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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-19368
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COMMUNITY FIRST BANKSHARES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 46-0391436
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Main Avenue
Fargo, ND 58124
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(701) 298-5600
-----------------------------
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES X NO
------- ------
At May 8, 1997, 18,669,517 shares of Common Stock were outstanding.
1
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COMMUNITY FIRST BANKSHARES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
PART I - FINANCIAL INFORMATION: PAGE
------
Item 1. Condensed Consolidated Financial
Statements and Notes. . . . . . . . . . . . . . . . . . 3-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . 10-14
Item 3. Quantitative and Qualitative Disclosure
About Market Risk . . . . . . . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 16
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 16
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2
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COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
(Dollars in thousands) 1997 1996
- ---------------------- ---- ----
(unaudited)
ASSETS
Cash and due from banks. . . . . . . . $ 123,430 $ 175,732
Federal funds sold and
securities purchased under
agreements to resell . . . . . . . . 100 3,600
Interest-bearing deposits. . . . . . . 9,953 3,598
Available-for-sale securities. . . . . 508,837 506,888
Held-to-maturity securities
(fair value: 3/31/97 -
$222,665, 12/31/96 - $223,200) . . . 223,768 222,348
Loans. . . . . . . . . . . . . . . . . 2,081,912 2,064,108
Less: Allowance for loan losses. . . (27,580) (26,215)
- -------------------------------------------------------------------
Net loans. . . . . . . . . . . . . 2,054,332 2,037,893
Bank premises and equipment, net . . . 66,206 65,705
Accrued interest receivable. . . . . . 27,407 29,233
Other assets . . . . . . . . . . . . . 39,584 32,219
Intangible assets. . . . . . . . . . . 41,448 39,182
- -------------------------------------------------------------------
Total assets . . . . . . . . . . . $3,095,065 $3,116,398
- -------------------------------------------------------------------
- -------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . $ 394,318 $ 431,078
Interest-bearing . . . . . . . . . . 2,099,182 2,106,362
- -------------------------------------------------------------------
Total deposits . . . . . . . . . . 2,493,500 2,537,440
Federal funds purchased and
securities sold under
agreements to repurchase . . . . . . 85,387 78,369
Other short-term borrowings. . . . . . 155,332 169,265
Long-term debt . . . . . . . . . . . . 18,644 46,750
Accrued interest payable . . . . . . . 16,398 17,027
Other liabilities. . . . . . . . . . . 17,046 21,665
- -------------------------------------------------------------------
Total liabilities. . . . . . . . . 2,786,307 2,870,516
Company-obligated mandatorily
redeemable preferred securities
of CFB Capital I . . . . . . . . . . 60,0000 0
Minority interest. . . . . . . . . . . 19 1,311
Shareholders' equity:
Preferred stock. . . . . . . . . . . 0 22,988
Common stock . . . . . . . . . . . . 187 172
Capital surplus. . . . . . . . . . . 101,017 77,029
Retained earnings. . . . . . . . . . 151,306 144,239
Unrealized (loss) gain
available- for-sale securities,
net of tax . . . . . . . . . . . . (3,275) 1,368
Less cost of common stock in
treasury -- March 31, 1997 --
17,497 shares, December 31,
1996 -- 50,810 shares. . . . . . . (496) (1,225)
- -------------------------------------------------------------------
Total shareholders' equity . . . . 248,739 244,571
- -------------------------------------------------------------------
Total liabilities and
shareholders' equity . . . . . . $3,095,065 $3,116,398
- -------------------------------------------------------------------
- -------------------------------------------------------------------
3
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COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
March 31,
--------------------------
(Dollars in thousands, except per share data) (restated)
(Unaudited) 1997 1996
- -----------------------------------------------------------------------------
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . $ 50,615 $ 42,311
Investment securities . . . . . . . . . . . . . . . 11,465 10,772
Interest-bearing deposits . . . . . . . . . . . . . 45 37
Federal funds sold and resale agreements. . . . . . 0 544
- ------------------------------------------------------------------------------
Total interest income . . . . . . . . . . . . . . 62,125 53,664
Interest expense:
