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

# FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006.

Commission file number 0-18342



|                                                      
|------------------------------------------------------
|Bremer Financial Corporation                          
|(Exact name of registrant as specified in its charter)

|Minnesota                                                     | 41-0715583                          
|------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction ofincorporation or organization) | (I.R.S. Employer Identification No.)

|                                                      
|------------------------------------------------------
|445 Minnesota St., Suite 2000, St. Paul, MN 55101-2107
|(Address of principal executive offices) (Zip Code)   

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

|                                                                                  
|----------------------------------------------------------------------------------
|Not applicable.                                                                   
|(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.     Yes
X     No

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer 
o          
Accelerated filer 
o          
Non-accelerated filer 
x

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).    Yes
    No
X

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date.

As of May 9, 2006, there were
1,200,000 shares of class A common stock and 10,800,000 shares of class B common stock outstanding.





---

# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share amounts)

|                                                    | Three months ended March 31,
|--------------------------------------------------- | ----------------------------
|
|Operating Results:                                  |                             
|Total interest income                               |                             
|Total interest expense                              |                             
|                                                    |                             
|Net interest income                                 |                             
|Provision for loan losses                           |                             
|                                                    |                             
|Net interest income after provision for loan losses |                             
|Noninterest income                                  |                             
|Noninterest expense                                 |                             
|                                                    |                             
|Income before income tax expense                    |                             
|Income tax expense                                  |                             
|                                                    |                             
|Net income                                          |                             
|                                                    |                             
|Net income per share  basic and diluted            |                             
|Dividends paid per share                            |                             
|                                                   
|Tax equivalent net interest income                  |                             
|Net charge-offs                                     |                             
|                                                   
|Selected Financial Ratios:                          |                             
|Return on average assets                            |                             
|Return on average equity (1)                        |                             
|Average equity to average assets (1)                |                             
|Net interest margin (2)                             |                             
|Operating efficiency ratio (3)                      |                             
|Net charge-offs to average loans and leases         |                             
|                                                   
|
|Balance Sheet Data:                                 |                             
|Total assets                                        |                             
|Securities (4)                                      |                             
|Loans and leases (5)                                |                             
|Total deposits                                      |                             
|Short-term borrowings                               |                             
|Long-term debt                                      |                             
|Redeemable class A common stock                     |                             
|Shareholders equity                                |                             
|Per share book value of common stock                |                             
|                                                   
|Asset Quality:                                     
|Reserve for loan losses                             |                             
|Nonperforming assets                                |                             
|Nonperforming assets to total loans, leases         |                             
|and OREO                                            |                             
|Reserve for loan losses to total loans and leases   |                             

|_____________________
|---------------------
|(1)                  
|(2)                  
|(3)                  
|(4)                  
|(5)                  

---

# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
SUMMARY BALANCE SHEET AND INCOME STATEMENT
(dollars in thousands)

|                                                    | Three months ended March 31,
|--------------------------------------------------- | ----------------------------
|
|
|Summary Average Balance Sheet:                      |                             
|Total loans and leases (2)                          |                             
|Total securities (3)                                |                             
|Total other earning assets                          |                             
|                                                    |                             
|Total interest earning assets (4)                   |                             
|Total noninterest earning assets                    |                             
|                                                    |                             
|Total assets                                        |                             
|                                                    |                             
|Noninterest bearing deposits                        |                             
|Interest bearing deposits                           |                             
|Short-term borrowings                               |                             
|Long-term debt                                      |                             
|                                                    |                             
|Total interest bearing liabilities                  |                             
|Other noninterest bearing liabilities               |                             
|Minority interest                                   |                             
|Redeemable class A common stock                     |                             
|Shareholders equity                                |                             
|                                                    |                             
|Total liabilities and equity                        |                             
|                                                    |                             
|                                                   
|
|
|Summary Income Statement:                           |                             
|Total interest income                               |                             
|Total interest expense                              |                             
|                                                    |                             
|Net interest income                                 |                             
|Provision for loan losses                           |                             
|                                                    |                             
|Net interest income after provision for loan losses |                             
|Service charges                                     |                             
|Insurance                                           |                             
|Investment management and trust fees                |                             
|Brokerage                                           |                             
|Gain on sale of loans                               |                             
|Gain on sale of securities                          |                             
|Other                                               |                             
|                                                    |                             
|Total noninterest income                            |                             
|Salaries and wages                                  |                             
|Employee benefits                                   |                             
|Occupancy                                           |                             
|Furniture and equipment                             |                             
|Data processing fees                                |                             
|FDIC premiums and examination fees                  |                             
|Amortization of intangibles                         |                             
|Other                                               |                             
|                                                    |                             
|Total noninterest expense                           |                             
|                                                    |                             
|Income before income tax expense                    |                             
|Income tax expense                                  |                             
|                                                    |                             
|Net income                                          |                             
|                                                    |                             

|_____________________
|---------------------
|(1)                  
|(2)                  
|(3)                  
|(4)                  

---

# BREMER FINANCIAL CORPORATION

# FORM 10-Q
QUARTER ENDED MARCH 31, 2006

# INDEX

|                               |  |              | Page
|------------------------------ |  | ------------ | ----
|                              
|PART I  FINANCIAL INFORMATION
|                              
|                               |  | Item 1.      |     
|                              
|                               |  | Item 2.      |     
|                              
|                               |  | Item 3.      |     
|                              
|                               |  | Item 4.      |     
|                              
|PART II  OTHER INFORMATION   
|                              
|                               |  | Item 6.      |     
|                              
|                               |  | Signatures   |     
|                              
|                               |  | Exhibit 31.1 |     
|                              
|                               |  | Exhibit 31.2 |     
|                              
|                               |  | Exhibit 32.1 |     
|                              
|                               |  | Exhibit 32.2 |     

1

---

# Forward-Looking Statements

Certain statements in this Form 10-Q 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 included as Item 1A. to
the Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 23, 2006, that could cause actual results to
differ materially from those expressed or implied by these forward-looking statements.

