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

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

For the transition period from __________________________ to _________________________

(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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes _____ No __X_

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

As of September 30, 2004, 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

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2004

INDEX

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

Item 4.

Disclosure Controls and Procedures

PART II — OTHER INFORMATION

Item 6.

Exhibits and Reports on Form 8-K

Signatures

Exhibit 31.1

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

Exhibit 31.2

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

Exhibit 32.1

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

Exhibit 32.2

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

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 Exhibit 99.1 to the Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 23, 2004, that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

	September 30, 2004			December 31, 2003

	(unaudited)
Assets
Cash and due from banks	$	146,069		$	195,165
Investment securities available-for-sale
(cost: 9/30/04 - $993,683; 12/31/03 - $1,133,958)		992,111			1,135,928
Investment securities held-to-maturity
(fair value: 9/30/04 - $203,430; 12/31/03 - $186,890)		194,315			178,512
Loans and leases		4,430,092			3,964,015
Reserve for credit losses		(62,345	)		(58,906	)

Net loans and leases		4,367,747			3,905,109
Interest receivable		36,981			33,540
Premises and equipment, net		84,255			85,970
Other intangibles		16,042			18,274
Other assets		41,954			36,985
Goodwill		84,226			84,226

Total assets	$	5,963,700		$	5,673,709

Liabilities and Shareholders' Equity
Noninterest bearing deposits	$	770,261		$	783,260
Interest bearing deposits		3,327,863			3,267,716

Total deposits		4,098,124			4,050,976
Federal funds purchased and repurchase agreements		475,953			519,759
Other short-term borrowings		417,947			119,599
Long-term debt		426,921			460,158
Accrued expenses and other liabilities		50,359			55,640

Total liabilities		5,469,304			5,206,132
Minority interests		150			150
Redeemable class A common stock, 960,000 shares
issued and outstanding		39,540			37,394
Shareholders' equity
Common stock
Class A, no par, 12,000,000 shares authorized;
240,000 shares issued and outstanding		57			57
Class B, no par, 10,800,000 shares authorized,
issued and outstanding		2,562			2,562
Retained earnings		452,960			426,331
Accumulated other comprehensive (loss) income		(873	)		1,083

Total shareholders' equity		454,706			430,033

Total liabilities and shareholders' equity	$	5,963,700		$	5,673,709

See notes to consolidated financial statements.

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,

	2004		2003		2004		2003

Interest income
Loans and leases, including fees	$	62,363	$	57,780	$	175,989	$	173,087
Securities		10,609		10,179		32,712		32,758
Federal funds sold		43		39		91		97
Other		23		24		72		94

Total interest income		73,038		68,022		208,864		206,036
Interest expense
Deposits		12,815		12,196		37,383		39,056
Federal funds purchased and repurchase agreements		1,506		1,365		4,260		4,022
Other short-term borrowings		1,523		548		2,999		1,262
Long-term debt		6,697		7,434		20,533		22,723

Total interest expense		22,541		21,543		65,175		67,063

Net interest income		50,497		46,479		143,689		138,973
Provision for credit losses		1,713		4,220		5,599		10,376

Net interest income after provision for credit losses		48,784		42,259		138,090		128,597
Noninterest income
Service charges		8,301		7,605		23,396		22,337
Insurance		2,401		2,366		7,316		6,390
Investment management and trust fees		2,684		2,515		8,048		7,299
Brokerage		1,458		1,303		4,774		3,885
Gain on sale of loans		2,352		6,259		7,779		16,779
Gain on sale of securities		4		16		2,072		5,855
Other		2,062		2,416		5,605		5,200

Total noninterest income		19,262		22,480		58,990		67,745
Noninterest expense
Salaries and wages		20,110		19,757		60,105		57,644
Employee benefits		5,466		5,236		16,610		17,507
Occupancy		2,902		2,820		8,963		8,410
Furniture and equipment		2,606		2,764		7,760		7,836
Data processing fees		2,830		2,668		8,173		7,651
FDIC premiums and examination fees		516		443		1,436		1,319
Amortization of intangibles		685		717		2,054		2,150
Other		7,694		7,246		22,292		22,313

Total noninterest expense		42,809		41,651		127,393		124,830

Income before income tax expense		25,237		23,088		69,687		71,512
Income tax expense		8,836		7,777		23,942		24,626

Net income	$	16,401	$	15,311	$	45,745	$	46,886

Per common share amounts:
Net income-basic and diluted	$	1.36	$	1.28	$	3.81	$	3.91
Dividends paid		0.50		0.45		1.40		1.35

See notes to consolidated financial statements.

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

	Common Stock				Accumulated Other Comprehensive Income (Loss)			Comprehensive Income			Retained Earnings			Total
	Class A		Class B		Accumulated Other Comprehensive Income (Loss)			Comprehensive Income			Retained Earnings			Total

For the Nine Months ended September 30, 2003

Balance, December 31, 2002	$	57	$	2,562	$	6,751					$	389,998		$	399,368
Comprehensive income
Net income								$	46,886			46,886			46,886
Other comprehensive income, net of tax:
Net unrealized gains on securities:
Unrealized holding losses arising during the period, net of tax						(7,253	)		(7,253	)
Less: Reclassified adjustment for gains included in income, net of tax						(3,513	)		(3,513	)

Other comprehensive income (loss)						(10,766	)		(10,766	)					(10,766	)

Comprehensive income								$	36,120

Dividends, $1.35 per share												(16,200	)		(16,200	)
Allocation of net income in excess of dividends and other
comprehensive income to redeemable class A common stock						861						(2,455	)		(1,594	)

Balance, September 30, 2003	$	57	$	2,562	$	(3,154	)				$	418,229		$	417,694


For the Nine Months Ended September 30, 2004

Balance, December 31, 2003	$	57	$	2,562	$	1,083					$	426,331		$	430,033
Comprehensive income
Net income								$	45,745			45,745			45,745
Other comprehensive income, net of tax:
Net unrealized gains on securities:
Unrealized holding losses arising during the period, net of tax						(883	)		(883	)
Less: Reclassified adjustment for gains included in income, net of tax						(1,243	)		(1,243	)

Other comprehensive income (loss)						(2,126	)		(2,126	)					(2,126	)

Comprehensive income								$	43,619

Dividends, $1.40 per share												(16,800	)		(16,800	)
Allocation of net income in excess of dividends and other
comprehensive income to redeemable class A common stock						170						(2,316	)		(2,146	)

Balance, September 30, 2004	$	57	$	2,562	$	(873	)				$	452,960		$	454,706

See notes to consolidated financial statements.