Deposits. . . . . . . . . . . . . . . . . . . . . . 21,166 20,117
Short-term and other borrowings . . . . . . . . . . 2,224 1,200
Long-term debt. . . . . . . . . . . . . . . . . . . 1,727 1,334
- ------------------------------------------------------------------------------
Total interest expense. . . . . . . . . . . . . . 25,117 22,651
- ------------------------------------------------------------------------------
Net interest income . . . . . . . . . . . . . . . . . 37,008 31,013
Provision for loan losses . . . . . . . . . . . . . . 1,761 915
- ------------------------------------------------------------------------------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . . . . . . . 35,247 30,098
- ------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit
accounts. . . . . . . . . . . . . . . . . . . . . 3,505 2,845
Fees from fiduciary activities. . . . . . . . . . . 933 733
Insurance commissions . . . . . . . . . . . . . . . 1,205 944
Net loss on sales of available-for-
sale securities . . . . . . . . . . . . . . . . . 0 2
Other . . . . . . . . . . . . . . . . . . . . . . . 2,540 1,417
- ------------------------------------------------------------------------------
Total noninterest income: . . . . . . . . . . . . 8,183 5,941
- -------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits. . . . . . . . . . . 15,012 12,629
Net occupancy . . . . . . . . . . . . . . . . . . . 3,998 3,148
FDIC expense. . . . . . . . . . . . . . . . . . . . 12 67
Legal and accounting. . . . . . . . . . . . . . . . 364 475
Other professional service. . . . . . . . . . . . . 447 416
Data processing . . . . . . . . . . . . . . . . . . 282 223
Acquisitions. . . . . . . . . . . . . . . . . . . . 69 5
Company-obligated mandatorily
redeemable preferred securities
of CFB Capital I. . . . . . . . . . . . . . . . . 814 0
Amortization of intangibles . . . . . . . . . . . . 982 751
Other . . . . . . . . . . . . . . . . . . . . . . . 5,080 5,154
- -------------------------------------------------------------------------------
Total noninterest expense . . . . . . . . . . . . 27,060 22,868
Income before income taxes and
extraordinary item. . . . . . . . . . . . . . . . . 16,370 13,171
Provision for income taxes. . . . . . . . . . . . . . 5,573 4,590
- -------------------------------------------------------------------------------
Net income before extraordinary item. . . . . . . . . 10,797 8,581
Extraordinary item: Loss from early
extinguishment of debt (Less applicable
income taxes of $159) . . . . . . . . . . . . . . . (265) 0
- -------------------------------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . $ 10,532 $ 8,581
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net income applicable to common equity. . . . . . . . $ 10,532 $ 8,179
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Earnings per common and common equivalent share:
Primary before extraordinary item . . . . . . . . . $0.61 $0.50
Extraordinary item. . . . . . . . . . . . . . . . . ($0.02) $0.00
- -------------------------------------------------------------------------------
Primary . . . . . . . . . . . . . . . . . . . . . . $0.59 $0.50
- -------------------------------------------------------------------------------
Fully diluted before extraordinary item . . . . . . $0.57 $0.48
Extraordinary item. . . . . . . . . . . . . . . . . ($0.01) $0.00
- -------------------------------------------------------------------------------
Fully diluted . . . . . . . . . . . . . . . . . . . $0.56 $0.48
- -------------------------------------------------------------------------------
Average common and common equivalent shares:
Primary . . . . . . . . . . . . . . . . . . . . . . 17,734,076 16,433,410
Fully diluted . . . . . . . . . . . . . . . . . . . 18,900,647 17,896,237
- -------------------------------------------------------------------------------
4
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COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
--------------------------
(In thousands) (restated)
(Unaudited) 1997 1996
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 10,532 $ 8,581
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses. . . . . . . . . . . . 1,761 915
Depreciation . . . . . . . . . . . . . . . . . . 1,955 1,635
Amortization of intangibles. . . . . . . . . . . 982 751
Net of amortization of premiums & discounts
on securities. . . . . . . . . . . . . . . . . 241 539
Decrease (increase) in interest receivable . . . 1,826 (201)
Decrease in interest payable . . . . . . . . . . (629) (505)
Other - net. . . . . . . . . . . . . . . . . . . (12,565) (823)
- --------------------------------------------------------------------------------
Net cash provided by operating activities. . . . . . 4,103 10,892
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (decrease) increase in interest-
