Attention community bankers: Donald Mengedoth and Community First Bankshares are on an acquisition binge and they may be coming to your small town.

If you run a community bank with $45 million to $100 million of assets in a town of 10,000 people somewhere in the upper Midwest, you may be a prime target for Mr. Mengedoth's hungry acquisition machine.

The Fargo, N.D.-based super community organization already has announced three acquisitions this year - in Minnesota, Colorado, and North Dakota - and is scouting for prospects in Montana, Wisconsin, and Iowa.

"We will announce more acquisitions this year, you bet," the 49-year-old chief executive said in a telephone interview.

Community First is the creature that emerged from Mr. Mengedoth's risky 1987 leveraged buyout of $620 million in rural banking assets from his former employer, First Bank Systems. Since then, the bank has grown to $1.2 billion of assets through acquisitions of community banks.

In its annual report, the company counted as possible targets 3,000 community banks in a 10-state region stretching from Colorado to Wisconsin to Montana. Earlier this year the bank raised $20 million of equity on the stock market to fuel its takeover drive.

"We started out with the strong belief that community banking in small to medium-sized midwestern communities was excellent business." Mr. Mengedoth said.

"We had observed that these banks had unique relationships with their customers."

But many of the small communities where Community First has offices - and in the areas it is targeting - are actually experiencing little or no population growth. In order to grow, the bank needs to make acquisitions.

"The markets they are in are not growing," said Steven R. Schroll, bank analyst at Piper Jaffray Inc.. Minneapolis, the investment bank which brought First Community's stock public.

"They are small, rural towns with static - if not shrinking - populations."

While the bank looks at dozens of deals, it goes ahead with less than 5% of them. Right now the bank is conducting due diligence on two institutions, which it declined to identify.

Shops for Bargains

Because the markets Community First targets are often too small for the larger Midwest acquirers like Banc One Corp. and Norwest Corp., Mr. Mengedoth is often able to pick up banks for only a 10% to 50% premium to book value.

Community First generally knocks out the back-office operations of acquired banks to cut down on costs, and introduces its own products and services - some of which might not have been available at the acquired bank.

But Mr. Mengedoth is adamant about keeping management in place. He says good management is one of the attributes he looks for in acquirees.

"On the coasts, customers are used to dealing with branches, but as you get out into the more rural communities the idea of local ownership and commitment to the community are integral functions," he said.

"Customers want to talk to the president in those communities when they come in to ask for a loan to send their kids to college."

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