans and leases




4,484,028



3,905,109Interest receivable




36,901



33,540Premises and equipment, net




83,914



85,970Other intangibles




15,391



18,274Other assets




39,683



36,985Goodwill




84,226



84,226Total assets



$
6,141,519


$
5,673,709Liabilities and Shareholders EquityNoninterest bearing deposits



$
825,755


$
783,260Interest bearing deposits




3,384,341



3,267,716Total deposits




4,210,096



4,050,976Federal funds purchased and repurchase agreements




524,432



519,759Other short-term borrowings




464,025



119,599Long-term debt




380,700



460,158Accrued expenses and other liabilities




57,925



55,640Total liabilities




5,637,178



5,206,132Minority interests




150



150Redeemable class A common stock, 960,000 shares issued and   outstanding




40,335



37,394Shareholders equityCommon stockClass A, no par, 12,000,000 shares authorized; 240,000 shares   issued and outstanding




57



57Class B, no par, 10,800,000 shares authorized, issued and   outstanding




2,562



2,562Retained earnings




464,398



426,331Accumulated other comprehensive income




(3,161
)


1,083Total shareholders equity




463,856



430,033Total liabilities and shareholders equity



$
6,141,519


$
5,673,709See notes to consolidated financial statements.


33

---



BREMER FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEYears Ended December 31, 2004, 2003 and 2002(in thousands, except per share amounts)

2004

2003

2002Interest incomeLoans and leases, including fees



$
243,454


$
230,089


$
244,913Securities




43,206



44,050



53,652Federal funds sold




146



128



244Other




89



114



151Total interest income




286,895



274,381



298,960Interest expenseDeposits




51,204



51,564



68,582Federal funds purchased and repurchase agreements




6,047



5,425



5,577Other short-term borrowings




4,995



1,777



1,010Long-term debt




26,593



29,845



28,732Total interest expense




88,839



88,611



103,901Net interest income




198,056



185,770



195,059Provision for credit losses




7,042



14,805



18,161Net interest income after provision for credit losses




191,014



170,965



176,898Noninterest incomeService charges




31,337



29,966



28,908Insurance




10,946



9,346



10,195Investment management and trust fees




11,031



9,933



9,418Brokerage




6,245



5,559



5,150Gain on sale of loans




10,510



19,302



12,640Gain on sale of securities




2,072



5,856



2,244Other




7,579



6,818



6,088Total noninterest income




79,720



86,780



74,643Noninterest expenseSalaries and wages




81,651



76,247



72,740Employee benefits




22,501



21,603



20,801Occupancy




12,014



11,210



10,525Furniture and equipment




10,406



10,651



9,602Data processing fees




10,959



10,413



9,012FDIC premiums and examination fees




1,830



1,753



1,743Amortization of intangibles




2,739



2,866



2,986Other




30,370



29,800



31,720Total noninterest expense




172,470



164,543



159,129Income before income tax expense




98,264



93,202



92,412Income tax expense




34,087



32,110



30,763Net income



$
64,177


$
61,092


$
61,649Per common share amounts:Net income-basic and diluted



$
5.35


$
5.09


$
5.14Dividends paid




1.90



1.80



1.65See notes to consolidated financial statements.


34

---



BREMER FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(in thousands, except per share amounts)Years Ended December 31, 2004, 2003 and 2002

Common Stock
 AccumulatedOtherComprehensiveIncome (Loss)
 ComprehensiveIncome
 RetainedEarnings
 TotalClass A

Class BBalance, December 31, 2001



$
57


$
2,562


$
4,603






$
351,497


$
358,719Comprehensive incomeNet income















$
61,649



61,649



61,649Other comprehensive income,   net of tax:Net unrealized gains on   securities:Unrealized holding gains arising
  during the period, net of tax of
  $6,300












9,442



9,442Less: Reclassified adjustment   for gains included in income,   net of tax of $897












(1,347
)


(1,347
)Minimum pension liability, net   of tax of $3,840












(5,760
)


(5,760
)Other comprehensive income












2,335



2,335







2,335Comprehensive income
















63,984Dividends, $1.65 per share




















(19,800
)


(19,800
)Allocation of net income and 
  other comprehensive income in 
  excess of dividends to 
  redeemable class A common   stock












(187
)






(3,348
)


(3,535
)Balance, December 31, 2002




57



2,562



6,751







389,998



399,368Comprehensive incomeNet income
















61,092



61,092



61,092Other comprehensive income,   net of tax:Net unrealized losses on   securities:Unrealized holding losses   arising during the period, net 
  of tax of $5,603












(8,407
)


(8,407
)Less: Reclassified adjustment
  for gains included in income,
  net of tax of $2,342












(3,514
)


(3,514
)Minimum pension liability, net   of tax of $3,840












5,760



5,760Other comprehensive income   (loss)












(6,161
)


(6,161
)






(6,161
)Comprehensive income
















54,931Dividends, $1.80 per share




















(21,600
)


(21,600
)Allocation of net income and 
  other comprehensive income 
  in excess of dividends to 
  redeemable class A common   stock












493







(3,159
)


(2,666
)Balance, December 31, 2003




57



2,562



1,083







426,331



430,033Comprehensive incomeNet income
















64,177



64,177



64,177Other comprehensive income,   net of tax:Net unrealized losses on   securities:Unrealized holding losses   arising during the period, net   of tax of $2,121












(3,184
)


(3,184
)Less: Reclassified adjustment   for gains included in income,
  net of tax of $829












(1,243
)


(1,243
)Minimum pension liability, net   of tax of $124












(185
)


(185
)Other comprehensive income   (loss)












(4,612
)


(4,612
)






(4,612
)Comprehensive income















$
59,565Dividends, $1.90 per share




















(22,800
)


(22,800
)Allocation of net income and 
  other comprehensive income in   excess of dividends to 
  redeemable class A common   stock












368







(3,310
)


(2,942
)Balance, December 31, 2004



$
57


$
2,562


$
(3,161
)





$
464,398


$
463,856See notes to consolidated financial statements.


35

---



BREMER FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended December 31, 2004, 2003 and 2002(in thousands)

2004

2003

2002Cash flows from operating activitiesNet income



$
64,177


$
61,092


$
61,649Adjustments to reconcile net income to net cash provided   by operating activitiesProvision for credit losses




7,042



14,805



18,161Depreciation and amortization




17,329



18,038



14,182Deferred income taxes




484



1,248



754Gain on sale of securities




(2,072
)


(5,856
)


(2,244
)Other assets and liabilities, net




(5,870
)


(5,457
)


(7,232
)Gain on sale of loans




(10,510
)


(19,302
)


(12,640
)Proceeds from loans originated for sale




383,282



770,175



555,440Loans originated for sale




(370,978
)


(744,595
)


(537,700
)Net cash provided by operating activities




82,884



90,148



90,370Cash flows from investing activitiesPurchases of available-for-sale investment securities




(314,407
)


(808,430
)


(517,302
)Purchases of held-to-maturity securities




(34,932
)


(31,957
)


(13,416
)Proceeds from maturities of available-for-sale investment securities




314,426



391,432



372,779Proceeds from maturities of held-to-maturity securities




18,042



16,936



31,060Proceeds from sales of available-for-sale investment securities




126,704



223,584



214,122Proceeds from sales of other real estate owned




4,525



3,836



1,010Loans and leases, net




(587,755
)


(305,322
)


(199,008
)Purchase of premises and equipment




(6,683
)


(12,504
)


(24,646
)Net cash used in investing activities




(480,080
)


(522,425
)


(135,401
)Cash flows from financing activitiesNoninterest bearing deposits, net




42,495



59,158



67,451Savings, NOW and money market accounts, net




8,795



491,007



36,653Certificates of deposits, net




107,830



(249,518
)


(159,793
)Federal funds purchased and repurchase agreements, net




4,673



69,789



72,208Other short-term borrowings, net




344,426



58,093



(9,644
)Proceeds from issuance of long-term debt








14,820



116,013Repayments of long-term debt




(79,458
)


(51,207
)


(14,258
)Common stock dividends paid




(22,800
)


(21,600
)


(19,800
)Net cash provided by financing activities




405,961



370,542



88,830Net increase (decrease) in cash and due from banks




8,765



(61,735
)


43,799Cash and due from banks at beginning of period




195,165



256,900



213,101Cash and due from banks at end of period



$
203,930


$
195,165


$
256,900Supplemental disclosures of cash flow informationCash paid during the year for interest



$
87,675


$
90,755


$
112,077Cash paid during the year for income taxes




26,199



31,088



28,089See notes to consolidated financial statements.