bearing deposits . . . . . . . . . . . . . . . . (6,355) 625
Purchases of available-for-sale securities . . . . (45,087) (83,893)
Maturities of available-for-sale securities. . . . 32,874 71,660
Sales of securities, net of gains. . . . . . . . . 2,853 600
Purchases of held-to-maturity securities . . . . . (9,467) (4,971)
Maturities of held-to-maturity securities. . . . . 7,907 7,758
Net increase in loans. . . . . . . . . . . . . . . (18,200) (6,427)
Net increase in bank premises and equipment. . . . (2,456) (8,690)
Net decrease in minority interest. . . . . . . . . (1,292) (58)
- --------------------------------------------------------------------------------
Net cash used in investing activities. . . . . . . . (39,223) (23,396)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts and
savings accounts . . . . . . . . . . . . . . . . . (58,409) (51,593)
Net increase in time accounts. . . . . . . . . . . . 14,469 22,431
Net (decrease) increase in short-term &
other borrowings . . . . . . . . . . . . . . . . . (6,915) 28,910
Net decrease in long-term debt . . . . . . . . . . . (28,106) (17,994)
Proceeds from issuance of company-obligated
mandatorily redeemable preferred securities
of CFB Capital I . . . . . . . . . . . . . . . . . 60,000 0
Net proceeds from issuance of common stock . . . . . 1,067 1,395
Redemption of preferred stock. . . . . . . . . . . . (52) 0
Purchase of common stock held in treasury. . . . . . (524) (160)
Sale of common stock held in treasury. . . . . . . . 542 620
Preferred stock dividends paid . . . . . . . . . . . 0 (402)
Common stock dividends paid. . . . . . . . . . . . . (2,754) (1,604)
- --------------------------------------------------------------------------------
Net cash used in financing activities. . . . . . . . (20,682) (18,397)
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents. . . . . . (55,802) (30,901)
Cash and cash equivalents at beginning of period . . 179,332 163,516
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period . . . . . $123,530 $132,615
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
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COMMUNITY FIRST BANKSHARES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of Community First Bankshares, Inc. (the
"Company"), its wholly-owned data processing, credit origination, insurance
agency and properties subsidiaries, and its ten majority-owned subsidiary
banks, have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for fair presentation have
been included.
The Company acquired Mountain Parks Financial Corporation ("Mountain
Parks") on December 18, 1996, in a transaction accounted for as a pooling of
interests. Accordingly, the consolidated financial information has been
restated for all periods prior to the acquisition to include the accounts and
operations of Mountain Parks. The acquisition of Mountain Parks resulted in
the addition of approximately $600 million in assets.
EARNINGS PER COMMON SHARE
Primary earnings per common share is calculated by dividing net income,
after reduction for preferred stock dividends declared, by the weighted
average number of common shares and equivalents outstanding. Common share
equivalents included in the computation represent the number of shares of
common stock issuable upon assumed exercise of stock options and warrants
during each period.
On a fully diluted basis, both net income and common shares outstanding
are adjusted to assume the conversion of convertible preferred stock
outstanding from the beginning of the period or date of issuance, if later.
Such adjustments to the weighted average number of shares of common stock
outstanding are made only when such adjustments dilute earnings per share.
NOTE B - BUSINESS COMBINATIONS
On February 18, 1997, the Company signed a definitive purchase agreement
with KeyCorp, of Cleveland, Ohio, to acquire KeyBank N.A. (Wyoming) with 28
offices located in 24 communities throughout the state of Wyoming. The
transaction is expected to result in the addition of approximately $1.2
billion in assets and $1.0 billion in deposits. Under terms of the
agreement, the Company is to make a cash payment of $135 million to KeyCorp,
representing a $60 million premium over the banks anticipated equity when the
transaction is consummated. The transaction is subject to regulatory
approvals and is expected to be completed during the third quarter of 1997.
NOTE C - SUBSEQUENT EVENTS
On April 30, 1997, the Company sold its 24.36% minority interest in Vail
Banks, Inc., the parent company of WestStar Bank, Vail, Colorado for
approximately $3 million. The sale was completed in response to regulatory
requirements with regard to competitive factors resulting from the Company's
December 1996 acquisition through merger of Mountain Parks.
