Mengedoth: Community comes first
By Gerry Gilmour
The Forum - 10/02/1999

As far as Don Mengedoth is concerned, the name says it all.

Mengedoth is president and chief executive officer of Community First Bankshares Inc., a Fargo-based holding company built in the name of old-fashioned, small-town community banking values.

"The name says something about our philosophy - that we have a strong commitment to community banking," Mengedoth says.

Community First is a young company, yet looms large on this region's business landscape. In little more than a decade it grew from a collection of cast-off and under-capitalized community banks to a network of nearly 160 banks in 12 western states.

More than $6 billion in assets and 2,500 employees are guided from corporate headquarters in the high-profile Community First tower at Main Avenue and Broadway.

In a corner office at the top of the tower sits Mengedoth, a man who - initially, at least - chose neither banking as a career nor a CEO's chair as a goal. In addition to heading Community First today, he is vice president of the American Bankers Association.

The son of a custodian, Mengedoth grew up in Naperville, Ill. An average student, he graduated from the University of Illinois and went to work for Illinois-Bell.

Around the time he was offered his first big promotion at the phone company, Mengedoth visited a close friend at Marquette University in Milwaukee. The friend, the late Larry Fink, convinced Mengedoth that he should return to school and pursue a master's in business administration degree.

"He kept me up all night after a party," Mengedoth says. "He convinced me that if I didn't go back to school then, I never would."

Mengedoth extended his trip by a day and enrolled for the upcoming semester.

While pursuing his MBA, he went to work for Midland National Bank. "It was a very progressive bank - open evenings and Saturdays," Mengedoth says. He rose quickly, becoming an officer at 24, a vice president at 26 and a senior vice president at 28.

"I was fortunate to be in the right place at the right time," Mengedoth says.

Midland National was acquired by the Minneapolis-based First Bank System (now US Bank) in 1977, and Mengedoth was transferred to the Twin Cities in 1979, where he became vice president for marketing and operations.

Wanting to get closer to managing banking operations, Mengedoth in 1984 took the opportunity to move to Fargo as a First Bank managing director, with responsibility for 16 North Dakota banks.

A year later, First Bank System announced plans to sell 42 community banks in the Dakotas, Minnesota and Montana, and Mengedoth found himself consoling and counseling the presidents of his institutions.

"The public position was that the banks were too small to be run economically by a large holding company," Mengedoth says. "I felt they added a great deal of stability to the First Bank system."

The banks were first offered to local groups. Mengedoth helped assemble some of those groups. But he also went to his boss and asked whether he could fit into the category of employee-buyer.

Mengedoth joined forces with Mark Anderson, another First Bank executive, and began selling their small-town banking philosophy to investors. Eventually, they cobbled together $50 million from capital contributors, bank presidents, equity contract note investors, preferred stockholders and venture capitalists.

Mengedoth personally put $200,000 on the line, "about all I had at the time," he says.

Community First Bankshares Inc. was actually three separate entities: one each for North Dakota, South Dakota and Minnesota. Combined, they included 21 community banks and assets totaling more than $600 million. Banks in Cooperstown, Lidgerwood and Wahpeton were among those formerly in Mengedoth's North Dakota management group.

With the passage of interstate banking laws, the three state holding companies were combined into a single entity.

Mengedoth's Community First philosophy blends the relationship-building skills and autonomy of local banks with the efficiencies of a central holding company.

"It was a relationship that I thought would work from the very beginning," Mengedoth says. "It's the best of both worlds."

Community First went public in 1991 with the sale of 1.9 million shares of common stock at $10.75 a pop. The same year Community First bought First Interstate Bank of Fargo, and changed the logo on the downtown tower.

"There really wasn't any reason to go anywhere else," Mengedoth says of the decision to permanently anchor the growing banking empire in Fargo.

Once the company went public, it had access not only to additional capital but to a sophisticated network and a lot of professional resources.

