<PAGE>
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 September 30, 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
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 November 7, 1997, 18,633,771 shares of Common Stock were outstanding.
1
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION: PAGE
----
Item 1. Condensed Consolidated Financial Statements and Notes. . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk. . 18
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 19
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
---- ----
(unaudited)
ASSETS
Cash and due from banks. . . . . . . . . . . . $ 209,498 $ 175,732
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . 260 3,600
Interest-bearing deposits. . . . . . . . . . . 12,782 3,598
Available-for-sale securities. . . . . . . . . 920,835 506,888
Held-to-maturity securities (fair value:
9/30/97 - $228,545 12/31/96 - $223,200) . 227,234 222,348
Loans. . . . . . . . . . . . . . . . . . . . . 2,617,085 2,064,108
Less: Allowance for loan losses . . . . . (37,522) (26,215)
- -----------------------------------------------------------------------------
Net loans. . . . . . . . . . . . . . . . . . . 2,579,563 2,037,893
Bank premises and equipment, net . . . . . . . 93,547 65,705
Accrued interest receivable. . . . . . . . . . 43,976 29,233
Intangible assets. . . . . . . . . . . . . . . 96,687 39,182
Other assets . . . . . . . . . . . . . . . . . 63,876 32,219
- -----------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . $ 4,248,258 $ 3,116,398
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . . . . $ 534,320 $ 431,078
Interest-bearing . . . . . . . . . . . . . 2,923,217 2,106,362
- -----------------------------------------------------------------------------
Total deposits . . . . . . . . . . . . . . . . 3,457,537 2,537,440
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . 75,118 78,369
Other short-term borrowings. . . . . . . . . . 215,345 169,265
Long-term debt . . . . . . . . . . . . . . . . 120,988 46,750
Accrued interest payable . . . . . . . . . . . 21,632 17,027
Other liabilities. . . . . . . . . . . . . . . 26,211 21,665
- -----------------------------------------------------------------------------
Total liabilities. . . . . . . . . . . . . . . 3,916,831 2,870,516
Company-obligated mandatorily redeemable
preferred securities of CFB Capital I . . 60,000 -
Minority interest. . . . . . . . . . . . . . . - 1,311
Shareholders' equity:
Preferred stock. . . . . . . . . . . . . . - 22,988
Common stock . . . . . . . . . . . . . . . 187 172
Capital surplus. . . . . . . . . . . . . . 101,017 77,029
Retained earnings. . . . . . . . . . . . . 167,662 144,239
Unrealized gain available-for-sale
securities, net of tax. . . . . . . . 4,332 1,368
Less cost of common stock in treasury --
September 30, 1997 -- 46,436 shares,
December 31, 1996 -- 50,810 shares. . (1,771) (1,225)
- -----------------------------------------------------------------------------
Total shareholders' equity . . . . . . . . . . 271,427 244,571
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity . . $ 4,248,258 $ 3,116,398
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
3
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(Dollars in thousands, except per share data)
(Unaudited) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Interest income: (restated) (restated)
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,825 $ 47,255 $ 169,564 $ 133,789
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . 16,697 11,367 39,492 33,227
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . . 138 35 483 123
Federal funds sold and resale agreements . . . . . . . . . . . . . . 143 54 167 773
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . . 82,803 58,711 209,706 167,912
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,292 20,214 71,827 60,074
Short-term and other borrowings. . . . . . . . . . . . . . . . . . . 3,616 2,848 10,679 6,046
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,224 940 3,715 3,404
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . 35,132 24,002 86,221 69,524
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . 47,671 34,709 123,485 98,388
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . 2,785 2,241 7,817 4,572
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 44,886 32,468 115,668 93,816
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts. . . . . . . . . . . . . . . . . 4,828 3,178 11,914 9,056
Insurance commissions. . . . . . . . . . . . . . . . . . . . . . . . 1,485 1,295 4,119 3,474
Fees from fiduciary activities . . . . . . . . . . . . . . . . . . . 832 787 2,684 2,403
Net gain (loss) on sales of available-for-sale securities . . . . . 62 (8) 123 (7)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,674 1,263 12,009 4,206
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income:. . . . . . . . . . . . . . . . . . . . . . 10,881 6,515 30,849 19,132
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 20,167 14,022 51,636 39,769
Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,449 3,374 13,566 9,566
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . 1,688 781 3,608 2,319
Company-obligated mandatorily redeemed preferred
securities of CFB Capital I. . . . . . . . . . . . . . . . . . . 1,331 - 3,476 -
Other professional service . . . . . . . . . . . . . . . . . . . . . 610 445 1,689 1,381
Legal and accounting . . . . . . . . . . . . . . . . . . . . . . . . 443 515 1,328 1,448
Data processing. . . . . . . . . . . . . . . . . . . . . . . . . . . 343 328 1,063 919
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 506 226 636
Acquisition expense. . . . . . . . . . . . . . . . . . . . . . . . . - 447 69 466
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,739 5,416 18,949 15,987
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense. . . . . . . . . . . . . . . . . . . . . . 37,894 25,834 95,610 72,491
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item 17,873 13,149 50,907 40,457