6
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On April 4, 1997, the Company, through its Colorado subsidiary,
completed the sale of its offices in Granby and Grand Lake, Colorado in
response to regulatory requirements with regard to competitive factors
resulting from the Company's December 1996 acquisition through merger of
Mountain Parks. The transaction included approximately $24 million in
deposits and resulted in the recognition of a gain of approximately $2.8
million.
NOTE D - ACCOUNTING CHANGES
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement no. 128, "Earnings Per Share", which is required to be adopted on
December 31, 1997. This Statement replaces the current method of computing
earnings per share with basic and diluted earnings per share and will require
restatement of all prior periods when adopted. Under the new requirements
for calculating basic earnings per share, the dilutive effect of stock
options will be excluded. The calculation of diluted earnings per share will
be similar to the currently diluted earnings per share. The adoption of
SFAS 128 is not expected to have a material impact on the calculation of
earnings per share.
NOTE E - INVESTMENTS
The following is a summary of available-for-sale and held-to-maturity
securities at March 31, 1997 (in thousands):
Available-for-Sale Securities
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------
United States Treasury. . . . . $ 108,168 $ 219 $ (964) $ 107,423
United States Government
agencies. . . . . . . . . . . 91,856 85 (2,448) 89,493
Mortgage-backed securities. . . 244,927 1,647 (2,399) 244,175
Collateralized mortgage
obligations . . . . . . . . . 39,550 135 (414) 39,271
State and Political Securities. 16,267 38 (772) 15,533
Other securities. . . . . . . . 13,106 28 (192) 12,942
- -------------------------------------------------------------------------------
$ 513,874 $ 2,152 $ (7,189) $ 508,837
------------------------------------------------
------------------------------------------------
Held-to-Maturity Securities
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------
United States Government
agencies. . . . . . . . . . . $ 822 $ - $ (11) $ 811
Mortgage-backed securities. . . 81,861 376 (1,999) 80,238
State and political securities. 53,347 692 (161) 53,878
Other securities. . . . . . . . 87,738 - - 87,738
- -------------------------------------------------------------------------------
$223,768 $ 1,068 $ (2,171) $222,665
------------------------------------------------
------------------------------------------------
Proceeds from the sale of available-for-sale securities during the three
months ended March 31, 1997 and 1996, were $2,853,000 and $602,000,
respectively. Gross gains of $2,000 were realized on sales during each of
1997 and 1996. Gross losses of $2,000 and $0 were realized on these sales
during 1997 and 1996, respectively. Gains and losses at disposition of these
securities were computed using the specific identification method.
7
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NOTE F - LOANS
The composition of the loan portfolio at March 31, 1997, was as follows
(in thousands):
Real estate. . . . . . . . . . . . $ 957,698
Commercial . . . . . . . . . . . . 545,345
Agricultural . . . . . . . . . . . 210,078
Consumer and other . . . . . . . . 368,791
------------
2,081,912
Less allowance for loan losses . . 27,580
------------
Net loans . . . . . . . . . . . $ 2,054,332
------------
------------
NOTE G - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company is party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers and to manage its interest rate risk. These financial instruments
include commitments to extend credit and letters of credit. The contract or
notional amounts of these financial instruments at March 31, 1997, were as
follows (in thousands):
Commitments to extend credit . . . $ 410,035
Letters of credit. . . . . . . . . 12,541
NOTE H - SUBORDINATED NOTES
Long-term debt at March 31, 1997, included $12 million in subordinated
notes issued in July 1995. These notes are due August 15, 2005, and bear an
interest rate of 9.00%, with interest payable quarterly. At March 31, 1997,
the notes qualified as Tier 2 capital.
During March 1997, the Company redeemed its $23 million in aggregate
principal amount of 7.75% Subordinated Notes (the "7.75% Notes"). The 7.75%
Notes were redeemed at par plus accrued interest and resulted in an
extraordinary loss of $265,000, net of taxes, on the early extinguishment of
debt.
NOTE I - INCOME TAXES
The Company's effective tax rate has declined due to expansion into
additional states and implementation of certain tax strategies.
