SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A-1


[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                       OR

[ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM ______________TO ______________.

                         COMMISSION FILE NUMBER 0-18342


                          BREMER FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

            MINNESOTA                                           41-0715583
  (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                           Identification No.)

          445 MINNESOTA STREET                                    55101
        SUITE 2000, ST. PAUL, MN                                (Zip Code)
(Address of principal executive offices)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 227-7621

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                       Class A Common Stock, no par value

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]

Based upon the $21.18 per share book value of the shares of class A common stock
of the Company as of December 31, 1996, the aggregate value of the Company's
shares of class A common stock held by employees and directors as of such date
was approximately $20.3 million.

As of March 14, 1997, there were 1,200,000 shares of class A common stock and
10,800,000 shares of class B common stock outstanding.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                  BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        DECEMBER 31
                                                                  ------------------------
                                                                     1996          1995
                                                                  ----------     ---------
                                                                       (IN THOUSANDS)
<S>                                                               <C>            <C>
ASSETS
  Cash and due from banks                                         $  159,832       127,786
  Interest bearing deposits                                            1,778         3,008
  Investment securities held to maturity (fair value of
   $187,045 and $203,607, respectively)                              183,095       198,515
  Mortgage-backed securities held to maturity (fair value of
   $108,111 and $116,772, respectively)                              109,036       118,390
                                                                  ----------       -------
      TOTAL SECURITIES HELD TO MATURITY                              292,131       316,905
  Investment securities available for sale (amortized cost of
   $180,453 and $209,978, respectively)                              180,679       213,520
  Mortgage-backed securities available for sale (amortized
   cost of $460,958 and $450,551, respectively)                      462,964       454,343
                                                                  ----------       -------
      TOTAL SECURITIES AVAILABLE FOR SALE                            643,643       667,863
  Loans                                                            1,759,711     1,630,100
   Reserve for loan losses                                           (30,482)      (28,253)
   Unearned discount                                                  (3,954)       (3,484)
                                                                  ----------       -------
      NET LOANS                                                    1,725,275     1,598,363
  Premises and equipment, net                                         45,980        44,252
  Interest receivable and other assets                                57,012        54,055
                                                                  ----------       -------
      TOTAL ASSETS                                                $2,925,651     2,812,232
                                                                  ==========       =======
LIABILITIES AND SHAREHOLDER'S EQUITY
  Noninterest bearing deposits                                    $  332,143       326,531
  Interest bearing deposits                                        1,951,303     1,915,776
                                                                  ----------       -------
      TOTAL DEPOSITS                                               2,283,446     2,242,307
  Federal funds purchased and repurchase agreements                  188,129       187,100
  Other short-term borrowings                                         86,892        69,427
  Long-term debt                                                      62,389        25,568
  Accrued expenses and other liabilities                              39,125        38,633
                                                                  ----------       -------
      TOTAL LIABILITIES                                            2,659,981     2,563,035
  Minority interests                                                   9,319         9,112
  Redeemable preferred stock, $100 par, 80,000 shares
   authorized; 71,594 shares issued; 21,437 shares outstanding         2,144         2,144
  Redeemable class A common stock, 960,000 shares
   issued and outstanding                                             20,337        19,035
  Shareholder's equity
   Common stock
      Class A, no par, 12,000,000 shares authorized;
        240,000 shares issued and outstanding                             57            57
      Class B, no par, 10,800,000 shares authorized,
        issued and outstanding                                         2,562         2,562
  Retained earnings                                                  230,071       212,392
  Net unrealized gain on securities available for sale                 1,180         3,895
                                                                  ----------       -------
      TOTAL SHAREHOLDER'S EQUITY                                     233,870       218,906
                                                                  ----------       -------
      TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                  $2,925,651     2,812,232
                                                                  ==========       =======
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                  BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

                                            YEAR ENDED DECEMBER 31
                                       --------------------------------
                                         1996        1995        1994
                                       --------    --------     -------
                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

INTEREST INCOME
  Loans, including fees                $151,964     141,754     113,295
  Securities
    Taxable                              47,297      47,006      39,091
    Tax-exempt                           11,285      10,839       9,748
  Federal funds sold                         --          --          37
  Other                                     157         182          96
                                       --------     -------     -------
       Total interest income            210,703     199,781     162,267
                                       --------     -------     -------
INTEREST EXPENSE
  Deposits                               86,246      84,872      59,187
  Federal funds purchased and
   repurchase agreements                  8,823       8,175       6,771
  Other short term borrowings             6,027       4,503       1,844
  Long term debt                          1,414       1,586         382
                                       --------     -------     -------
       Total interest expense           102,510      99,136      68,184
                                       --------     -------     -------
    Net interest income                 108,193     100,645      94,083
  Provision for loan losses               2,756       1,780      (1,300)
                                       --------     -------     -------
    Net interest income after
     provision for loan losses          105,437      98,865      95,383
                                       --------     -------     -------
NONINTEREST INCOME
  Service charges                        12,837      11,047       9,627
  Insurance                               7,082       5,503       4,716
  Trust                                   5,332       4,784       4,502
  Gain on sale of loans                   2,138       1,302       1,649
  Gain (loss) on sale of securities         147         304        (270)
  Other                                   6,306       4,952       6,544
                                       --------     -------     -------
       Total noninterest income          33,842      27,892      26,768
                                       --------     -------     -------
NONINTEREST EXPENSE
  Salaries and wages                     40,676      37,325      36,556
  Employee benefits                      10,739      10,878      11,254
  Occupancy                               5,756       5,433       4,871
  Furniture and equipment                 6,020       5,020       4,320
  Data processing fees                    7,680       7,334       7,031
  FDIC premiums and examination fees      1,075       2,901       4,719
  Other                                  20,379      18,405      16,885
                                       --------     -------     -------
       Total noninterest expense         92,325      87,296      85,636
                                       --------     -------     -------
INCOME BEFORE INCOME TAX EXPENSE         46,954      39,461      36,515
  Income tax expense                     15,137      12,325      10,718
                                       --------     -------     -------
NET INCOME                             $ 31,817      27,136      25,797
                                       ========     =======     =======
  Per common share amounts
    Net income                         $   2.65        2.26        2.15
    Dividends paid                     $   1.05        0.80        0.78