2

---

# PART I  FINANCIAL INFORMATION

# Item 1.    Financial Statements

# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands, except share data)

|                                                        | March 31,2006 |  | December 31,2005
|------------------------------------------------------- | ------------- |  | ----------------
|Assets                                                  |               |  |                 
|Cash and due from banks                                 |               |  | $               
|Investment securities available-for-sale               
|(cost: 03/31/06  $1,111,366; 12/31/05  $1,138,538)    |               |  |                 
|Investment securities held-to-maturity                  |               | 
|(fair value:  03/31/06  $248,034; 12/31/05  $251,628) |               |  |                 
|Loans and leases                                        |               |  |                 
|Reserve for loan losses                                 |               |  |                 
|                                                        |               |  |                 
|Net loans and leases                                    |               |  |                 
|Interest receivable                                     |               |  |                 
|Premises and equipment, net                             |               |  |                 
|Other intangibles                                       |               |  |                 
|Other assets                                            |               |  |                 
|Goodwill                                                |               |  |                 
|                                                        |               |  |                 
|Total assets                                            |               |  | $               
|                                                        |               |  |                 
|                                                       
|Liabilities and Shareholders Equity                    |               | 
|Noninterest bearing deposits                            |               |  | $               
|Interest bearing deposits                               |               |  |                 
|                                                        |               |  |                 
|Total deposits                                          |               |  |                 
|Federal funds purchased and repurchase agreements       |               |  |                 
|Other short-term borrowings                             |               |  |                 
|Long-term debt                                          |               |  |                 
|Accrued expenses and other liabilities                  |               |  |                 
|                                                        |               |  |                 
|Total liabilities                                       |               |  |                 
|Minority interests                                      |               |  |                 
|Redeemable class A common stock, 960,000 shares         |               | 
|issued and outstanding                                  |               |  |                 
|Shareholders equity                                   
|Common stock                                            |               | 
|Class A, no par, 12,000,000 shares authorized;         
|240,000 shares issued and outstanding                   |               |  |                 
|Class B, no par, 10,800,000 shares authorized,          |               | 
|issued and outstanding                                  |               |  |                 
|Retained earnings                                       |               |  |                 
|Accumulated other comprehensive loss                    |               |  |                 
|                                                        |               |  |                 
|Total shareholders equity                              |               |  |                 
|                                                        |               |  |                 
|Total liabilities and shareholders equity              |               |  | $               
|                                                        |               |  |                 

See notes to condensed consolidated financial statements.

3

---

# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)

|                                                    | For the Three Months EndedMarch 31,
|--------------------------------------------------- | -----------------------------------
|
|Interest income                                     |                                    
|Loans and leases, including fees                    |                                    
|Securities                                          |                                    
|Federal funds sold                                  |                                    
|Other                                               |                                    
|                                                    |                                    
|Total interest income                               |                                    
|                                                    |                                    
|Interest expense                                   
|Deposits                                            |                                    
|Federal funds purchased and repurchase agreements   |                                    
|Other short-term borrowings                         |                                    
|Long-term debt                                      |                                    
|                                                    |                                    
|Total interest expense                              |                                    
|                                                    |                                    
|Net interest income                                 |                                    
|Provision for loan losses                           |                                    
|                                                    |                                    
|Net interest income after provision for loan losses |                                    
|                                                    |                                    
|Noninterest income                                  |                                    
|Service charges                                     |                                    
|Insurance                                           |                                    
|Investment management and trust fees                |                                    
|Brokerage                                           |                                    
|Gain on sale of loans                               |                                    
|Loss on sale of securities                          |                                    
|Other                                               |                                    
|                                                    |                                    
|Total noninterest income                            |                                    
|                                                    |                                    
|Noninterest expense                                
|Salaries and wages                                  |                                    
|Employee benefits                                   |                                    
|Occupancy                                           |                                    
|Furniture and equipment                             |                                    
|Data processing fees                                |                                    
|FDIC premiums and examination fees                  |                                    
|Amortization of intangibles                         |                                    
|Other                                               |                                    
|                                                    |                                    
|Total noninterest expense                           |                                    
|                                                    |                                    
|Income before income tax expense                    |                                    
|Income tax expense                                  |                                    
|                                                    |                                    
|Net income                                          |                                    
|                                                    |                                    
|Per common share amounts:                           |                                    
|Net income-basic and diluted                        |                                    
|Dividends paid                                      |                                    

See notes to condensed consolidated financial statements.

4

---

# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(unaudited)
(in thousands, except per share amounts)

|                                                                          | Common Stock |  | AccumulatedOtherComprehensiveIncome (Loss) |    | ComprehensiveIncome |   | RetainedEarnings |  | Total
|------------------------------------------------------------------------- | ------------ |  | ------------------------------------------ | -- | ------------------- | - | ---------------- |  | -----
|
|For the Three Months ended March 31, 2005                                 |              |  |                                            |    |                     |   |                  |  |      
|                                                                         
|Balance, December 31, 2004                                                |              |  | $                                          | 57 |                     | $ | 2,562            |  | $    
|Comprehensive income                                                     
|Net income                                                                |              |  |                                            |    |                     |   |                  |  |      
|Other comprehensive income, net of tax:                                  
|Net unrealized losses on securities available for sale:                   |              | 
|Unrealized holding losses arising during the period, net of tax of $2,111 |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                     |  
|Other comprehensive loss                                                  |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                    
|Comprehensive income                                                      |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                    
|Dividends, $.50 per share                                                 |              |  |                                            |    |                     |   |                  |  |      
|Allocation of net income and other comprehensive income in excess of     
|dividends to redeemable class A common stock                              |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                     |   |                  |  |      
|Balance, March 31, 2005                                                   |              |  | $                                          | 57 |                     | $ | 2,562            |  | $    
|                                                                          |              |  |                                            |    |                     |   |                  |  |      
|                                                                         
|For the Three Months Ended March 31, 2006                                
|                                                                         
|Balance, December 31, 2005                                                |              |  |                                            | 57 |                     |   | 2,562            |  |      
|Comprehensive income                                                     
|Net income                                                                |              |  |                                            |    |                     |   |                  |  |      
|Other comprehensive income, net of tax:                                  
|Net unrealized losses on securities available for sale and other          |              | 
|retained interests:                                                       |              | 
|Unrealized holding losses arising during the period, net of tax of $1,773 |              |  |                                            |    |                     |   |                  |  |      
|Less:  Reclassified adjustment for losses included in income              |              | 
|net of tax of $(202)                                                      |              |  |                                            |    |                     |   |                  |  |      
|Net unrealized gains on derivatives and hedging activities:              
|Unrealized holding gains arising during the period, net of tax of $837    |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                     |  
|Other comprehensive loss                                                  |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                    
|Comprehensive income                                                      |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                    
|Dividends, $.58 per share                                                 |              |  |                                            |    |                     |   |                  |  |      
|Allocation of net income and other comprehensive income in excess of      |              | 
|dividends to redeemable class A common stock                              |              |  |                                            |    |                     |   |                  |  |      
|                                                                          |              |  |                                            |    |                     |   |                  |  |      
|Balance, March 31, 2006                                                   |              |  | $                                          | 57 |                     | $ | 2,562            |  | $    
|                                                                          |              |  |                                            |    |                     |   |                  |  |      

