<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 June 30, 1998
-----------------
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
incorporation or organization) Identification No.)
520 Main Avenue
Fargo, ND 58124
------------------------------- --------------------------------
(Address of principal (Zip Code)
executive offices)
(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 August 12, 1998, 47,357,908 shares of Common Stock were outstanding.
1
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COMMUNITY FIRST BANKSHARES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Financial Statements and Notes . . . . . 3-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 11-17
Item 3. Quantitative and Qualitative Disclosure About Market Risk . . . 17
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
2
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 238,342 $ 222,088
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,935 12,690
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . 10,394 1,287
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . 1,956,144 1,498,877
Held-to-maturity securities (fair value: 6/30/98 -
$65,649, 12/31/97 - $182,335) . . . . . . . . . . . . . . . . . . . . . . 65,649 180,512
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,031,477 2,637,057
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . (37,841) (36,194)
- ----------------------------------------------------------------------------------------------------------
Net loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,993,636 2,600,863
Bank premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . 119,868 101,820
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . 49,644 40,105
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,182 99,977
Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,250 97,307
- ----------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,636,044 $ 4,855,526
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 787,781 $ 597,333
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,804,295 3,022,001
- ----------------------------------------------------------------------------------------------------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,592,076 3,619,334
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . 0 43,002
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . 384,720 230,571
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,041 116,476
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 5,271 5,209
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 24,771 20,842
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,451 360,798
- ----------------------------------------------------------------------------------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,144,330 4,396,232
Company-obligated mandatorily redeemable
preferred securities of CFB Capital I & II . . . . . . . . . . . . . . . . 120,000 120,000
Shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441 204
Capital surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,558 157,138
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,110 183,335
Less cost of common stock in treasury -
June 30, 1998 - 220,344 shares
December 31, 1997 - 36,255 shares. . . . . . . . . . . . . . . . . . . . (5,395) (1,383)
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 371,714 339,294
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 5,636,044 $ 4,855,526
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
3
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COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
(Dollars in thousands, except per share data) 6/30/98 6/30/97 6/30/98 6/30/97
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income: (Unaudited) (Unaudited)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,234 $ 47,902 $ 134,676 $ 94,133
Investment securities. . . . . . . . . . . . . . . . . . . 31,804 11,946 59,149 23,979
Interest-bearing deposits. . . . . . . . . . . . . . . . . 19 300 79 345
Federal funds sold and resale agreements . . . . . . . . . 328 24 480 24
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income. . . . . . . . . . . . . . . . . . 103,385 60,172 194,384 118,481
Interest expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 38,403 21,369 73,284 42,535
Short-term and other borrowings. . . . . . . . . . . . . . 4,240 2,558 6,292 4,402
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 2,150 587 4,264 1,491
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . . . . 44,793 24,514 83,840 48,428
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . . . . . . . . . . . 58,592 35,658 110,544 70,053
Provision for loan losses. . . . . . . . . . . . . . . . . . 1,566 2,486 2,905 3,716
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses. . . . . 57,026 33,172 107,639 66,337
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts. . . . . . . . . . . . 7,009 3,581 12,725 7,086
Fees from fiduciary activities . . . . . . . . . . . . . . 1,190 919 2,364 1,852
Insurance commissions. . . . . . . . . . . . . . . . . . . 1,771 1,429 3,250 2,634
Net gain (loss) on sales of available-for-sale securities 472 64 948 61
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,532 4,330 8,035 5,728
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest income:. . . . . . . . . . . . . . . . 14,974 10,323 27,322 17,361
- -------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits . . . . . . . . . . . . . . 23,792 14,517 45,276 28,046
Net occupancy . . . . . . . . . . . . . . . . . . . . . . 8,065 3,955 15,572 7,804
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . 159 90 333 102
Legal and accounting . . . . . . . . . . . . . . . . . . . 407 491 948 837
Other professional service . . . . . . . . . . . . . . . . 1,078 629 1,499 1,076
Data processing. . . . . . . . . . . . . . . . . . . . . . 1,435 408 1,784 685
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 375 0 427 69
Company-obligated mandatorily redeemable preferred
securities of CFB Capital I & II . . . . . . . . . . . . 2,561 1,331 5,095 2,145
Amortization of intangibles. . . . . . . . . . . . . . . . 2,714 859 5,075 1,841
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,155 5,551 19,414 10,175