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                  BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                       NET UNREALIZED
                                                                       GAIN (LOSS) ON
                                                   COMMON STOCK          SECURITIES
                                                -------------------      AVAILABLE       RETAINED
                                                CLASS A     CLASS B       FOR SALE       EARNINGS      TOTAL
                                                -------     -------    --------------    --------     -------
                                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>        <C>           <C>           <C>          <C>
BALANCE, DECEMBER 31, 1993                        $57        2,562          4,678        181,137      188,434
  Net income                                                                              25,797       25,797
  Dividends, $.78 per share                                                               (9,360)      (9,360)
  Allocation of net income in excess of
   dividends and change in net unrealized
   gain (loss) on securities available for
   sale to redeemable class A common stock                                  1,393         (1,315)          78
  Change in net unrealized gain (loss) on
   securities available for sale                                          (17,411)                    (17,411)
                                                  ---        -----        -------        -------      -------
BALANCE, DECEMBER 31, 1994                         57        2,562        (11,340)       196,259      187,538
  Net income                                                                              27,136       27,136
  Dividends, $.80 per share                                                               (9,600)      (9,600)
  Allocation of net income in excess of
   dividends and change in net unrealized
   gain (loss) on securities available for
   sale to redeemable class A common stock                                 (1,324)        (1,403)      (2,727)
  Change in net unrealized gain (loss) on
   securities available for sale                                           16,559                      16,559
                                                  ---        -----        -------        -------      -------
BALANCE, DECEMBER 31, 1995                         57        2,562          3,895        212,392      218,906
  Net income                                                                              31,817       31,817
  Dividends, $1.05 per share                                                             (12,600)     (12,600)
  Allocation of net income in excess of
   dividends and change in net unrealized
   gain (loss) on securities available for
   sale to redeemable class A common stock                                    236         (1,538)      (1,302)
  Change in net unrealized gain (loss) on
   securities available for sale                                           (2,951)                     (2,951)
                                                  ---        -----        -------        -------      -------
BALANCE, DECEMBER 31, 1996                        $57        2,562          1,180        230,071      233,870
                                                  ===        =====          =====        =======      =======
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                  BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31
                                                         ------------------------------------
                                                           1996          1995          1994
                                                         ---------     --------      --------
                                                                    (IN THOUSANDS)
<S>                                                     <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                             $  31,817       27,136        25,797
  Adjustments to reconcile net income to net cash
   provided by operating activities
    Provision for loan losses                                2,756        1,780        (1,300)
    Depreciation and amortization                            7,135        6,525         9,531
    Deferred income taxes                                   (1,204)       1,074          (459)
    Minority interests in earnings of subsidiaries           1,400        1,277         1,271
    (Gain) loss on sale of securities                         (147)        (304)          270
    Valuation writedown on other real estate owned              --           13             6
    Gains on sale of other real estate owned, net              (33)        (517)       (1,471)
    Other assets and liabilities, net                         (915)       2,758          (793)
    Proceeds from sales of other real estate owned             269        2,192         4,466
    Cash receipts related to loans originated
     specifically for resale                               123,549       74,672        81,401
    Cash payments related to loans originated
     specifically for resale                              (123,397)     (73,370)      (79,752)
                                                         ---------     --------      --------
       Net cash provided by operating activities            41,230       43,236        38,967
                                                         ---------     --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Deposits in other banks, net                               1,230       (1,396)           11
  Federal funds sold, net                                       --           --        21,547
  Purchases of securities available for sale              (208,159)    (273,311)     (294,536)
  Purchases of securities held to maturity                 (33,762)     (20,738)      (54,868)
  Proceeds from maturities of securities available
   for sale                                                128,539       92,292        95,976
  Proceeds from maturities of securities held to
   maturity                                                 59,942       55,081        60,900
  Proceeds from sales of securities available for
   sale                                                     97,713      112,886       143,593
  Loans, net                                              (129,819)    (149,885)     (163,484)
  Business acquisitions, net of cash acquired                   --       (1,469)        1,621
  Acquisition of premises and equipment                     (7,637)     (11,540)       (5,913)
                                                         ---------     --------      --------
       Net cash used by investing activities               (91,953)    (198,080)     (195,153)
                                                         ---------     --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Noninterest bearing deposits, net                          5,612       36,160         5,781
  Interest bearing deposits (excluding certificates
   of deposit), net                                         (7,416)      16,692       (32,545)
  Certificates of deposits, net                             42,943      119,120        97,316
  Federal funds and repurchase agreements, net               1,029      (16,961)       68,016
  Other short-term borrowings, net                          17,465       25,611        29,889
  Long-term debt, net                                       36,821        1,780        13,924
  Minority interests acquired and dividends paid            (1,085)      (1,105)       (1,098)
  Redeemable preferred stock                                    --       (5,108)           --
  Dividends paid                                           (12,600)      (9,600)       (9,360)
                                                         ---------     --------      --------
       Net cash provided by financing activities            82,769      166,589       171,923
                                                         ---------     --------      --------
       Net increase in cash and due from banks              32,046       11,745        15,737
  Cash and due from banks
    Beginning of year                                      127,786      116,041       100,304
                                                         ---------     --------      --------
    End of year                                          $ 159,832      127,786       116,041
                                                         =========     ========      ========
  Supplemental disclosures of cash flow information
    Cash paid during the year for interest               $ 103,494       89,977        64,366
    Cash paid during the year for income taxes              16,229        8,640        13,270
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A: ACCOUNTING POLICIES