See notes to condensed consolidated financial statements.

5

---

# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

|                                                                     | For the Three MonthsEnded March 31,
|-------------------------------------------------------------------- | -----------------------------------
|
|Cash flows from operating activities                                 |                                    
|Net income                                                           |                                    
|Adjustments to reconcile net income to net cash                     
|provided by operating activities:                                   
|Provision for loan losses                                            |                                    
|Depreciation and amortization                                        |                                    
|Loss on sale of securities                                           |                                    
|Other assets and liabilities, net                                    |                                    
|Gain on sale of loans                                                |                                    
|Proceeds from sales of loans originated for sale                     |                                    
|Loans originated for sale                                            |                                    
|                                                                     |                                    
|Net cash provided by operating activities                            |                                    
|Cash flows from investing activities                                 |                                    
|Purchases of available-for-sale investment securities                |                                    
|Purchases of held-to-maturity securities                             |                                    
|Proceeds from maturities of available-for-sale investment securities |                                    
|Proceeds from maturities of held-to-maturity securities              |                                    
|Proceeds from sales of available-for-sale investment securities      |                                    
|Proceeds from sales of other real estate owned                       |                                    
|Loans and leases, net                                                |                                    
|Purchase of premises and equipment                                   |                                    
|                                                                     |                                    
|Net cash used in investing activities                                |                                    
|Cash flows from financing activities                                 |                                    
|Noninterest bearing deposits, net                                    |                                    
|Savings, NOW and money market accounts, net                          |                                    
|Certificates of deposits, net                                        |                                    
|Federal funds purchased and repurchase agreements, net               |                                    
|Other short-term borrowings, net                                     |                                    
|Repayments of long-term debt                                         |                                    
|Common stock dividends paid                                          |                                    
|                                                                     |                                    
|Net cash (used) provided by financing activities                     |                                    
|                                                                     |                                    
|Net decrease in cash and due from banks                              |                                    
|Cash and due from banks at beginning of period                       |                                    
|                                                                     |                                    
|Cash and due from banks at end of period                             |                                    
|                                                                     |                                    
|Supplemental disclosures of cash flow information                    |                                    
|Cash paid for interest                                               |                                    
|Cash paid for income taxes                                           |                                    

See notes to condensed consolidated financial statements.

6

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# BREMER FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months ended March 31, 2006 and 2005 (unaudited)

# Note A:   Financial Statements

The condensed consolidated financial statements included herein have been
prepared by Bremer Financial Corporation (the Company) pursuant to the rules and regulations of the Securities and
Exchange Commission and have not been audited by independent auditors. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading.

# Note B:   General

The condensed consolidated financial statements include the accounts of
Bremer Financial Corporation and subsidiaries. All material intercompany transactions and balances are eliminated in
consolidation. The Company has not changed its accounting policies from those stated for the year ended December 31, 2005 included
in its Annual Report on Form 10-K for that year filed on March 23, 2006.

# Note C:   Interim Period Adjustments

The condensed consolidated financial statements contained herein reflect all
adjustments which are, in the opinion of management, of a normal recurring nature and which are necessary for a fair statement of
the financial position, results of operations, and cash flows for the unaudited interim periods. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for the entire year.

# Note D:   Earnings Per Share Calculations

Basic and diluted earnings per common share have been computed using
12,000,000 common shares outstanding for all periods. The Company does not have any dilutive securities.

# Note E:   Securities

Investment securities classified as held-to-maturity are valued at amortized
historical cost. Investment securities classified as available-for-sale are valued at fair value. Unrealized holding gains and
losses are 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
available-for-sale investment securities are computed based on the amortized cost of the specific securities when sold. Management
periodically evaluates investment securities for other-than-temporary declines in fair value. There were no investment securities
which management identified to be other-than-temporarily impaired for the period ended March 31, 2006.

7

---

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 March 31:

|                                        | 2006
|--------------------------------------- | ----
|
|
|
|                                       
|U.S. Treasury securities                |     
|Obligations of U.S. government agencies |     
|Obligations of state                   
|and political subdivisions              |     
|Mortgage-backed securities              |     
|Other securities                        |     
|                                        |     
|Total                                   |     
|                                        |     

We pledge certain investment securities as collateral to secure public
deposits and for other purposes.