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . 5,574 4,556 16,676 13,995
- -----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item . . . . . . . . . . . . . . . . . . 12,299 8,593 34,231 26,462
Extraordinary item: Loss from early extinguishment of debt
(Less applicable income taxes of $159) . . . . . . . . . . . . . . . - - (265) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,299 $ 8,593 $ 33,966 $ 26,462
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common equity . . . . . . . . . . . . . . . $ 12,299 $ 8,190 $ 33,966 $ 25,254
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common and common equivalent share:
Primary before extraordinary item. . . . . . . . . . . . . . . . . . $0.65 $0.49 $1.84 $1.53
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 0.00 (0.01) 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.65 $0.49 $1.83 $1.53
- -----------------------------------------------------------------------------------------------------------------------------------
Fully diluted before extraordinary item. . . . . . . . . . . . . . . $0.65 $0.47 $1.79 $1.47
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 0.00 (0.01) 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.65 $0.47 $1.78 $1.47
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Average common and common equivalent shares:
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,992,606 16,695,233 18,561,630 16,532,714
Fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,044,167 18,145,732 19,046,963 17,992,255
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30
---------------------------
(In thousands) (restated)
(Unaudited) 1997 1996
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 33,966 $ 26,462
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses. . . . . . . . 7,817 4,572
Depreciation . . . . . . . . . . . . . . 6,385 5,117
Amortization of intangibles. . . . . . . 3,608 2,319
Net amortization of premiums & discounts
on securities . . . . . . . . . . . (56) 1,527
Increase in interest receivable. . . . . (8,868) (4,582)
Decrease (increase) in interest payable 2,236 (602)
Other - net . . . . . . . . . . . . . . (34,098) (14,080)
- -----------------------------------------------------------------------------
Net cash provided by operating activities. . . . . 10,990 20,733
Cash flows from investing activities:
Acquisitions, net of cash acquired . . . . . . 133,999 14,484
Net (decrease) increase in interest-bearing
deposits. . . . . . . . . . . . . . . . . (9,184) 952
Purchases of available-for-sale securities . . (469,185) (187,182)
Maturities of available-for-sale securities. . 299,317 166,025
Sales of securities, net of gains. . . . . . . 47,310 11,156
Purchases of held-to-maturity securities . . . (23,543) (22,616)
Maturities of held-to-maturity securities. . . 20,328 22,355
Net increase in loans. . . . . . . . . . . . . (120,189) (172,276)
Net increase in bank premises and equipment. . (12,148) (15,716)
Net (decrease) increase in minority interest . (1,311) 292
- -----------------------------------------------------------------------------
Net cash used in investing activities. . . . . . . (134,606) (182,526)
Cash flows from financing activities:
Net decrease in demand deposits, NOW accounts
and savings accounts. . . . . . . . . . . (99,057) (20,191)
Net increase in time accounts. . . . . . . . . 88,167 13,357
Net increase in short-term & other borrowings. 39,419 184,711
Net increase (decrease) in long-term debt. . . 75,588 (40,661)
Proceeds from issuance of company-obligated
mandatorily redeemable preferred
securities of CFB Capital I . . . . . . . 60,000 -
Retirement of Common Stock . . . . . . . . . . - (349)
Net proceeds from issuance of common stock . . 1,067 5,352
Purchase of common stock held in treasury. . . (2,777) (790)
Redemption of preferred stock. . . . . . . . . (52) (4)
Sale of common stock held in treasury. . . . . 984 1,254
Preferred stock dividends paid . . . . . . . . - (1,208)
Common stock dividends paid. . . . . . . . . . (9,297) (4,799)
- -----------------------------------------------------------------------------
Net cash provided by financing activities. . . . . 154,042 136,672
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . 30,426 (25,121)
Cash and cash equivalents at beginning of period . 179,332 163,516
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period . . . . $ 209,758 $ 138,395
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
5
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 eight wholly-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
adjusted for preferred stock dividends declared by the sum of the weighted
average number of shares of common stock outstanding and the number of shares
of common stock that would be issued assuming the exercise of stock options
and warrants during each period.
Fully diluted earnings per common share is based on net income before
considering the preferred stock dividends declared. The weighted average
number of shares of common stock outstanding is increased by the assumed
conversion of convertible preferred stock outstanding from the beginning of
the period and the number of shares of common stock that would be issued
assuming the exercise of stock options and warrants during each period. 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 - MERGERS, ACQUISITIONS AND DISPOSALS
On September 10, 1997 the Company signed an agreement to complete the
purchase and assumption of approximately $760 million in assets and
liabilities of 37 offices of Banc One Corporation, located in Arizona,
Colorado and Utah. The transaction is subject to regulatory approvals and is
expected to be completed during the first quarter of 1998, following the
completion of the currently pending merger with Republic National Bancorp,
Inc., Phoenix, Arizona. The 25 Arizona offices will be merged into the
Republic bank. The eight Colorado and four Utah offices will be merged into
the Company's existing Colorado affiliate bank.