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate was as follows (in
thousands):
MARCH 31, 1997
--------------
35% of pretax income . . . . . . . . . . . . $ 5,730
State income tax, net of
federal tax benefit . . . . . . . . . . . 484
Tax-exempt interest. . . . . . . . . . . . . (1,025)
Amortization of goodwill . . . . . . . . . . 234
Other. . . . . . . . . . . . . . . . . . . . 150
-------
Provision for income taxes . . . . . . . . . $ 5,573
NOTE J - SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31 (in thousands) 1997 1996
------------------------------------------------------------------
Unrealized loss on available-for-sale
securities . . . . . . . . . . . . . . . . $ 7,310 $ 2,949
Conversion of preferred stock to
common stock . . . . . . . . . . . . . . . 22,937 -
8
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NOTE K - CONTINGENT LIABILITIES
As a result of certain legal proceedings related to the May 1995
purchase of Alliance, the Company retained a portion of the purchase price in
the form of a contingency reserve. Upon resolution of various proceedings,
associated balances may be remitted to the former Abbott Bank Group
shareholders. At March 31, 1997, the reserve balance was $908,000. All
remaining issues subject to the reserve are expected to be resolved within a
one-year period. It is management's expectation that resolution of the
remaining issues will not exceed the current reserve balance.
NOTE L - SHAREHOLDERS' EQUITY
During March 1997, the Company called for redemption its 7% Cumulative
Convertible Preferred Stock ("Preferred Stock"). Holders of the Company's
Depositary Shares (stated value of $25 per share) which represented ownership
of one-quarter share of the Preferred Stock were permitted to convert their
shares, prior to redemption into common stock of the Company ("Common Stock")
at a conversion rate of 1.569 shares of Common Stock per Depositary Share or
they could receive $26.40, plus accrued and unpaid dividends. Essentially
all shares were converted to Common Stock resulting in the addition of
approximately 1.4 million shares of Common Stock.
On February 5, 1997 the Company issued $60 million of 8-7/8% Cumulative
Capital Securities, through CFB Capital I, a business trust subsidiary
organized in January 1997. A portion of the proceeds were used to redeem the
7.75% Notes. The remainder of the proceeds of the offering will be used for
general corporate purposes, which may include without limitation possible
future acquisitions, funding investments in, or extension of credit to, the
Company's subsidiaries, repayment of maturing obligations and redemption of
securities. All $60 million of the capital securities qualify as Tier I
Capital for regulatory capital calculation purposes.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BASIS OF PRESENTATION
The following is a discussion of the Company's financial condition as of
March 31, 1997, and December 31, 1996, and its results of operations for the
three month periods ended March 31, 1997 and 1996. On December 18, 1996, the
Company merged with Mountain Parks Financial Corporation in a transaction
accounted for using the pooling of interests method. Accordingly, the
consolidated financial information has been restated to reflect the results
of operations of the two companies on a combined basis for all periods
presented. Each of the other acquisitions described in the table below is
reflected in the Company's results of operations for all periods following
the acquisition and is reflected in the Company's statement of financial
condition at all dates subsequent to the acquisition.
MERGER AND ACQUISITION ACTIVITY
The Company completed three acquisitions during 1996, and, as of March
31, 1997, the Company had one pending bank acquisition. Each of these
acquisitions has had, or will have, an effect upon the Company's results of
operations and financial condition.
During 1996, the Company made the following acquisitions of banks or
associated holding companies:
Total Assets
at Date of
Month and Holding Company or Acquisition
Year Location of Bank (In Millions)
---------------------------------------------------------------
October 1996 Trinidad, Colorado 70
July 1996 Kiowa, Colorado 58
July 1996 Englewood, Colorado 19
On February 18, 1997, the Company signed a definitive purchase agreement
with KeyCorp, of Cleveland, Ohio, to acquire KeyBank N.A. (Wyoming). The
transaction, which will be accounted for as a purchase, will result in the
addition of approximately $1.2 billion in assets and $1.0 billion in
deposits. Under terms of the agreement, the Company is to make a cash payment
of $135 million to KeyCorp, representing a $60 million premium over the banks
anticipated equity when the transaction is consummated. The transaction is
expected to be completed during the third quarter of 1997.