36

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A:   Accounting Policies

Nature of business Bremer Financial Corporation (the Company) is a regional financial services company headquartered in St. Paul, Minnesota. The Company is the sole shareholder of 10 subsidiary banks (Subsidiary Banks) which draw most of their deposits from and make substantially all of their loans within the states of Minnesota, North Dakota, and Wisconsin. The Company has identified each of the Subsidiary Banks as a separate operating segment. These operating segments have been combined for segment information reporting purposes as one reportable segment because the nature and distribution of the products and services, the type of customer, and the regulatory environment are similar. Additionally, the Company provides trust and insurance services to its customers through wholly-owned nonbanking subsidiaries and investment services through a third party relationship.

The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. The more significant accounting policies are summarized below:

Consolidation The consolidated financial statements include the accounts of the Company (a bank holding company majority owned by the Otto Bremer Foundation) and all subsidiary banks and other subsidiaries in which the Company has a majority interest. All significant intercompany accounts and transactions have been eliminated.

Cash flows For purposes of this statement, the Company has defined cash equivalents as cash and due from banks. During the years ended December 31, 2004, 2003, and 2002, the Company received real estate valued at $1,733,000, $4,777,000 and $2,645,000 in satisfaction of outstanding loan balances.

Investment securities Held-to-maturity securities consist of debt securities which the Company has the intent and ability to hold to maturity and are valued at amortized historical cost. Under certain circumstances (including the deterioration of the issuers creditworthiness or a change in tax law or statutory or regulatory requirements), securities held-to-maturity may be sold or transferred to another portfolio.

Available-for-sale securities consist of debt and equity securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, or changes in the availability or yield of alternative investments. These securities 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 shareholders equity until realized. A portion of the unrealized holding gains and losses is allocated to redeemable class A common stock. Gains or losses on these securities are computed based on the amortized cost of the specific securities when sold.

All securities with gross unrealized losses on the consolidated balance sheet are subjected to the Companys process for identifying other-than-temporary impairments. The Company writes down to fair value securities that it deems to be other-than-temporarily impaired in the period the securities are deemed to be impaired. The initial indicator of impairment is a sustained decline in market price below the amount recorded for the investment. On a case-by-case basis, the Company considers the length of time and the extent to which market value has been less than cost, the cause of the price decline, the extent to which the price decline is due to the general level of interest rates or other issuer specific factors, the issuers financial condition and ability to make future payments in a timely manner, and the Companys investment horizon. The Company does not engage in trading activities.

Loans and leases Interest income is accrued on loan and lease balances based on the principal amount outstanding. Loans and leases are reviewed regularly by management and placed on nonaccrual status when the collection of interest or principal is unlikely. The accrual of interest on loans and leases is suspended when the credit becomes 90 days or more past due, unless the loan or lease is fully secured and in the process of collection. Thereafter, no interest is recognized as income unless received in cash or until such time the borrower demonstrates the ability to pay interest and

37

---

principal. Certain net loan and commitment fees are deferred and amortized over the life of the related loan or commitment as an adjustment of yield. Loans held-for-sale in the secondary market are recorded at lower of aggregate cost or market.

Reserve for credit losses Management determines the adequacy of the reserve based upon a number of factors, including credit loss experience and a continuous review of the loan and lease portfolio. Being an estimate, the reserve is subject to change through evaluation of the loan and lease composition, economic conditions, and the economic prospects of borrowers. The reserve for credit losses has two components, a reserve for loan losses and a reserve for unfunded credit commitments.

Under the Companys credit policies and practices, all nonaccrual and restructured commercial, agricultural, construction, and commercial real estate loans and leases, plus certain other loans and leases identified by the Company, meet the definition of impaired loans under Statements of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures. Impaired loans as defined by SFAS No. 114 and SFAS No. 118 exclude certain large groups of smaller balance homogeneous loans, such as consumer loans and residential real estate loans. Under these statements, loan impairment is required to be measured based on the present value of expected future cash flows discounted at the loans effective interest rate or, as a practical expedient,
at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent.

The reserve also incorporates the results of measuring impaired loans and leases as provided in SFAS No. 114 and SFAS No. 118. These accounting standards prescribe the measurement methods, income recognition, and disclosures related to impaired loans and leases. A loan is considered impaired when management determines that it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan or lease agreement. Impairment is measured by the difference between the recorded investment in the loan or lease (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount) and the estimated present value of total expected future cash flows, discounted at the loans effective rate, or the fair value of the collateral, if the loan is collateral dependent. Impairment is recognized by adjusting the reserve for credit losses.

Premises and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization computed principally on accelerated methods based on estimated useful lives of the assets, which range from three to 40 years. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of premises and equipment are reflected in income.

Other real estate Other real estate owned, which is included in other assets, represents properties acquired through foreclosure and other proceedings recorded at the lower of the amount of the loan satisfied or fair value less selling costs. Any write-down to fair value at the time of foreclosure is charged to the reserve for credit losses. Property is appraised periodically to ensure that the recorded amount is supported by the current fair value. Market write-downs, operating expenses and losses on sales are charged to other expenses. Income, including gains on sales, is credited to other income.

Retirement plan accounting The Company provides pension benefits to substantially all employees based on years of service and employee compensation while employed with the Company and accounts for these plans in accordance with SFAS No. 87, Employers Accounting for Pensions. SFAS No. 87 requires the Company to make a number of economic and other assumptions that can have a significant impact on amounts recorded in its income statement and statement of financial position. Assumptions regarding long-term discount rates and the expected return on pension plan assets can have the most material impact on financial results and funding requirements.

Income taxes Bremer Financial Corporation and subsidiaries file a consolidated federal tax return and, in certain states, combined state tax returns. Deferred taxes are recorded to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end.



38

---

Comprehensive income Comprehensive income is defined as the change in equity of a business enterprise during a period resulting 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 available-for-sale securities and the change in the minimum pension liability.

Goodwill and other intangible assets Under the provisions of SFAS No. 142, intangible assets acquired in a business combination, which do not possess finite useful lives, are not amortized into net income over an estimated useful life. However, these intangible assets are tested for impairment at least annually. Intangible assets with finite lives continue to be amortized over the period the Company expects to benefit from such assets. See Note G.

Recent accounting pronouncements and issues In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN No. 46), an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN No. 46 prescribes how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. On December 24, 2003, the FASB published a revision to FIN No. 46 (FIN No. 46(R)). FIN No. 46(R) clarifies certain provisions of FIN No. 46 and exempts certain entities from its
requirements. For interests in variable interest entities acquired prior to January 31, 2003, the provisions of FIN No. 46(R) were applied on March 31, 2004. The Company applied the provisions by de-consolidating its subsidiary trusts, which issued Company obligated mandatorily redeemable preferred securities (Trust Preferred Securities). The junior subordinated deferrable interest debentures of the Company owned by these trusts are reflected in the Statements of Financial Condition as long-term debt. As provided by FIN No. 46(R), the Company has restated its financial statements to reflect the adoption for all periods presented. The Trust Preferred Securities qualify as Tier I capital of the Company for regulatory capital purposes.

On March 31, 2004, the FASB ratified Emerging Issues Task Force Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF No. 03-1), which provides guidance on recognizing other-than-temporary impairments on certain investments. EITF No. 03-1 is effective for other-than-temporary impairment evaluations for investments accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, as well as non-marketable equity securities accounted for under the cost method for reporting periods beginning after June 15, 2004. EITF No. 03-1 requires that investments which have declined in value must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or
beyond the cost of the investment, which might mean maturity. EITF No. 03-1 also requires disclosures assessing the ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. EITF No. 03-1 does not suspend the current requirements for other-than-temporary impairments under Staff Accounting Bulletin No. 59. In September 2004, FASB issued Proposed Staff Position EITF Issue No. 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, which provides further guidance regarding this issue. In September 2004, FASB also issued Proposed Staff Position EITF Issue No. 03-1-1, Effective Date of Paragraphs 10-20 of EITF No. 03-1, which defers the effective date of certain paragraphs of EITF Issue No. 03-1.