NATURE OF BUSINESS -- Bremer Financial Corporation (the "Company") is a regional
multi-state bank holding company headquartered in St. Paul, Minnesota. The
Company is a majority owner of sixteen 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. Additionally, the Company also 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 generally accepted accounting principles 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 banks and financial service 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,
1996, 1995, and 1994, the Company received real estate valued at $481,000,
$1,312,000, and $506,000, respectively, in satisfaction of outstanding loan
balances. During the years ended December 31, 1996, 1995 and 1994, the Company
issued installment notes totaling $250,000, $5,577,000 and $3,801,000,
respectively, and redeemable preferred stock during 1994 of $7,160,000, in
connection with acquisitions. Of the preferred stock issued in 1994, $5,108,000
was redeemed during 1995.

INVESTMENT AND MORTGAGE-BACKED 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, increased for accretion
of discounts and reduced by amortization of premiums, computed by the
constant-yield method. 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 and
minority interest effects and the resultant allocation to redeemable class A
common stock, as a separate component of shareholder's equity until realized.
Gains or losses on these securities are computed based on the adjusted cost of
the specific securities sold.

The Company does not engage in trading activities.

LOANS -- Interest income is accrued on loan balances based on the principal
amount outstanding. Loans are reviewed regularly by management and placed on
nonaccrual status when the collection of interest or principal is unlikely.
Thereafter, no interest is recognized as income unless received in cash or until
such time the borrower demonstrates the ability to pay interest and 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.

Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures" (FAS 114 and
118). Under the Company's credit policies and practices, all nonaccrual and
restructured commercial, agricultural, construction, and commercial real estate
loans plus certain other loans identified by the Company meet the definition of
impaired loans under FAS 114 and 118. Impaired loans as defined by FAS 114 and
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 adoption of FAS
114 and 118 did not have a material effect on the Company's financial position
or results of operations.

RESERVE FOR LOAN 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 portfolio. Being an estimate, the reserve is
subject to change through evaluation of the loan composition, economic
conditions, and the economic prospects of borrowers.

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.

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. Any
write-down to fair value at the time of foreclosure is charged to the reserve
for loan 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.

INTANGIBLE ASSETS -- Intangible assets consist primarily of goodwill. The
remaining unamortized balances at December 31, 1996 and 1995 were approximately
$10,635,000 and $10,200,000, respectively, which are amortized over a 15 year
period.

INCOME TAXES -- Bremer Financial Corporation and subsidiaries file a
consolidated federal tax return, accounting for income taxes under FAS 109.
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. Such differences are primarily related to
the differences between providing for loan losses for financial reporting
purposes while deducting charged-off loans for tax purposes.

ESTIMATES -- The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities 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 loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans.

EARNINGS PER SHARE CALCULATIONS -- Earnings per common share have been computed
using 12,000,000 common shares for all periods. See Note O.

RECLASSIFICATIONS -- Certain amounts have been reclassified to provide
consistent presentation among the various accounting periods shown. The
reclassifications have no effect on previously reported net income or total
shareholder's equity.


NOTE B: RESTRICTIONS ON CASH AND DUE FROM BANKS

Subsidiary Banks are required to maintain average reserve balances in accordance
with the Federal Reserve Bank requirements. The amount of those reserve balances
was approximately $15,883,000 and $15,388,000 as of December 31, 1996 and 1995,
respectively.


NOTE C: INVESTMENT AND MORTGAGE-BACKED SECURITIES

At December 31, 1996 and 1995, investment and mortgage-backed securities with
amortized cost of $655,439,000 and $606,895,000, respectively, were pledged as
collateral to secure public deposits and for other purposes. The amortized cost
and estimated fair value by maturity at December 31, 1996, are shown below
(contractual maturity or, if earlier, call dates are used):

                     HELD TO MATURITY         AVAILABLE FOR SALE
                   ---------------------     ---------------------
                   AMORTIZED      FAIR       AMORTIZED      FAIR
                     COST         VALUE        COST         VALUE
                   ---------     -------     --------      -------
                                   (IN THOUSANDS)

Within 1 year      $ 74,676       74,634      117,829      118,237
1 -- 5 years        130,204      131,627      354,041      356,237
5 -- 10 years        71,893       73,643       65,535       65,504
After 10 years       15,358       15,252      104,006      103,665
                   --------      -------      -------      -------
  Total            $292,131      295,156      641,411      643,643
                   ========      =======      =======      =======