OVERVIEW
For the three months ended March 31, 1997, net income was $10.5 million,
an increase of $1.9 million, or 22.1%, from the $8.6 million earned during
the 1996 period. This included the effect of a $265,000 after tax
extraordinary expense associated with the Company's early extinguishment of
its $23 million in principal amount of 7.75% Subordinated Notes due April
2000, which were redeemed on March 31, 1997. The Company's primary earnings
per common share for the first quarter of 1997 were $0.59 after the effect of
the extraordinary item, compared to $0.50 in 1996. Fully diluted earnings
per common share for the first quarter of 1997 were $0.56, including the
effect of the extraordinary item.
Return on average assets was 1.38% for the first quarter of 1997,
compared with 1.26% for the 1996 period. Return on average common
shareholders' equity for the 1997 and 1996 periods was 18.77% and 17.86%,
respectively. Factors contributing to these changes included incremental net
income provided by entities acquired in 1996 and an increase in net interest
margin.
10
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RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1997, was $37.0
million, an increase of $6.0 million, or 19.4%, from the net interest income
of $31.0 million earned during the 1996 period. The increase was principally
due to the increased asset base associated with the acquisitions completed
during 1996 and an increase in the net interest margin to 5.49% during the
first quarter of 1997, from 5.15% during the 1996 period.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1997,
was $1,761,000, an increase of $846,000, or 92.5%, from the $915,000
provision during the 1996 period. This increase reflects the Company's
objective of maintaining adequate reserve levels in recognition of
significant loan growth in the Company's specialty lending subsidiaries
acquired through the Company's merger with Mountain Parks in 1996.
NONINTEREST INCOME
Noninterest income for the three months ended March 31, 1997, was $8.2
million, an increase of $2.3 million, or 39.0%, from the 1996 level of $5.9
million. The increase was due to the combination of an increase of $315,000
earned by banks acquired in 1996, an increase of $405,000 in the existing
bank deposit service charges, a $257,000 increase in existing bank insurance
commissions, a $200,000 increase in trust fees, and an increase in other
income of $1.1 million, which was due primarily to a gain on the sale of
loans at one of the Company's specialty lending subsidiaries.
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 1997, was $27.1
million, an increase of $4.2 million, or 18.3%, from the level of $22.9
million during the 1996 period. The increase was principally due to an
increase of $2.4 million, or 18.9%, in salaries and employee benefits, a
significant portion resulting from banks acquired in 1996. Net occupancy
increased $850,000, or 27.0% from $3.1 million in the period ended March 31,
1996, to $4.0 million at the end of the current period. Amortization of
intangibles increased $231,000, or 30.8%, from $751,000 in the period ended
March 31, 1996, to $982,000 in the current period, due principally to 1996
acquisitions. The first quarter of 1997 included $814,000 in expenses
related to the $60 million Company-obligated mandatorily redeemable preferred
securities of CFB Capital I.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three months ended March 31,
1997, was $5.6 million, an increase of $1.0 million, or 21.7%, from the 1996
level of $4.6 million, due primarily to the increase in pre-tax income
resulting from acquisitions completed since March, 1996 and an increase in
the net interest margin.
11
<PAGE>
FINANCIAL CONDITION
LOANS
Total loans were $2.1 billion at March 31, 1997 and December 31, 1996.
The following table presents the Company's balance of each major
category of loans:
MARCH 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------------------------------------------
(DOLLARS IN THOUSANDS)
Loan category:
Real estate. . . . $ 957,698 46.00% $ 871,432 42.22%
Commercial . . . . 545,345 26.19% 624,456 30.25%
Agricultural . . . 210,078 10.09% 222,081 10.76%
Consumer and other 368,791 17.72% 346,139 16.77%
--------------------------------------------------------------------
Total loans. . . . 2,081,912 100.00% 2,064,108 100.00%
------- -------
------- -------
Less allowance for
loan losses 27,580 26,215
---------- ----------
Total. . . . . . . . $2,054,332 $2,037,893
---------- ----------
---------- ----------
NONPERFORMING ASSETS
At March 31, 1997, nonperforming assets were $16.6 million, an increase
of $2.1 million, or 14.5%, from the $14.5 million level at December 31, 1996.
The increase was principally due to an increase in the level of non-accrual
loans at the Company's specialty lending subsidiaries, consistent with its
growth in loans. At March 31, 1997, nonperforming loans as a percent of
total loans was .73%, up from the December 31, 1996 level of .63%. OREO was
$1.5 million at March 31, 1997, an increase of $75,000 from $1.4 million at
December 31, 1996.