In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-3 (SOP 03-3): Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 requires loans acquired through a transfer, such as a business combination, where there are differences in expected cash flows and contractual cash flows due in part to credit quality be recognized at their fair value. The yield that may be accreted is limited to the excess of

39

---

the investors estimate of undiscounted expected principal, interest, and other cash flows over the investors initial investment in the loan. The excess of contractual cash flows over expected cash flows is not to be recognized as an adjustment of yield, loss accrual, or valuation allowance. Valuation allowances can not be created nor carried over in the initial accounting for loans acquired in a transfer of loans with evidence of deterioration of credit quality since origination. However, valuation allowances for non-impaired loans acquired in a business combination can be carried over. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004, with early adoption encouraged. The Company does not believe the adoption of SOP 03-3 will have a material impact on the Companys financial position or results of operations.

Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and leases.

Earnings per share calculations Basic earnings per common share have been computed using 12,000,000 common shares for all periods. The Company does not have any dilutive securities. See Note Q.

Reclassifications Certain amounts have been reclassified to provide consistent presentation among the various accounting periods shown.

Note B:   Restrictions on Cash and Due From Banks

The Subsidiary Banks are required to maintain average reserve balances in the form of vault cash or balances maintained either directly with a reserve bank or in a pass-through account, in accordance with the Federal Reserve Bank requirements. The amount of those cash reserve balances was approximately $14,528,000 and $11,065,000 as of December 31, 2004 and 2003.

Note C:   Investment Securities

At December 31, 2004 and 2003, investment securities with an amortized cost of $996,434,000 and $912,848,000 were pledged as collateral to secure public deposits and for other purposes. The amortized cost and estimated fair value by maturity are shown below (contractual maturity or, with mortgage-backed securities, projected principal payments are used):

At December 31, 2004Held-to-Maturity
 Available-for-SaleAmortized Cost

Fair Value

Amortized Cost

Fair Value(in thousands)Within 1 year



$
5,135


$
5,162


$
218,341


$
217,4691  5 years




33,442



34,549



488,509



485,4095  10 years




60,029



63,732



172,817



171,847After 10 years




96,940



99,324



69,976



69,511Equity securities












53,664



53,664Total investment securities



$
195,546


$
202,767


$
1,003,307


$
997,900


40

---

The amortized cost and fair value of investment securities available-for-sale as of December 31 consisted of the following:

2004
 2003AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue(in thousands)U.S. Treasury securities



$
1,309


$



$
2


$
1,307


$
1,310


$
4


$



$
1,314Obligations of U.S. government   agencies




129,732



231



523



129,440



151,777



1,150



23



152,904Obligations of state and political   subdivisions




2,035



191







2,226



21,114



1,230







22,344Mortgage-backed securities




812,312



1,953



7,259



807,006



906,593



3,822



4,216



906,199Equity securities




53,664











53,664



42,150











42,150Other




4,255



2







4,257



11,014



3







11,017Total securities available-
  for-sale



$
1,003,307


$
2,377


$
7,784


$
997,900


$
1,133,958


$
6,209


$
4,239


$
1,135,928


Proceeds from sales of investments securities were $124,632,000, $217,728,000 and $211,878,000 for 2004, 2003 and 2002. Gross gains of $2,122,500, $5,862,400 and $2,244,000 and gross losses of $50,500, $6,400 and $0 were realized on those sales for 2004, 2003 and 2002.

A summary of amortized cost and fair value of investment securities held-to-maturity at December 31 consisted of the following:

2004
 2003AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue(in thousands)Obligations of U.S. government  agencies



$
1,000


$



$



$
1,000


$
1,000


$
56


$



$
1,056Obligations of state and political   subdivisions




194,546



7,623



402



201,767



177,512



8,745



423



185,834Total securities   held-to-maturity



$
195,546


$
7,623


$
402


$
202,767


$
178,512


$
8,801


$
423


$
186,890


41

---

The following table provides the gross unrealized losses and fair value, aggregated by investment category, and the length of time the individual securities have been in a continuous unrealized loss position at December 31:

2004Less than 12 Months
 12 Months or More
 TotalFairValue

UnrealizedLosses

FairValue

UnrealizedLosses

FairValue

UnrealizedLosses(in thousands)U.S. Treasury securities



$
999


$
2


$



$



$
999


$
2Obligations of U.S. government   agencies




107,488



523











107,488



523Obligations of state and   political subdivisions




9,165



81



13,205



321



22,370



402Mortgage-backed securities




299,885



3,311



283,682



3,948



583,567



7,259Total



$
417,537


$
3,917


$
296,887


$
4,269


$
714,424


$
8,186


2003Less than 12 Months
 12 Months or More
 TotalFairValue

UnrealizedLosses

FairValue

UnrealizedLosses

FairValue

UnrealizedLosses(in thousands)Obligations of U.S. government   agencies



$
6,129


$
23


$



$



$
6,129


$
23Obligations of state and   political subdivisions




16,282



401



328



22



16,610



423Mortgage-backed securities




527,286



4,216











527,286



4,216Total



$
549,697


$
4,640


$
328


$
22


$
550,025


$
4,662


42

---

The Company believes that the unrealized losses in the investment portfolio are the result of increases in market interest rates and not from the deterioration in the creditworthiness of the issuer. The majority of the investments have contractual terms which do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. U.S. Treasury securities and obligations of U.S. government agencies are direct and indirect obligations of the U.S. government, respectively. Obligations of state and political subdivisions are general obligations of public entities. The contractual cash flows of the mortgage-backed securities are guaranteed by an agency of the U.S. government. The Company has the ability and intent to hold these investments until a recovery of fair value, which may be at maturity. The Company does not consider these investments to be other-than-temporarily impaired.

State and political subdivision investments largely involve governmental entities within the Companys market area.

Note D:   Loans and Leases

The Company is engaged in lending activities with borrowers in a wide variety of industries. Lending is concentrated in the areas in which the Subsidiary Banks are located. A decline in the local economies in these areas could negatively impact the quality of these loans. Loans and leases at December 31 consisted of the following:

2004

2003(in thousands)Commercial and other



$
1,001,508


$
900,395Commercial real estate




1,432,738



1,230,752Construction




145,071



99,213Agricultural




496,019



449,765Residential real estate




910,352



780,351Construction




30,139



23,041Consumer




362,620



337,449Tax-exempt




163,546



143,049Total loans and leases



$
4,541,993


$
3,964,015


Impaired loans and leases were $10,143,000 and $20,338,000 at December 31, 2004 and 2003. Impaired loans and leases include nonaccrual and restructured loans and leases. Restructured loans and leases are those for which the terms (principal and/or interest) have been modified as a result of the inability of the borrower to meet the original terms of the loan or lease. The reserve for credit losses included approximately $1,795,000 and $5,067,000 relating to impaired loans and leases at December 31, 2004 and 2003.

Following is a summary of information pertaining to impaired loans and leases. No significant amounts of interest income were recognized during each of the three years ending December 31:

2004

2003

2002(in thousands)Average investment in impaired loans, net of reserves



$
12,302


$
22,416


$
21,056Interest income as originally contracted



$
887


$
1,635


$
1,689


Other nonperforming assets, consisting of other real estate owned, amounted to $1,229,000 and $3,598,000 at December 31, 2004 and 2003.

At December 31, 2004 and 2003, loans totaling $1,917,034,000 and $1,818,406,000 had been pledged to secure Federal Home Loan Bank (FHLB) advances. Acceptable collateral is defined by the FHLB. The Company currently pledges residential, agricultural, commercial real estate mortgages and certain other eligible business and agricultural loans.

Certain executive officers, directors and their related interests are loan customers of the Company. These loans in the aggregate were less than 5% of shareholders equity at December 31, 2004, and 2003.