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

<TABLE>
<CAPTION>
                                               1996                                                    1995
                        ---------------------------------------------------     --------------------------------------------------
                                        GROSS          GROSS                                    GROSS          GROSS
                        AMORTIZED     UNREALIZED     UNREALIZED      FAIR       AMORTIZED     UNREALIZED     UNREALIZED     FAIR
                          COST          GAINS          LOSSES        VALUE        COST          GAINS          LOSSES       VALUE
                        --------      ----------     ----------     -------     ---------     ----------     ----------    -------
                                                                      (IN THOUSANDS)
<S>                    <C>             <C>            <C>          <C>          <C>            <C>            <C>        <C>
Governments             $ 54,966          317             25         55,258       76,335          851             63        77,123
State and political
 subdivisions             36,934          271              7         37,198       41,500          431              8        41,923
Corporate bonds           36,109           88             80         36,117       48,236          130            319        48,047
Mortgage-backed
 securities              460,958        3,886          1,880        462,964      450,551        5,257          1,465       454,343
Equity securities         45,337          145            136         45,346       33,436        2,718             15        36,139
Other                      7,107           42            389          6,760       10,471           27            210        10,288
                        --------        -----          -----        -------      -------        -----          -----       -------
  Total                 $641,411        4,749          2,517        643,643      660,529        9,414          2,080       667,863
                        ========        =====          =====        =======      =======        =====          =====       =======
</TABLE>

Proceeds from sales of investments and mortgage-backed securities were
$97,713,000, $112,886,000, and $143,593,000, for 1996, 1995, and 1994,
respectively. Gross gains of $727,000, $938,000, and $1,583,000 and gross losses
of $580,000, $634,000, and $1,853,000 were realized on those sales for 1996,
1995, and 1994, respectively.

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

<TABLE>
<CAPTION>
                                               1996                                                    1995
                        ---------------------------------------------------     --------------------------------------------------
                                        GROSS          GROSS                                    GROSS          GROSS
                        AMORTIZED     UNREALIZED     UNREALIZED      FAIR       AMORTIZED     UNREALIZED     UNREALIZED      FAIR
                          COST          GAINS          LOSSES        VALUE        COST          GAINS          LOSSES       VALUE
                        --------      ----------     ----------     -------     ---------     ----------     ----------    -------
                                                                      (IN THOUSANDS)
<S>                    <C>             <C>            <C>          <C>          <C>            <C>            <C>         <C>
Government agencies     $ 32,439           93             79         32,453       51,222          240             54        51,408
State and political
 subdivisions            150,656        4,123            187        154,592      147,293        5,160            254       152,199
Mortgage-backed
 securities              109,036          308          1,233        108,111      118,390            3          1,621       116,772
                        --------        -----          -----        -------      -------        -----          -----       -------
  Total                 $292,131        4,524          1,499        295,156      316,905        5,403          1,929       320,379
                        ========        =====          =====        =======      =======        =====          =====       =======
</TABLE>

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


NOTE D: LOANS

The Company is engaged in lending activities with borrowers in a wide variety of
industries. Lending is concentrated in the areas in which its Subsidiary Banks
are located. Loans at December 31 consist of the following:

                               1996          1995
                            ----------    ---------
                                 (IN THOUSANDS)

Commercial and other        $  346,472      331,605
Commercial real estate         340,621      313,287
  Construction                  30,039       31,952
Agricultural                   378,399      350,786
Residential real estate        351,946      322,296
  Construction                  11,904       11,511
Consumer                       247,511      221,727
Tax-exempt                      52,819       46,936
                            ----------    ---------
    Total                   $1,759,711    1,630,100
                            ==========    =========

Impaired loans were $11,244,000 and $10,248,000 at December 31, 1996 and 1995,
respectively. Impaired loans include nonaccrual, restructured loans and certain
other loans identified by the Company. Restructured loans 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. The reserve
for loan losses includes approximately $1,519,000 and $1,623,000 relating to
impaired loans at December 31, 1996 and 1995, respectively.

The effect of nonaccrual and restructured loans on interest income for each of
the three years ended December 31 was as follows:

                                  1996      1995      1994
                                 ------     -----     -----
                                       (IN THOUSANDS)

Interest income
  As originally contracted       $1,227     1,575     1,662
  As recognized                    (291)     (429)     (346)
                                 ------     -----     -----
Reduction of interest income     $  936     1,146     1,316
                                 ======     =====     =====

Other nonperforming assets, consisting of other real estate owned, amounted to
$240,000 and $380,000 at December 31, 1996 and 1995, respectively.

Loans totaling $62,300,000 and $45,300,000 were pledged to secure Federal Home
Loan Bank (FHLB) advances at December 31, 1996 and 1995, respectively.

The Company and its subsidiaries have granted loans to the officers and
directors (the "Group") of significant subsidiaries. The aggregate dollar amount
of loans to the Group was $16,483,000 and $14,115,000 at December 31, 1996 and
1995, respectively. During 1996, $15,417,000 of new loans were made, repayments
totaled $13,512,000, and changes in the composition of the Group or their
associations increased loans outstanding by $463,000. Rates on these loans were
made at the prevailing market rates.


