Company profile: Bremer Financial Corporation

Whenever Pat Donovan has had questions during his year-long transition to the top spot at Bremer Financial Corporation, he hasn’t needed to go far to find the answer.

Donovan’s office at Bremer’s St. Paul headquarters facility is located two doors down from the office of Stan Dardis, whom Donovan will succeed as the company’s CEO on April 27.

“We sit right next to each other,” Donovan says. “There is a path that has been worn out on the carpet between our desks.”

Donovan says little will change about the way Bremer Bank’s 100 community banks in Minnesota, North Dakota and Wisconsin are run when Dardis retires next month. Donovan, Bremer’s president and chief operating officer, has spent the last year working with Dardis and transitioning into his new role.

“People always ask what will change,” Donovan says. “It won’t be anything major, just a continuation of what we have been doing. What people have seen throughout the last year has been a collaboration between the two of us. The collaboration has been going on for so long that we can and do finish each other’s sentences.”

Dardis has been Bremer’s CEO since 1998. He says Donovan, who he has known since the early 1980s, is ready to lead the company and will continue Bremer’s focus on small town banking and community involvement.

STEADY PERFORMANCE IN TURBULENT TIMES

Despite a wave of nationwide bank closures, new federal regulations and a prolonged recession, Bremer has remained strong and true to its roots as a community bank.

Bremer reported net income of $65.2 million in 2009, down from $72 million a year earlier. The privately-held $7.8 billion regional financial services company finished in the top quartile of its peer group of regional banks with similar assets during the first nine months of 2009.

“We have fared much better during this trying time than the vast majority of banks,” Dardis says. “Our success is based on our focus on community banking and taking a more conservative approach. We’re in it for the long run. We didn’t get into a lot of the riskier deals of subprime and out-of-market lending. We make our way not through Wall Street, but through Main Street. We do business in our local markets, not in Chicago or New York. Our business is to serve the local communities where we have banks. This approach has served us well during good times and bad.”

UNIQUE OWNERSHIP STRUCTURE

Bremer Financial, which provides comprehensive banking, investment, trust and insurance services, is 92 percent owned by the Otto Bremer Foundation. The nonprofit foundation, which was started by founder Otto Bremer, distributes its share of dividends (typically about 40 percent of the bank’s profits) to charitable grants in communities with Bremer Bank locations. The remaining 8 percent of the corporation is owned by employees as part of an Employee Stock Ownership Plan created by the foundation during the 1980s.

Dardis says he is not aware of another regional bank with that high of a percentage of nonprofit ownership.

“Their ownership structure is unique,” says Joe Witt, president and CEO of the Minnesota Bankers Association. “Out of 430 or so bank charters we have a wide range of banks in our state, but theirs is a fairly unique model.”

Because of its ownership structure, it is unlikely that Bremer Financial will ever be sold or acquired. Nonprofit directors and employees decide how the company is run, not stockholders seeking a quick return.

“The idea is sustainable results on an ongoing basis,” says Dardis. “It is steeped in a commitment to community. We have put very bright and capable people in place in local markets and given them the authority to run their local banks. There is a great source of pride to be with an organization that believes in investing the kind of money that we invest in those communities.”

HISTORY

Otto Bremer established a bank-holding company in 1943 to consolidate his stake in 59 independent rural banks he owned and keep the banks from being sold off when he died. A year later he started the Otto Bremer Foundation to give back to the communities where Bremer does business. The foundation donates more than $30 million annually to local communities.

A German immigrant who began his career as a bookkeeper at National German American Bank in St. Paul, Bremer rose to become chairman and a major stockholder of the bank. He later began investing in community banks and developed a passion for helping small rural banks succeed.

Bremer generally followed a conservative banking strategy, but when the stock market crashed in 1929 he swooped in to rescue many struggling small town banks. Some of those banks are still part of the Bremer Bank chain.

Not all Bremer Banks are located in small towns, but its focus on community banking has endured.

Bremer believed that banks should play a bigger role in their communities. He once said that “banks should be home banks; not bigger banks, but better banks.”

“Our focus is on serving businesses and agriculture in the communities we operate in,” Donovan says. “You will find banks with more branches and more technology, but we are very personalized. We know our customers. We go to community events and church with them. Even during difficult times, we are in it together.”

FUTURE

Bremer has performed well during the recession, but the company’s revenues have dipped a bit. Bremer Bank has not changed its loan approval process or reduced local lending authority, but the bank is making fewer exceptions and asking for more documentation when making loans. Bremer employees are also spending more time with customers.

The bank did not participate in the government’s Troubled Asset Relief Program and has a solid balance sheet moving forward. The company has avoided hiring freezes and employees are still receiving pay raises and bonuses.

Instead of cutting back or trimming costs, the bank is preparing for future growth.

Donovan says the bank will spend much of this year researching and planning for the future before entering new markets in 2011.

“We are looking at expanding our footprint within the three-state area,” he says. “We will continue to go into new markets, but we are getting ready for when the economy comes back. We will continue to use the core strategies that have served us well. We are focusing on how we grow our niche. It is a continuation of the growth strategy that has served us so well in the past.”

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