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

	For the Nine Months Ended September 30,

	2004			2003

Cash flows from operating activities
Net income	$	45,745		$	46,886
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses		5,599			10,376
Depreciation and amortization		13,195			13,462
Gain on sale of securities		(2,072	)		(5,855	)
Other assets and liabilities, net		(19,825	)		(19,696	)
Gain on sale of loans		(7,779	)		(16,779	)
Proceeds from loans originated for sale		296,286			656,033
Loans originated for sale		(288,825	)		(650,395	)

Net cash provided by operating activities		42,324			34,032
Cash flows from investing activities
Purchases of available-for-sale investment securities		(212,136	)		(616,762	)
Purchases of held-to-maturity securities		(28,571	)		(18,847	)
Proceeds from maturities of available-for-sale investment securities		239,733			325,733
Proceeds from maturities of held-to-maturity securities		12,768			13,064
Proceeds from sales of available-for-sale investment securities		114,746			207,731
Proceeds from sales of other real estate owned		3,107			2,039
Loans and leases, net		(467,919	)		(255,742	)
Purchase of premises and equipment		(4,801	)		(10,441	)

Net cash used in investing activities		(343,073	)		(353,225	)
Cash flows from financing activities
Noninterest bearing deposits, net		(12,999	)		(6,437	)
Savings, NOW and money market accounts, net		19,735			384,007
Certificates of deposits, net		40,412			(218,914	)
Federal funds purchased and repurchase agreements,net		(43,806	)		13,820
Other short-term borrowings, net		298,348			129,299
Proceeds from issuance of long-term debt		--			14,820
Repayments of long-term debt		(33,237	)		(50,988	)
Common stock dividends paid		(16,800	)		(16,200	)

Net cash provided by financing activities		251,653			249,407

Net decrease in cash and due from banks		(49,096	)		(69,786	)
Cash and due from banks at beginning of period		195,165			256,900

Cash and due from banks at end of period	$	146,069		$	187,114

Supplemental disclosures of cash flow information
Cash paid for interest	$	63,689		$	68,918
Cash paid for income taxes		19,587			21,868

See notes to consolidated financial statements.

BREMER FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months ended September 30, 2004 and 2003 (unaudited)

Note A: Financial Statements

The condensed 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 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, 2003 included in its Annual Report on Form 10-K for that year filed on March 23, 2004.

Note C: Interim Period Adjustments

The consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, of a normal recurring nature and 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, except for the portion allocated to redeemable class A 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. There were no investment securities which management identified to be other-than-temporarily impaired for the period ended September 30, 2004.

Note F: Redeemable Class A Common Stock

At September 30, 2004, 960,000 shares of redeemable class A stock were issued and outstanding. At September 30, 2004, these shares were subject to redemption at a price of $41.19 per share, which approximated book value. These shares are owned by employees and directors of the Company and its subsidiaries and the employee benefit plans of the Company. The employee holders of class A common stock have the right to require the Company to purchase their shares under certain circumstances, including death, permanent disability or retirement. The Company has the option to purchase the shares from holders upon the occurrence of certain events, which include death, retirement or termination of employment. It is the Company’s intent that these 960,000 shares will continue to be held by employees, directors, and employee benefit plans of the Company and its subsidiaries and not be directly purchased by the Company or the Otto Bremer Foundation. During the period from January 1, 2004 through September 30, 2004, the Company did not directly purchase any shares of class A common stock but assigned to various parties our options that arose during that period to purchase a total of 60,935.1717 shares. These options were assigned to the Bremer Financial Corporation Employee Stock Ownership Plan (“ESOP”) (6,460.4400 shares), the Bremer Banks Profit Sharing Plus Plan (44,564.7317 shares), and executives and directors under the Executive Stock Purchase Plan (9,910.0000 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, 2004 through September 30, 2004.

Note G: Goodwill and Intangible Assets

Intangible assets consist of goodwill, core deposit intangibles, and other intangibles. The remaining unamortized balances at September 30, 2004 and 2003 were $100.3 million and $103.6 million. The core deposit and other intangibles amortization lives are five to 10 years. Goodwill is not amortized but is tested regularly for impairment. On January 1, 2002, the Company adopted Statements of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which addresses the accounting and reporting for acquired goodwill and other intangible assets. Under the provisions of SFAS No. 142, intangible assets acquired in a business combination, which do not possess finite useful lives, will no longer be amortized into net income over an estimated useful life. However, these intangible assets are tested for impairment at least annually and more frequently if events or changes in circumstances indicate that assets might be impaired. Management performed its annual impairment test on its goodwill assets in December 2003, 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:

	(in thousands)
	As of September 30, 2004						As of September 30, 2003

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value

Core deposit premium	$	21,313	$	9,002	$	12,311	$	21,313	$	6,605	$	14,708
Mortgage servicing rights (1)		4,459		2,777		1,682		4,524		2,373		2,151
Other		4,400		2,351		2,049		4,525		1,978		2,547

Total	$	30,172	$	14,130	$	16,042	$	30,362	$	10,956	$	19,406

(1)

Accumulated amortization of mortgage servicing rights includes the related valuation allowance of $665 thousand in 2004 and $1.1 million in 2003.

The Company recorded aggregate intangible amortization expense of $2.1 million for the nine-month period ended September 30, 2004 and $2.2 million for the period ended September 30, 2003. The estimated amortization expense for each of the next five years is approximately $2.4 million.

Goodwill was $84.2 million at September 30, 2004 and September 30, 2003.