NOTE E: RESERVE FOR LOAN LOSSES

Changes in the reserve for loan losses are as follows:

                                        1996        1995        1994
                                       -------    -------     -------
                                               (IN THOUSANDS)

Beginning of year                      $28,253     26,946      27,624
  Charge-offs                           (2,230)    (2,834)     (2,065)
  Recoveries                             1,703      1,610       1,814
                                       -------    -------     -------
    Net charge-offs                       (527)    (1,224)       (251)
  Provision for loan loss                2,756      1,780      (1,300)
  Reserve related to acquired assets        --        751         873
                                       -------    -------     -------
End of year                            $30,482     28,253      26,946
                                       =======    =======     =======


NOTE F: PREMISES AND EQUIPMENT

Premises and equipment at December 31 consist of the following:

                                                     1996        1995
                                                    -------     ------
                                                      (IN THOUSANDS)

Land                                                $ 6,521      6,582
Buildings and improvements                           49,836     47,057
Furniture and equipment                              38,538     35,331
                                                    -------     ------
  Total premises and equipment                       94,895     88,970
Less: accumulated depreciation and amortization      48,915     44,718
                                                    -------     ------
Premises and equipment, net                         $45,980     44,252
                                                    =======     ======


NOTE G: SHORT-TERM BORROWINGS

Short-term borrowings consist of federal funds and repurchase agreements (which
generally mature within one to sixty days of the transaction date), treasury,
tax and loan notes (which generally mature within one to thirty days), and FHLB
advances (which mature within one year).

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

<TABLE>
<CAPTION>
                                                 FEDERAL FUNDS     FEDERAL HOME       TREASURY
                                                 AND REPURCHASE     LOAN BANK       TAX AND LOAN
                                                   AGREEMENTS       BORROWINGS         NOTES
                                                 --------------    ------------     ------------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                <C>              <C>                <C>
Balance at December 31
  1995                                              $187,100          64,500            4,927
  1996                                               188,129          78,200            8,692
Weighted average interest rate at December 31
  1995                                                  5.12%           5.84             5.24
  1996                                                  5.58            5.85             5.16
Maximum amount outstanding at any month end
  1995                                              $193,777          95,990           21,083
  1996                                               204,332         130,500           13,466
Average amount outstanding during the year
  1995                                              $154,453          67,203            8,279
  1996                                               175,196         101,081            6,536
Weighted average interest rate during the year
  1995                                                  5.30%           6.01             5.57
  1996                                                  5.04            5.62             5.16
</TABLE>


NOTE H: LONG-TERM DEBT

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

                                            1996        1995
                                           -------     ------
                                             (IN THOUSANDS)

Federal Home Loan Bank borrowings          $54,514     16,200
Installment promissory notes and other       7,875      9,368
                                           -------     ------
  Total                                    $62,389     25,568
                                           =======     ======

The FHLB borrowings bear interest at rates ranging from 5.46% to 7.35%, with
maturity dates from 1998 through 2011.

The promissory notes and other bear interest at rates ranging from 5.68% to
8.53%, paid predominantly in annual installments through 2007.

Maturities of long-term debt outstanding at December 31, 1996, were as follows:

                (IN THOUSANDS)
1997               $ 1,748
1998                52,197
1999                 1,703
2000                   673
2001                 1,423
Thereafter           4,645
                   -------
  Total            $62,389
                   =======

The Company had an unused line of credit of $10 million with a bank at December
31, 1996. Borrowings under this line are noncollateralized and would bear
interest at an applicable reserve adjusted certificate of deposit rate.
The line of credit expires on September 11, 1997.


NOTE I: DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company is required to disclose the estimated fair values of the Company's
financial instruments. For the Company, most of its assets and liabilities are
considered financial instruments as defined in FAS 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, 1996 and 1995. 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, 1996 and, therefore, current
estimates of fair value may differ from the amounts presented. As of December
31, carrying amounts and estimated fair values are:

<TABLE>
<CAPTION>
                                           1996                        1995
                                 -------------------------    -----------------------
                                                 ESTIMATED                  ESTIMATED
                                  CARRYING         FAIR       CARRYING        FAIR
                                   AMOUNT         VALUE        AMOUNT         VALUE
                                 ----------     ----------    ---------     ---------
                                                    (IN THOUSANDS)
<S>                             <C>            <C>           <C>           <C>
ASSETS
  Cash and due from banks        $  159,832       159,832       127,786       127,786
  Interest bearing deposits           1,778         1,778         3,008         3,008
  Securities held to maturity       292,131       295,156       316,905       320,379
  Securities available for sale     643,643       643,643       667,863       667,863
  Loans                           1,725,275     1,749,205     1,626,616     1,678,937

LIABILITIES
  Demand deposits                 1,019,717     1,019,717     1,013,415     1,013,415
  Time deposits                   1,263,729     1,266,944     1,228,892     1,261,969
  Short-term borrowings             275,021       275,021       256,527       256,527
  Long-term debt                     62,389        62,826        25,568        26,169
</TABLE>

CASH AND DUE FROM BANKS AND INTEREST BEARING DEPOSITS -- The carrying values 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 FAS 115, securities available for sale are carried at fair market
value.

LOANS -- The fair value of loans (net of unearned discount) is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to qualified borrowers and for the same remaining maturities,
adjusted by a related portion of the reserve for loan losses.

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 is considered carrying value.