Among the early acquisitions was First National Bank of Fergus Falls, Minn., which was the oldest chartered bank west of the Mississippi. "We were concerned that changing the name would have negative implications," Mengedoth recalls. "We did some research in the market and determined that people were used to the reality (of changing names). It wasn't so much that people were concerned about the name, but whether the same people were going to be there."

New name, same faces became the company line when Community First acquired properties.

"If the employees are enthused, then so are the local businesses," Mengedoth says.

As Community First grew, it kept its focus on small- to mid-sized markets. The company positioned itself as an alternative to highly-centralized, urban-centered banks on one end of the spectrum and rural, isolated and often under-capitalized banks on the other.

Current banking and bank regulatory trends make it increasingly attractive for independent and family-owned banks to affiliate with larger holding companies, Mengedoth says.

"No matter how strongly they voice their need for independence, they need liquidity," Mengedoth says.

The banks Community First acquires function very autonomously: Local officials approve loans and set loan and deposit rates.

Community First provides them with human resources and payroll support, data processing services, credit policy formulation, and review and investment management services.

"Rather than having 160 bank presidents making investment decisions, those are centralized," Mengedoth says. "We permit the bank to spend its time focusing on the customer."

Community First is unique among large bank holding companies. Most large holding companies have more than half their assets in a single metropolitan area.

Community First, meanwhile, has less than $300 million of its $6 billion in assets in Fargo-Moorhead. In fact, it trails both US Bank and Wells Fargo (Norwest Bank) in its home market.

The four Community First outlets in Fargo collectively count as one of the 160 banks in the holding company.

Colorado is the company's strongest state, with 41 banks and $1.8 billion in assets. For that, Mengedoth credits retired First Bank executive Jerry Woods, who began calling on Colorado banks in 1990.

Colorado accounts for 30 percent of all Community First deposits, followed by Wyoming, with 24 banks and 17.6 percent of deposits, and Minnesota, with 20 banks and 14.2 percent of deposits. North Dakota, with nine banks, accounts for 8.3 percent of deposits.

Along with Fargo, Community First's larger banks, based on 1998 deposits are in Cheyenne, Wyo. ($196 million in assets), Decorah, Iowa ($163 million), Longmont, Colo. ($147 million), Salt Lake City ($146 million), Boulder, Colo. ($136 million), Lakefield, Minn. ($121 million), Casper, Wyo. ($118 million), Fergus Falls ($115 million) and Phoenix ($80 million).

More typical in the holding company are banks with assets ranging from $20 million to $60 million. Yet Community First also has banks like those in Douglas, Wyo. (with $16 million in assets) and Hemingford, Neb., and Yarnell, Ariz. (both $15 million).

Regardless of a bank's size, "We've said we always want to be a leader in the communities we serve," Mengedoth says.

"Just as importantly, we keep management and we don't eliminate jobs. In fact, we often do the opposite. We've walked away from banks where we would have had to eliminate jobs. We can't go into a place and fire 30 people."

Until now, the Community First strategy has been limited to acquisition. But for the first time, Community First in its strategic plans has given itself the option of entering markets with new banks.

Community First's geographic and demographic range in the West lend it diversification, Mengedoth says. As a result, the company is immediately threatened by economic problems, such as depressed Midwest farm commodities prices.

Community First's $3 billion loan portfolio, according to its 1998 annual report, breaks down as follows: non-residential real estate, 30 percent; commercial, 26.7 percent; consumer loans, 18.3 percent; residential real estate, 16.9 percent; and agriculture, just 8.1 percent.

More than 60 percent of all Community First customers are in the inter-mountain and southwest states of Wyoming, Colorado, Utah, New Mexico and Arizona. The company expects demographic shifts to make those states attractive for expansion.

The company has ambitious financial targets of 18 percent growth on equity, 10 to 15 percent earnings per share for the coming year.

Mengedoth says it also will continue its aggressive expansion. Community First this month closes deals to acquire four banks in California and one in Minnesota.

Mengedoth says Community First is open to acquisitions in the 22-state area west of the Mississippi. He notes that there are 6,000 independent banks in the area.

"We buy good banks with good market share," he says. "We feel pretty comfortable going west into just about any state."