Bremer deal adds 'crown jewel' to Old National's Twin Cities plan

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UPDATE: This article includes information from the banks' conference call and analysts' comments.

Bremer Financial, long rumored as an acquisition target, finally pulled the trigger on Monday.

The St. Paul, Minnesota-based bank agreed to sell to Old National Bancorp for $1.4 billion in cash and stock. The deal, targeted to close in mid-2025, is the fourth largest bank merger announced this year by value and the fifth of 2024 that topped the $1 billion threshold.

The $54 billion-asset Old National in Evansville, Indiana, said in a press release that it would gain $16.2 billion of assets, $11.5 billion of loans and $13.2 billion of deposits. It would acquire 70 branches, comprising 48 in Minnesota, 14 in North Dakota and eight in Wisconsin.

Old National would become the third-largest bank in the Minneapolis-St. Paul metropolitan area by market share.

Old National Chairman and CEO Jim Ryan highlighted in the release Bremer's "strong deposit franchise" and a "diversified loan portfolio accentuated by exceptional credit quality."  

For Old National, bigger means better, Ryan said on a conference call with analysts. "We think the benefits of scale in this banking industry are quite apparent," he said. "We view an accretive deal like this as a great way to build scale in a shareholder friendly way."

Old National has bulked up across the Midwest with several large deals over the past several years, including its nearly $2.5 billion buyout of First Midwest Bancorp in Chicago in 2022. In 2018, it bought the $2 billion-asset KleinBank in suburban Minneapolis for more than $400 million in stock. 

Old National entered the Twin Cities market in 2017, with its acquisition of Anchor Bancorp. Ryan termed Bremer the "crown jewel" of Old National's expansion strategy in Minneapolis-St. Paul. 

Old National is also expanding into the Southeast. Earlier this year, Old National acquired the $3 billion-asset CapStar Financial Holdings in Nashville. When announced, the all-stock deal was valued at $344.4 million.

Just last month, during the company's earnings call, Ryan told analysts that he was open to more acquisitions but "any future M&A opportunities really have a high hurdle."

However, he added, "to the extent that there are opportunities that come along and exceed those very high hurdles we have in place" — larger, high-performing targets in growth markets — "I think all of our shareholders will want us to look at those things opportunistically."

On Monday's conference call, Ryan said Old National would "continue to be ready if the opportunity arises" but added it plans to focus on integrating Bremer "for the next couple of years."

"We've got to execute on the integration," Ryan said. "We've got to retain all the great people, the great clients here." 

Hovde analyst Brendan Nosal said Monday's deal "is a little bit out of left field" given the recent CapStar Financial Holdings acquisition. Nosal, however, said buying Bremer was Old National's only path to scale in the Twin Cities, "so it's tough to be too critical of an opportunity to take a top-three market share position in a core Midwest metro market."

Bremer has at various points over the past five years considered a sale. In 2019, the bank considered a merger of equals with Great Western Bancshares but that did not materialize amid objections from Bremer's largest shareholder. Great Western in Sioux Falls, South Dakota, later sold to First Interstate BancSystem in Billings, Montana, for $2 billion.

Bremer is profitable and has strong credit quality, but it is unique in that it is mostly owned by the Otto Bremer Trust, named after the bank's late founder.  The trust, which had reportedly for years sought to sell and focus its work on philanthropy, opposed the Great Western combination, preferring instead an outright sale. That sparked a yearslong legal battle between the trust and the bank. But the two sides reached a settlement this year and, earlier this month, Bloomberg reported Bremer was seeking a buyer.

"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 President and CEO Jeanne Crain said in the release. "With Old National, we have confidence we found a great fit."

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According to Ryan, Bremer's internal legal struggles had little or no impact on its ability to compete. "When you talk to our commercial relationship managers here and they try to win a Bremer Bank account, it's very difficult to do," Ryan said on the conference call. "We think very much the franchise is still running strong." 

Though Bremer sounded out other potential buyers, Old National's offer — which included no premium on Bremer's tangible book value — did not change materially during the negotiations. "We just know that there was a lot of outreach and we felt like there was competition along the way," Ryan said. "At the end of the day we were only going to do what made sense for Old National and its shareholders.

Upon closing, the trust would own about 11% of Old National. A trustee of the Otto Bremer Trust would join the combined bank's board.

"This partnership expands the scope of what can be accomplished for and within our communities — civically, socially and economically," the trust said in a statement.

Old National estimated the deal would be 22% accretive to its 2026 earnings per share. It projected 30% cost savings from Bremer's expense base. It expects to earn back 10% dilution to its tangible book value in about two years.

Piper Sandler analyst Scott Siefers said the overall financials appear compelling. 

In connection with the acquisition, Old National announced a public offering of its stock on Monday. It projected net proceeds of $384 million.

The Bremer deal not only marked one of the largest of the year but added to recent M&A momentum overall.

There were 108 deals worth an aggregate deal value of $13.1 billion through Oct. 31. Volume this year surpassed the 98 transactions inked in 2023 and value more than tripled the $4.15 billion total for last year, according to S&P Global Market Intelligence data.

Winter Haven, Florida-based SouthState Corp.'s May announcement that it would pay $2 billion in stock to acquire Independent Bank Group in McKinney, Texas, has been the biggest deal in 2024. Kansas City-based UMB Financial's April plan to purchase Heartland Financial USA in Denver in an all-stock transaction valued at just under $2 billion followed closely.

Atlantic Union Bankshares' planned acquisition of Olney, Maryland-based Sandy Spring Bancorp was the No. 3 deal of the year so far. The Richmond, Virginia-based Atlantic agreed to pay Sandy Spring $1.6 billion in stock.  

That deal was followed by the July decision by Renasant Corp. in Tupelo, Mississippi, to acquire in-state peer The First Bancshares in Hattiesburg for $1.2 billion in stock.