43

---

Note E:   Reserve for Credit Losses

Changes in the reserve for credit losses are as follows:

For the Year Ended December 31,2004

2003

                                2002(in thousands)Beginning of period



$
58,906


$
58,799


$
53,716Charge-offs




(6,601
)


(15,633
)


(15,171
                                )Recoveries




2,143



935



2,093Net charge-offs




4,458



(14,698
)


(13,078
                                )Provision for credit losses




7,042



14,805



18,161End of period



$
61,490


$
58,906


$
58,799Components:Reserve for loan losses



$
57,965


$
58,906


$
58,799Reserve for unfunded credit commitments (1)




3,525







Reserve for credit losses



$
61,490


$
58,906


$
58,799(1)       Effective December 31, 2004, the Company reclassified the portion of the reserve for loan losses related
            to unfunded loan commitments and letters of credit in the amount of $3.5 million to other liabilities


Note F:   Premises, Equipment and Lease Commitments

Premises and equipment at December 31 consisted of the following:

2004

2003(in thousands)Land



$
13,097


$
13,309Buildings and improvements




88,189



87,473Furniture and equipment




65,631



63,094Total premises and equipment




166,917



163,876Less: accumulated depreciation and amortization




83,003



77,906Premises and equipment, net



$
83,914


$
85,970


Depreciation and amortization expense was $8,590,000, $8,434,000 and $7,302,000 in 2004, 2003 and 2002, respectively. Depreciation on premises and equipment is calculated on a straight-line basis for book purposes. Buildings are depreciated over an estimated useful life not to exceed 39 years, furniture and equipment is depreciated over periods of between three and 10 years, and leasehold improvements are depreciated over the term of the underlying lease, not to exceed the estimated useful life of the improvements.

44

---

Certain branch offices and equipment are leased under non-cancelable operating leases. The Company currently has no leases that meet the definition of a capital lease. All operating leases expire at various dates through the year 2013. However, in the normal course of business, it is expected that the majority of these leases will be renewed or replaced by leases on other properties, as most of the Companys leases contain renewal options for multi-year periods at determinable rentals. The following summary reflects the future minimum lease payments required under operating leases that, as of December 31, 2004, have remaining non-cancelable lease terms in excess of one year:

Years ending December 31,
 Operating Leases(in thousands)2005



$
3,5982006




2,7462007




2,4122008




1,4882009




628Thereafter




1,859Total minimum lease payments



$
12,731


Operating lease rental expense, net of rental income, was $2,982,000, $2,964,000 and $2,917,000 in 2004, 2003 and 2002, respectively.

Note G:   Intangible Assets

Intangible assets consist of goodwill, core deposit intangibles, and other intangibles. The remaining unamortized balances at December 31, 2004 and 2003 were approximately $99,617,000 and $102,500,000. The core deposit and other intangibles have remaining amortization lives of five to seven years. Goodwill is not amortized but is tested regularly for impairment. Impairment testing is based on a determination of value of each reporting unit, using readily available market and earnings data for comparable publicly-traded organizations within the same time period, and comparing that calculation of value to the current book value of the unit. Management has performed its 2004 annual impairment test on its goodwill assets using this approach, and no impairment loss was recorded as a result.

The following table presents relevant information about the Companys amortized intangible assets:

As of December 31, 2004
 As of December 31, 2003GrossCarryingAmount

AccumulatedAmortization

NetCarryingValue

GrossCarryingAmount

AccumulatedAmortization

                                Net CarryingValue(in thousands)Core deposit premium



$
21,313


$
9,595


$
11,718


$
21,313


$
7,226


$
14,087Mortgage servicing rights (1)




4,047



2,467



1,580



4,459



2,599



1,860Other




4,322



2,229



2,093



4,400



2,073



2,327Total



$
29,682


$
14,291


$
15,391


$
30,172


$
11,898


$
18,274(1)       Accumulated amortization of mortgage servicing rights includes the related valuation allowance of $511 thousand in 2004 and $1.3
            million in 2003.


The Company recorded aggregate intangible amortization expense of $2.7 million for the year ended December 31, 2004. The estimated amortization expense for each of the next five years is approximately $2.3 million.

Goodwill was $84.2 million at December 31, 2004 and 2003. The Company sold two branches that were part of its Marshall, Minnesota bank subsidiary in June 2003. The sale reduced goodwill by approximately $922 thousand, which was the amount of unamortized goodwill assigned to these two branches which were originally acquired by the Company in 1999.

45

---

Changes in the carrying amount of the Companys goodwill were as follows:

Carrying Amount(in thousands)Balance as of December 31, 2002



$
85,148Reduction of goodwill related to sale of branches




922Balance as of December 31, 2003



$
84,226Balance as of December 31, 2004



$
84,226


Note H:   Deposits

Information related to deposits by type is provided below:

At December 31,2004

2003(in thousands)Noninterest bearing deposits



$
825,755


$
783,260Savings and NOW accounts




514,318



488,457Money market and other interest bearing checking




1,661,612



1,678,678Time certificates of deposit:Less than $100,000




885,946



890,304$100,000 or more




322,465



210,277Total deposits



$
4,210,096


$
4,050,976


Time certificates that had balances of $100,000 or more mature as summarized in the following table:

At December 31, 2004(in thousands)2005



$
195,0972006




63,3852007




35,6332008




8,8322009




19,518Total



$
322,465


Note I:   Short-term Borrowings

Short-term borrowings consist of federal funds and repurchase agreements (which generally mature within one to 60 days of the transaction date), treasury tax and loan notes (which generally mature within one to 30 days), FHLB advances (which mature within one year), and advances under an unsecured revolving credit facility agreement. The available credit facility of $15.0 million was unused at December 31, 2004. The credit facility agreement contains covenants, including a requirement to maintain certain minimum levels of capitalization.

46

---

Information related to short-term borrowings for the two years ended December 31, 2004 is provided below:

Federal Fundsand RepurchaseAgreements

Federal HomeLoan BankBorrowings

TreasuryTax and LoanNotes(dollars in thousands)Balance at December 312004



$
524,432


$
461,000


$
3,0252003



$
519,759


$
118,000


$
1,599Weighted average interest rate at December 312004




1.52
%


2.34
%


1.72
%2003




1.16
%


1.09
%


0.69
%Maximum amount outstanding at any month end2004



$
556,619


$
461,000


$
3,0822003



$
519,759


$
239,023


$
2,861Average amount outstanding during the year2004



$
474,294


$
322,708


$
1,6102003



$
430,374


$
142,300


$
934Weighted average interest rate during the year2004




1.28
%


1.53
%


1.10
%2003




1.26
%


1.19
%


0.88
%


Note J:   Long-term Debt

Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:

At December 31,2004

2003(in thousands)Senior notes



$
19,000


$
65,000Junior subordinated deferrable interest debentures




78,867



78,867Federal Home Loan Bank borrowings




281,775



314,809Installment promissory notes




1,058



1,482Total



$
380,700


$
460,158


The $19 million of senior notes are unsecured, bear interest at a rate of 8.47%, and mature on November 1, 2006. The senior note agreements contain covenants, including a requirement to maintain certain minimum levels of capitalization.

The junior subordinated deferrable interest debentures were issued in 2001 in connection with the issuance by the Company of $76.5 million of mandatorily redeemable preferred securities in two separate transactions. In February 2001, the Company issued $16.5 million of 10.2% Capital Securities through Bremer Statutory Trust I (BST), and in May 2001, the Company issued $60.0 million of 9.0% Cumulative Capital Securities through Bremer Capital Trust I (BCT). The proceeds of both of these offerings, combined with the $2.4 million in proceeds from the sale by BST and BCT to the parent of their common securities, were invested by BST and BCT in Junior Subordinated Deferrable Interest Debentures (debentures) of the parent company. The debentures mature not earlier than July 15, 2006 and not later than July 15, 2031. At December 31, 2004, the $76.5 million in Capital Securities qualified as
Tier I capital under guidelines of the Federal Reserve.

The FHLB borrowings bear interest at rates ranging from 1.90% to 6.68%, with maturity dates from 2005 through 2012, and are secured by certain loans.

The installment promissory notes currently bear interest at 7.59% and are payable in semi-annual installments through 2007.

47

---

Maturities of outstanding long-term debt were as follows:

At December 31, 2004(in thousands)2005



$
58,6482006




64,4232007




59,0322008




71,0002009




3,730Beyond 2009




123,867Total



$
380,700


At December 31, 2004, $71 million of the FHLB borrowings due in 2008 were subject to call on a quarterly basis prior to maturity at the option of the FHLB.