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense. . . . . . . . . . . . . . . . 51,741 27,831 95,423 52,780
Income from continuing operations before income
taxes and extraordinary item . . . . . . . . . . . . . . . 20,259 15,664 39,538 30,918
Provision for income taxes . . . . . . . . . . . . . . . . . 6,137 5,140 11,563 10,278
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary item . . . . . . . . . . . . . . . . . . . . 14,122 10,524 27,975 20,640
Discontinued operations:
Income from operations of discontinued operations
(less applicable income taxes) . . . . . . . . . . . . . (2,164) 611 (2,232) 1,292
Loss on disposal of discontinued operations, including
provision for operating losses during phase-out
period (less applicable taxes) . . . . . . . . . . . . . (1,676) 0 (1,676) 0
- -------------------------------------------------------------------------------------------------------------------------------
Net income before extraordinary item . . . . . . . . . . . . 10,282 11,135 24,067 21,932
Extraordinary item:
Loss from early extinguishment of debt . . . . . . . . . . 0 0 0 (265)
- -------------------------------------------------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,282 $ 11,135 $ 24,067 $ 21,667
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
(Dollars in thousands, except per share data) 6/30/98 6/30/97 6/30/98 6/30/97
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common and common equivalent share:
Basic income from continuing operations before
extraordinary items. . . . . . . . . . . . . . . . . . . . $0.33 $0.28 $0.67 $0.57
Discontinued operations. . . . . . . . . . . . . . . . . . . (0.09) 0.02 (0.09) 0.04
Extraordinary item . . . . . . . . . . . . . . . . . . . . . $0.00 $0.00 0.00 (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Basic net income . . . . . . . . . . . . . . . . . . . . . . $0.24 $0.30 $0.58 $0.60
- -------------------------------------------------------------------------------------------------------------------------------
Diluted income from continuing operations before
extraordinary items. . . . . . . . . . . . . . . . . . . . $0.33 $0.28 $0.66 $0.55
Discontinued operations. . . . . . . . . . . . . . . . . . . (0.09) 0.01 (0.09) 0.04
Extraordinary item . . . . . . . . . . . . . . . . . . . . . $0.00 $0.00 0.00 (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Diluted net income . . . . . . . . . . . . . . . . . . . . . $0.24 $0.29 $0.57 $0.58
- -------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . 43,089,547 37,341,212 41,881,392 36,170,188
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . 43,727,584 37,891,152 42,568,777 37,402,274
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Dividend declared per common share . . . . . . . . . . . . . $0.11 $0.08 $0.22 $.16
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
(In thousands) -------------------------
(Unaudited) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,067 $ 21,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . 2,905 3,716
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 6,909 3,794
Amortization of intangibles. . . . . . . . . . . . . . . . 5,075 1,860
Net of amortization of premiums & discounts
on securities. . . . . . . . . . . . . . . . . . . . . . (743) 69
Increase in interest receivable. . . . . . . . . . . . . . (7,185) (350)
Increase (decrease) in interest payable. . . . . . . . . . 2,900 (1,057)
Other - net . . . . . . . . . . . . . . . . . . . . . . . (62,276) 1,698
- ------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities . . . . . . . (28,348) 31,397
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired. . . . . . . . . . . . . . 35,428 0
Net increase in interest-bearing deposits. . . . . . . . . . (9,008) (11,300)
Purchases of available-for-sale securities . . . . . . . . . (2,607,460) (134,018)
Maturities of available-for-sale securities. . . . . . . . . 1,874,555 125,269
Sales of securities, net of gains. . . . . . . . . . . . . . 93,897 33,947
Purchases of held-to-maturity securities . . . . . . . . . . (1,961) (21,874)
Maturities of held-to-maturity securities. . . . . . . . . . 3,716 14,169
Net increase in loans. . . . . . . . . . . . . . . . . . . . (106,461) (31,596)
Net increase in bank premises and equipment. . . . . . . . . (15,551) (4,344)
Net decrease in minority interest. . . . . . . . . . . . . . 0 (1,311)
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities. . . . . . . . . . . . . (732,845) (31,058)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW
accounts and savings accounts . . . . . . . . . . . . . . . 387,522 (109,616)
Net increase in time accounts. . . . . . . . . . . . . . . . . 274,533 42,867
Net increase (decrease) in short-term & other borrowings . . . 110,671 (80,264)
Net increase in long-term debt . . . . . . . . . . . . . . . . 4,565 31,816
Net proceeds from issuance of Company-obligated mandatorily
redeemable preferred securities of CFB Capital I . . . . . . 0 60,000
Net proceeds from issuance of common stock . . . . . . . . . . 24,529 1,067
Purchase of common stock held in treasury. . . . . . . . . . . (8,875) (870)
Conversion of preferred stock to common stock. . . . . . . . . 0 (52)
Sale of common stock held in treasury. . . . . . . . . . . . . 1,058 896
Common stock dividends paid. . . . . . . . . . . . . . . . . . (9,311) (5,758)
- ------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities . . . . . . . 784,692 (59,914)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents . . . . . 23,499 (59,575)
Cash and cash equivalents at beginning of period . . . . . . . 234,778 179,332
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period . . . . . . . . . . $ 258,277 $ 119,757
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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 thirteen 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.
On April 28, 1998, the shareholders approved a charter amendment that
facilitated a two-for-one split of the Company's common stock, in the form of
a 100 percent dividend payable to shareholders of record on May 1, 1998 and
distributed on May 15, 1998. Accordingly, the historical consolidated
financial information has been restated to reflect the impact of the
two-for-one split on the common share, weighted average common share and
basic and diluted earnings per share data.
EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income
applicable to common equity by the weighted average number of shares of
common stock outstanding.
Diluted earnings per common share is calculated by dividing net income
applicable to common equity by the weighted average number of shares of
common stock outstanding. The weighted average number of shares of common
stock outstanding is increased by 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 - BUSINESS COMBINATIONS AND DIVESTITURES
On June 12, 1998, the Company, through its Colorado subsidiary, completed
the sale of its office in Ault, Colorado. The Ault office was acquired on
January 23, 1998 as part of the Company's purchase and assumption of 37
offices of Banc One Corporation located in Arizona, Colorado, and Utah. The
transaction included the disposition of approximately $9 million in deposits.
On May 7, 1998, the Company issued 1,135,406 shares of common stock to
acquire FNB, Inc. ("FNB") a bank holding company with banks in Greeley,
Colorado and Fort Collins, Colorado. At acquisition, FNB had approximately
$120 million in assets and $109 million in deposits. The Company used the
pooling of interests method to account for the transaction. This merger was
not material to the Company's consolidated financial information or operating
results. Accordingly, the Company's consolidated financial information has
not been restated to reflect this merger. The operating results are included
in the Company's consolidated statements from the date of the merger.
On April 30, 1998, the Company issued approximately 1,432,000 shares of
common stock to acquire Pioneer Bank of Longmont ("Pioneer"), Longmont,
Colorado, with offices in Berthoud, Longmont, Lyons, and Niwot, Colorado. At
acquisition, Pioneer had approximately $138 million in assets and $128
million in deposits. The Company used the pooling of interests method to
account for the transaction. This merger was not material to the Company's
consolidated financial information or operating results.
7
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Accordingly, the Company's consolidated financial information has not been
restated to reflect this merger. The operating results are included in the
Company's consolidated statements from the date of the merger.
On April 3, 1998, the Company issued approximately 852,000 shares of
common stock to acquire Community Bancorp., Inc. ("CBI"), the parent company
of Community First National Bank, Thornton, Colorado, with two offices in
Thornton, Colorado and one office in Arvada, Colorado. At acquisition, CBI
had approximately $78 million in assets and $72 million in deposits. The
Company used the pooling of interests method to account for the transaction.
The merger was not material to the Company's consolidated financial
information or operating results. Accordingly, the Company's consolidated
financial information has not been restated to reflect this merger. The
operating results are included in the Company's consolidated statements from
the date of the merger.
On January 23, 1998, the Company completed the purchase and assumption
of approximately $730 million in assets and liabilities of 37 offices of Banc
One Corporation subsidiary banks located in Arizona, Colorado and Utah. The
25 Arizona and four Utah offices were merged into the Company's Arizona
affiliate. The eight Colorado offices were merged into one of the Company's
Colorado affiliates. The transaction was accounted for as a purchase of
certain assets and assumption of certain liabilities and resulted in the
recognition of a deposit based intangible of approximately $44 million.
NOTE C - SUBSEQUENT EVENTS
On August 7, 1998, the Company issued approximately 1,526,000 shares of
common stock to acquire Guardian Bancorp ("Guardian"), the holding company
for Guardian State Bank, Salt Lake City, Utah, with offices in Salt Lake City
and Sandy, Utah. At acquisition, Guardian had approximately $107 million in
assets and $98 million in deposits. The Company used the pooling of
interests method to account for the transaction. This merger was not
material to the Company's consolidated financial information or operating
results. Accordingly, the Company's consolidated financial information has
not been restated to reflect this merger. The operating results will be
included in the Company's consolidated statements from the date of the merger.
In July 1998, the Company sold the operating assets of its two sub-prime
lending subsidiaries. Seven loan production offices of Equity Lending, Inc.
("Equity Lending") were sold to FIRSTPLUS Financial Group, Inc., in a cash
transaction on July 27, 1998. Servicing rights to the portfolio of
automobile installment contracts originated by Mountain Parks Financial
Services, Inc. ("Mountain Parks") were acquired by Cygnet Financial Services,
Inc. on July 31, 1998. The Company retained approximately $50 million in
loans originated by Equity Lending and servicing rights on an additional $100
million in Equity Lending loans sold to other parties. The Company also
retained approximately $50 million in auto installment contracts originated
by Mountain Parks. In addition to a $2.1 million operating loss in the
second quarter, consisting of $707,000 attributed to quarterly operations and
$1.4 million associated with one-time operating expenses related to preparing
the subsidiaries for sale, the Company recognized a charge of $1.7 million
for the quarter, which reflects the expected loss on disposition of the
subsidiaries. Equity Lending which originates residential non-conforming
mortgages and Mountain Parks, which purchases sub-prime auto installment
contracts, were acquired in December 1996, as a result of the Company's
merger with Mountain Parks Financial Corporation. The two companies were
classified as discontinued operations on the Company's 1997 financial
statements.
