Dive Brief:

• Evansville, Indiana-based Old National Bank will acquire St. Paul, Minnesota-based Bremer Bank for $1.4 billion in a stock-and-cash deal, the banks said Monday.
• A major farm lender, Bremer has $16.2 billion in assets, $11.5 billion in loans and $13.2 billion in deposits. The bank has 70 branches across Minnesota, North Dakota and Wisconsin. 
• In tandem with the deal, which is subject to regulatory and shareholder approvals and expected to close in mid-2025, Old National announced a public stock offering, expected to generate net proceeds of $384 million, according to a news release.

Dive Insight:

Bremer, a privately held bank that’s majority-owned by the Otto Bremer Trust, a charitable organization, had been seeking a buyer, Bloomberg reported this month. The trust and the bank’s holding company, Bremer Financial, reached an agreement in July to end a five-year legal battle. 

Bremer Financial in 2019 was considering a merger of equals with Great Western Bancshares. Trustees, however, felt a sale would offer greater profit, the Star Tribune reported. The holding company sued trust members to stop the trust from selling a stake in the bank to a hedge fund group, according to Bloomberg. Great Western agreed to sell to First Interstate in 2021. 

“When our majority shareholder, the Otto Bremer Trust, reaffirmed its interest in selling Bremer Bank, we appreciated the opportunity to identify a partner through a collaborative process to ensure the best possible outcome for our customers, employees and our communities,” Bremer CEO Jeanne Crain said in Monday’s news release. 

During a conference call Monday to discuss the deal, Piper Sandler analyst Scott Siefers expressed surprise that Old National was able to purchase Bremer for tangible book value and asked about the competitive process. Old National CEO Jim Ryan said he thought Bremer “reached out to all of the usual suspects” that might have had an interest in the purchase. 

“I think some things changed along the way,” he said, although “our bid didn’t materially change throughout this entire process.” 

Ryan said he didn’t know exactly which banks participated, but said there was a lot of outreach and Old National felt the process was competitive. 

Following the deal, the trust will have about an 11% ownership stake in Old National, and a trustee will join Old National’s board. 

The combined bank would have $70 billion in assets, and the acquisition would make Old National the third-largest bank in the Twin Cities. 

Old National has been a frequent acquirer in recent years, scooping up First Midwest Bank in Chicago in 2022 for $2.5 billion, and Nashville-based CapStar this year.   

The Indiana lender entered the Twin Cities market in 2017 with its acquisition of St. Paul-based Anchor Bank, and bolstered its presence by buying KleinBank for $400 million in 2018. 

Old National has had “long-standing interest in growing our market position here,” Ryan said during the call, adding that Bremer Bank represented a “crown jewel” in a Twin Cities growth plan. 

Bank executives noted growth opportunities in areas such as St. Cloud, Minnesota and Grand Forks, North Dakota, including with small businesses and the agriculture sector. 

Hovde analyst Brendan Nosal called the tie-up “a little bit out of left field,” but added “it’s tough to be too critical of an opportunity to take a top-three market share position in a core Midwest metro market.”

Ryan, last month, told analysts during an earnings call that “any future M&A opportunities really have a high hurdle,” but later added that with those that “exceed” that threshold, “I think all of our shareholders will want us to look at those things opportunistically.”

Siefers, however, wrote that for Old National, “another big deal takes away from what had been a good organic growth focus/story.” He noted, too, that Bremer “has had some highly-publicized multi-year issues, begging the question of whether it will need to be fixed before it can be grown.”

Old National said it will sell about $2.4 billion in commercial real estate loans after the deal closes, resulting in a $34.6 million earnings impact, according to an investor presentation. 

“We wanted to kind of reset our own balance sheet,” and be in a position to play offense following the transaction, Old National CFO John Moran said during the call. 

Old National also projects cost savings of about 30% of Bremer’s 2025 expected non-interest expense, or about $111 million pre-tax, with 25% realized in 2025 and 100% in 2026 and beyond, according to the presentation. 

Old National also expects to log about $194 million in pre-tax, one-time merger expenses, which is reflected in the pro-forma tangible book value estimate at closing. 

When asked by an analyst how much the presidential election’s outcome affected Old National’s comfort and ability to pursue the deal, Ryan said it wasn’t much of a factor, but noted the bank met with regulators at the Federal Reserve and the Office of the Comptroller of the Currency multiple times throughout the process, to preview combined balance sheets and resulting capital ratios.  

“Everybody feels like things could ease a little bit into the future, but we’re not planning on it,” Ryan said of regulatory attitudes toward bank M&A. 

The deal’s price tag puts it among the biggest bank transactions announced this year. Others include SouthState’s pending $2 billion acquisition of Independent Bank Group; UMB’s nearly $2 billion acquisition of Heartland Financial; Atlantic Union’s $1.6 billion bid to buy Sandy Spring; and Renasant’s $1.2 billion purchase of The First Bancshares.