A small Minnesota bank is trying to grow into a statewide player.

In the past month, Dean Financial Services Inc., St. Paul, has agreed to acquire banks in three new markets and opened a statewide mortgage lending unit.

Richard Schneider, president of $160 million-asset Dean Financial, said it wants to rise to a level where it can better compete with the Minneapolis heavyweights, Norwest Corp. and First Bank Systems, in certain niches.

"We have the ability to do a lot of things we couldn't do before," he said. "We're getting some geographic opportunities."

The moves by Dean Financial illustrate how some community banks are employing strategies like acquisition, mergers of equals, or diversification of business lines to remain viable competitors in an increasingly competitive financial services market.

"I see more consolidation such as this, community banks buying each other rather than Norwest coming in to make an offer," Mr. Schneider said.

Robert C. Ollech, a banking analyst with Principal Financial Securities, Milwaukee, agreed that increased competition will drive more small bankers into each other's arms.

"These guys are finding it tough-er to compete," he said. "The costs of technology, operations, and compliance can be spread efficiently over a number of small banks."

Mr. Ollech said growing larger also helps banks attract better employees. And Mr. Schneider said growth makes it easier to raise money on the public markets.

The first step by Dean Financial was to open a mortgage subsidiary under its lead bank, Princeton Bank. Princeton Mortgage Inc. is the name of the unit, which opened April 1.

"The mortgage unit gives us the opportunity to expand in mortgage origination and brokerage throughout the state without opening full-service branches," Mr. Schneider said.

Dean has hired eight originators to staff Princeton Mortgage, Mr. Schneider said. Some are veterans of Norwest and Knutson Mortgage Co., which is being acquired by Temple Inland Mortgage Corp., Austin, Tex. Each lender is expected to generate $4 million to $12 million in originations a year.

Dean took its second step toward growth by signing an agreement to buy three banks, totaling $110 million of assets, from the estate of Minnesota investor Morris T. Friedell. The heirs of Mr. Friedell, who died last February, were interested in selling the banks, and Dean placed a preemptive and undisclosed bid for them.

The acquisitions of Bank of Aitkin, State Bank of Edgerton, and First State Bank of Eden Prairie would put Dean Financial in the central and southwestern parts of the state as well as suburban Minneapolis, respectively.

Dean, which specializes in banking with small businesses and seniors, was particularly pleased to cross the Mississippi River into suburban Minneapolis.

"That's the key to the acquisition," Mr. Schneider said. u

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