Note H: 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 and nine months ended September 30, 2004 and 2003 included the following components:

	(in thousands)
	For the Three Months Ended September 30,												For the Nine Months Ended September 30,

	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits

	2004			2003			2004			2003			2004			2003			2004			2003

Service cost	$	941		$	733		$	140		$	113		$	2,825		$	2,199		$	422		$	339
Interest cost		918			825			88			79			2,753			2,474			263			238
Expected return on assets		(1,183	)		(904	)		—			—			(3,553	)		(2,712	)		—			—
Prior service cost amortization		14			21			(3	)		(3	)		44			63			(9	)		(9	)
Net loss/(gain) amortization		273			290			14			13			820			871			40			39

Net periodic benefit cost	$	963		$	965		$	239		$	202		$	2,889		$	2,895		$	716		$	607

The Company made a cash contribution of $7.2 million to these plans in September 2004. The Company does not anticipate making any additional contributions to these plans in 2004.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the prescription drug benefit under Medicare. Financial Accounting Standards Board Staff Position 106-1 (“FSP FAS106-1”), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003,” and Financial Accounting Standards Board Staff Position 106-2 (“FSP FAS106-2”), provide guidance on the accounting for the effects of the Act for employers that sponsor postretirement health care plans that provide prescription drug benefits. The guidance was effective for the Company on July 1, 2004. While the Company does offer postretirement benefits, including presciption drug coverage, subject to the accounting requirements of SFAS No. 106, those benefits are only available to retirees until age 65, at which time Medicare coverage becomes effective. As such, the Company believes that these specific provisions of the Act, FSP FAS 106-1 or FSP FAS 106-2 will have no material effect on its financial position or results of operations.

Note I: Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”), an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN No. 46 prescribes how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. On December 24, 2003, the FASB published a revision to FIN No. 46 (“FIN No. 46(R)”). FIN No. 46(R) clarifies certain provisions of FIN No. 46 and exempts certain entities from its requirements. For interests in variable interest entities acquired prior to January 31, 2003, the provisions of FIN No. 46(R)

were applied on March 31, 2004. The Company applied the provisions by de-consolidating its subsidiary trusts, which issued Company obligated mandatorily redeemable preferred securities (“Trust Preferred Securities”). The junior subordinated debentures of the Company owned by these trusts are reflected in the Statements of Financial Condition as long-term debt. As provided by FIN No. 46(R), the Company has restated its financial statements to reflect the adoption for all periods presented. The Trust Preferred Securities currently qualify as Tier I capital of the Company for regulatory capital purposes. The banking regulatory agencies have issued proposed guidance that would not significantly change the capital treatment for Trust Preferred Securities after the adoption of FIN No. 46(R).

On March 9, 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments”, which provides guidance regarding loan commitments that are accounted for as derivative instruments. The Company, which makes such interest rate lock commitments primarily in connection with residential real estate lending activities, currently accounts for such commitments in a manner consistent with the provisions of Staff Accounting Bulletin No. 105, and the application of this accounting guidance will not have a material impact on the financial statements of the Company.

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

Note J: Commitments and Contingencies

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

	(in thousands)
	September 30, 2004		December 31, 2003

Standby letters of credit	$	53,734	$	54,795
Loan commitments		1,315,191		1,093,759

Standby letters of credit represent a conditional commitment to satisfy an obligation to a third party, generally to support public and private borrowing arrangements, on behalf of the customer. 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 accounts receivable, inventory, and productive assets.

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

The Wisconsin Department of Revenue (the “State”) is currently conducting an income tax audit of our Wisconsin bank subsidiary and of another subsidiary company located in Nevada that holds and manages investments for the Wisconsin subsidiary bank. The audit has been initiated under an audit program targeted at Wisconsin financial institutions with non-Wisconsin subsidiaries, the income of which has not been subject to Wisconsin tax. The State may take the position that the income of the out-of-state subsidiary is taxable in Wisconsin. The Company has initiated settlement discussions with the State. Management believes that the resolution of any claims will not have a material impact on the financial statements.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Application of Critical Accounting Policies

In preparing the financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. 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 Credit Losses. In general, determining the amount of the reserve for credit losses requires the use of significant judgment and estimates by management. We maintain an allowance for credit losses to absorb probable losses in the loan and lease portfolio based on a quarterly analysis of the portfolio and expected future losses. Reserves for credit losses include charges to reduce the recorded balances of loans receivable and real estate to their estimated net realizable value or fair value, as applicable.

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 September 30, 2004, no investments were classified as trading securities. Held-to-maturity securities, which are valued at amortized historical cost, represent investments for which we have the ability and intent to hold to maturity and may be sold only under very limited circumstances. We currently classify our investments in certain municipal bond obligations and certain U.S. government agency obligations as held-to-maturity securities. Available-for-sale securities consist of debt and equity securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, or changes in the availability or yield of alternative investments. These securities are valued at current market value, with the resulting unrealized holding gains and losses excluded from earnings and reported, net of tax, and the resultant allocation to redeemable class A common stock reflected as a separate component of shareholders’ equity until realized. 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 during the period in which the securities are deemed to be impaired. The assessment of whether such impairment has occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors in making this assessment. Those factors include, but are not limited to, the length and severity of the decline in value and changes in the credit quality of the issuer or underlying assets. EITF No. 03-1, which provides additional guidance regarding the meaning of other than temporary impairment, became effective for reporting periods after June 15, 2004. In September 2004, FASB issued two Proposed FASB Staff Positions which provide additional guidance regarding this matter and delay the effective date of certain paragraphs of EITF No. 03-1. We are in the process of evaluating the impact of adopting EITF No. 03-1 and will complete that analysis when final guidance is issued. There were no investment securities which management identified to be other-than-temporarily impaired for the nine months ended September 30, 2004. If the financial markets experience deterioration and investments decline in fair value, charges to income could occur in future periods.

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 September 30, 2004, we had $84.2 million of goodwill, which is not subject to periodic amortization, and $16.0 million in other intangible assets, which is subject to periodic amortization.