On July 1, 1998, the Company issued approximately 1,932,000 shares of
common stock to acquire Western Bancshares of Las Cruces, Inc. ("Western"),
the holding company for Western Bank, Las Cruces, New Mexico, with offices in
Anthony, Hatch, and Las Cruces, New Mexico. At acquisition, Western had
approximately $159 million in assets and $136 million in deposits. The
Company used the pooling of interests method to account for the transaction.
This merger was not material to the Company's
8
<PAGE>
consolidated financial information or operating results. Accordingly, the
Company's consolidated financial information has not been restated to reflect
this merger. The operating results will be included in the Company's
consolidated statements from the date of the merger.
NOTE D - ACCOUNTING CHANGES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
is required to be adopted in years beginning after June 15, 1999. Because of
the Company's minimal use of derivatives, management does not anticipate that
the adoption of the new Statement will have a significant effect on earnings
or the financial position of the Company.
REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities which prior to adoption was reported separately
in shareholders' equity to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement 130.
During the second quarter of 1998 and 1997, total comprehensive income
amounted to $11.8 million and $15.6 million, respectively. Total
comprehensive income as of June 30, 1998 and 1997 amounted to $24.3 million
and $21.5 million, respectively.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement no. 128, "Earnings Per Share", which the Company adopted on
December 31, 1997. This Statement replaced the previous method of computing
earnings per share with basic and diluted earnings per share and required
restatement for all prior periods. 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 is similar
to the previous diluted earnings per share. The adoption of Statement 128
did not have a material impact on the calculation of earnings per share.
9
<PAGE>
NOTE E - INVESTMENTS
The following is a summary of available-for-sale and held-to-maturity
securities at June 30, 1998 (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 . . . . . . . . . . . $ 138,982 $ 1,187 $ 61 $ 140,108
United States Government agencies. . . . . . 336,705 1,393 548 337,550
Mortgage-backed securities . . . . . . . . . 1,213,978 9,048 2,980 1,220,046
Collateralized mortgage obligations. . . . . 86,942 521 93 87,370
State and Political Securities . . . . . . . 124,107 2,230 332 126,005
Other securities . . . . . . . . . . . . . . 45,136 33 104 45,065
- ----------------------------------------------------------------------------------------------------
$1,945,850 $14,412 $4,118 $1,956,144
</TABLE>
<TABLE>
<CAPTION>
Held-to-Maturity Securities
- ----------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other securities . . . . . . . . . . . . . . 65,649 - - 65,649
- ----------------------------------------------------------------------------------------------------
$65,649 $ - $ - $65,649
----------------------------------------------------
----------------------------------------------------
</TABLE>
Proceeds from the sale of available-for-sale securities during the three
months ended June 30, 1998 and 1997, were $60,077,000 and $31,156,000,
respectively. Gross gains of $475,000 and $110,000 were realized on sales
during 1998 and 1997, respectively. Gross losses of $3,000 and $48,000 were
realized on these sales during 1998 and 1997, respectively. Gains and losses
on disposition of these securities were computed using the specific
identification method.
NOTE F - LOANS
The composition of the loan portfolio at June 30, 1998, was as follows
(in thousands):
<TABLE>
<S> <C>
Real estate . . . . . . . . . . . . . . . . . . . . . . $1,358,786
Commercial. . . . . . . . . . . . . . . . . . . . . . . 841,666
Agricultural. . . . . . . . . . . . . . . . . . . . . . 295,531
Consumer and other. . . . . . . . . . . . . . . . . . . 535,494
----------
3,031,477
Less allowance for loan losses. . . . . . . . . . . . . 37,841
----------
Net loans. . . . . . . . . . . . . . . . . . . . . . $2,993,636
----------
----------
</TABLE>
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 June 30, 1998, were as
follows (in thousands):
<TABLE>
<S> <C>
Commitments to extend credit. . . . . . . . . . . . . . $607,560
Letters of credit . . . . . . . . . . . . . . . . . . . 24,631
</TABLE>
10
<PAGE>
NOTE H - SUBORDINATED NOTES
Long-term debt at June 30, 1998, 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 of 9.00% Subordinated Notes issued in July 1995, which are due August
15, 2005, with interest payable quarterly. At June 30, 1998, both issues,
totaling $72 million, qualified as Tier 2 capital.
NOTE I - INCOME TAXES
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):
<TABLE>
<CAPTION>
June 30, 1998
-------------
<S> <C>
35% of pretax income. . . . . . . . . . . . . . . . . . $ 13,838
State income tax, net of federal tax benefit. . . . . . (241)
Tax-exempt interest . . . . . . . . . . . . . . . . . . (1,799)
Amortization of goodwill. . . . . . . . . . . . . . . . 437
Other . . . . . . . . . . . . . . . . . . . . . . . . . (672)
-------------
Provision for income taxes. . . . . . . . . . . . . . . $ 11,563
-------------
-------------
</TABLE>
NOTE J - SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Noncash transfers of held-to-maturity securities
to available-for-sale securities . . . . . . . . . . . . . $ 130,845 $ 37
Unrealized gain (loss) on available-for-sale securities. . . 1,566 (326)
Conversion of preferred stock to common stock. . . . . . . . - 22,937
</TABLE>
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
June 30, 1998, and December 31, 1997, and its results of operations for the
three and six month periods ended June 30, 1998 and 1997. Each of the
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, ACQUISITION AND DIVESTITURE ACTIVITY
The Company completed three acquisitions during the first six months of
1998. As of June 30, 1998, the Company had two pending bank acquisitions,
both of which have been completed in the third quarter of 1998. The Company
completed three acquisitions during 1997. Each of these acquisitions has
had, or will have, an effect upon the Company's results of operations and
financial condition.