# Note F:   Loan Securitizations

In September 2005, the Company transferred home equity loans with principal
balances of $229.9 million to a special interest trust in a securitization transaction. In September 2005, $200 million of the
sellers interest in these loans was subsequently sold to a commercial paper conduit, and the Company sells additional
amounts of the sellers interest to the commercial paper conduit each month under the terms of a revolving securitization
facility agreement. Under the terms of this agreement, which matures in August 2006, the Company may sell on a revolving basis up
to $200 million in eligible loans, subject to the maintenance of certain covenants regarding the performance of the loan pool. At
March 31, 2006, the Company was in compliance with all applicable covenants. In January 2006, the Company transferred additional
home equity loans with principal balances of $35.0 million to the special interest trust in connection with the use of this
facility. The Company continues to service all of the loans transferred to the special interest trust. These transactions have
been accounted for as sales under Statement of Financial Accounting Standards (SFAS) No. 140, and a gain on sale of
loans of $65.4 thousand was recognized during the first quarter of 2006 in connection with these transactions. At March 31, 2006,
the Company had retained interests from securitizations of $35.8 million, including a $22.6 million sellers interest in
loans, a $7.7 million interest-only strip, and a $5.5 million cash reserve account.

8

---

Key economic assumptions used in measuring the retained interests were as
follows (rate per annum):

|                                                   | At date ofinitial transfer |  | At March 31, 2006valuation date
|-------------------------------------------------- | -------------------------- |  | -------------------------------
|Prepayment speed (CPR)                             |                            |  |                                
|Expected credit losses                             |                            |  |                                
|Weighted average life (in months)                  |                            |  |                                
|Discount rates:                                    |                            | 
|Sellers interest in loans and interest-only strip |                            |  |                                
|Cash reserve account                               |                            |  |                                

Cash flows received during the first quarter of 2006 from securitization
activities were as follows:

|                                                                        | Three Months EndedMarch 31, 2006
|----------------------------------------------------------------------- | --------------------------------
|
|                                                                       
|Proceeds from collections reinvested in revolving-period securitization |                                 
|Servicing fees received                                                 |                                 
|Other cash flows received on retained interests                         |                                 

There were no cash flows from securitization activities during the comparable
quarter in 2005.

The following table presents information with respect to securitized loans
and other loans that are managed with them.

|                                    | At March 31, 2006
|----------------------------------- | -----------------
|
|
|                                   
|Total Residential Real Estate Loans |                  
|Managed or Securitized              |                  
|Less:  Loans Securitized            |                  
|                                    |                  
|Loans Held in Portfolio             |                  
|                                    |                  

9

---

# Note G:   Reserve for Loan Losses

At March 31, 2006, the reserve for loan losses was $57.6 million, an increase
of $2.0 million or 3.5% from the balance of $55.6 million at December 31, 2005. The changes in the loan reserve are as follows:

|                                                       | Three Months Ended March 31,
|------------------------------------------------------ | ----------------------------
|
|Balance at beginning of period                         |                             
|Charge-offs:                                           |                             
|Commercial                                             |                             
|Commercial real estate                                 |                             
|Agricultural                                           |                             
|Residential real estate                                |                             
|Consumer                                               |                             
|                                                       |                             
|Total charge-offs                                      |                             
|Recoveries:                                           
|Commercial                                             |                             
|Commercial real estate                                 |                             
|Agricultural                                           |                             
|Residential real estate                                |                             
|Consumer                                               |                             
|                                                       |                             
|Total recoveries                                       |                             
|                                                       |                             
|Net charge-offs                                        |                             
|Provision for loan losses                              |                             
|                                                       |                             
|Balance at end of period                               |                             
|                                                       |                             
|Average loans and leases                               |                             
|Annualized net charge-offs to average loans and leases |                             
|                                                      
|Reserve for loan losses as a percentage of:           
|Period-end loans and leases                            |                             

10

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# Note H:   Redeemable Class A Common Stock

At March 31, 2006, 960,000 shares of redeemable class A stock were issued and
outstanding, which were subject to redemption at a price of $46.24 per share, approximating 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 upon their deaths, permanent disabilities or
retirements, 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 Foundation. During the period from January 1, 2006 through March 31, 2006, the Company
did not directly purchase any shares of class A common stock but assigned to various parties its options that arose during that
period to purchase a total of 22,284.4547 shares. These options were assigned to the Bremer Financial Corporation Employee Stock
Ownership Plan (ESOP) (1,002.1917 shares), the Bremer Banks 401(k) Plan (401(k)) (16,185.2630 shares), and
executives and directors under the Executive Stock Purchase Plan (5,097.0000 shares). To the Companys 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, 2006 through March 31, 2006.

# Note I:   Goodwill and Intangible Assets

Intangible assets consist of goodwill, core deposit intangibles, and other
intangibles. The remaining unamortized balances at March 31, 2006 and December 31, 2005 were $95.7 million and $96.4 million. The
core deposit and other intangibles have remaining amortization lives of four to six years. Goodwill is not amortized but is tested
regularly for impairment. Management performed its annual impairment test on its goodwill assets in December 2005. No impairment
loss was recorded as a result of that test, and no events or changes in circumstances have occurred since that test that would
indicate that assets might be impaired.

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

|                              | As of March 31, 2006 |  | As of December 31, 2005
|----------------------------- | -------------------- |  | -----------------------
|
|
|Core deposit premium          |                      |  | $                      
|Mortgage servicing rights (1) |                      |  |                        
|Other                         |                      |  |                        
|                              |                      |  |                        
|Total                         |                      |  | $                      
|                              |                      |  |                        

|_________________
|-----------------
|(1)              

The Company recorded aggregate intangible amortization expense of $613.1
thousand for the three-month period ended March 31, 2006 and $650.2 thousand for the three-month period ended March 31, 2005. The
estimated amortization expense for each of the next five years is approximately $2.1 million.

Goodwill was $84.2 million at March 31, 2006 and December 31, 2005.

11

---

# Note J:   Employee Benefit Plans

Pension benefit 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). The Pension Plan and the SERP constitute the Companys Pension Benefit
Plans.

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. The Company accrues the cost of these benefits during the employees active service.

Net benefit plan expense for the above plans as actuarially determined for
the three months ended March 31, 2006 and 2005 included the following components:

|                                | For the Three Months EndedMarch 31,
|------------------------------- | -----------------------------------
|
|
|
|                               
|Service cost                    |                                    
|Interest cost                   |                                    
|Expected return on assets       |                                    
|Prior service cost amortization |                                    
|Net loss/(gain) amortization    |                                    
|                                |                                    
|Net periodic benefit cost       |                                    
|                                |                                    

The Company expects to contribute approximately $4.6 million to the
retirement and postretirement plans in 2006. No contributions were made to these plans during the quarter ended March 31, 2006.