We performed the annual impairment tests on our goodwill assets in December 2003. No events or changes in circumstances have occurred since that test that would indicate that such assets might be impaired, and we have concluded that the recorded value of goodwill was not impaired as of September 30, 2004. There are many assumptions and estimates underlying the determination of impairment. Impairment testing is based on a determination of the value of each reporting unit, using readily available market and earnings data for comparable publicly-traded organizations within the same time period, and comparing that calculation of value to the current book value of the unit. Another estimate using different, but still reasonable, assumptions could produce a significantly different result. Additionally, future events could cause management to conclude impairment indicators exist and our goodwill is impaired, which would result in us recording an impairment loss. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Retirement Plan Accounting. 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 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.

Our accounting policies for the reserve for credit losses, investment securities, goodwill and other intangible assets, retirement plans, and income taxes are outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 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 $16.4 million or $1.36 in basic and diluted earnings per share for the third quarter of 2004. This compares to $15.3 million or $1.28 in basic and diluted earnings per share in the third quarter of 2003. On a year-to-date basis through September 30, 2004, net income was $45.7 million compared to $46.9 million earned in the first nine months of 2003. Return on average equity was 13.45% for the third quarter of 2004 compared to 13.40% for the same quarter of 2003. On a year-to-date basis, we reported a return on average equity of 12.71% compared to 14.12% in the first nine months of 2003. Return on average assets decreased to 1.11% in the third quarter of 2004 from 1.12% in the third quarter of 2003. On a year-to-date basis, we reported a return on average assets of 1.06% compared to 1.19% in the first nine months of 2003.

Results of Operations

Net Interest Income. Net interest income for the third quarter of 2004 was $50.5 million, an increase of $4.0 million from the $46.5 million reported for the same period a year ago. Meanwhile, our net interest margin decreased to 3.76% in the third quarter of 2004 from 3.81% in the third quarter of 2003. On a year-to-date basis, net interest income increased $4.7 million or 3.4% from the first nine months of 2003, while our net interest margin decreased to 3.70% from 3.94%. Offsetting some of the decline in net interest margin when comparing the two nine-month periods was an increase in 2004 in our average loans and leases of $369.0 million or 9.8%. The decline in our net interest margin is primarily the result of the prolonged low interest rate environment. The average yield on our earning assets declined 47 basis points when comparing the first nine months of 2004 with the first nine months of 2003. Meanwhile, and largely as a result of competitive pressure in deposit markets and already historically low deposit rates, we were able to reduce the average cost of our interest bearing liabilities by only 24 basis points when comparing the same two periods. With the recent increase in market interest rates, the net interest margin increased in the third quarter, and we anticipate continued improvement during the final quarter of 2004.

The following tables set 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 tables show resultant yields or costs, net interest income, net interest spread, and net interest margin:

	For the Three Months Ended September 30,

	(unaudited)
	2004								2003

	Average Balance			Interest (1)		Average Rate/ Yield			Average Balance			Interest (1)		Average Rate/ Yield

	(dollars in thousands)
Assets
Loans and Leases (2)
Commercial and other	$	951,892		$	12,845		5.37	%	$	900,172		$	12,628		5.57	%
Commercial real estate		1,476,611			22,089		5.95			1,249,046			19,375		6.15
Agricultural		508,859			7,271		5.68			470,728			6,733		5.67
Residential real estate		866,767			12,537		5.75			776,089			11,459		5.86
Consumer		361,427			5,675		6.25			338,048			5,881		6.90
Tax-exempt		158,523			2,959		7.43			128,745			2,590		7.98

Total Loans and Leases		4,324,079			63,376		5.83			3,862,828			58,666		6.03
Reserve for Credit Losses		(62,402	)							(63,618	)

Net Loans and Leases		4,261,677								3,799,210
Securities (3)
Taxable		1,031,124			8,347		3.22			985,749			7,921		3.19
Tax-exempt		190,476			3,437		7.18			183,704			3,433		7.41

Total Securities		1,221,600			11,784		3.84			1,169,453			11,354		3.85
Federal funds sold		17,417			43		0.98			16,487			39		0.94
Other earning assets		4,361			23		2.10			4,269			24		2.23

Total Earning Assets (4)	$	5,567,457		$	75,226		5.38	%	$	5,053,037		$	70,083		5.50	%
Cash and due from banks		148,025								158,925
Other non interest earning assets		250,577								273,029

Total Assets	$	5,903,657							$	5,421,373


Liabilities and Shareholders' Equity
Noninterest bearing deposits	$	762,582							$	691,714
Interest bearing deposits
Savings and NOW accounts		482,036		$	367		0.30	%		471,210		$	310		0.26	%
Other interest bearing checking		260,683			76		0.12			245,334			64		0.10
Money market savings		1,447,895			4,812		1.32			1,248,249			4,025		1.28
Savings certificates		866,356			5,768		2.65			940,916			6,432		2.71
Certificates over $100,000		267,278			1,792		2.67			207,107			1,365		2.61

Total Interest Bearing Deposits		3,324,248			12,815		1.53			3,112,816			12,196		1.55

Total Deposits		4,086,830								3,804,530
Short-term borrowings		860,356			3,029		1.40			626,764			1,913		1.21
Long-term debt		426,262			6,697		6.25			478,241			7,434		6.17

Total Interest Bearing Liabilities	$	4,610,866		$	22,541		1.94	%	$	4,217,821			21,543		2.03	%
Other noninterest bearing liabilities		45,115								58,423

Total Liabilities		5,418,563								4,967,958
Minority Interest		150								150
Redeemable Class A Common Stock		38,795								36,261
Shareholders' equity		446,149								417,004

Total Liabilities and Equity	$	5,903,657							$	5,421,373

Net interest income				$	52,685							$	48,540

Net interest spread							3.43	%							3.48	%
Net interest margin							3.76	%							3.81	%

_________________
(1)		Interest income includes $2,188 in 2004 and $2,061 in 2003 to adjust to a fully taxable basis using the federal statutory rate of 35%.
(2)		Net of unearned discount and includes nonaccrual loans and leases.
(3)		Excluding net unrealized gain (loss) on available-for-sale securities.
(4)		Before deducting the reserve for credit losses.