6
<PAGE>
On August 28, 1997 the Company signed a definitive merger agreement with
Republic National Bancorp, Inc., ("Republic") which owns 100% of the
outstanding capital stock of the Republic National Bank, Phoenix, Arizona.
Upon completion of the merger, the Company will issue approximately 368,500
shares of common stock to the holders of Republic common stock. Republic had
total assets of approximately $53 million as of June 30, 1997. The
completion of the transaction is subject to approval by the shareholders of
Republic and other conditions. The transaction is expected to be completed
in the fourth quarter of 1997 and is expected to be accounted for using the
pooling of interests method of accounting.
On August 22, 1997 the Company signed a definitive merger agreement with
First National Summit Bankshares, Inc., ("Summit") which owns 100% of the
outstanding capital stock of the First National Summit Bank, Gunnison,
Colorado. Upon completion of the merger, the Company will issue approximately
378,000 shares of common stock to the holders of Summit common stock. Summit
had total assets of approximately $86 million as of June 30, 1997. The
completion of the transaction is subject to approval by the shareholders of
Summit and other conditions. The transaction is expected to be completed in
the fourth quarter of 1997 and is expected to be accounted for using the
pooling of interests method of accounting.
On July 14, 1997, the Company completed the acquisition of KeyBank,
National Association, Cheyenne, Wyoming ("KeyBank Wyoming") with 28 offices
located in 24 communities throughout the state of Wyoming. The transaction
resulted in the addition of approximately $1.1 billion in assets and $900
million in deposits and the recognition of goodwill of approximately $60
million. The acquisition was accounted for as a purchase and the operating
results of KeyBank Wyoming, subsequent to the date of acquisition, are
included in the Company's condensed consolidated financial statements as of
and for the nine-month and three-month periods ended September 30, 1997.
The following pro forma operating results of the Company assume the
KeyBank Wyoming acquisition had occurred on January 1, 1997 and 1996,
respectively. In addition to combining the historical results of operations
of the two companies, the pro forma operating results include adjustments for
the estimated effect of purchase accounting on the Company's results,
principally amortization of intangibles, adjustments to reflect the estimated
impact on income and expense related to the assets and liabilities retained
by KeyCorp and assume the following were completed at the beginning of each
period presented: (i) the $60 million offering of 8-7/8% Cumulative Capital
Securities of CFB Capital I completed in February 1997, (ii) the redemption
on March 31, 1997 of the Company's 7.75% Subordinated Notes due 2000 in the
principal amount of $23 million, and (iii) the conversion during March 1997
of substantially all of the Company's 7% Cumulative Convertible Preferred
Stock.
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands, except per share amounts) 9/30/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income. . . . . . . . . . . . . . $141,155 $124,247
Income before extraordinary item . . . . . . . 36,746 27,487
Net income . . . . . . . . . . . . . . . . . . 36,481 27,487
Earnings per common and common
equivalent share:
Primary. . . . . . . . . . . . . . . . . . $1.94 $1.53
Fully diluted. . . . . . . . . . . . . . . 1.92 1.53
</TABLE>
The pro forma information may not be indicative of the results that
actually would have occurred if the combination had been in effect on the
dates indicated or that may be obtained in the future.
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.
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
7
<PAGE>
resulting from the Company's merger with Mountain Parks. The transaction
included approximately $24 million in deposits and resulted in the recognition
of a gain of approximately $2.8 million.
Note C -SUBSEQUENT EVENTS
On November 6, 1997, the Company signed a definitive merger agreement
with Pioneer Bank of Longmont ("Longmont"), Longmont, Colorado with offices
in Berthoud, Longmont, Lyons, and Niwot, Colorado. Upon completion of the
transaction, the Company will issue approximately 700,000 shares of Common
Stock to the holders of Longmont common stock. Longmont had total assets of
approximately $126 million as of October 31, 1997. The completion of the
transaction is subject to regulatory approvals, approval by the shareholders
of Longmont and other conditions. The transaction is expected to be
completed in the first quarter of 1998 and is expected to be accounted for by
using the pooling of interests method of accounting.
On October 9, 1997 the Company announced the filing of a registration
statement for a proposed offering of, as presently contemplated, $60 million
of Cumulative Capital Securities by CFB Capital II, a Delaware business trust
subsidiary of the Company. Proceeds of the offering to CFB Capital II will
be used to purchase a like amount of junior subordinated debentures of the
Company. Also, on October 9, 1997 the Company announced the filing of a shelf
registration for the offering, from time to time, of up to $150 million in
any combination of common stock, preferred stock or debt securities.
Note D - ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board ("FASB")
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 current fully diluted earnings per share. The
adoption of SFAS 128 is not expected to have a material impact on the
calculation of earnings per share.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosure about Segments of an Enterprise
and Related Information." Statement No. 130 establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. The Statement requires all items that are required by
accounting standards to be recognized as components of comprehensive income
be reported in a financial statement. The Statement also requires the
classification of items of comprehensive income by their nature and the
display of other comprehensive income separately from retained earnings and
capital surplus in the equity section of the statement of financial position.