# Note K:   Off-Balance Sheet Commitments, Contingencies and
Contractual Obligations

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 table represents the outstanding obligations:

|                             | March 31,2006 |  | December 31,2005
|---------------------------- | ------------- |  | ----------------
|
|Standby letters of credit    |               |  | $               
|Commercial letters of credit |               |  |                 
|Loan commitments             |               |  |                 

12

---

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 consumated 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.

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.

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.

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. There have been no
significant changes to the contractual obligations reported in the Companys Annual Report on Form 10-K for the year ended
December 31, 2005.

# Note L:   Derivative Instruments

The Company occasionally enters into derivative transactions to manage its
interest rate risk. During 2005, the Company entered into a forward-starting interest rate swap in the notional amount of $60
million in connection with the anticipated issuance during 2006 of a like amount of floating rate junior subordinated debentures.
The interest rate swap, which becomes effective in June 2006, will convert the expected floating rate interest payments on the
debentures to a fixed rate for 10 years. This derivative instrument qualifies for hedge accounting as a cash flow
hedge, which is a hedge of the variability of the cash flows to be received or paid related to a recognized asset or liability or
a forecasted transaction. Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge
are recognized in other comprehensive income until income or expense from the cash flows of the hedged item is recognized. At
March 31, 2006, the estimated fair value of the interest rate swap was $2.4 million. This unrealized gain, which is recorded on
the balance sheet in other assets, has been excluded from earnings and reported, net of tax, as a separate component of
shareholders equity until realized.

13

---

Item 2.   ManagementsDiscussion 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. 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 relevant factors.

Reserves for Loan Losses.   In general, determining the
amount of the reserve for loan losses requires the use of significant judgment and estimates by management. We maintain an
allowance for loan 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 loan 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.

Loan securitizations.   We transfer loans through
special interest trusts to independent third parties under the terms of a revolving securitization facility agreement. These
transfers are accounted for as sales if the requirements of Statement of Financial Accounting Standards (SFAS) No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, are met.

When the requirements for sale accounting are met, the carrying amount of the
assets transferred to the special interest trust is allocated between assets sold and retained interests based on relative fair
values at the date of sale. A gain or loss on the sale of loans is recorded for the difference between the carrying amount and the
fair value of the assets sold. The retained interests include the sellers interest in loans which have not yet been sold to
a third party, retained interest-only strips, and reserve accounts. Because quoted market prices are not available, we estimate
the fair value of the retained interests by determining the present value of the future expected cash flows using modeling
techniques that incorporate managements best estimates of key variables, including credit losses, prepayment speeds,
weighted average life, interest rates on variable rate contracts, and discount rates commensurate with the risks involved. Credit
loss assumptions are based upon historical experience and the characteristics of the loans securitized. Prepayment speed estimates
are determined utilizing data obtained from market participants, where available, or based on historical prepayment rates on
similar assets. Discount rate assumptions are determined using data obtained from market participants. Estimates of interest rates
on variable rate contracts are based on spreads over the applicable benchmark interest rate using market-based yield curves. The
sellers interest in loans is recorded on the balance sheet in loans at the allocated carrying amount. Interest-only strips
and reserve accounts are included in other assets and are recorded at fair value, with any differences between fair value and
carrying value which are deemed to be temporary, reported net of tax, as a separate component of shareholders equity. Any
differences between fair value and carrying value which are deemed to be other than temporary are recorded in earnings.

14

---

There are many assumptions and estimates underlying the determination of the
fair value of retained interests in securitization transactions. The use of different but still reasonable assumptions could
significantly impact the amount recorded on the balance sheet for retained interests and the amount of gain or loss recorded on
the sale of loans in securitization transactions.

Investment Securities.   Investments in marketable
equity and debt securities are classified into three categories  held-to-maturity, available-for-sale, or trading 
pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of March 31, 2006, 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 that may be sold under only 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 securities for other than
temporary declines in fair value. Declines in fair value of individual investment 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 March 31, 2006 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 securities which management identified to be other-than-temporarily impaired for the period ended March 31,
2006. If the financial markets experience deterioration and investments decline in fair value, charges to income could occur in
future periods.

15

---

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 March 31, 2006, we had $84.2 million of goodwill, which is not subject to periodic
amortization, and $11.5 million in other intangible assets, which is subject to periodic amortization. The largest component of
our other intangible assets at March 31, 2006 was core deposit premiums at $8.9 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 and other intangible
assets, excluding mortgage-servicing rights (MSRs), in December 2005. No events or changes in circumstances have
occurred since those tests that would indicate that such assets might be impaired, and we have concluded that the recorded values
of goodwill and the other intangible assets, with the exception of MSRs, were not impaired as of March 31, 2006. We evaluate our
MSRs on a quarterly basis for possible impairment based on the difference between the carrying amount and current estimated fair
value under SFAS No. 140. At March 31, 2006, we booked a valuation allowance of $23.0 thousand as a result of this valuation.

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.   We provide pension
benefits to substantially all employees. 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.

Income Taxes.   The determination of our current and
deferred income taxes is a critical accounting estimate requiring significant management judgment. We make these estimates based
on a complex analysis of many factors, including our interpretation of existing federal and state income tax laws as they relate
to our activities, the differences between the tax and financial reporting bases of assets and liabilities (temporary
differences), the expected timing of the reversal of these temporary differences, and current financial accounting standards. Such
interpretations could differ from those of the various federal and state tax authorities that examine us periodically. If
managements estimates and assumptions vary from the views of the taxing authorities, adjustments to the periodic tax
accruals may be necessary.

16

---

Our accounting policies for the reserve for loan losses, loan
securitizations, investment securities, goodwill and other intangible assets, retirement plan accounting and income taxes are
described in the Companys Annual Report on Form 10-K for the year ended December 31, 2005. We believe that there have been
no significant changes to the methods described in that Annual Report for making the estimates and judgments necessary to apply
these policies.