	For the Nine Months Ended September 30,

	(unaudited)
	2004								2003

	Average Balance			Interest (1)		Average Rate/ Yield			Average Balance			Interest (1)		Average Rate/ Yield

	(dollars in thousands)
Assets
Loans and Leases (2)
Commercial and other	$	928,155		$	36,569		5.26	%	$	895,587		$	37,998		5.67	%
Commercial real estate		1,411,607			62,706		5.93			1,196,298			57,390		6.41
Agricultural		463,947			19,646		5.66			440,936			19,576		5.94
Residential real estate		827,832			34,857		5.62			774,341			35,352		6.10
Consumer		350,896			16,599		6.32			335,158			17,870		7.13
Tax-exempt		151,782			8,526		7.50			122,852			7,449		8.11

Total Loans and Leases		4,134,219			178,903		5.78			3,765,172			175,635		6.24
Reserve for Credit Losses		(61,367	)							(61,859	)

Net Loans and Leases		4,072,852								3,703,313
Securities (3)
Taxable		1,085,402			26,146		3.22			952,298			26,013		3.65
Tax-exempt		184,297			9,980		7.23			181,859			10,250		7.54

Total Securities		1,269,699			36,126		3.80			1,134,157			36,263		4.27
Federal funds sold		12,713			91		0.96			12,213			97		1.06
Other earning assets		4,335			72		2.22			4,234			94		2.97

Total Earning Assets (4)	$	5,420,966		$	215,192		5.30	%	$	4,915,776		$	212,089		5.77	%
Cash and due from banks		151,667								151,647
Other non interest earning assets		256,338								283,958

Total Assets	$	5,767,604							$	5,289,522

Liabilities and Shareholders' Equity
Noninterest bearing deposits	$	725,259							$	651,875
Interest bearing deposits
Savings and NOW accounts		484,514		$	954		0.26	%		464,736		$	1,095		0.32	%
Other interest bearing checking		262,953			226		0.11			247,976			261		0.14
Money market savings		1,459,303			14,622		1.34			1,138,716			11,155		1.31
Savings certificates		869,803			17,116		2.63			1,004,322			21,864		2.91
Certificates over $100,000		230,612			4,465		2.59			223,015			4,681		2.81

Total Interest Bearing Deposits		3,307,185			37,383		1.51			3,078,765			39,056		1.70

Total Deposits		4,032,444								3,730,640
Short-term borrowings		769,625			7,259		1.26			556,297			5,284		1.27
Long-term debt		440,326			20,533		6.23			489,489			22,723		6.21

Total Interest Bearing Liabilities	$	4,517,136		$	65,175		1.93	%	$	4,124,551		$	67,063		2.17	%
Other noninterest bearing liabilities		44,223								68,891

Total Liabilities		5,286,618								4,845,317
Minority Interest		150								150
Redeemable Class A Common Stock		38,467								35,524
Shareholders' equity		442,369								408,531

Total Liabilities and Equity	$	5,767,604							$	5,289,522

Net interest income				$	150,017							$	145,026

Net interest spread							3.38	%							3.59	%
Net interest margin							3.70	%							3.94	%

_________________
(1)		Interest income includes $6,328 in 2004 and $6,053 in 2003 to adjust to a fully taxable basis using the federal statutory rate of 35%.
(2)		Net of unearned discount and includes nonaccrual loans and leases.
(3)		Excluding net unrealized gain (loss) on available-for-sale securities.
(4)		Before deducting the reserve for credit losses.

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:

	Nine Months Ended September 30,

	2004 vs. 2003

	Increase (Decrease) Due to Change in

	Volume			Rate			Total

	(in thousands)
Interest earning assets:
Loans and leases (1)	$	17,215		$	(13,947	)	$	3,268
Taxable securities		3,636			(3,503	)		133
Tax-exempt securities (1)		137			(407	)		(270	)
Federal funds sold		4			(10	)		(6	)
Other interest earning assets		2			(24	)		(22	)

Total interest earning assets	$	20,994		$	(17,891	)	$	3,103


Interest bearing liabilities:
Savings and NOW accounts	$	210		$	(351	)	$	(141	)
Money market and other interest bearing checking		2,191			1,241			3,432
Savings certificates		(2,745	)		(2,219	)		(4,964	)
Short-term borrowings		2,026			(51	)		1,975
Long-term debt		(2,057	)		(133	)		(2,190	)

Total interest bearing liabilities		(375	)		(1,513	)		(1,888	)

Change in net interest income	$	21,369		$	(16,378	)	$	4,991

_________________
(1)		Interest income includes $6,328 in 2004 and $6,053 in 2003 to adjust to a fully taxable basis using the federal statutory rate of 35%.

Provision for Credit Losses. The provision for credit losses is charged against earnings to cover both current period net charge-offs and to maintain the allowance for credit losses at an acceptable level to cover losses inherent in the portfolio as of the reporting date. We recorded net charge-offs of $656.4 thousand during the third quarter of 2004 compared to net charge-offs of $4.8 million for the same period in 2003. We recorded a provision for credit losses of $1.7 million for the third quarter of 2004 compared to $4.2 million for the same quarter in 2003. On a year-to-date basis, the provision for credit losses decreased to $5.6 million in the first nine months of 2004 from $10.4 million for the first nine months of 2003. Our ratio of reserve to total loans and leases decreased to 1.41% at September 30, 2004 from 1.57% at September 30, 2003. Our reserve coverage on nonperforming loans and leases increased to 429% at September 30, 2004 from 269% at September 30, 2003. For further discussion related to the allowance for credit losses, see the later section entitled “– Financial Condition – Reserve for Credit Losses.”