Statement No. 131 requires that financial and descriptive information be
disclosed for each reportable operating segment based on the management
approach. The management approach focuses on financial information that a
company's decision makers use to make decisions about resource allocation and
assess performance. The Statement also prescribes disclosure to be made
about products, services, geographic areas and major customers. Both
Statements are required to be adopted for fiscal years beginning after
December 15, 1997 and require restatement of all periods presented.
8
<PAGE>
Note E - INVESTMENTS
The following is a summary of available-for-sale and held-to-maturity
securities at September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
- -------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Treasury . . . . . . . . . . . $ 133,008 $ 1,003 $ 204 $ 133,807
United States Government agencies. . . . . . 137,338 631 332 137,637
Mortgage-backed securities . . . . . . . . . 450,439 5,766 324 455,881
Collateralized mortgage obligations. . . . . 119,460 259 130 119,589
State and Political Securities . . . . . . . 65,051 433 217 65,267
Other Securities . . . . . . . . . . . . . . 8,730 24 100 8,654
- -------------------------------------------------------------------------------------------------
$ 914,026 $ 8,116 $ 1,307 $ 920,835
------------------------------------------------
------------------------------------------------
Held-to-Maturity Securities
- -------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
United States Government agencies. . . . . . $ 232 $ - $ - $ 232
Mortgage-backed securities . . . . . . . . . 72,900 487 627 72,760
State and political securities . . . . . . . 50,082 1,483 21 51,544
Other Securities . . . . . . . . . . . . . . 104,020 - 11 104,009
- -------------------------------------------------------------------------------------------------
$ 227,234 $ 1,970 $ 659 $ 228,545
------------------------------------------------
------------------------------------------------
</TABLE>
Proceeds from the sale of available-for-sale securities during the three
months ended September 30, 1997 and 1996, were $13,425,000 and $6,551,000,
respectively. Gross gains of $75,000 and $2,000 were realized on sales
during 1997 and 1996, respectively. Gross losses of $13,000 and $10,000 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.
Note F - LOANS
The composition of the loan portfolio at September 30, 1997, was as
follows (in thousands):
Real estate. . . . . . . . . . . . . . . $ 1,185,365
Commercial . . . . . . . . . . . . . . . 629,436
Agricultural . . . . . . . . . . . . . . 276,060
Consumer and other . . . . . . . . . . . 526,224
------------
2,617,085
Less allowance for loan losses . . . . . (37,522)
------------
Net loans . . . . . . . . . . . . . . $ 2,579,563
9
<PAGE>
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 September 30, 1997, were
as follows (in thousands):
Commitments to extend credit . . . . . . . . . . . . $ 482,162
Letters of credit. . . . . . . . . . . . . . . . . . 17,316
Note H - SUBORDINATED NOTES
Long-term debt at September 30, 1997 included $60 million of 7.30%
subordinated notes issued in June 1997. These notes are due June 30, 2004,
with interest payable semi-annually. Long-term debt also included $12
million in 9.00% subordinated notes issued in July 1995, which are due August
15, 2005, with interest payable quarterly. At September 30, 1997, both
issues, totaling $72 million, qualified as Tier 2 capital.
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):
September 30, 1997
------------------
35% of pretax income . . . . . . . . . . . . . . . . $ 17,823
State income tax, net of federal tax benefit . . . . 1,302
Tax-exempt interest . . . . . . . . . . . . . . . . . (1,930)
Amortization of goodwill. . . . . . . . . . . . . . . 648
Other . . . . . . . . . . . . . . . . . . . . . . . . (1,167)
---------
Provision for income taxes . . . . . . . . . . . . . $ 16,676
---------
---------
Note J - SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30 (in thousands) 1997 1996
- -----------------------------------------------------------------------------
Unrealized gain (loss) on available-for-sale securities. . $ 4,542 ($5,073)
Conversion of preferred stock to common stock. . . . . . . 22,988 -
Note K - CONTINGENT LIABILITIES
As a result of certain legal proceedings related to the May 1995 purchase
of Abbott Bank Group, Inc. (with offices in Alliance, Nebraska and 10 other
Nebraska communities), 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 September 30, 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.
10
<PAGE>
Note L - SHAREHOLDERS' EQUITY
During March 1997, the Company redeemed 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. Dividends are payable quarterly. All $60 million
of the capital securities qualify as Tier I Capital for regulatory capital
calculation purposes.
11
<PAGE>
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
September 30, 1997, and December 31, 1996, and its results of operations for
the three month and nine month periods ended September 30, 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 one acquisition during 1997 and three acquisitions
during 1996. As of September 30, 1997, the Company had four pending bank
acquisitions. Each of these acquisitions has had, or will have, an effect
upon the Company's results of operations and financial condition.
During 1997 and 1996, the Company made the following acquisitions of
banks or associated holding companies:
Total Assets
Month and at Date of
Year Institution Acquisition
--------------------------------------------------------
July 1997 Cheyenne, Wyoming $1.1 Billion
October 1996 Trinidad, Colorado $70 Million
July 1996 Kiowa, Colorado $58 Million
July 1996 Englewood, Colorado $19 Million
On July 14, 1997, the Company acquired KeyBank National Association,
Cheyenne, Wyoming ("KeyBank Wyoming"), a subsidiary of KeyCorp, for a cash
purchase price of approximately $135 million. As of June 30, 1997, KeyBank
Wyoming had total assets of approximately $1.1 billion and banking offices in
24 communities in Wyoming. The purchase resulted in the recognition of
approximately $60 million in goodwill.