# Overview

Earnings.   We reported net income of $16.3 million, or
$1.36 in basic and diluted earnings per share, for the first quarter of 2006. This compares to $16.2 million, or $1.35 in basic
and diluted earnings per share, in the first quarter of 2005. Return on average equity was 12.0% for the first quarter of 2006
compared to 12.9% for the same quarter of 2005. Return on average assets decreased to 1.03% for the quarter ended March 31, 2006
from 1.07% for the quarter ended March 31, 2005.

# Results of Operations

Net Interest Income.   Net interest income for the
first quarter of 2006 was $55.8 million, an increase of $2.5 million, or 4.6%, from the $53.4 million reported for the same period
a year ago. Meanwhile, our net interest margin increased slightly to 3.91% in the first quarter of 2006 from 3.89% in the first
quarter of 2005, while our average loans and leases increased $79.5 million, or 1.7%, when comparing the same two quarters. Our
net interest margin has remained relatively flat as short-term interest rates have risen during the past year because higher
yields on earning assets have been offset by higher interest costs for deposits and borrowings.

17

---

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:

|                                      | For the Three Months Ended March 31,
|------------------------------------- | ------------------------------------
|
|
|
|
|Assets                                |                                     
|Loans and Leases (2)                  |                                     
|Commercial and other                  |                                     
|Commercial real estate                |                                     
|Agricultural                          |                                     
|Residential real estate               |                                     
|Consumer                              |                                     
|Tax-exempt                            |                                     
|                                      |                                     
|Total Loans and Leases                |                                     
|Reserve for loan losses               |                                     
|                                      |                                     
|Net Loans and Leases                  |                                     
|Securities (3)                        |                                     
|Taxable                               |                                     
|Tax-exempt                            |                                     
|                                      |                                     
|Total Securities                      |                                     
|Federal funds sold                    |                                     
|Other earning assets                  |                                     
|                                      |                                     
|Total Earning Assets (4)              |                                     
|Cash and due from banks               |                                     
|Other noninterest earning assets      |                                     
|                                      |                                     
|Total Assets                          |                                     
|                                      |                                     
|Liabilities and Shareholders Equity  |                                     
|Noninterest bearing deposits          |                                     
|Interest bearing deposits             |                                     
|Savings and NOW accounts              |                                     
|Other interest bearing checking       |                                     
|Money market savings                  |                                     
|Savings certificates                  |                                     
|Certificates over $100,000            |                                     
|                                      |                                     
|Total Interest Bearing Deposits       |                                     
|                                      |                                     
|Total Deposits                        |                                     
|Short-term borrowings                 |                                     
|Long-term debt                        |                                     
|                                      |                                     
|Total Interest Bearing Liabilities    |                                     
|Other noninterest bearing liabilities |                                     
|                                      |                                     
|Total Liabilities                     |                                     
|Minority Interest                     |                                     
|Redeemable Class A Common Stock       |                                     
|Shareholders equity                  |                                     
|                                      |                                     
|Total Liabilities and Equity          |                                     
|                                      |                                     
|Net interest income                   |                                     
|                                      |                                     
|Net interest spread                   |                                     
|Net interest margin                   |                                     

|_________________
|-----------------
|(1)              
|(2)              
|(3)              
|(4)              

18

---

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:

|                                                 | Three Months Ended March 31,
|------------------------------------------------ | ----------------------------
|
|
|
|
|Interest earning assets:                         |                             
|Loans and leases (1)                             |                             
|Taxable securities                               |                             
|Tax-exempt securities (1)                        |                             
|Federal funds sold                               |                             
|Other interest earning assets                    |                             
|                                                 |                             
|Total interest earning assets                    |                             
|                                                 |                             
|                                                
|Interest bearing liabilities:                    |                             
|Savings and NOW accounts                         |                             
|Money market and other interest-bearing checking |                             
|Savings certificates                             |                             
|Short-term borrowings                            |                             
|Long-term debt                                   |                             
|                                                 |                             
|Total interest-bearing liabilities               |                             
|                                                 |                             
|                                                
|Change in net interest income                    |                             
|                                                 |                             

|_________________
|-----------------
|(1)              

Provision for Loan Losses.   The provision for loan
losses is charged against earnings to maintain the reserve for loan losses to cover losses inherent in the portfolio as of the
reporting date. We recorded net charge-offs of $583.4 thousand during the first quarter of 2006 compared to net charge-offs of
$339.1 thousand for the same period in 2005. We recorded a provision for loan losses of $2.5 million in the first quarter of 2006
compared to $3.3 million for the same quarter in 2005. Our ratio of reserve for loan losses to total loans and leases decreased to
1.23% at March 31, 2006 from 1.30% at March 31, 2005. For further discussion related to the allowance for credit losses, see the
later section entitled  Financial Condition  Reserve for Loan Losses.

Noninterest Income.   Noninterest income reflected a
$0.1 million, or 0.7%, increase to $18.9 million for the first quarter of 2006 from the $18.8 million recorded in the first
quarter of 2005. Increases in service charge revenues and investment management and trust fees were offset by a $0.5 million loss
on the sale of investment securities in the first three months of 2006.

19

---

The following table summarizes the components of noninterest income:

|                                     | Three Months Ended March 31,
|------------------------------------ | ----------------------------
|
|
|                                    
|Service charges                      |                             
|Insurance                            |                             
|Investment management and trust fees |                             
|Brokerage                            |                             
|Gain on sale of loans                |                             
|Loss on sale of securities           |                             
|Other  noninterest income            |                             
|                                     |                             
|Total noninterest income             |                             
|                                     |                             

Noninterest Expense.   Noninterest expense increased
$3.4 million, or 7.6%, to $47.4 million in the first quarter of 2006 from $44.1 million in the first quarter of 2005. Increases in
personnel costs accounted for approximately 67.8% of the increase in noninterest expenses when comparing the two quarters.
Exclusive of personnel costs, total noninterest expense increased $1.1 million, or 6.4%, when comparing the same two periods.