Noninterest Income. Noninterest income reflected a $3.2 million or 14.3% decrease to $19.3 million for the third quarter of 2004 from the $22.5 million recorded in the third quarter of 2003. On a year-to-date basis, noninterest income was $59.0 million, an $8.8 million or 12.9% decrease from the $67.7 million recorded in the first nine months of 2003. Increases of 22.9%, 14.5%, 10.3% and 4.7% in brokerage, insurance, investment management and trust and service charge revenues, respectively, were more than offset by lower gains on the sale of loans and securities when comparing the two nine-month periods. When comparing the first nine months of 2004 with the same period in 2003, brokerage, insurance, investment management and trust and service charge revenues increased a combined $3.6 million or 9.1%, while gains on the sale of loans and securities declined a combined $12.8 million. The decline in gains on sale of loans in the first nine months of 2004 can be attributed to a reduced level of residential mortgage loan refinancing activity.

The following table summarizes the components of noninterest income:

	Three Months Ended September 30,				Nine Months Ended September 30,

	2004		2003		2004		2003

	(in thousands)

Service charges	$	8,301	$	7,605	$	23,396	$	22,337
Insurance		2,401		2,366		7,316		6,390
Investment management and trust fees		2,684		2,515		8,048		7,299
Brokerage		1,458		1,303		4,774		3,885
Gain on sale of loans		2,352		6,259		7,779		16,779
Gain on sale of securities		4		16		2,072		5,855
Other noninterest income		2,062		2,416		5,605		5,200

Total noninterest income	$	19,262	$	22,480	$	58,990	$	67,745

Noninterest Expense. Noninterest expense increased $1.2 million or 2.8% to $42.8 million in the third quarter of 2004 from $41.7 million in the third quarter of 2003. On a year-to-date basis, total noninterest expense increased $2.6 million or 2.1% to $127.4 million in 2004 from $124.8 million in 2003. On a year-to-date basis, employee benefit expense declined by $897.0 thousand, or 5.1%, and printing, postage, and telephone expense declined by $534.0 thousand, or 10.6%. The decline in employee benefit expense is due to lower profit sharing contributions and a continuation of favorable experience in our medical claims activity. The decline in printing, postage, and telephone expense is due to efficiencies gained through the outsourcing of certain office functions and increased use of technology.

The following table summarizes the components of noninterest expense:

	Three Months Ended September 30,				Nine Months Ended September 30,

	2004		2003		2004		2003

	(in thousands)

Salaries and wages	$	20,110	$	19,757	$	60,105	$	57,644
Employee benefits		5,466		5,236		16,610		17,507
Occupancy		2,902		2,820		8,963		8,410
Furniture and equipment		2,606		2,764		7,760		7,836
Printing, postage and telephone		1,492		1,641		4,526		5,060
Marketing		1,702		1,553		4,698		4,672
Data processing fees		2,830		2,668		8,173		7,651
Professional fees		1,058		1,040		3,050		2,490
Other real estate owned		17		66		103		226
FDIC premiums and examination fees		516		443		1,436		1,319
Amortization of intangibles		685		717		2,054		2,150
Other noninterest expense		3,425		2,946		9,915		9,865

Total noninterest expense	$	42,809	$	41,651	$	127,393	$	124,830

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 59.5% for the third quarter of 2004 compared to 58.7% for the third quarter of 2003. On a year-to-date basis, the ratio was 61.0% for the nine months ended September 30, 2004 compared to 58.7% for the same period in 2003.

Income Taxes. The provision for income taxes was $8.8 million for the quarter ended September 30, 2004 compared to $7.8 million for the same period in 2003. On a year-to-date basis, the provision for income taxes decreased to $23.9 million in 2004 from $24.6 million in 2003. Comparing the third quarter of 2004 to the same period in 2003, our effective tax rate increased to 35.0% from 33.7%. Our effective tax rate increased in the third quarter of 2004 primarily as a result of a provision for expense associated with the expected settlement of open audit issues with the Wisconsin Department of Revenue. Our effective tax rate was 34.4% for the first nine months of 2004 and 2003.

Financial Condition

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

	At September 30, 2004					At December 31, 2003

	Amount		Percent of Total Loans			Amount		Percent of Total Loans

	(dollars in thousands)

Commercial and other	$	966,504		21.8	%	$	900,395		22.7	%
Commercial real estate		1,401,501		31.6			1,230,752		31.0
- Construction		115,656		2.6			99,213		2.5
Agricultural		521,187		11.8			449,765		11.4
Residential real estate		871,693		19.7			780,351		19.7
- Construction		24,443		0.6			23,041		0.6
Consumer		366,565		8.3			337,449		8.5
Tax-exempt		162,543		3.7			143,049		3.6

Total	$	4,430,092		100.0	%	$	3,964,015		100.0	%

Our total loan and lease portfolio increased to $4.4 billion at September 30, 2004 from $4.0 billion at December 31, 2003. Commercial loans increased by $66.1 million or 7.3% during the first nine months of 2004, and commercial real estate loans increased by $187.2 million or 14.1% during the same period. Agricultural loans increased by $71.4 million or 15.9% during the first nine months of 2004, while residential real estate loans increased by $92.7 million or 11.5%. Consumer loans increased $29.1 million or 8.6%, and tax-exempt loans increased $19.5 million or 13.6% during the first nine months of 2004.

Nonperforming Assets. Nonperforming assets include nonaccrual loans, restructured loans and other real estate owned (“OREO”). Nonperforming assets were $16.4 million at September 30, 2004, a decrease of $7.5 million or 31.3% from the $23.9 million level at December 31, 2003. Nonperforming assets as a percentage of total loans, leases and OREO decreased to ..37% at September 30, 2004 from .60% at December 31, 2003. Approximately $3.2 million or 19.4% of our nonperforming assets are commercial and commercial real estate credits originated in our finance company subsidiary. This finance company subsidiary, which had a total loan and lease portfolio of $10.1 million at September 30, 2004 compared to $20.0 million at December 31, 2003, is in the process of winding down operations and is no longer accepting new loan applications. Accruing loans and leases 90 days or more past due totaled $4.5 million at September 30, 2004 compared to $3.3 million at December 31, 2003.