On September 10, 1997, the Company entered into an agreement to acquire
37 branch banks located in Arizona, Colorado and Utah (the "Bank One
Branches") from three subsidiary banks of Banc One Corporation. See Note B
to the Unaudited Condensed Consolidated Financial Statements. The
acquisition of the Bank One Branches will be accounted for as an acquisition
of assets and assumption of liabilities.
Overview
For the three months ended September 30, 1997, net income was $12.3
million, an increase of $3.7 million, or 43.0%, from the $8.6 million earned
during the 1996 period. Fully diluted earnings per common share for the
third quarter of 1997 were $0.65.
Return on average assets was 1.20% for the third quarter of 1997,
compared with 1.18% for the 1996 period. This increase resulted from
incremental net income provided by entities acquired in 1996, offset
significantly by the fact that the return on average assets of KeyBank
Wyoming recently has been less than that generated by the remainder of the
Company. The lower KeyBank Wyoming return on average assets reflects
KeyCorp's agreed-upon retention of a portion of the loan portfolio at
closing, replacing those earning assets with lower yielding investment
securities.
For the nine months ended September 30, 1997, net income was $34.0
million, an increase of $7.5 million, or 28.3%, from the $26.5 million earned
during the 1996 period. This included the effect of a $265,000 after tax
12
<PAGE>
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. Primary earnings per common
share for the nine months ended September 30, 1997, were $1.83, compared to
$1.53 in 1996. Fully diluted earnings per common share for the nine months
ended September 30, 1997, were $1.78.
Return on average assets was 1.32% for the nine months ended September
30, 1997, compared with 1.26% for the 1996 period. This increase resulted
from incremental net income provided by entities acquired in 1996, partially
offset by the lower return on average assets in KeyBank Wyoming following its
acquisition in July 1997.
Principally as a result of the increase in goodwill and the increase in
total assets resulting from the acquisition of KeyBank Wyoming, the Tier 1
capital of the Company declined from 8.88% at December 31, 1996, to 7.72% at
September 30, 1997, while total capital increased from 11.10% at December 31,
1996 to 11.36% at September 30, 1997. Additionally, as a result of the
recognition of additional intangible assets, the Company's tangible book
value per common share declined from $10.63 at December 31, 1996 to $9.38 at
September 30, 1997. The $135 million purchase price of KeyBank Wyoming was
funded by a portion of the net proceeds of an offering in February 1997 of
$60 million of 8-7/8% Cumulative Capital Securities of CFB Capital I, a
business trust subsidiary of the Company; the net proceeds from the issuance
in June 1997 of $60 million of 7.30% Subordinated Notes due June 30, 2004;
$40 million in long term borrowings; and net cash flow of the Company. The
increase in indebtedness resulted in a decline in the leverage ratio from
6.62% at December 31, 1996 to 5.50% at September 30, 1997.
Principally as a result of the retention of a portion of the loan assets
by KeyCorp, the loan-to-deposit ratio of the Company declined from 81.3% at
December 31, 1996 to 75.7% at September 30, 1997. The net interest margin
also declined to 5.35% for the three months ended September 30, 1997 from
5.44% for the 1996 period, principally as a result of the reduction in the
loan-to-deposit ratio. The loan-to-deposit ratio of the Company is expected
to increase (subject to the effects of further acquisitions) as a result of
increased loan volume both in KeyBank Wyoming, as the Company implements its
community banking strategy in Wyoming, and in the Company as a whole.
The pending acquisition of the Bank One Branches is expected to result
in the recognition by the Company of approximately $46 million in
deposit-based intangibles (based upon the Bank One Branches' anticipated
deposits of $760 million at closing). The recognition of additional
intangible assets is expected to have a negative impact on the Company's
tangible book value per common share. Further, the return on average assets
of the Bank One Branches is expected initially to be less than that presently
generated by the Company, principally because the loan-to-deposit ratio in
these branches, at acquisition, will be lower than for the rest of the
Company. This is expected to have an initial adverse effect on the Company's
consolidated net interest margin and return on average assets.
Results of Operations
Net Interest Income
Net interest income for the three months ended September 30, 1997, was
$47.7 million, an increase of $13.0 million, or 37.5%, from the net interest
income of $34.7 million earned during the 1996 period. The increase was
principally due to the increased asset base associated with the acquisitions
completed during 1997 and 1996, principally KeyBank Wyoming, offset in part
by a reduction in the net interest margin to 5.35% during the third quarter
of 1997, from 5.44% during the 1996 period, also principally the effect of
KeyBank Wyoming.
Net interest income for the nine months ended September 30, 1997 was
$123.5 million, an increase of $25.1 million, or 25.5%, from interest income
of $98.4 million earned during the 1996 period.