Nonperforming assets of the Company are summarized in the following
table:
MARCH 31, DECEMBER 31,
1997 1996
----------------------------------
Loans:
Nonaccrual loans. . . . . . . . $ 14,886 $ 12,796
Restructured loans. . . . . . . 251 267
--------------------------------------------------------------
Nonperforming loans . . . . . . 15,137 13,063
Other real estate owned. . . . . . . 1,501 1,426
--------------------------------------------------------------
Nonperforming assets . . . . . . . . $ 16,638 $ 14,489
--------------------------------------------------------------
Loans 90 days or more past due but
still accruing . . . . . . . . . . $ 2,028 $ 1,956
--------------------------------------------------------------
--------------------------------------------------------------
Nonperforming loans as a
percentage of total loans .73% .63%
Nonperforming assets as a
percentage of total assets .54% .46%
Nonperforming assets as a
percentage of loans and OREO .80% .70%
12
<PAGE>
ALLOWANCE FOR LOAN LOSSES
At March 31, 1997, the allowance for loan losses was $27.6 million, an
increase of $1.4 million from the December 31, 1996 level of $26.2 million.
Net charge-offs during the 1997 period were $822,000 more than those incurred
during the three months ended March 31, 1996.
At March 31, 1997, the allowance for loan losses as a percentage of
total loans was 1.32%, a slight increase from the March 31, 1996, level of
1.31%. During the three months ended March 31, 1997, net charge-offs
increased to $1.2 million. These charge-offs related to the Company's
continued periodic review of the existing loan portfolios and an increase in
charge-offs related to loan growth at the Company's specialty lending
subsidiaries.
The following table sets forth the Company's allowance for loans losses:
MARCH 31,
1997 1996
------------------
(RESTATED)
(DOLLARS IN THOUSANDS)
Balance at beginning of period . . . . . . . . . $26,215 $22,712
Acquired bank and other allowances . . . . . . . 783 44
Charge-offs:
Commercial. . . . . . . . . . . . . . . . 764 126
Real estate . . . . . . . . . . . . . . . 127 55
Agricultural. . . . . . . . . . . . . . . 58 60
Consumer and other. . . . . . . . . . . . 837 396
--------------------------------------------------------------------
Total charge-offs. . . . . . . . . . . 1,786 637
--------------------------------------------------------------------
Recoveries:
Commercial. . . . . . . . . . . . . . . . . 341 38
Real estate . . . . . . . . . . . . . . . . 98 139
Agricultural. . . . . . . . . . . . . . . . 29 39
Consumer and other. . . . . . . . . . . . . 139 64
--------------------------------------------------------------------
Total recoveries . . . . . . . . . . . 607 280
Net charge-offs. . . . . . . . . . . . . . . . . 1,179 357
Provision charged to operations. . . . . . . . . 1,761 915
--------------------------------------------------------------------
Balance at end of period . . . . . . . . . . . . $27,580 $23,314
--------------------------------------------------------------------
--------------------------------------------------------------------
Allowance as a percentage of total loans . . . . 1.32% 1.31%
Annualized net charge-offs to average
loans outstanding. . . . . . . . . . . . . . . 0.23% 0.08%
INVESTMENTS
The investment portfolio, including available-for-sale securities and
held-to-maturity securities, increased $4 million, or .5%, to $733 million at
March 31, 1997, from $729 million at December 31, 1996. At March 31, 1997,
the investment portfolio represented 23.7% of total assets, compared with
23.4% at December 31, 1996. In addition to investment securities, the
Company had investments in interest-bearing deposits of $10 million at
March 31, 1997, a $6 million increase from the $4 million at December 31, 1996.
13
<PAGE>
DEPOSITS
Total deposits were $2.5 billion at March 31, 1997 and December 31,
1996. Noninterest-bearing deposits at March 31, 1997, were $394 million, a
decrease of $37 million, or 8.6%, from $431 million at December 31, 1996.
The company's core deposits as a percent of total deposits were 90.1% and
90.8% as of March 31, 1997, and December 31, 1996, respectively.
Interest-bearing deposits were $2.1 billion at March 31, 1997 and December
31, 1996. The shift in the Company's deposit mix from noninterest-bearing
deposits to interest-bearing deposits and the decrease were due to
seasonality of deposits, which were at relatively high year-end levels.