The following table summarizes the components of noninterest expense:

|                                   | Three Months Ended March 31,
|---------------------------------- | ----------------------------
|
|
|                                  
|Salaries and wages                 |                             
|Employee benefits                  |                             
|Occupancy                          |                             
|Furniture and equipment            |                             
|Printing, postage and telephone    |                             
|Marketing                          |                             
|Data processing fees               |                             
|Professional fees                  |                             
|Other real estate owned            |                             
|FDIC premiums and examination fees |                             
|Amortization of intangibles        |                             
|Other noninterest expense          |                             
|                                   |                             
|Total noninterest expense          |                             
|                                   |                             

20

---

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 61.3% for the first quarter of 2006 compared to 59.3% for the first quarter of 2005.

Income Taxes.   The provision for income taxes was $8.4
million for the quarter ended March 31, 2006 compared to $8.6 million for the same period in 2005. Comparing the first quarter of
2006 to the same period in 2005, our overall effective tax rate decreased to 34.1% from 34.8%.

# Financial Condition

Loan and Lease Portfolio.   The following table
presents the components of our gross loan and lease portfolio:

|                        | At March 31, 2006 |  | At December 31, 2005
|----------------------- | ----------------- |  | --------------------
|
|
|                       
|Commercial              |                   |  | $                   
|Commercial real estate  |                   |  |                     
|  Construction         |                   |  |                     
|Agricultural            |                   |  |                     
|Residential real estate |                   |  |                     
|  Construction         |                   |  |                     
|Consumer                |                   |  |                     
|Tax-exempt              |                   |  |                     
|                        |                   |  |                     
|Total                   |                   |  | $                   
|                        |                   |  |                     

Our total loan and lease portfolio increased to $4.7 billion at March 31,
2006 from $4.6 billion PHIC at December 31, 2005. Commercial loans increased by $39.7 million, or 3.8%, during the first three
months of 2006, and commercial real estate loans increased by $39.5 million, or 2.3%, during the same period. These gains were
partially offset by a decrease in agricultural loans of $14.1 million, or 2.7%, during the first three months of 2006, as well as
a decrease in residential real estate loans of $22.5 million, or 2.9%. An increase in consumer loans of $1.9 million, or 0.6%, was
offset by a decrease in tax-exempt loans of $1.6 million, or 0.9%, during the first three months of 2006.

Nonperforming Assets.   Nonperforming assets include
nonaccrual loans, restructured loans and other real estate owned (OREO). Nonperforming assets were $16.2 million at
March 31, 2006, an increase of $2.1 million, or 14.5%, from the $14.1 million level at December 31, 2005. Nonperforming assets as
a percentage of total loans, leases and OREO increased to .35% at March 31, 2006 from .30% at December 31, 2005. Accruing loans
and leases 90 days or more past due totaled $6.3 million at March 31, 2006 compared to $2.2 million at December 31, 2005.

21

---

Our nonperforming assets are summarized in the following table:

|                                                                   | March 31,2006 |  | December 31,2005
|------------------------------------------------------------------ | ------------- |  | ----------------
|
|                                                                  
|Nonaccrual loans and leases                                        |               |  | $               
|Restructured loans and leases                                      |               |  |                 
|                                                                   |               |  |                 
|Total nonperforming loans and leases                               |               |  |                 
|Other real estate owned (OREO)                                     |               |  |                 
|                                                                   |               |  |                 
|Total nonperforming assets                                         |               |  | $               
|                                                                   |               |  |                 
|                                                                  
|Accruing loans and leases 90 days or more past due                 |               |  | $               
|                                                                   |               |  |                 
|                                                                  
|Nonperforming loans and leases to total loans and leases           |               |  |                 
|Nonperforming assets to total loans, leases and OREO               |               |  |                 
|Nonperforming assets and accruing loans and leases 90 days or more
|past due to total loans, leases and OREO                           |               |  |                 

Reserve for Loan Losses.   At March 31, 2006, the
reserve for loan losses was $57.6 million, an increase of $2.0 million, or 3.5%, from the balance of $55.6 million at December 31,
2005. The reserve for loan losses as a percentage of total loans and leases was 1.23% at March 31, 2006 compared to 1.20% at
December 31, 2005.

22

---

Activity in the reserve for loan and lease losses for the following periods
is shown in the following table:

|                                                       | Three Months Ended March 31,
|------------------------------------------------------ | ----------------------------
|
|
|                                                      
|Balance at beginning of period                         |                             
|Charge-offs:                                           |                             
|Commercial                                             |                             
|Commercial real estate                                 |                             
|Agricultural                                           |                             
|Residential real estate                                |                             
|Consumer                                               |                             
|                                                       |                             
|Total charge-offs                                      |                             
|Recoveries:                                           
|Commercial                                             |                             
|Commercial real estate                                 |                             
|Agricultural                                           |                             
|Residential real estate                                |                             
|Consumer                                               |                             
|                                                       |                             
|Total recoveries                                       |                             
|                                                       |                             
|Net charge-offs                                        |                             
|Provision for loan losses                              |                             
|                                                       |                             
|Balance at end of period                               |                             
|                                                       |                             
|                                                      
|Average loans and leases                               |                             
|Annualized net charge-offs to average loans and leases |                             
|                                                      
|Reserve for loan losses as a percentage of            
|period-end loans and leases                            |                             

Securities.   Our investment portfolio, including
available-for-sale securities and held-to-maturity securities, decreased slightly to $1.3 billion at March 31, 2006 from $1.4
billion at December 31, 2005. During the first quarter of 2006, we reinvested the majority of the $120.5 million in proceeds from
matured and sold securities in obligations of state and political subdivisions and mortgage-backed securities. The remainder of
the proceeds was used to fund loan growth.