LONG-TERM DEBT -- The majority of the long-term debt reprices monthly, and
therefore, fair value is considered carrying value. For fixed rate debt, the
fair value is determined by discounting future cash flows at current rates for
debt with similar remaining maturities.

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 J: EMPLOYEE BENEFIT PLANS

PENSION PLAN -- The Company has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on age, years of
service and the employee's highest average compensation during 60 consecutive
months of the last 120 months of employment. The Company's funding policy is
generally to contribute annually an amount approximating the Company's annual
net pension expense.

Contributions are intended to provide for benefits attributed to service to date
and for those expected to be earned in the future. The following table sets
forth the plan's funded status and amount recognized in the Company's balance
sheet at December 31:

<TABLE>
<CAPTION>
                                                                          1996         1995
                                                                        --------     -------
                                                                           (IN THOUSANDS)
<S>                                                                     <C>          <C>
Accumulated benefit obligation, including vested benefits of
 $12,986 in 1996, and $11,302 in 1995                                   $ 14,836      14,089
Increase due to salary projections                                         5,067       6,159
                                                                        --------     -------
Projected benefit obligation for service rendered to date                 19,903      20,248
Plan assets (marketable securities) at fair value                        (21,124)    (18,667)
                                                                        --------     -------
Projected benefit obligation (less than)/in excess of plan assets         (1,221)      1,581
Unrecognized actuarial gain (loss)                                         2,019        (162)
Prior service cost not yet recognized in net periodic expense               (612)       (734)
                                                                        --------     -------
  Accrued pension expense                                               $    186         685
                                                                        ========     =======
</TABLE>

Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>
                                                      1996        1995        1994
                                                     -------     ------      ------
                                                             (IN THOUSANDS)
<S>                                                  <C>         <C>         <C>
Service cost -- benefits earned during the
 period                                              $ 1,145        973       1,143
Interest cost on projected benefit obligation          1,597      1,434       1,279
Actual return on plan assets                          (1,240)    (3,645)        202
Net amortization and deferral                           (297)     2,526      (1,258)
                                                     -------     ------      ------
  Net pension cost                                   $ 1,205      1,288       1,366
                                                     =======     ======      ======
</TABLE>

The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 4.5%, respectively, at December 31, 1996, and 7.5% and
5.0%, respectively, at December 31, 1995. The expected long-term rate of return
on assets in 1996, 1995, and 1994 was 9.0%.

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 Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (FAS 106), the Company accrues the
cost of these benefits during the employees' active service.

The following table sets forth the unfunded plan's accumulated postretirement
obligation on the Company's balance sheet at December 31:

                                             1996      1995
                                            ------     -----
                                             (IN THOUSANDS)

Retirees                                    $  517       240
Fully eligible active plan participants        280       377
Other active plan participants               1,133     1,158
                                            ------     -----
    Total                                   $1,930     1,775
                                            ======     =====

Net periodic postretirement benefit cost includes the following components:

<TABLE>
<CAPTION>
                                                               1996       1995      1994
                                                              ------      ----      ----
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>       <C>
Service cost -- benefits earned during the period             $  122       106      118
Interest cost on accumulated postretirement benefit
 obligation                                                      148       130      138
Net amortization and deferral                                    (82)     (106)     (87)
                                                              ------      ----      ---
  Net postretirement benefit cost                             $  188       130      169
                                                              ======      ====      ===
</TABLE>

For the 1996 measurements, the assumed annual rate of increase in the per capita
cost of covered health care benefits was 9.6% for 1996 and 8.6% for 1997; the
rate was assumed to decrease gradually to 5.0% for 2001 and remain at that level
thereafter. The health care cost trend assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by 1 percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 1996 by $210,000 and the
aggregate of the service cost and interest cost components of net periodic
post-retirement benefit cost for the year then ended by $36,000.

The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at December 31, 1996 and 1995 were 8.0% and
7.5%, respectively.

OTHER POSTEMPLOYMENT BENEFITS -- The Company accounts for postemployment
benefits in accordance with Statement of Financial Accounting Standards No. 112,
"Employer's Accounting for Postemployment Benefits" (FAS 112), adopted in 1994.
The adoption of FAS 112 had no material impact on income in 1994.

PROFIT SHARING PLAN -- The profit sharing plan is a defined contribution plan
with contributions made by the participating employers. 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.

Contributions are calculated using a formula based primarily upon the Company's
earnings. The expense for 1996 was approximately $1,757,000. Contributions to
the plan were $1,560,000 and $1,893,000 in 1995 and 1994, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN -- The 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 expense for 1996 was
approximately $350,000. Contributions for the plan were $350,000 and $140,000 in
1995, and 1994, respectively.