Note K:   Disclosure About Fair Value of Financial Instruments

Most of the Companys assets and liabilities are considered financial instruments as defined in SFAS No. 107. Many of the Companys financial instruments, however, lack an available trading market which is characterized by an exchange transaction of the instrument by a willing buyer and seller. It is also the Companys general practice and intent to hold most of its financial instruments to maturity and not engage in trading activities. Therefore, significant estimations and present value calculations were utilized by the Company for purposes of this disclosure. The use of different market assumptions and/or estimation methodologies may have a material effect on these estimated fair value amounts.

The fair value estimates presented herein are based on pertinent information available to the Company as of December 31, 2004 and 2003. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, these amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2004 and, therefore, current estimates of fair value may differ from the amounts presented. As of December 31, carrying amounts and estimated fair values were:

2004
 2003CarryingAmount

EstimatedFairValue

CarryingAmount

EstimatedFairValue(in thousands)Financial assets:Cash and due from banks



$
203,930


$
203,930


$
195,165


$
195,165Investment securities available-for-sale




997,900



997,900



1,135,928



1,135,928Investment securities held-to-maturity




195,546



202,767



178,512



186,890Loans and leases




4,484,028



4,511,961



3,905,109



3,937,722Financial liabilities:Demand deposits



$
3,001,685


$
3,001,685


$
2,950,395


$
2,950,395Time deposits




1,208,411



1,207,510



1,100,581



1,112,477Short-term borrowings




988,457



988,267



639,358



639,467Long-term debt




380,700



397,286



460,158



488,038


Cash and due from banks and interest bearing deposits The carrying value for these financial instruments approximates fair value due to the relatively short period of time between the origination of the instruments and their expected realization.

Securities Fair values of these financial instruments were estimated using quoted market prices, when available. If quoted market prices were not available, fair value was estimated using market prices for similar assets. As required by SFAS No. 115, securities available-for-sale are carried at fair market value.



48

---

Loans and leases The loan and lease portfolio consists of both variable and fixed rate obligations. The carrying amounts of variable rate loans, a majority of which reprice within the next three months, and for which there has been no significant change in credit risk, are assumed to approximate fair value. The fair values for fixed rate loans and leases are estimated using discounted cash flow analysis. The discount rates applied are based on the current interest rates for loans with similar terms to borrowers of similar credit quality.

Deposits The estimated fair value of deposits with no stated maturity, such as non-interest bearing savings and money-market checking accounts, is the amount payable on demand. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

Short-term borrowings Due to the short-term nature of repricing and maturities of these instruments, fair value approximates carrying value.

Long-term debt For certain junior subordinated deferrable interest debentures, fair value was estimated using quoted market prices. For other fixed rate debt, the fair value is determined by discounting future cash flows at current rates for debt with similar remaining maturities and call features or by using market prices for similar assets. For variable rate debt, fair value approximates carrying value.

Off-balance sheet financial instruments The estimated fair value of these instruments, such as loan commitments and standby letters of credit, approximates their off-balance sheet carrying value due to repricing ability and other terms of the contracts.

Note L:   Employee Benefit Plans

Pension plans The Company maintains the Bremer Retirement Plan (Pension Plan), which is a qualified defined benefit pension plan designed to provide retirement benefits to substantially all of the employees of the Company and its subsidiaries. In addition, the Company has a Supplemental Executive Retirement Plan (SERP), an unfunded plan designed to supplement the benefits determined under the Pension Plan for certain highly compensated employees of the Company to the extent the benefits under the Pension Plan are capped by compensation limits.

In recent years, the Companys funding policy on the qualified plan has been to contribute annually an amount approaching the maximum amount that can be deducted for federal income tax purposes. Contributions to the Pension Plan are intended to provide for benefits attributed to service to date and for those expected to be earned in the future.

Other postretirement benefits The Company provides certain retiree health care benefits relating primarily to medical insurance co-payments to retired employees between the ages of 55 and 65. In accordance with SFAS No. 106 as amended by SFAS No. 132, Employers Accounting for Postretirement Benefits Other than Pensions, as revised in December 2003, the Company accrues the cost of these benefits during the employees active service. Benefits under SFAS No. 106 are funded as incurred.

49

---

The following table sets forth the plans change in the actuarially determined benefit obligation and plan assets as of the September 30 measurement date, and information on the plans funded status at December 31:

Pension Benefits
 OtherPostretirement Benefits2004

2003

2004

2003(in thousands)Change in Benefit ObligationBenefit obligation at beginning of year (9/30)



$
60,579


$
49,513


$
5,971


$
4,805Service cost




3,687



2,932



564



452Interest cost




3,592



3,299



351



317Plan participants contributions












164



156Actuarial loss




1,540



6,195



64



611Benefits paid




(1,465
)


(1,360
)


(326
)


(370
)Curtailments and special termination benefits




(56
)










Benefit obligation at end of year (9/30)



$
67,877


$
60,579


$
6,788


$
5,971Change in Plan AssetsFair value of plan assets at beginning of year (9/30)



$
55,211


$
35,012


$



$
Actual return on assets




4,216



8,816







Employer contributions




7,367



12,743



162



214Plan participants contributions












164



156Benefits paid




(1,465
)


(1,360
)


(326
)


(370
)Fair value of plan assets at end of year (9/30)



$
65,329


$
55,211


$



$
Funded Status of PlansFunded status of plans



$
(2,548
)

$
(5,368
)

$
(6,788
)

$
(5,971
)Unrecognized net actuarial loss




19,160



18,565



1,751



1,771Unrecognized prior service cost/(benefit)




210



354



(30
)


(42
)Prepaid benefit asset/(accrued benefit liability)



$
16,822


$
13,551


$
(5,067
)

$
(4,242
)


The 2004 curtailment and special termination benefits were recorded pursuant to a plan amendment to the Companys SERP, effective June 14, 2004, and recognized $295.8 thousand in curtailment benefit cost in accordance with SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits.

Amounts recognized in the statement of financial position as of December 31 consist of:

Pension Benefits
 Other Postretirement Benefits2004

2003

2004

2003(in thousands)Prepaid benefit cost



$
18,996


$
15,204


$



$
Accrued benefit cost




(2,620
)


(1,653
)


(5,067
)


(4,242
)Intangible asset




137











Accumulated other comprehensive income




309











Net amount recognized



$
16,822


$
13,551


$
(5,067
)

$
(4,242
)


50

---

The accumulated benefit obligation, projected benefit obligation and fair value of plan assets as of December 31 were as follows:

Pension Benefits2004

2003(in thousands)Accumulated benefit obligation



$
55,792


$
49,018Projected benefit obligation




67,877



60,579Fair value of plan assets




65,329



55,211


Net pension expense for the actuarially developed plans included the following components as of December 31:

Pension Benefits
 OtherPostretirement Benefits2004

2003

2002

2004

2003

2002(in thousands)Service cost



$
3,687


$
2,932


$
2,362


$
564


$
452


$
293Interest cost




3,592



3,299



2,734



351



317



223Expected return on assets




(4,637
)


(3,616
)


(3,750
)










Prior service cost amortization




59



84



113



(12
)


(12
)


(12
)Net loss/(gain) amortization




1,070



1,161



82



84



52



(18
)Net periodic benefit cost



$
3,771


$
3,860


$
1,541


$
987


$
809


$
486


The amounts, net of tax, included within other comprehensive income arising from a change in the additional minimum pension liability for the years ended December 31, 2004 and December 31, 2003 were $(185.0) thousand and $5.8 million. While the SERP had an additional minimum liability of $445 thousand at December 31, 2004, there was no additional minimum liability calculated on the Pension Plan as of that date.

Weighted average assumptions used to determine benefit obligations at December 31 were as follows:

Pension Benefits
 OtherPostretirement Benefits2004

2003

2002

2004

2003

2002Discount rate




6.00
%


6.00
%


6.75
%


6.00
%


6.00
%


6.75
%Compensation increase rate




4.25
%


4.25
%


4.25
%


N/A



N/A



N/A


Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows:

Pension Benefits
 OtherPostretirement Benefits2004

2003

2002

2004

2003

2002Discount rate




6.00
%


6.75
%


7.25
%


6.00
%


6.75
%


7.25
%Long-term rate of return on assets




8.50
%


9.00
%


10.00
%


N/A



N/A



N/ACompensation increase rate




4.25
%


4.25
%


4.25
%


N/A



N/A



N/A


The discount rate utilized to determine future pension obligations is based primarily on a review of current high quality fixed income securities rates.