13
<PAGE>
Provision for Loan Losses
The provision for loan losses for the three months ended September 30,
1997, was $2.8 million, an increase of $544,000, or 24.3%, from the $2.2
million 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 September 30, 1997, was
$10.9 million, an increase of $4.4 million, or 67.7%, from the 1996 level of
$6.5 million. The increase was due to the combination of an increase of $1.6
million earned by banks acquired in 1997 and 1996, principally KeyBank
Wyoming, an increase of $237,000 in the existing bank deposit service
charges, a $199,000 increase in existing bank insurance commissions, a
$45,000 increase in trust fees, and an increase in other income of $2.2
million, which was due primarily to a gain on the sale of loans by one of the
Company's specialty lending subsidiaries.
Noninterest income for the nine months ended September 30, 1997, was
$30.8 million, an increase of $11.7 million, or 61.3%, from the 1996 level of
$19.1 million. The increase was due to a $2.9 million increase in deposit
service charges, of which $1.8 million was in banks acquired in 1997 and
1996, principally KeyBank Wyoming. In addition, insurance commissions
increased $645,000, trust fees increased $281,000, and other income increased
$7.6 million, which was due primarily to the gain on sale of loans by one of
the Company's specialty lending subsidiaries and a gain of approximately $2.8
million on the sale of the Granby and Grand Lake, Colorado offices.
Noninterest Expense
Noninterest expense for the three months ended September 30, 1997, was
$37.9 million, an increase of $12.1 million, or 46.9%, from the level of
$25.8 million during the 1996 period. The increase was principally due to an
increase of $6.1 million, or 43.8%, in salaries and employee benefits, which
included $2.9 million at banks acquired in 1997 and 1996, principally KeyBank
Wyoming. Net occupancy increased $2.1 million, or 61.5%, which included $1.1
million at bank's acquired in 1997 and 1996, principally KeyBank Wyoming.
Amortization of intangibles increased $907,000 or 116.1% from $781,000 during
the three months ended September 30, 1996, to $1.7 million during the current
quarter, of which $810,000 was due to the acquisition of KeyBank Wyoming.
Noninterest expense for the nine months ended September 30, 1997, was
$95.6 million, an increase of $23.1 million, or 31.9%, from $72.5 million
during the 1996 period. The increase was principally due to an $11.9 million
increase in salaries and employee benefits, which included $4.4 million at
banks acquired during 1997 and 1996, principally KeyBank Wyoming, flood
disaster employee assistance and charges taken to conform personnel costs in
acquired institutions. In addition, net occupancy increased $4.0 million or
41.8%, of which $1.4 million was due to banks acquired in 1997 and 1996,
principally KeyBank Wyoming. The 1997 period included $3.5 million in
expenses related to the $60 million Company-obligated mandatorily redeemable
preferred securities of CFB Capital I. Amortization of intangibles increased
$1.3 million or 56.5% from $2.3 million during the period ended September 30,
1996, to $3.6 million during the current period, including $810,000 due to
the acquisition of KeyBank Wyoming.
Provision for Income Taxes
The provision for income taxes for the three months ended September 30,
1997, increased $1.0 million, from the prior year, due primarily to the
increase in pre-tax income resulting from acquisitions completed since March
1996.
14
<PAGE>
The provision for income taxes for the nine months ended September 30,
1997, was $16.7 million, an increase of $2.7 million, or 19.3%, from the 1996
level of $14.0 million, due to the increase in the level of pretax income.
Financial Condition
Loans
The following table presents the Company's balance of each major category
of loans:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------
Percent of Percent of
Amount Total Loans Amount Total Loans
------------------------------------------------------
Loan Category: (Dollars in Thousands)
<C> <S> <S> <S> <S>
Real estate . . . . . . . . . . $ 1,185,365 45.29% $ 871,432 42.22%
Commercial . . . . . . . . . . 629,436 24.05% 624,456 30.25%
Agricultural . . . . . . . . . 276,060 10.55% 222,081 10.76%
Consumer and other . . . . . . 526,224 20.11% 346,139 16.77%
- ---------------------------------------------------------------------------------------------
Total loans . . . . . . . . . . 2,617,085 100.00% 2,064,108 100.00%
-------- --------
-------- --------
Less allowance for loan losses . . 37,522 26,215
----------- -----------
Total $ 2,579,563 $ 2,037,893
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Nonperforming Assets
Nonperforming assets of the Company are summarized in the following table:
September 30, December 31,
Loans: 1997 1996
-----------------------------------
<C> <S> <S>
Nonaccrual loans . . . . . . . . . . . . . . . . . $ 17,185 $ 12,796
Restructured Loans . . . . . . . . . . . . . . . . 156 267
- ------------------------------------------------------------------------------------------
Nonperforming loans . . . . . . . . . . . . . . . 17,341 13,063
Other real estate owned . . . . . . . . . . . . . . . 3,549 1,426
- ------------------------------------------------------------------------------------------
Nonperforming assets . . . . . . . . . . . . . . . . $ 20,890 $ 14,489
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Loans 90 days or more past due but still accruing $ 6,411 $ 1,956
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .66% .63%
Nonperforming assets as a percentage of total assets .49% .46%
Nonperforming assets as a percentage of loans and OREO .80% .70%
</TABLE>
At September 30, 1997, nonperforming assets were $20.9 million,
including $7.3 million at the Company's specialty lending subsidiaries, an
increase of $6.4 million, or 44.1%, 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 their growth in loans. The specialty lending subsidiaries consist of
(i) a specialty consumer mortgage company involved in originating
non-conforming residential mortgages and (ii) a consumer finance company with
approximately $53 million in total assets as of September 30, 1997 that
focuses on the purchase, origination and servicing of consumer installment
contracts. At September 30, 1997, nonperforming loans as a percent of total
loans was .66%, as a result of the combination of .48% at the bank level and
5.50% at the Company's specialty lending subsidiaries, up from the December
31, 1996 level of .63% at the bank level. OREO was $3.5 million of which
$2.0 million was attributed to the Company's specialty lending subsidiaries,
at September 30, 1997, an increase of $2.1 million from $1.4 million at
December 31, 1996.