11
<PAGE>
During the first six months of 1998 and the year of 1997, the Company
made the following acquisitions of banks or associated holding companies:
<TABLE>
<CAPTION>
Total Assets
at Date of
Month and Holding Company or Acquisition
Year Location of Bank (In Millions)
-------------------------------------------------------------------------
<S> <C> <C>
May, 1998 FNB, Inc., Colorado $ 120
April, 1998 Longmont, Colorado 138
April, 1998 Thornton, Colorado 78
December 1997 Gunnison, Colorado 90
November 1997 Phoenix, Arizona 54
July 1997 Cheyenne, Wyoming 1,100
</TABLE>
On January 23, 1998, the Company completed the purchase and assumption
of approximately $730 million in assets and liabilities of 37 offices of Banc
One Corporation located in Arizona, Colorado, and Utah. The transaction was
accounted for as a purchase of certain assets and assumption of certain
liabilities and resulted in the recognition of a deposit based intangible of
approximately $44 million.
During 1997, the Company made the determination to dispose of its
sub-prime lending affiliates, Mountain Parks Financial Services, Inc.
("Mountain Parks") and Equity Lending, Inc. ("Equity Lending"). These
dispositions were subsequently completed in July 1998. Both Mountain Parks,
which purchases auto contracts and Equity Lending, which originates
residential, non-conforming mortgages were acquired by the Company in
December 1996 through the merger with Mountain Parks Financial Corporation.
The Company has accounted for these entities as discontinued operations on
the consolidated financial statements. At June 30, 1998, net assets of these
entities of approximately $3 million have been included as a component of
Other Assets. The Company recognized a loss of $2.1 million and net income
of $611,000 net of tax, from these entities for the three month periods ended
June 30, 1998 and 1997, respectively.
OVERVIEW
For the three months ended June 30, 1998, net income was $10.3 million,
a decrease of $853,000, or 7.7%, from the $11.1 million earned during the
1997 period. The Company's basic earnings per common share for the second
quarter of 1998 were $0.24, compared to $0.30 in 1997. Diluted earnings per
common share for the second quarter of 1998 were $0.24.
Return on average assets was .76% for the second quarter of 1998,
compared with 1.48% for the 1997 period. Return on average common
shareholders' equity for the 1998 and 1997 periods was 11.66% and 17.76%,
respectively. Principal factors contributing to these changes included the
one time charges associated with the sale of the Company's sub-prime lending
affiliates; incremental net noninterest expenses associated with the
acquisition and integration of entities acquired during 1998 and 1997; and a
decrease in net interest margin. The decrease in the net interest margin is
principally due to the lower loan to deposit ratios at those institutions
acquired in the Banc One and KeyBank transactions, which resulted in the
Company having a greater percentage of its earning assets invested initially
in lower yielding investment securities.
For the six months ended June 30, 1998, net income was $24.1 million, an
increase of $2.4 million, or 11.1%, from the $21.7 million earned during the
1997 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. Basic earnings per common share for the six
months ended June 30, 1998, were $0.58, compared to $0.60 in 1997. Diluted
earnings per common share for the six months ended June 30, 1998 were $0.57.
12
<PAGE>
Return on average assets and return on common equity for the six months
ended June 30, 1998 were .94% and 14.14%, respectively, as compared to the
1997 ratios of 1.45% and 18.22%, respectively.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for the three months ended June 30, 1998, was $58.6
million, an increase of $22.9 million, or 64.1%, from the net interest income
of $35.7 million earned during the 1997 period. The increase was principally
due to the increased asset base associated with the acquisitions completed
during 1998 and 1997, partially offset by a decrease in the net interest
margin to 4.90% during the second quarter of 1998, from 5.34% during the 1997
period.
Net interest income for the six months ended June 30, 1998 was $110.5
million, an increase of $40.4 million, or 57.6% from interest income of $70.1
million earned during the 1997 period.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended June 30, 1998,
was $1.6 million, a decrease of $920,000, or 37.0%, from the $2.5 million
provision during the 1997 period. This decrease reflects the effect of the
Company's decision to record the sub-prime lending affiliates as discontinued
operations and the Company's objective of maintaining adequate reserve levels
in recognition of significant loan growth in the Company's subsidiaries,
including those acquired in 1998 and 1997.
NONINTEREST INCOME
Noninterest income for the three months ended June 30, 1998, was $15.0
million, an increase of $4.7 million, or 45.6%, from the 1997 level of $10.3
million. The increase included an increase of $4.7 million earned by banks
acquired in 1998 and 1997, partially offset by a decrease in other income of
$852,000.