Our nonperforming assets are summarized in the following table:

	September 30, 2004			December 31, 2003

	(dollars in thousands)
Nonaccrual loans and leases	$	14,324		$	20,058
Restructured loans and leases		215			280

Total nonperforming loans and leases		14,539			20,338
Other real estate owned (OREO)		1,906			3,598

Total nonperforming assets	$	16,445		$	23,936

Accruing loans and leases 90 days or more past due	$	4,493		$	3,284

Nonperforming loans and leases to total loans and leases		0.33	%		0.51	%
Nonperforming assets to total loans, leases and OREO		0.37			0.60
Nonperforming assets and accruing loans and leases 90
days or more past due to total loans, leases and OREO		0.47			0.69

Reserve for Credit Losses. At September 30, 2004, the reserve for credit losses was $62.3 million, an increase of $3.4 million or 5.8% from the balance of $58.9 million at December 31, 2003. The reserve for credit losses as a percentage of total loans and leases was 1.41% at September 30, 2004 compared to 1.49% at December 31, 2003. Reserve coverage on nonperforming loans and leases increased to 429% at September 30, 2004 from 290% at December 31, 2003. The improvements in these ratios in 2004 are the result of the significant decrease in our nonperforming assets to $16.4 million at September 30, 2004 from $23.9 million at December 31, 2003.

Activity in the reserve for credit losses for the following periods is shown in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,

	2004			2003			2004			2003

	(dollars in thousands)

Balance at beginning of period	$	61,288		$	62,315		$	58,906		$	58,799
Charge-offs:
Commercial and other		296			207			2,037			1,672
Commercial real estate		10			4,406			49			4,584
Agricultural		--			--			20			103
Residential real estate		158			23			560			171
Consumer		490			479			1,485			1,662

Total charge-offs		954			5,115			4,151			8,192
Recoveries:
Commercial and other		114			72			256			169
Commercial real estate		--			--			1,161			16
Agricultural		65			48			99			63
Residential real estate		22			39			96			54
Consumer		97			146			379			440

Total recoveries		298			305			1,991			742

Net charge-offs		656			4,810			2,160			7,450
Provision for credit losses		1,713			4,220			5,599			10,376

Balance at end of period	$	62,345		$	61,725		$	62,345		$	61,725

Average loans and leases	$	4,324,079		$	3,862,828		$	4,134,219		$	3,765,172
Annualized net charge-offs to average loans and leases		0.06	%		0.49	%		0.07	%		0.26	%

Reserve as a percentage of:
Period-end loans and leases		1.41	%		0.49	%
Nonperforming loans and leases		428.81			269.22
Nonperforming assets		379.12			222.71	%

Securities. Our investment portfolio, including available-for-sale securities and held-to-maturity securities, decreased by $128.0 million to $1.2 billion at September 30, 2004 from $1.3 billion at December 31, 2003. The decline in the portfolio occurred because a significant portion of the proceeds from sales and maturities during the second and third quarters of 2004 have been used to fund loan portfolio growth. We sold $114.7 million in securities during the first nine months of 2004, resulting in securities gains of $2.1 million for this period compared to securities gains of $5.9 million in the first nine months of 2003. Most of these gains were in connection with the first quarter 2004 sale of callable obligations of state and political subdivisions that had unfavorable call features and mortgage-backed securities pools that had been paid down significantly to balance levels that were not economical to maintain. We replaced these securities with obligations of state and political subdivisions that had more favorable call characteristics and adjustable rate mortgage-backed securities in larger and easier to manage pools.

Deposits. Total deposits were $4.1 billion at September 30, 2004 and at December 31, 2003. Noninterest bearing deposits decreased $13.0 million or 1.7% to $770.3 million at September 30, 2004 from $783.3 million at December 31, 2003. Interest bearing deposits maintained a $3.3 billion balance at September 30, 2004 and December 31, 2003.

Borrowings. Short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase, treasury tax and loan notes, and Federal Home Loan Bank (“FHLB”) advances, increased $254.5 million or 39.8% to $893.9 million at September 30, 2004 from $639.4 million at December 31, 2003. The increased use of short-term borrowings as a funding source was the result of our loan growth outpacing our deposit growth in the first nine months of 2004.

Long-term debt. At September 30, 2004, long-term debt consisted primarily of FHLB advances, junior subordinated debentures, and $65.0 million of privately-placed senior debt. Of the privately-placed senior debt, $46.0 million matured on November 1, 2004. FHLB advances decreased to $281.8 million at September 30, 2004 from $314.8 at December 31, 2003. The junior subordinated debentures include $61.9 million of 9.0% debentures payable to Bremer Capital Trust I, an unconsolidated affiliate of the Company, bearing quarterly interest payments, and $17.0 million of 10.2% junior subordinated debentures payable to Bremer Statutory Trust I, also an unconsolidated affiliate of the Company, bearing semi-annual interest payments. The debentures mature not earlier than July 15, 2006 and not later than July 15, 2031. At September 30, 2004, $76.5 million qualified as Tier I capital under guidelines of the Federal Reserve.

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 September 30, 2004.

The following table compares our consolidated capital ratios with the minimum requirements for well-capitalized and adequately capitalized banks as of September 30, 2004:

					Minimum Requirements

	September 30, 2004		December 31, 2003		Well Capitalized		Adequately Capitalized


Tier I capital to risk-weighted assets		10.13%		10.51%		6.00%		4.00%
Total capital to risk-weighted assets		11.38		11.76		10.00		8.00
Tier I capital to average tangible assets		8.13		8.10		5.00		4.00

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

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.

Several factors provide for a favorable liquidity position. The first is the ability to acquire and retain funds in the local markets we serve. This in-market funding provides a historically stable source of funding and represented approximately 83% of total liabilities at September 30, 2004. Our available-for-sale securities portfolio is a secondary source of liquidity because of its readily marketable nature and predictable stream of maturities. While we prefer to fund the balance sheet with in-market funding sources, another source of liquidity is our ready access to regional and national wholesale funding markets, including federal funds purchased, FHLB advances, and brokered deposits. As of September 30, 2004, we also had $15.0 million of borrowing capacity available under an unsecured credit facility. As of September 30, 2004, there were no advances outstanding under this facility. This credit facility is used primarily for contingency purposes.