15
<PAGE>
Allowance for Loan Losses
The following table sets forth the Company's allowance for loan losses:
September 30,
1997 1996
----------------------------
(Dollars in thousands) (restated)
Balance at beginning of period . . . . . . . . $ 26,215 $ 22,712
Acquired bank and other allowances . . . . . . 8,815 544
Charge-offs:
Commercial . . . . . . . . . . . . . . . . 1,282 660
Real estate. . . . . . . . . . . . . . . . 469 147
Agricultural . . . . . . . . . . . . . . . 522 413
Consumer and other . . . . . . . . . . . . 5,280 1,497
- --------------------------------------------------------------------------------
Total charge-offs . . . . . . . . . . . 7,553 2,717
- --------------------------------------------------------------------------------
Recoveries:
Commercial . . . . . . . . . . . . . . . . 682 161
Real estate . . . . . . . . . . . . . . . 413 215
Agricultural . . . . . . . . . . . . . . . 468 61
Consumer and other . . . . . . . . . . . . 665 223
- --------------------------------------------------------------------------------
Total recoveries . . . . . . . . . . . . 2,228 660
- --------------------------------------------------------------------------------
Net charge-offs . . . . . . . . . . . . . . . 5,325 2,057
Provision charged to operations . . . . . . . 7,817 4,572
- --------------------------------------------------------------------------------
Balance at end of period . . . . . . . . . . . $ 37,522 $ 25,771
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Allowance as a percentage of total loans . . . 1.43% 1.30%
Annualized net charge-offs to average
loans outstanding. . . . . . . . . . . . . 0.31% 0.15%
At September 30, 1997, the allowance for loan losses was $37.5 million,
an increase of $11.3 million from the December 31, 1996 level of $26.2
million. $7.5 million of the increase was due to the acquisition of KeyBank
Wyoming. Net charge-offs during the 1997 period were $2.1 million more than
those incurred during the three months ended September 30, 1996, as a result
of net charge-offs at the Company's specialty lending subsidiaries of $1.8
million and a $1.3 million increase in bank net charge-offs.
At September 30, 1997, the allowance for loan losses as a percentage of
total loans was 1.43%, an increase from the September 30, 1996, level of
1.30%. During the three months ended September 30, 1997, net charge-offs
increased to $3.1 million. These charge-offs related to the Company's
continued periodic review of the existing loan portfolios and an increase of
$1.8 million in charge-offs related to loan growth at the Company's specialty
lending subsidiaries.
Investments
The investment portfolio, including available-for-sale securities and
held-to-maturity securities, increased $419 million, or 57.5%, to $1.1
billion at September 30, 1997, from $729 million at December 31, 1996. The
increase included $437 million of investment securities acquired through
KeyBank Wyoming. At September 30, 1997, the investment portfolio represented
27.0% 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 $13 million at September 30, 1997, a $9 million increase from the
$4 million at December 31, 1996.
16
<PAGE>
Deposits
Total deposits were $3.5 billion at September 30, 1997, an increase of
$1.0 billion or 40% from $2.5 billion at December 31, 1996 due principally to
the KeyBank Wyoming acquisition. Noninterest-bearing deposits at September
30, 1997, were $534 million, an increase of $103 million, or 23.9%, from $431
million at December 31, 1996. The Company's core deposits as a percent of
total deposits were 88.7% and 90.8% as of September 30, 1997, and December
31, 1996, respectively. Interest-bearing deposits were $2.9 billion at
September 30, 1997, an increase of $817 million or 38.8% from $2.1 billion at
December 31, 1996. The shift in the Company's deposit mix from
noninterest-bearing deposits to interest-bearing deposits and the increase
were due primarily to banks acquired in 1997.
Borrowings
Short-term borrowings of the Company were $215 million as of September
30, 1997, as compared to $169 million at December 31, 1996, an increase of
$46 million, or 27.2%.
Long-term debt of the Company was $121 million as of September 30, 1997,
compared with $47 million as of December 31, 1996. The increase reflects the
net impact of the Company's redemption of its $23 million 7.75% Subordinated
Notes due April 15, 2000 on March 31, 1997 at a redemption price of 100% of
principal amount and the issuance of $60 million of 7.30% Subordinated Notes
due June 30, 2004 during June 1997, and $30 million in long term borrowings
related to the purchase of KeyBank Wyoming.