NOTE K: OTHER NONINTEREST INCOME

Other noninterest income consists of the following:

                           1996      1995      1994
                          ------     -----     -----
                                (IN THOUSANDS)

Brokerage commissions     $2,531     1,243     1,856
Fees on loans              2,484     1,726     1,538
Other                      1,291     1,983     3,150
                          ------     -----     -----
  Total                   $6,306     4,952     6,544
                          ======     =====     =====


NOTE L: OTHER NONINTEREST EXPENSE

Other noninterest expense consists of the following:

                                           1996        1995       1994
                                          -------     ------     ------
                                                 (IN THOUSANDS)

Printing, postage and office supplies     $ 4,824      4,599      3,918
Marketing                                   3,306      3,041      2,954
Other real estate owned                        56         84        (63)
Other                                      12,193     10,681     10,076
                                          -------     ------     ------
    Total                                 $20,379     18,405     16,885
                                          =======     ======     ======


NOTE M: INCOME TAXES

The components of the provision for income taxes are as follows:


                1996        1995      1994
               -------     ------    ------
                      (IN THOUSANDS)

Current
  Federal      $12,290      8,295     8,236
  State          4,051      2,956     2,941
Deferred        (1,204)     1,074      (459)
               -------     ------    ------
    Total      $15,137     12,325    10,718
               =======     ======    ======

A reconciliation between income tax expense and the amount computed by applying
the statutory federal income tax rate is as follows:

<TABLE>
<CAPTION>
                                                        1996        1995       1994
                                                       -------     ------     ------
                                                              (IN THOUSANDS)
<S>                                                    <C>         <C>        <C>
Tax at statutory rate                                  $16,434     13,811     12,780
Plus state income tax, net of federal tax benefits       2,634      1,922      1,912
                                                       -------     ------     ------
                                                        19,068     15,733     14,692
Less tax effect of:
  Interest on state and political subdivision
   securities                                            3,003      2,980      2,855
  Other tax-exempt interest                              1,499      1,553      1,196
  Amortization                                            (249)       (93)       105
  Minority interest in earnings                           (560)      (511)      (508)
  Other                                                    238       (521)       326
                                                       -------     ------     ------
                                                         3,931      3,408      3,974
                                                       -------     ------     ------
Income tax expense                                     $15,137     12,325     10,718
                                                       =======     ======     ======
</TABLE>

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

                                                        1996        1995
                                                      --------     ------
                                                         (IN THOUSANDS)

Deferred tax assets
  Provision for loan losses                           $ 12,113     11,135
  Employee compensation and benefits accruals            1,757      1,425
  Deferred income                                          270        208
  Other                                                    378         --
                                                      --------     ------
    Total                                               14,518     12,768
                                                      --------     ------
Deferred tax liabilities
  Deferred expense                                       1,196      1,334
  Depreciation                                           1,630      1,402
  Unrealized gains on securities available for sale        888      2,933
  Other                                                    396        665
                                                      --------     ------
    Total                                                4,110      6,334
                                                      --------     ------
Net deferred tax assets                               $ 10,408      6,434
                                                      ========     ======


NOTE N: 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:

                               1996        1995
                             --------     ------
                                (IN THOUSANDS)

Standby letters of credit    $ 35,863     39,889
Loan commitments              341,822    325,692

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. 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.

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. Collateral held varies, but includes accounts receivable, inventory,
and productive assets.

Under a substantially noncancelable contract, the Company is obligated to pay
approximately $2 million in annual fees, through February 2004, to its data
processing provider. In addition, the Company has a separate contract, with its
item processing provider, which covers item processing services to the Company's
subsidiary banks through March 1999. The costs under this 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 consolidated
financial position or operations.

The Company issued redeemable preferred stock of Dunn County Bankshares, Inc.
("DCBI") in connection with the acquisition of Menomonie, Wisconsin operation on
September 1, 1994. This stock is cumulative, pays dividends of 3.85% annually,
and is generally redeemable at par value plus unpaid dividends after the earlier
to occur of (i) the death of the holder, or (ii) the lapse of 5 years from the
date of issuance.


NOTE O: 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, 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 Otto Bremer 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 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, 1996 and 1995, 960,000 shares of redeemable class A common stock
were issued and outstanding. With the exception of shares held in the Company's
ESOP, these shares were subject to redemption at a price of $21.18 and $19.83
per share, respectively, which approximated book value. Shares held in the
Company's ESOP were redeemed at a price of $26.35 and $23.75 per share,
respectively, as determined by an independent appraiser. These shares are owned
by employees and Directors of the Company and its subsidiaries and the employee
benefit plans of the Company. These holders of class A common stock have the
right to require the Company to purchase their shares under certain
circumstances. The shares have been classified as redeemable class A common
stock subject to redemption at a price, which approximates book value. 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 or its
subsidiaries and not be directly repurchased by the Company or the Otto Bremer
Foundation.

Certain restrictions exist regarding the extent to which banks may transfer
funds to the Company in the form of dividends. 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, 1996, 1995 and 1994, 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, 1996, $37,833,000 of retained
earnings of the Subsidiary Banks was available for distribution to the Company
as dividends subject to these limitations. Approximately $19,551,000 was
available for distribution without obtaining the prior approval of the
appropriate bank regulator.


NOTE P: 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, 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 judgements by the regulators
about components, risk weightings, and other factors.

Qualitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below and as defined in the regulations) of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of December 31, 1996, that the Company meets all capital adequacy
requirements to which it is subject.

The Company's actual capital amounts and ratios are also presented below.

<TABLE>
<CAPTION>
                                                                        FOR CAPITAL
                                                    ACTUAL           ADEQUACY PURPOSES
                                              ------------------     ------------------
                                              AMOUNT      RATIO      AMOUNT       RATIO
                                              -------     ------     --------     -----
<S>                                          <C>          <C>        <C>          <C>
AS OF DECEMBER 31, 1996:
  TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)    $274,447     14.15%     $155,213     8.00%
  TIER I CAPITAL (TO RISK WEIGHTED ASSETS)    250,118     12.89        77,607     4.00
  TIER I CAPITAL (TO AVERAGE ASSETS)          250,118      8.79        85,410     3.00

As of December 31, 1995:
  Total Capital (to Risk Weighted Assets)     253,522     14.01       143,813     8.00
  Tier I Capital (to Risk Weighted Assets)    230,825     12.75        72,407     4.00
  Tier I Capital (to Average Assets)          230,825      8.41        82,322     3.00
</TABLE>

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 Company's
Subsidiary Banks ratios in each of these categories met or exceeded the
"well-capitalized" ratios as of December 31, 1996.