Commitments and Contingencies. There have been no material changes in our outstanding commitments and contingencies since those reported at December 31, 2003 in our Annual Report on Form 10-K for 2003.

Item 3. Quantitative and Qualitative Disclosure 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, 2003 in the Annual Report on Form 10-K for 2003.

Item 4. Disclosure 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 September 30, 2004, of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic filings with the Securities Exchange Commission. There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2004 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 and Reports on Form 8-K

(a)

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

31.1

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

31.2

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

32.1

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

32.2

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

(b)

During the quarter ended September 30, 2004, the Company filed or furnished the following Current Report on Form 8-K:

A Current Report on Form 8-K dated July 27, 2004, which disclosed the issuance of a press release under Item 12, was furnished by the Company to the Securities and Exchange Commission on July 29, 2004. The press release described the Company's financial results for the quarter ended June 30, 2004.


Dated: November 12, 2004	BREMER FINANCIAL CORPORATION
	By:		/s/ Stan K. Dardis

		Stan K. Dardis President and Chief Executive Officer (Principal Executive Officer)
	By:		/s/ Stuart F. Bradt

		Stuart F. Bradt Controller (Chief Accounting Officer)

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

Forward-Looking Statements

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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

BREMER FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months ended September 30, 2004 and 2003 (unaudited)

Note A: Financial Statements

Note B: General

Note C: Interim Period Adjustments

Note D: Earnings Per Share Calculations

Note E: Securities

Note F: Redeemable Class A Common Stock

Note G: Goodwill and Intangible Assets

Note H: Employee Benefit Plans

Note I: Recent Accounting Pronouncements

Note J: Commitments and Contingencies

Application of Critical Accounting Policies

Overview

Results of Operations

Financial Condition

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Item 4. Disclosure Controls and Procedures

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

INDEX TO EXHIBITS

	Three months ended September 30,									Nine months ended September 30,

	2004			2003			Change			2004			2003			Change

Operating Results:
Total interest income	$	73,038		$	68,022			7.37	%	$	208,864		$	206,036			1.37	%
Total interest expense		22,541			21,543			4.63			65,175			67,063			(2.82	)

Net interest income		50,497			46,479			8.64			143,689			138,973			3.39
Provision for credit losses		1,713			4,220			(59.41	)		5,599			10,376			(46.04	)

Net interest income after provision for credit losses		48,784			42,259			15.44			138,090			128,597			7.38
Noninterest income		19,262			22,480			(14.31	)		58,990			67,745			(12.92	)
Noninterest expense		42,809			41,651			2.78			127,393			124,830			2.05

Income before income tax expense		25,237			23,088			9.31			69,687			71,512			(2.55	)
Income tax expense		8,836			7,777			13.62			23,942			24,626			(2.78	)

Net income	$	16,401		$	15,311			7.12	%	$	45,745		$	46,886			(2.43	)%

Net income per share	$	1.36		$	1.28			7.12	%	$	3.81		$	3.91			(2.43	)%
Dividends paid per share		0.50			0.45			11.11			1.40			1.35			3.70
Tax equivalent net interest income	$	52,685		$	48,540			8.54	%	$	150,017		$	145,026			3.44	%
Net charge-offs		656			4,810			(86.36	)		2,160			7,450			(71.01	)
Selected Financial Ratios:
Return on average assets		1.11	%		1.12	%		(0.01	)		1.06	%		1.19	%		(0.13	)
Return on average equity (1)		13.45			13.40			0.05			12.71			14.12			(1.41	)
Average equity to average assets (1)		8.21			8.36			(0.15	)		8.34			8.40			(0.06	)
Net interest margin (2)		3.76			3.81			(0.05	)		3.70			3.94			(0.24	)
Operating efficiency ratio (3)		59.50			58.65			0.85			60.95			58.67			2.28
Net charge-offs to average loans and leases		0.06			0.49			(0.43	)		0.07			0.26			(0.19	)

	September 30, 2004			September 30, 2003						December 31, 2003			Change
Balance Sheet Data:
Total assets	$	5,963,700		$	5,534,610			7.75	%	$	5,673,709			5.11	%
Securities (4)		1,186,426			1,203,495			(1.42	)		1,314,440			(9.74	)
Loans and leases (5)		4,430,092			3,939,102			12.46			3,964,015			11.76
Total deposits		4,098,124			3,908,985			4.84			4,050,976			1.16
Short-term borrowings		893,900			654,595			36.56			639,358			39.81
Long-term debt		426,921			460,377			(7.27	)		460,158			(7.22	)
Total shareholders' equity and redeemable Class A
common stock		494,246			454,015			8.86			467,427			5.74
Per share book value of common stock		41.19			37.83			8.86			38.95			5.74
Asset Quality:
Reserve for credit losses	$	62,345		$	61,725			1.00	%		58,906		$	5.84	%
Nonperforming assets		16,445			27,716			(40.67	)		23,936			(31.30	)
Nonperforming assets to total loans, leases
and OREO		0.37	%		0.70	%		(0.33	)		0.60	%		(0.23	)
Reserve to nonperforming loans and leases		428.81			269.22			159.59			289.63			139.18
Reserve to total loans and leases		1.41			1.57			(0.16	)		1.49			(0.08	)

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

Forward-Looking Statements

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

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

BREMER FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months ended September 30, 2004 and 2003 (unaudited)

Note A: Financial Statements

Note B: General

Note C: Interim Period Adjustments

Note D: Earnings Per Share Calculations

Note E: Securities

Note F: Redeemable Class A Common Stock

Note G: Goodwill and Intangible Assets

Note H: Employee Benefit Plans

Note I: Recent Accounting Pronouncements

Note J: Commitments and Contingencies

Application of Critical Accounting Policies

Overview

Results of Operations

Financial Condition

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Item 4. Disclosure Controls and Procedures

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

INDEX TO EXHIBITS

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

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

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

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

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