The January 1, 2005 assumption for the long-term rate of return on plan assets is 8.5%. As defined in SFAS No. 87, this assumption represents the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. The assumption has been determined by reflecting expectations regarding future long-term rates of return for the investment portfolio, with consideration given to the distribution of investments by, and historical rates of return of, each individual asset class.

51

---

For purposes of postretirement benefits measurements, the Company has assumed the following health care trend rates as of December 31:

OtherPostretirement Benefits2004

2003

2002Current year trend




8.50
%


9.00
%


6.75
%Ultimate year trend




5.00
%


5.00
%


5.50
%Year of ultimate trend rate




2011



2011



2004


The health-care trend rate assumption has a significant effect on the amounts reported. A one percentage point change in the health-care trend rate would have the following effects on 2004 service and interest cost on the accumulated postretirement benefit obligation at December 31, 2004:

One (1) Percentage PointIncrease

Decrease(in thousands)Effect on total of service and interest cost



$
132


$
(113
)Effect on postretirement benefit obligation




813



(703
)


In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the prescription drug benefit under Medicare. Questions have arisen regarding whether an employer that provides postretirement prescription drug coverage should recognize the effects of the Act on its accumulated postretirement benefit obligation (APBO) and net postretirement benefit costs under SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. While the Company does offer postretirement benefits, including prescription drug coverage, subject to the accounting requirements of SFAS No. 106, those benefits are available to retirees only until age 65, at
 which time Medicare coverage becomes effective. As such, the Company does not believe that this specific provision of the Act will have any material effect on its financial position or results of operations.

The Companys pension plan weighted-average asset allocations at December 31, 2004 and 2003, by major asset category, were as follows:

Plan Assetsat December 31,2004

2003Equity securities




66
%


70
%Debt securities




21
%


27
%Other




13
%


3
%Total




100
%


100
%


In 2005, we expect our long-term asset allocation to move closer to our 75% equity securities and 25% fixed income targets, as outlined in our current Pension Investment Policy and as our September 2004 cash contribution becomes fully invested in the equity markets. The current equity allocation is distributed over twelve professionally managed mutual funds covering eight different equity styles. We regularly review our actual asset allocation and periodically rebalance our investments to our targeted allocation when considered appropriate. We believe that 8.5% is a reasonable long-term rate of return on our Pension Plan assets for 2005, given our asset allocation strategy and investment time horizon. For the year ended December 31, 2004, our Pension Plan assets generated a total composite return of 7.9%. We will continue to evaluate our actuarial assumptions, including our expected rate of return, at least annually, and will
adjust as necessary.

In developing strategic asset allocation guidelines for the plan, an emphasis is placed on the long-term characteristics of individual asset classes, the benefits of diversification among multiple asset classes and the Companys long-term return expectations for the plan. Consideration is also

52

---

given to the proper level of risk of the plan, particularly with respect to the long-term nature of the plans liabilities and long-term investment horizon of plan assets.

The Company expects to contribute an amount currently estimated at $4.5 million to the retirement and post-retirement plans in 2005, and to make the following benefit payments, which reflect expected future service, as appropriate:

For the Year(s) Ended December 31,
 Pension Benefits

OtherPostretirementBenefits(in thousands)2005



$
1,627


$
2702006




1,905



2732007




2,113



3112008




2,344



3632009




2,652



4212010 through 2014




18,657



3,126


Profit sharing plan The profit sharing plan is a defined contribution plan with contributions made by the Company. The profit sharing plan is noncontributory at the employee level, except for the employees option to contribute under a 401(k) savings plan available as part of the profit sharing plan. The Company provides a 50% match of the first 1% to 6% of plan compensation the employee contributes on a pre-tax basis and may make additional contributions to the plan at the discretion of the Board, primarily on the basis of Company earnings. Total employer contributions made for 2004, 2003 and 2002 were $2,038,000, $2,462,000 and $3,024,000.

Employee stock ownership plan The Employee Stock Option Plan (ESOP) is a defined contribution plan covering substantially all employees with contributions made exclusively by the Company on a discretionary year-by-year basis. The contribution was $600,000 for 2004, $100,000 for 2003 and $400,000 for 2002.

Note M:   Other Noninterest Income

Other noninterest income at December 31 consisted of the following:

2004

2003

2002(in thousands)Fees on loans



$
5,238


$
4,951


$
3,799Other




2,341



1,867



2,289Total



$
7,579


$
6,818


$
6,088


Note N:   Other Noninterest Expense

Other noninterest expense at December 31 consisted of the following:

2004

2003

2002(in thousands)Printing, postage and telephone



$
6,205


$
6,695


$
6,491Marketing




6,272



6,140



5,775Professional fees




4,339



3,360



4,821Other




13,554



13,605



14,633Total



$
30,370


$
29,800


$
31,720


53

---

Note O:   Income Taxes

The components of the provision for income taxes at December 31 were as follows:

2004

2003

2002(in thousands)CurrentFederal



$
26,575


$
24,960


$
24,717State




7,028



5,902



5,292Deferred




484



1,248



754Total



$
34,087


$
32,110


$
30,763


A reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate at December 31 was as follows:

2004

2003

2002(in thousands)Tax at statutory rate



$
34,392


$
32,621


$
32,359Plus state income tax, net of federal tax benefits




4,556



3,880



3,49838,948



36,501



35,857Less tax effect of:Interest on state and political subdivision securities




2,816



2,893



3,053Other tax-exempt interest




2,423



2,215



2,109Amortization








(322
)


60Other




(378
)


(395
)


(128
)4,861



4,391



5,094Income tax expense



$
34,087


$
32,110


$
30,763


The following table sets forth the temporary differences comprising the net deferred taxes included with other assets on the consolidated balance sheet at December 31:

2004

2003(in thousands)Deferred tax assetsProvision for credit losses



$
24,541


$
23,500Deferred income




1,504



1,417Unrealized loss on securities available-for-sale




2,162



Other




140



140Total



$
28,347


$
25,057Deferred tax liabilitiesDeferred expense



$
5,677


$
3,853Employee compensation and benefits accruals




3,087



3,372Depreciation




24,422



21,350Unrealized gain on securities available-for-sale








791Other




100



78Total




33,286



29,444Net deferred tax liabilities



$
4,939


$
4,387


The Wisconsin Department of Revenue (the State) is currently conducting an income tax audit of our Wisconsin Subsidiary Bank and of another subsidiary company located in Nevada that holds and manages investments for the Wisconsin Subsidiary Bank. The audit has been initiated under an audit program targeted at Wisconsin financial institutions with non-Wisconsin subsidiaries, the income of which has not been subject to Wisconsin tax. The State may take the position that the income of the out-of-state subsidiary is taxable in Wisconsin. The Company has initiated settlement discussions with the State and is currently reviewing a proposed settlement offer from the State. Tax liability accounts

54

---

and tax provisions have been adjusted to reflect the terms of the proposed settlement offer. Management believes that the resolution of this matter will not have a material impact on the financial statements.

Note P:   Commitments and Contingencies

The Company utilizes various off-balance sheet instruments to satisfy the financing needs of customers. These instruments represent contractual obligations of the Company to provide funding, within a specified time period, to a customer. The following represents the outstanding obligations at December 31:

2004

2003(in thousands)Standby letters of credit



$
52,772


$
54,795Commercial letters of credit




47,772



43,689Loan commitments




1,386,761



1,093,759


Standby letters of credit represent a conditional commitment to satisfy an obligation to a third party, generally to support public and private borrowing arrangements, on behalf of the customer. Commercial letters of credit facilitate trade or commerce. Under the terms of a commercial letter of credit, as a general rule, drafts will be drawn when the underlying transaction is consummated as intended. Loan commitments represent contractual agreements to provide funding to customers over a specified time period as long as there is no violation of any condition of the contract. These loans most often take the form of operating lines.

The Companys potential exposure to credit loss in the event of nonperformance by the other party is represented by the contractual amount of those instruments. The credit risk associated with letters of credit and loan commitments is substantially the same as extending credit in the form of a loan; therefore, the same credit policies apply in evaluating potential letters of credit or loan commitments. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on managements credit evaluation. The type of collateral held varies, but includes real estate, accounts receivable, inventory, and productive assets.

