Don Mengedoth knows where he and Community First Bankshares have been and, more important, where they are going.

The Fargo, N.D., company was created in 1986 by a group of investors who bought several banks spun off by First Bank System Inc. The founders conducted an initial public offering and used the capital to launch a unique and successful acquisition program.

"We took acquisition planning seriously and spent a lot of time figuring out what do we want to acquire and how," said Mr. Mengedoth, chief executive of Community First.

A Firm Strategy

The plan was aggressive and specific, in a way that might not be expected of a $1.2 billion-asset super community organization.

Mr. Mengedoth and his people figured out the number of community banks -- 3,000 -- in the 10-state region anchored by North Dakota.

"The healthy and solid small community bank is our ideal acquisition candidate," Mr. Mengedoth said. "We were not looking for RTC deals or turnaround situations. We do look for companies with solid performance records and good market shares in very small towns."

Tapping a Forgotten Market

The result: Community First doubled its size in the last four years. Return on equity climbed steadily and now exceeds 20%.

Community First, in short, went after the forgotten market of small banks that many people assume cannot be acquired efficiently. This is an acquirer that figured out a way to absorb $20 million to $50 million banks cost effectively, while fostering the locally focused autonomy that distinguishes a super community bank.

The acquisition staff consists only of Mr. Mengedoth and chief financial officer Mark Anderson.

Careful Examination

They delegate due diligence to executives with particular expertise in a given area, because they run that function at Community First.

The North Dakota bank's asset-quality team is the first to examine an acquisition candidate, making a quick assessment of the loan portfolio. If it measures up, the rest of the staff moves in to examine the retail franchise and back-office operations, and develop an integration plan.

Mr. Mengedoth says the super community structure makes sense for the owners of target banks. They can cash in their stock in the buyout but do not necessarily have to step aside or retire. In fact, the minority interests they get are expected to keep them dedicated.

A Win-Win Situation

Community First's process is rigorous, but it clearly defines whether a potential acquisition makes sense financially and strategically. There is a lot of give-and-take in negotiations, but in the end the transaction is friendly and is structured so that both sides are satisfied.

This is a tall order for any bank, and Community First's ability to carry it out sets it apart from its super community peers.

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