Capital Management
Shareholders' equity increased $26 million, or 10.6%, to $271 million at
September 30, 1997, from $245 million at December 31, 1996. At September 30,
1997, the Company's Tier 1 capital, total risk-based capital and leverage
ratios were 7.72%, 11.36%, and 5.50%, 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 September 30, 1997, the Company had risk-weighted assets of $3.0
billion.
During March 1997, the Company redeemed 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. All $60 million of the capital securities qualify
as Tier I Capital for regulatory capital calculation purposes.
On October 9, 1997 the Company announced the filing of a registration
statement for a proposed offering of, as presently contemplated, $60 million
of Cumulative Capital Securities by CFB Capital II, a Delaware business trust
subsidiary of the Company. Proceeds of the offering to CFB Capital II will
be used to purchase a like amount of junior subordinated debentures of the
Company. Also, on October 9, 1997 the Company announced the filing of a shelf
registration for the offering, from time to time, of up to $150 million in
any combination of common stock, preferred stock or debt securities. As the
initial offering under this registration statement, the Company intends to
complete an offering of common stock, with estimated gross proceeds of $50
million, during the fourth quarter of 1997. The Company intends to use the
net proceeds of these issuances principally to capitalize the Bank One
Branches. The primary purpose of the offerings is to provide additional Tier
1 capital to satisfy regulatory capital requirements in connection with the
proposed Bank One
17
<PAGE>
Branches acquisition.
FORWARD-LOOKING STATEMENTS
Statements included in this Form 10-Q which are not historical or
current facts are "forward-looking statements" made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and
are subject to certain risks and uncertainties that could cause actual
results to differ materially from historical results and those presently
anticipated or projected. The following important factors, among others,
could affect the Company's actual results in the future and could cause the
Company's actual financial performance to differ materially from that
expressed in any forward-looking statement: (i) risks relating to
acquisitions, including risks of adversely changing results of operations,
unforeseen liabilities or asset quality problems of acquired entities,
adverse personnel relations, loss of customers because of change of identity
and deterioration in local economic conditions, as well as challenges with
data and item processing conversion, management training, staffing and other
operational integration areas; (ii) the risk that currently pending
acquisitions, which are subject to a variety of conditions, will not be
consummated, and/or that intended offerings of common stock and capital
securities to provide necessary regulatory capital in connection with the
acquisition of the Bank One Branches will not be completed; (iii) risks of
availability of suitable acquisitions, including the capital position of the
Company and availability of cash for cash acquisitions, and competition from
other institutions that may affect availability or price of acquisitions; and
(iv) risks relating to the banking industry generally, including changing
interest rates, competition and government regulation. The foregoing list is
not exhaustive, and the Company disclaims any obligation subsequently to
revise any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated
or unanticipated events.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable
18
<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:
On July 29, 1997, the Company filed a current report on Form
8-K dated July 14, 1997, which reported the Company's
acquisition of KeyBank Wyoming.
On September 22, 1997, the Company filed a current report
Form 8-K dated July 29, 1997, as amended on Form 8-K/A,
including financial information regarding KeyBank Wyoming.
19
<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.
Date: November 14, 1997 /S/ Mark A. Anderson
-------------------------------------------------
Mark A. Anderson
Executive Vice President, Chief Financial Officer,
Treasurer, Secretary (Principal Financial and
Accounting Officer)
20
<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 ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 209,498
<INT-BEARING-DEPOSITS> 12,782
<FED-FUNDS-SOLD> 260
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 920,835
<INVESTMENTS-CARRYING> 227,234
<INVESTMENTS-MARKET> 228,545
<LOANS> 2,617,085
<ALLOWANCE> 37,522
<TOTAL-ASSETS> 4,248,258
<DEPOSITS> 3,457,537
<SHORT-TERM> 215,345
<LIABILITIES-OTHER> 122,961
<LONG-TERM> 120,988
0
0
<COMMON> 187
<OTHER-SE> 271,240
<TOTAL-LIABILITIES-AND-EQUITY> 4,248,258
<INTEREST-LOAN> 169,564
<INTEREST-INVEST> 39,492
<INTEREST-OTHER> 650
<INTEREST-TOTAL> 209,706
<INTEREST-DEPOSIT> 71,827
<INTEREST-EXPENSE> 86,221
<INTEREST-INCOME-NET> 123,485
<LOAN-LOSSES> 7,817
<SECURITIES-GAINS> 123
<EXPENSE-OTHER> 95,610
<INCOME-PRETAX> 50,907
<INCOME-PRE-EXTRAORDINARY> 34,231
<EXTRAORDINARY> (265)
<CHANGES> 0
<NET-INCOME> 33,966
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.83
<YIELD-ACTUAL> 0
<LOANS-NON> 17,185
<LOANS-PAST> 6,411
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<ALLOWANCE-OPEN> 26,215
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<RECOVERIES> 2,228
<ALLOWANCE-CLOSE> 37,522
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