Deposits.   Total deposits decreased to $4.8 billion at
March 31, 2006 from $4.9 billion at December 31, 2005. Noninterest bearing deposits decreased $125.5 million or 14.1% to $767.2
million at March 31, 2006 from $892.6 million at December 31, 2005. This decrease is an annual seasonal occurrence. Interest
bearing deposits decreased slightly and remained at $4.0 billion at March 31, 2006 and December 31, 2005. An increase in our time
certificates of deposit of $42.7 million during the first quarter of 2006 from December 31, 2005 was offset by a decrease of $44.2
million in savings, NOW, money market and other interest-bearing checking deposits.

23

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Short-Term Borrowings.   Short-term borrowings, which
include 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), Federal Home Loan Bank (FHLB) advances (which
mature within one year), and advances under an unsecured revolving credit facility agreement, increased $48.3 million, or 6.6%, to
$784.9 billion at March 31, 2006 from $736.6 million at December 31, 2005. The increased use of short-term borrowings as a funding
source was the result of our seasonal decrease in deposits in the first three months of 2006.

Long-term debt.   At March 31, 2006, long-term debt
consisted of senior notes, junior subordinated deferrable interest debentures, FHLB advances and installment promissory notes. The
$19.0 million in senior notes are unsecured, bear interest at an annual rate of 8.47% and mature on November 1, 2006. 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 no earlier than July 15, 2006 and no later than July 15, 2031. At March 31, 2006, the $76.5 million in Capital Securities
qualified as Tier I capital under guidelines of the Federal Reserve Board.

The Company expects to issue additional junior subordinated debentures in
June 2006 in connection with the planned issuance of $60 million of mandatorily redeemable preferred securities. The Company
expects that these mandatorily redeemable preferred securities will be issued on a floating rate basis in a trust preferred pool
transaction. The Company expects that the proceeds from this anticipated transaction will be used to retire the $60 million of
9.0% Cumulative Capital Securities issued through BCT in 2001. We have entered into a forward starting interest rate swap with a
notional amount of $60 million and an effective date of June 1, 2006 to effectively convert the floating rate interest payments
associated with the anticipated transaction to a fixed rate for ten years. At March 31, 2006, the estimated fair value of the
interest rate swap was $2.4 million. This unrealized gain, which is recorded on the balance sheet in other assets, has been
excluded from earnings and reported, net of tax, as a separate component of shareholders equity until realized.

FHLB advances were $223.5 million at March 31, 2006 and December 31, 2005.
The installment promissory notes mature in 2007.

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 the Subsidiary Banks in
each of these categories met or exceeded the well-capitalized ratios as of March 31, 2006.

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The following table compares our consolidated capital ratios with the minimum
requirements for well-capitalized and adequately capitalized banks as of March 31, 2006:

|                                          | Minimum Requirements
|----------------------------------------- | --------------------
|
|                                         
|Tier I capital to risk-weighted assets    |                     
|Total capital to risk-weighted assets     |                     
|Tier I capital to average tangible assets |                     

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.

Liquidity Management.   The objective of liquidity
management is to assure 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 the first three months of 2006. Although 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 FHLB advances, brokered deposits, and federal funds purchased. As of March 31, 2006, we had
short term and long term borrowings from the FHLB in the total amount of $453.6 million. In order to secure those borrowings, we
had pledged $2.0 billion in loan assets to the FHLB. In addition to the amounts borrowed as of March 31, 2006, we had the capacity
to borrow an additional $538.6 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 March 31, 2006 include $254.6 million
acquired through these broker sources, and we have the capacity to add significant additional funding from these sources as
needed. Our liquidity management program includes the use of a revolving securitization facility under which we are able to sell
up to $200 million of eligible home equity loans to a commercial paper conduit. This facility was fully utilized at March 31,
2006. The terms of the revolving securitization facility agreement allow the company to sell additional loans to the commercial
paper conduit each month to replace paid-off loans up to the maximum limit of $200 million. We sold an additional $31.9 million of
loans to the conduit during the first quarter of 2006. As of March 31, 2006, we also had available $15.0 million of borrowing
capacity under an unsecured credit facility. As of March 31, 2006, there were no advances outstanding under this facility. This
credit facility is used primarily for contingency purposes.

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Commitments and Contingencies.   There have been no
material changes in our outstanding commitments and contingencies since those reported at December 31, 2005 in our Annual Report
on Form 10-K for 2005.

# Item 3.   Quantitativeand Qualitative Disclosures
About Market Risk

There have been no material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented as of December 31, 2005 in the Annual Report on Form 10-K for 2005.

# Item 4.   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 March 31, 2006, 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 were effective as of March 31, 2006 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 ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

# PART II  OTHER INFORMATION

# Item 6.   Exhibits

The Company is filing the following exhibits with this Quarterly Report on
Form 10-Q:

| | 31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
| | ---- |  | ------------------------------------------------------------------------------

| | 31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
| | ---- |  | ------------------------------------------------------------------------------

| | 32.1 |  | Section 1350 Certification of Chief Executive Officer.
| | ---- |  | ------------------------------------------------------

| | 32.2 |  | Section 1350 Certification of Chief Financial Officer.
| | ---- |  | ------------------------------------------------------

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# SIGNATURES

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

|Dated: |                                                                                 | May 11, 2006 |  | BREMER FINANCIAL CORPORATION
|------ | ------------------------------------------------------------------------------- | ------------ |  | ----------------------------
|      
|      
|       |                                                                                 |              |  | By:                         
|       |                                                                                 |              | 
|       | Stan K. DardisPresident andChief Executive Officer(Principal Executive Officer) |             
|      
|      
|       |                                                                                 |              |  | By:                         
|       |                                                                                 |              | 
|       | Stuart F. BradtController(Chief Accounting Officer)                             |             

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# INDEX TO EXHIBITS

| | Description of Exhibits
| | -----------------------

| | 31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
| | ---- |  | ------------------------------------------------------------------------------

| | 31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
| | ---- |  | ------------------------------------------------------------------------------

| | 32.1 |  | Section 1350 Certification of Chief Executive Officer.
| | ---- |  | ------------------------------------------------------

| | 32.2 |  | Section 1350 Certification of Chief Financial Officer.
| | ---- |  | ------------------------------------------------------

---