Under substantially noncancelable contracts, the Company is obligated to pay approximately $4.8 million in annual data processing and item processing fees to third party providers through May 2008. The costs under the item processing contract are calculated in accordance with a volume-based fee schedule, which is subject to change annually.

The Company is routinely involved in legal actions which are incidental to the business of the Company. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the Companys consolidated financial position or operations.

Note Q:   Common Stock

The Company has authorized 12,000,000 shares of class A common stock and 10,800,000 shares of class B common stock. The shares of class A common stock have full rights to vote on all matters properly before the Companys shareholders, including the election of the Companys directors. The class B common stock, all of which is held by the Otto Bremer Foundation (the Foundation), is non-voting except with respect to certain extraordinary corporate transactions, upon which the holders would have the right to vote on an equivalent per share basis with the holders of class A common stock.

Each share of class B common stock is convertible into one share of class A common stock upon the occurrence of the following events: (i) at the affirmative election of a third party or entity, upon the transfer of class B common stock from the Foundation to any third party or entity, or (ii) at the affirmative election of the holder of class B common stock, if cash dividends have not been paid on class A and class B common stock with respect to any year in an amount equal to at least 5% of the

55

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Companys net book value as of the last day of the immediately preceding year. The Company has reserved 10,800,000 shares of class A common stock in the event of conversion of the class B common stock.

At December 31, 2004 and 2003, 960,000 shares of redeemable class A stock were issued and outstanding. At December 31, 2004, these shares were subject to redemption at a price of $42.02 per share, which approximated book value. These shares are owned by employees and directors of the Company and its subsidiaries and the employee benefit plans of the Company. The employee holders of class A common stock have the right to require the Company to purchase their shares under certain circumstances, including death, permanent disability or retirement, while the Company has the option to purchase the shares from holders upon the occurrence of certain events, which include death, retirement or termination of the employees employment. It is the Companys intent that these 960,000 shares will continue to be held by employees, directors, and employee benefit plans of the Company and its subsidiaries and not be directly
purchased by the Company or the Otto Bremer Foundation.

Federal law prevents the Company and its non-bank subsidiaries from borrowing from the Subsidiary Banks unless the loans are secured by specified U.S. obligations. Further, the secured loans that may be made by Subsidiary Banks are generally limited in amount to 10% of the Subsidiary Banks equity if made to the Company or any individual affiliate and 20% of the Subsidiary Banks equity if made to all affiliates and the Company in the aggregate. At December 31, 2004, 2003 and 2002, no Subsidiary Banks had extended credit to the Company.

Payment of dividends to the Company by its Subsidiary Banks is subject to various limitations by bank regulators, which includes maintenance of certain minimum capital ratios. As of December 31, 2004, $29,862,000 of retained earnings of the Subsidiary Banks was available for distribution to the Company as dividends subject to these limitations. Approximately $27,228,000 was available for distribution without obtaining the prior approval of the appropriate bank regulator.

Note R:   Regulatory Matters

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Companys assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Companys capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2004, that the Company meets all capital adequacy requirements to which it is subject.

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) required the establishment of a capital-based supervisory system of prompt corrective action for all depository institutions. The Federal Reserve Boards implementation of FDICIA defines well-capitalized institutions as those whose Tier I capital ratio equals or exceeds 6%, total risk-based capital ratio equals or exceeds 10%, and leverage ratio equals or exceeds 5%. The Subsidiary Banks ratios in each of these categories met or exceeded the well-capitalized ratios as of December 31, 2004.

56

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The Companys and Subsidiary Banks actual capital amounts and ratios as of December 31 are also presented below:

Actual
 For CapitalAdequacy Purposes
 To Be WellCapitalized UnderPrompt CorrectiveAction ProvisionsAmount

Ratio

Amount
 

Ratio

Amount
 

Ratio(dollars in thousands)As of December 31, 2004:Total capital (to risk weighted assets)Consolidated



$
545,850



11.38
%

$
383,586



>



8.00
%


N/ASubsidiary Banks



$
528,496



11.12
%

$
380,310



>



8.00
%

$
475,388



>



10.00
%Tier I capital (to risk weighted assets)Consolidated



$
485,895



10.13
%

$
191,793



>



4.00
%


N/ASubsidiary Banks



$
469,055



9.87
%

$
190,155



>



4.00
%

$
285,233



>



6.00
%Tier I capital (to average assets)Consolidated



$
485,895



8.21
%

$
236,788



>



4.00
%


N/ASubsidiary Banks



$
469,055



7.94
%

$
236,317



>



4.00
%

$
295,396



>



5.00
%As of December 31, 2003:Total capital (to risk weighted assets)Consolidated



$
494,738



11.76
%

$
336,544



>



8.00
%


N/ASubsidiary Banks



$
471,856



11.05
%

$
341,600



>



8.00
%

$
427,001



>



10.00
%Tier I capital (to risk weighted assets)Consolidated



$
442,074



10.51
%

$
168,272



>



4.00
%


N/ASubsidiary Banks



$
418,443



9.80
%

$
170,800



>



4.00
%

$
256,200



>



6.00
%Tier I capital (to average assets)Consolidated



$
442,074



8.10
%

$
218,194



>



4.00
%


N/ASubsidiary Banks



$
418,443



7.76
%

$
215,680



>



4.00
%

$
269,600



>



5.00
%


57

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Note S: Bremer Financial Corporation (Parent Company Only) Condensed Statements:

Balance Sheets

December 31,2004

2003(in thousands)AssetsCash and cash equivalents



$
11,877


$
5,717Investment securities available-for-sale








37,239Investment in and advances to:Bank subsidiaries




562,770



519,221Non-bank subsidiaries




36,500



50,399Other assets




6,687



8,197Total assets



$
617,834


$
620,773Liabilities and Shareholders EquityAdvance from non-bank subsidiary



$
5,200


$
Junior subordinated deferrable interest debentures




78,867



78,867Other long-term debt




20,058



66,482Accrued expenses and other liabilities




9,518



7,997Redeemable class A common stock




40,335



37,394Shareholders equity




463,856



430,033Total liabilities and shareholders equity



$
617,834


$
620,773


Statements of Income

Years Ended December 31,2004

2003

2002(in thousands)IncomeDividends from:Bank subsidiaries



$
23,035


$
32,190


$
59,780Non-bank subsidiaries




5,303



1,388



3,200Interest from subsidiaries




1,252



1,849



2,574Interest income on taxable securities




213



631



258Gain on sale of securities




12



12



Other income




256



612



1,550Total income




30,071



36,682



67,362ExpensesInterest expense:Short-term borrowings




29



59



294Junior subordinated deferrable interest debentures




7,402



7,392



7,392Other long-term debt




4,958



5,635



5,667Salaries and benefits




2,570



2,197



1,010Operating expense paid to subsidiaries




1,812



1,682



1,393Other operating expenses




2,300



1,320



548Total expenses




19,071



18,285



16,304Income before income tax benefit




11,000



18,397



51,058Income tax benefit




6,489



5,649



4,680Income of parent company only




17,489



24,046



55,738Equity in undistributed earnings of subsidiaries




46,688



37,046



5,911Net income



$
64,177


$
61,092


$
61,649


58

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Note S: Bremer Financial Corporation (Parent Company Only) Condensed Statements (continued):

Statements of Cash Flow

Years Ended December 31,2004

2003

2002(in thousands)Cash flows from operating activitiesNet income



$
64,177


$
61,092


$
61,649Adjustments to reconcile net income to net cash provided
  by operating activitiesEquity in undistributed (earnings) of subsidiaries




(46,688
)


(37,046
)


(5,911
)Depreciation and amortization




569



1,691



953Other, net




2,372



5,876



(6,989
)Net cash provided by operating activities




20,430



31,613



49,702Cash flows from investing activitiesInvestment in and advances to subsidiaries, net




17,809



(5,352
)


24,510Purchases of securities




(7,679
)


(40,171
)


(26,545
)Proceeds from maturities of securities




729



1,393



Proceeds from sales of securities




44,095



39,803



5,862Net cash provided (used) by investing activities




54,954



(4,327
)


3,827Cash flows from financing activitiesShort-term borrowings, net












(33,000
)Repayments of long-term debt




(46,424
)


(423
)


(424
)Dividends paid




(22,800
)


(21,600
)