Noninterest income for the six months ended June 30, 1998, was $27.3
million, an increase of $9.9 million, or 56.9% from the 1997 level of $17.4
million. The increase was due to a $5.6 million increase in deposit service
charges, of which $5.4 million was in banks acquired in 1998 and 1997. In
addition, insurance commissions increased $616,000, trust fees increased
$512,000 and other income increased $2.3 million, which was due primarily to
banks acquired in 1998 and 1997.
NONINTEREST EXPENSE
Noninterest expense for the three months ended June 30, 1998, was $51.7
million, an increase of $23.9 million, or 86.0%, from the level of $27.8
million during the 1997 period. The increase was principally due to an
increase of $9.3 million, or 63.9%, in salaries and employee benefits, a
significant portion resulting from banks acquired in 1998 and 1997. Net
occupancy increased $4.1 million, or 102.5% from $4.0 million in the period
ended June 30, 1997, to $8.1 million at the end of the current period,
principally due to banks acquired in 1998 and 1997. Amortization of
intangibles increased $1.9 million or 216%, from $859,000 in the period ended
June 30, 1997, to $2.7 million in the current period, due principally to 1998
and 1997 acquisitions. The second quarter of 1998 included $2.6 million in
payments related to Company-obligated mandatorily redeemable preferred
securities, an increase of $1.3 million from the second quarter of 1997, due
to the increased principal amount.
13
<PAGE>
Noninterest expense for the six months ended June 30, 1998 was $95.4
million, an increase of $42.6 million, or 80.7%, from $52.8 million during
the 1997 period. The increase was principally due to a $17.2 million
increase in salaries and employee benefits, which included $13.2 million at
banks acquired during 1998 and 1997. In addition, net occupancy increased
$7.8 million, which included $4.2 million at banks acquired in 1998 and 1997.
The 1998 period included $5.1 million in expenses related to the $120
million Company-obligated mandatorily redeemable preferred securities of CFB
Capital I and II. The 1997 period included $2.1 million in expenses related
to the $60 million Company-obligated mandatorily redeemable preferred
securities of CFB Capital I. Amortization of intangibles increased $3.3
million or 183.3% from $1.8 million during the period ended June 30, 1997, to
$5.1 million during the current period, due primarily to 1998 and 1997
acquisitions.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three months ended June 30, 1998,
was $6.1 million, an increase of $1.0 million, or 19.6%, from the 1997 level
of $5.1 million, due primarily to the increase in pre-tax income resulting
from acquisitions completed since July 1997. The reduction in the effective
tax rate results primarily from the realization of the effect of certain tax
planning strategies.
The provision for income taxes for the six months ended June 30, 1998
was $11.6 million, an increase of $1.3 million, or 12.6%, from the 1997 level
of $10.3 million, due to the increase in the level of pretax income.
YEAR 2000 ISSUE
The Company is evaluating the potential impact of what is commonly
referred to as the "Year 2000" issue, concerning the inability of certain
information systems to properly recognize and process dates containing the
year 2000 and beyond. If not corrected, these systems could fail or create
erroneous results. The Company has established a dedicated Year 2000 Team
working with every operational area throughout the Company, and this team has
worked with management to commence the following steps: (i) implementing a
Year 2000 Assessment and Testing Plan for all items that may be affected by
the Year 2000 date change; (ii) working with many loan customers to help them
understand the impact of the Year 2000 on their business; (iii) communicating
with third parties that interact with the Company to ensure they are
addressing the Year 2000 issue; (iv) communicating with hardware and software
suppliers to ensure Year 2000 compliance among their products; and (v)
contingency and disaster recovery planning to ensure Year 2000 problem
resolution. The Company has identified and tested the applications it
believes are mission critical, and the test results indicated that these
systems are Year 2000 compliant. The Company expects to complete testing and
establish compliance with respect to all of its applications by December 31,
1998, subject to possible equipment upgrades during 1999 and ongoing
communications with third parties. Regardless of the Year 2000 compliance of
the Company's systems, there can be no assurance that the Company will not be
adversely affected by the failure of others to become Year 2000 compliant.
Such risks may include potential losses related to loans made to third
parties whose businesses are adversely affected by the Year 2000 issue, the
disruption or inaccuracy of data provided by non-Year 2000 compliant third
parties and business disruption caused by the failure of service providers,
such as security and data processing companies, to become Year 2000
compliant. Because of these uncertainties, there can be no assurance that the
Year 2000 issue will not have a material financial impact in any future
period.
The Company estimates that its direct costs for Year 2000 compliance
will consist of up to $100,000 related to writeoffs of non-compliant
equipment, up to $100,000 per year in costs of dedicated staff, and up to
$200,000 per year for costs related to other staff time devoted to Year 2000
compliance. The Company also expects capital expenditures of up to $1 million
for equipment and software upgrades related to compliance. Costs and capital
expenditures in these areas have not been material for historical periods.