BORROWINGS
Short-term borrowings of the Company were $155 million as of March 31,
1997, as compared to $169 million at December 31, 1996, a decrease of $14
million, or 8.3%.
Long-term debt of the Company was $19 million as of March 31, 1997, a
decrease of $28 million, or 59.6%, from the $47 million as of December 31,
1996. The Company redeemed its $23 million 7.75% Subordinated Notes due April
15, 2000 on March 31, 1997 at a redemption price of 100% of principal amount.
CAPITAL MANAGEMENT
Shareholders' equity increased $4 million, or 1.6%, to $249 million at
March 31, 1997, from $245 million at December 31, 1996. At March 31, 1997,
the Company's Tier 1 capital, total risk-based capital and leverage ratios
were 11.58%, 13.25%, and 8.78%, respectively, compared to minimum required
levels of 4%, 8% and 3%, respectively (subject to change and the discretion
of regulatory authorities to impose higher standards in individual cases).
At March 31, 1997, the Company had risk-weighted assets of $2.3 billion.
During March 1997, the Company called for redemption its 7% Cumulative
Convertible Preferred Stock ("Preferred Stock"). Holders of the Company's
Depositary Shares (stated value of $25 per share) which represented ownership
of one-quarter share of the Preferred Stock were permitted to convert their
shares, prior to redemption into common stock of the Company ("Common Stock")
at a conversion rate of 1.569 shares of Common Stock per Depositary Share or
they could receive $26.40, plus accrued and unpaid dividends. Essentially
all shares were converted to Common Stock resulting in the addition of
approximately 1.4 million shares of Common Stock.
On February 5, 1997 the Company issued $60 million of 8-7/8% Cumulative
Capital Securities, through CFB Capital I, a business trust subsidiary
organized in January 1997. A portion of the proceeds were used to redeem the
$23 million Subordinated Notes. The remainder of the proceeds of the
offering will be used for general corporate purposes, which may include
without limitation possible future acquisitions, funding investments in, or
extension of credit to, the Company's subsidiaries, repayment of maturing
obligations and redemption of securities. All $60 million of the capital
securities qualify as Tier I Capital for regulatory capital calculation
purposes.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None.
Item 2. Changes in Securities:
None.
Item 3. Defaults upon Senior Securities:
None.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY FIRST BANKSHARES, INC.
/s/ Mark A. Anderson
Date: May 12, 1997 ----------------------------------------
Mark A. Anderson
Executive Vice President, Chief Financial
Officer, Treasurer, Secretary
(Principal Financial and Accounting
Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT IN FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 123,430
<INT-BEARING-DEPOSITS> 9,953
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 508,837
<INVESTMENTS-CARRYING> 223,768
<INVESTMENTS-MARKET> 222,665
<LOANS> 2,081,912
<ALLOWANCE> 27,580
<TOTAL-ASSETS> 3,095,065
<DEPOSITS> 2,493,500
<SHORT-TERM> 155,332
<LIABILITIES-OTHER> 118,831
<LONG-TERM> 18,644
0
0
<COMMON> 187
<OTHER-SE> 248,552
<TOTAL-LIABILITIES-AND-EQUITY> 2,341,228
<INTEREST-LOAN> 50,615
<INTEREST-INVEST> 11,465
<INTEREST-OTHER> 45
<INTEREST-TOTAL> 62,125
<INTEREST-DEPOSIT> 21,166
<INTEREST-EXPENSE> 25,117
<INTEREST-INCOME-NET> 37,008
<LOAN-LOSSES> 1,761
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 27,060
<INCOME-PRETAX> 16,370
<INCOME-PRE-EXTRAORDINARY> 10,797
<EXTRAORDINARY> (265)
<CHANGES> 0
<NET-INCOME> 10,532
<EPS-PRIMARY> .59
<EPS-DILUTED> .56
<YIELD-ACTUAL> 0
<LOANS-NON> 14,886
<LOANS-PAST> 2,028
<LOANS-TROUBLED> 251
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 26,215
<CHARGE-OFFS> 1,786
<RECOVERIES> 607
<ALLOWANCE-CLOSE> 27,580
<ALLOWANCE-DOMESTIC> 0
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</TABLE>