(19,800
)Net cash used by financing activities




(69,224
)


(22,023
)


(53,224
)Net increase in cash and cash equivalents




6,160



5,263



305Cash and cash equivalents at beginning of period




5,717



454



149Cash and cash equivalents at end of period



$
11,877


$
5,717


$
454


Note T: Quarterly Consolidated Financial Information (Unaudited):

BREMER FINANCIAL CORPORATION SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

2004 Quarter Ended(dollars in thousands, except per share data)March 31

June 30

September 30

December 31Interest income



$
67,148


$
68,678


$
73,038


$
78,031Interest expense




21,389



21,245



22,541



23,664Net interest income




45,759



47,433



50,497



54,367Net income




14,398



14,946



16,401



18,432Per share of common stockNet income-basic and diluted




1.20



1.25



1.36



1.54


2003 Quarter Ended(dollars in thousands, except per share data)March 31

June 30

September 30

December 31Interest income



$
68,900


$
69,113


$
68,023


$
68,345Interest expense




22,823



22,696



21,544



21,548Net interest income




46,077



46,417



46,479



46,797Net income




16,188



15,387



15,311



14,206Per share of common stockNet income-basic and diluted




1.35



1.28



1.28



1.18


59

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders ofBremer Financial CorporationSaint Paul, Minnesota

We have audited the accompanying consolidated balance sheets of Bremer Financial Corporation and subsidiaries (the Company), as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bremer Financial Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, MinnesotaMarch 3, 2005

60

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ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No event requiring disclosure pursuant to this Item 9 has occurred during the two years ended December 31, 2004.

ITEM 9A.   CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness, as of December 31, 2004, of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and regulations of the Securities and Exchange Commission. There was no change in our internal control over financial reporting that occurred during the quarter or year ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

PART III

Items 10 through 14 of the Form 10-K are omitted because the Company will file before April 30, 2005 a definitive Proxy Statement (the Proxy Statement) conforming to Schedule 14A involving the election of directors. The information required by Items 10, 11, 12, 13 and 14 of Part III of the Form 10-K are hereby incorporated by reference to such Proxy Statement.

PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|(a) | The following documents are filed as part of this report:
|--- | ---------------------------------------------------------

| | (1) | The following financial statements of Bremer Financial Corporation are part of this document under Item 8. Financial Statements and Supplementary Data:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------

Consolidated Balance Sheets  December 31, 2004 and December 31, 2003

Consolidated Statements of Income  Years ended December 31, 2004, 2003 and 2002

Consolidated Statements of Shareholders Equity  Years ended December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows  Years ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

Report of Independent Registered Accounting Firm

| | (2) | Financial statement schedules are omitted as they are not applicable, not required, or the required information is included in the financial statements or notes thereto.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

61

---

| | (3) | The exhibits required to be filed with this Annual Report on Form 10-K are described in Item 15(c).
| | --- | ---------------------------------------------------------------------------------------------------

|(b) | During the quarter ended December 31, 2004, the Company furnished to the Securities and Exchange Commission a Current Report on Form 8-K dated October 26, 2004 that disclosed under Item 12 of the Current Report on Form 8-K the issuance of a press release describing the Company financial results for the quarter and nine months ended September 30, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | The following exhibits are filed as a part of this report:                                                                                                                                                                                                                                                                                                       

10.1

Bremer Executive Long Term Incentive Plan effective January 1, 2003.*10.2

2005 Bremer Executive Long Term Incentive Plan.*12.1

Statement Regarding Computation of Ratio of Earnings to Fixed Charges.14

Code of Conduct.21

Subsidiaries of the Company.31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1

Risk Factors.


The following exhibits are incorporated by reference to Exhibits 10.1 and 10.2, respectively, to the Companys Annual Report on Form 10-K for the year ended December 31, 2002.

10.3

Executive Annual Incentive Plan effective January 1, 2002.*10.4

Bremer Financial Corporation Executive Stock Purchase Plan effective August 1, 2002.*


The following exhibits are incorporated by reference to Exhibits 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7 and 4.8, respectively, to Amendment No. 1 to the Companys Registration Statement on Form S-2 filed with the Securities and Exchange Commission on April 30, 2001:

4.1

Form of Indenture between Wilmington Trust Company and Bremer Financial Corporation.4.2

Form of Junior Subordinated Debenture (included as an exhibit to Exhibit 4.1).4.3

Certificate of Trust for Bremer Capital Trust I.4.4

Declaration of Trust for Bremer Capital Trust I.4.5

Form of Amended and Restated Declaration of Trust for BremerCapital Trust I.4.6

Form of Capital Securities Certificate (included as an exhibit to Exhibit 4.5).4.7

Form of Capital Securities Guarantee Agreement between Bremer Financial Corporation and Wilmington Trust Company.4.8

Form of Supplemental Indenture.


62

---

The following exhibits are incorporated by reference to Exhibits 3.1, 28.7, and 28.8, respectively, to the Companys Annual Report on Form 10-K for the year ended December 31, 1989:

3.1

Bylaws of the Company in effect on the date hereof.99.2

The portion of the final Prospectus of the Company dated April 20, 1989 (Prospectus), which was filed with the SEC on April 20, 1989, entitled Description of Capital Stock Description of Class A Common Stock  Restrictions on Transfer.99.3

The portion of the Prospectus entitled Description of Capital Stock - Description of Class A Common Stock  First Call Option to Company on page 64 of the Prospectus.


The following exhibit is incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed with the SEC on February 10, 1989:

3.2

Restated Articles of Incorporation of the Company in effect on the date hereof.


The following exhibits are incorporated by reference to Exhibits 4.1 and 4.2, respectively, to the Companys Amendment No. 1 to Registration Statement on Form S-1 filed with the SEC on March 29, 1989:

4.9

Specimen of Stock Certificate evidencing Class A Common Stock.4.10

Specimen of Stock Certificate evidencing Class B Common Stock.


---

|* | Indicates a management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------------------

63

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|March 25, 2005 | Bremer Financial Corporation                       
|-------------- | ---------------------------------------------------
|               | By:           /S/ STAN K. DARDIS                   
|               | Stan K. DardisPresident and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant on March 25, 2005 in the capacities indicated.

/S/ STAN K. DARDIS
Stan K. DardisPresident and Chief Executive Officerand Director (Principal Executive Officer)

/S/ ROBERT B. BUCK
Robert B. BuckExecutive Vice President andChief Financial Officer(Principal Financial Officer)/S/ TERRY M. CUMMINGS
Terry M. CummingsChairman of the Board and Director

/S/ STUART F. BRADT
Stuart F. BradtController (Principal Accounting Officer)/S/ WILLIAM H. LIPSCHULTZ
William H. LipschultzDirector

/S/ TERRENCE W. GLARNER
Terrence W. GlarnerDirector/S/ CHARLOTTE S. JOHNSON
Charlotte S. JohnsonDirector

/S/ RONALD JAMES
Ronald JamesDirector/S/ DANIEL C. REARDON
Daniel C. ReardonDirector

/S/ SHERMAN WINTHROP
Sherman WinthropDirector


64

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# INDEX TO EXHIBITS

Description of Exhibits

| |  |  | 10.1 |  | Bremer
Executive Long Term Incentive Plan effective January 1, 2003.*
| |  |  | ---- |  | ---------------------------------------------------------------------

| |  |  | 10.2 |  | 2005
Bremer Executive Long Term Incentive Plan.*
| |  |  | ---- |  | ------------------------------------------------

| |  |  | 12.1 |  | Statement
Regarding Computation of Ratio of Earnings to Fixed Charges.
| |  |  | ---- |  | ----------------------------------------------------------------------

| |  |  | 14 |  | Code
of Conduct.
| |  |  | -- |  | ----------------

| |  |  | 21 |  | Subsidiaries
of the Company.
| |  |  | -- |  | ----------------------------

| |  |  | 31.1 |  | Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |  | ---- |  | ---------------------------------------------------------------------------------------------------

| |  |  | 31.2 |  | Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| |  |  | ---- |  | ---------------------------------------------------------------------------------------------------

| |  |  | 32.1 |  | Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
| |  |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 32.2 |  | Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
| |  |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 99.1 |  | Risk
Factors.
| |  |  | ---- |  | -------------

____________________________

* Indicates a management contract or
compensatory plan or arrangement.

---