Statements in this section 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, including statements
regarding the timetable for Year 2000 compliance, the Company's costs and
capital expenditures, the success of the Company's and others' efforts to
achieve compliance, and the effects of the Year 2000 issue on the Company's
future financial condition and results of operations. These statements 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
accuracy of these statements: (i) the inherent uncertainty of the costs and
timing of achieving compliance on the wide variety of systems used by the
Company and its subsidiaries, (ii) the reliance on the efforts of vendors,
customers, government agencies and other third parties to achieve adequate
compliance and avoid disruption of the Company's business in early 2000 and
(iii) the uncertainty of the ultimate costs and consequences of any
unanticipated disruption in the Company's business resulting from the failure
of one of the Company's applications or of a third party's systems. 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.
14
<PAGE>
FINANCIAL CONDITION
LOANS
Total loans were $3.0 billion at June 30, 1998 and $2.6 billion at
December 31, 1997.
The following table presents the Company's balance of each major
category of loans:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------------------------------------------------------------------------
Percent of Percent of
Amount Total Loans Amount Total Loans
-------------------------------------------------------
Loan category: (Dollars in Thousands)
<S> <C> <C> <C> <C>
Loan category:
Real estate . . . . . . . . . . . . . . $ 1,358,786 44.82% $ 1,158,822 43.94%
Commercial. . . . . . . . . . . . . . . 841,666 27.76% 708,084 26.85%
Consumer and other. . . . . . . . . . . 535,494 17.67% 499,924 18.96%
Agricultural. . . . . . . . . . . . . . 295,531 9.75% 270,227 10.25%
- -----------------------------------------------------------------------------------------------------
Total loans . . . . . . . . . . . . . . . 3,031,477 100.00% 2,637,057 100.00%
------- -------
------- -------
Less allowance for loan losses. . . . . . 37,841 36,194
----------- -----------
Total $ 2,993,636 $ 2,600,863
----------- -----------
----------- -----------
</TABLE>
NONPERFORMING ASSETS
At June 30, 1998, nonperforming assets were $13.0 million, a decrease of
$3.1 million, or 19.3%, from the $16.1 million level at December 31, 1997.
The decrease was principally due to the Company's decision to return an
agricultural real estate loan at the Nebraska affiliate to accrual basis and
the disposition of one other real estate property at the Wyoming affiliate.
At June 30, 1998, nonperforming loans as a percent of total loans was .33%,
down from the December 31, 1997 level of .48%. OREO was $2.9 million at June
30, 1998, a decrease of $520,000 from $3.4 million at December 31, 1997.
Nonperforming assets of the Company are summarized in the following
table:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------------
<S> <C> <C>
Loans:
Nonaccrual loans. . . . . . . . . . . . . . . . . . . . . $ 10,023 $ 12,507
Restructured loans. . . . . . . . . . . . . . . . . . . . 105 140
- -----------------------------------------------------------------------------------------
Nonperforming loans . . . . . . . . . . . . . . . . . . . 10,128 12,647
Other real estate owned . . . . . . . . . . . . . . . . . . 2,886 3,406
- -----------------------------------------------------------------------------------------
Nonperforming assets. . . . . . . . . . . . . . . . . . . . $ 13,014 $ 16,053
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Loans 90 days or more past due but still accruing . . . . . $ 3,637 $ 3,616
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans. . . . . .33% .48%
Nonperforming assets as a percentage of total assets. . . . .23% .33%
Nonperforming assets as a percentage of loans and OREO. . . .43% .61%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
At June 30, 1998 and June 30, 1997, the allowance for loan losses was
$37.8 million and $28.2 million, respectively. Net charge-offs during the
1998 period were $1.8 million more than those incurred during the six months
ended June 30, 1997.
15
<PAGE>
At June 30, 1998, the allowance for loan losses as a percentage of total
loans was 1.25%, a slight decrease from the June 30, 1997, level of 1.35%.
During the six months ended June 30, 1998, net charge-offs increased to $3.2
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 subsidiaries, including those recently
acquired.