NOTE Q: BREMER FINANCIAL CORPORATION (PARENT COMPANY ONLY) CONDENSED STATEMENTS:

BALANCE SHEETS

                                                   DECEMBER 31
                                                1996        1995
                                              --------     -------
                                                 (IN THOUSANDS)

ASSETS
  Cash and cash equivalents                   $  2,048       5,399
  Marketable securities                         22,391      21,091
  Investment in and advances to:
   Bank subsidiaries                           220,929     206,636
   Non-bank subsidiaries                        11,432       8,227
  Other assets                                   3,482       3,814
                                              --------     -------
      Total assets                            $260,282     245,167
                                              ========     =======

LIABILITIES AND SHAREHOLDER'S EQUITY
  Accrued expenses and other liabilities      $  1,629       2,356
  Long-term debt                                 4,446       4,870
  Redeemable class A common stock               20,337      19,035
  Shareholder's equity                         233,870     218,906
                                              --------     -------
      Total liabilities and shareholder's
      equity                                  $260,282     245,167
                                              ========     =======


STATEMENTS OF INCOME

                                                    YEAR ENDED DECEMBER 31
                                                -----------------------------
                                                  1996       1995       1994
                                                -------     ------     ------
                                                        (IN THOUSANDS)
INCOME
  Dividends from:
   Bank subsidiaries                            $19,281     23,357     20,349
   Non-bank subsidiaries                            603        200        190
  Interest from subsidiaries                        313        248        185
  Other interest income                           1,363        942        484
  Gain on sale of securities                        200        (13)        --
  Other income                                       14         14         --
                                                -------     ------     ------
      Total income                               21,774     24,748     21,208
                                                -------     ------     ------
EXPENSES
  Salaries and benefits                             702        621        640
  Operating expense paid to subsidiaries          1,190      1,165      1,402
  Interest expense                                  373        266         --
  Other operating expenses                        1,105        546        215
                                                -------     ------     ------
      Total expenses                              3,370      2,598      2,257
                                                -------     ------     ------
      Income before income tax benefit           18,404     22,150     18,951
  Income tax benefit                                788        747        773
                                                -------     ------     ------
      Income of parent company only              19,192     22,897     19,724
  Equity in undistributed earnings of
   subsidiaries                                  12,625      4,239      6,073
                                                -------     ------     ------
NET INCOME                                      $31,817     27,136     25,797
                                                =======     ======     ======


STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                    ---------------------------------
                                                      1996         1995         1994
                                                    --------     -------      -------
                                                              (IN THOUSANDS)
<S>                                                <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTITIVIES
  Net income                                        $ 31,817      27,136       25,797
  Adjustments to reconcile net income to net cash
   provided by operating activities
    Equity in undistributed earnings of subsidiaries (12,625)     (4,239)      (6,073)
    (Gain) loss on sale of securities                   (200)         13           --
    Securities amortization                              470         185          279
    Other, net                                          (262)     (1,080)        (271)
                                                    --------     -------      -------
      Net cash provided by operating activities       19,200      22,015       19,732
                                                    --------     -------      -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in and advances to subsidiaries, net     (7,624)    (10,332)      (5,729)
  Purchases of securities, net                       (22,746)    (28,127)     (14,428)
  Proceeds from maturities of securities               5,303      13,968           --
  Proceeds from sales of securities                   15,540       9,409           --
  Long term debt, net                                   (424)      4,870           --
                                                    --------     -------      -------
      Net cash used by investing activities           (9,951)    (10,212)     (20,157)
                                                    --------     -------      -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends paid                                     (12,600)     (9,600)      (9,360)
                                                    --------     -------      -------
      Net cash used by financing activities          (12,600)     (9,600)      (9,360)
                                                    --------     -------      -------
Increase (decrease) in cash and cash equivalents      (3,351)      2,203       (9,785)
Cash and cash equivalents
  Beginning of year                                    5,399       3,196       12,981
                                                    --------     -------      -------
  End of year                                       $  2,048       5,399        3,196
                                                    ========     =======      =======
</TABLE>



                          INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF BREMER FINANCIAL CORPORATION

We have audited the accompanying consolidated balance sheets of Bremer Financial
Corporation and subsidiaries (the Company), a subsidiary of the Otto Bremer
Foundation as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 financial statements present fairly, in all material
respects, the consolidated financial position of Bremer Financial Corporation
and subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.


/s/ Deloitte & Touche LLP


January 24, 1997
Saint Paul, Minnesota



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: September 15, 1997                BREMER FINANCIAL CORPORATION


                                         By: /s/ Terry M. Cummings
                                             ----------------------------------
                                             Terry M. Cummings
                                             President and
                                             Chief Executive Officer
                                             (Principal Executive Officer)



                                         By: /s/ Stuart F. Bradt
                                             ----------------------------------
                                             Stuart F. Bradt
                                             Chief Accounting Officer