The following table sets forth the Company's allowance for loans losses:
<TABLE>
<CAPTION>
June 30
1998 1997
------------------------
<S> <C> <C>
(Dollars in Thousands)
Balance at beginning of period . . . . . . . . . . $ 36,194 $ 26,215
Discontinued operation adjustment. . . . . . . . . 1,983 (345)
Charge-offs:
Commercial . . . . . . . . . . . . . . . . . . . 1,443 814
Real estate. . . . . . . . . . . . . . . . . . . 295 68
Agricultural . . . . . . . . . . . . . . . . . . 317 172
Consumer and other . . . . . . . . . . . . . . . 2,814 1,406
- --------------------------------------------------------------------------------
Total charge-offs. . . . . . . . . . . . . . . 4,869 2,460
- --------------------------------------------------------------------------------
Recoveries:
Commercial . . . . . . . . . . . . . . . . . . . 511 494
Real estate. . . . . . . . . . . . . . . . . . . 130 112
Agricultural . . . . . . . . . . . . . . . . . . 203 62
Consumer and other . . . . . . . . . . . . . . . 784 386
- --------------------------------------------------------------------------------
Total recoveries . . . . . . . . . . . . . . . 1,628 1,054
Net charge-offs. . . . . . . . . . . . . . . . . . 3,241 1,406
Provision charged to operations. . . . . . . . . . 2,905 3,716
- --------------------------------------------------------------------------------
Balance at end of period . . . . . . . . . . . . . $ 37,841 $ 28,180
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Allowance as a percentage of total loans . . . . . 1.25% 1.35%
Annualized net charge-offs to average
loans outstanding. . . . . . . . . . . . . . . . 0.23% 0.14%
</TABLE>
INVESTMENTS
The investment portfolio, including available-for-sale securities and
held-to-maturity securities, increased $342 million, or 17.6%, to $2.0
billion at June 30, 1998, from $1.7 billion at December 31, 1997. At June
30, 1998, the investment portfolio represented 35.9% of total assets,
compared with 34.6% at December 31, 1997. In addition to investment
securities, the Company had investments in interest-bearing deposits of $10
million at June 30, 1998, a $9 million increase from the $1 million at
December 31, 1997.
DEPOSITS
Total deposits were $4.6 billion at June 30, 1998, an increase of $1
billion or 27.8% from $3.6 billion at December 31, 1997. Noninterest-bearing
deposits at June 30, 1998, were $788 million, an increase of $191 million, or
32.0%, from $597 million at December 31, 1997. The company's core deposits
as a percent of total deposits were 88.4% and 89.0% as of June 30, 1998, and
December 31, 1997, respectively. Interest-bearing deposits were $3.8 billion
at June 30, 1998, an increase of $782 million, or 25.9% from the $3.0 billion
at December 31, 1997.
BORROWINGS
Short-term borrowings of the Company were $385 million as of June 30,
1998, as compared to $231 million at December 31, 1997, an increase of $154
million, or 66.7%.
Long-term debt of the Company was $121 million as of June 30, 1998, an
increase of $5 million,
16
<PAGE>
or 4.3%, from the $116 million as of December 31, 1997.
CAPITAL MANAGEMENT
Shareholders' equity increased $33 million, or 9.7%, to $372 million at
June 30, 1998, from $339 million at December 31, 1997. At June 30, 1998, the
Company's Tier 1 capital, total risk-based capital and leverage ratios were
9.05%, 11.95%, and 6.27%, 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
June 30, 1998, the Company had risk-weighted assets of $3.8 billion.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect
the quantitative and qualitative disclosures presented as of December 31,
1997.
17
<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:
The Company held its Annual Meeting of Shareholders on April 28,
1998. The shareholders took the following actions:
(i) The shareholders elected ten directors to hold office until
the next Annual Meeting of Shareholders or until their successors
are elected. The shareholders present in person or by proxy cast
the following numbers of votes in connection with the election of
directors, resulting in the election of all of the nominees:
<TABLE>
<CAPTION>
Votes For Votes Withheld
---------- --------------
<S> <C> <C>
Patricia A. Adam 17,363,054 125,685
James T. Anderson 17,365,437 123,302
Patrick E. Benedict 17,363,225 125,514
Patrick Delaney 17,319,230 169,509
John H. Flittie 17,366,184 122,555
Darrell G. Knudson 17,253,384 235,355
Dennis M. Mathisen 17,360,608 128,131
Donald R. Mengedoth 17,361,218 127,521
Thomas C. Wold 17,319,794 168,945
Harvey L. Wollman 17,364,725 124,014
</TABLE>
(ii) The shareholders ratified and approved an amendment to the
Company's Restated and Amended Certificate of Incorporation
increasing the number of authorized shares of the Company's Common
Stock from 30,000,000 to 80,000,000 shares. 17,096,902 votes were
cast for the resolution; 289,911 votes were cast against the
resolution; and 101,925 votes abstained.
(iii) The shareholders ratified and approved the election of Ernst
& Young LLP as the independent public accountants for the Company
for the current fiscal year. 17,411,156 votes were cast for the
resolution; 38,019 votes were cast against the resolution; and
39,564 votes abstained.
Item 5. Other Information:
The deadline for submission of shareholder proposals pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended,
for inclusion in the Company's proxy statement for its 1999 Annual
Meeting of Shareholders is December 15, 1998. Additionally, if the
Company receives notice of a shareholder proposal after January 23,
1999, such proposal will be considered untimely pursuant to Rules
14a-4 and 14a-5(e) and the persons named in proxies solicited by the
Board of Directors of the Company for its 1999 Annual Meeting of
18
<PAGE>
Shareholders may exercise discretionary voting power with respect to such
proposal.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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: August 13, 1998
/s/ Mark A. Anderson
--------------------------------------------------
Mark A. Anderson
Executive Vice President, Chief Financial Officer,
Chief Information Officer, Treasurer, Secretary
(Principal Financial and Accounting Officer)
19
<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 JUNE 30, 1998. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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120,000
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