-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GzuqJWen2SIAj1FX68ypkMnphTs1QTC7+zzbMjtmB5MqAJn2jRyyDPD4cBUkQzGq l/OkMw0Y6tPNx5AyTueGBA== 0001047469-98-012160.txt : 19980330 0001047469-98-012160.hdr.sgml : 19980330 ACCESSION NUMBER: 0001047469-98-012160 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY FIRST BANKSHARES INC CENTRAL INDEX KEY: 0000857593 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 460391436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19368 FILM NUMBER: 98576858 BUSINESS ADDRESS: STREET 1: 520 MAIN AVENUE CITY: FARGO STATE: ND ZIP: 58124-0001 BUSINESS PHONE: 7012985600 MAIL ADDRESS: STREET 1: 520 MAIN AVENUE CITY: FARGO STATE: ND ZIP: 58124-0001 10-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 TO FORM 10-K (MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE /X/ SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from to --------------- --------------- COMMISSION FILE NO. 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 58124-0001 (Address of principal executive offices and zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (701) 298-5600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01 PAR VALUE PREFERRED STOCK PURCHASE RIGHTS 8-7/8% CUMULATIVE CAPITAL SECURITIES, $25 LIQUIDATION AMOUNT(1) 8.20% CUMULATIVE CAPITAL SECURITIES, $25 LIQUIDATION AMOUNT(2)
Indicate 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 ------- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / As of March 6, 1998, assuming as market value the price of $52.75 per share, the average between the high and low sale prices on the Nasdaq National Market, the aggregate market value of shares held by nonaffiliates was approximately $958 million. As of March 6, 1998, the Company had outstanding 20,324,732 shares of Common Stock, $.01 par value, net of treasury shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1997 Annual Report to Shareholders and the Proxy Statement for the Company's Annual Meeting of Shareholders to be held April 28, 1998, are incorporated by reference into Parts II and III, respectively, of this Form 10-K, to the extent described in such Parts. (1) The 8-7/8% Cumulative Capital Securities (the "CFB I Capital Securities") were issued by CFB Capital I ("CFB Capital I"), a wholly owned Delaware business trust subsidiary of the Company. The Company has also fully and unconditionally guaranteed all of CFB Capital I's obligations under the CFB I Capital Securities. (2) The 8.20% Cumulative Capital Securities (the "CFB II Capital Securities") were issued by CFB Capital II ("CFB Capital II"), a wholly owned Delaware business trust subsidiary of the Company. The Company has also fully and unconditionally guaranteed all of CFB Capital II's obligations under the CFB II Capital Securities. 2 Part I, Item 1 is hereby amended to read as follows: PART I ITEM 1. BUSINESS COMMUNITIES SERVED The Banks, as of December 31, 1997, were located in communities with populations ranging from approximately 200 to 50,000, except for Fargo, North Dakota; Denver and Englewood (a Denver suburb), Colorado; and Phoenix, Arizona. Each of the Banks serves a market area with greater population because, in many cases, there are few or no other financial institutions within a reasonable distance from the community in which the Bank is located. The economies of the Banks' smaller communities, especially those in Nebraska, North Dakota and South Dakota, depend primarily on farming, farm service and agricultural supply businesses. Agriculture in these communities is affected by many factors beyond the control of the Banks, including weather, governmental policies, fluctuating commodity prices, demand and production and natural disasters. As with other small, nonmetropolitan communities in the Upper Midwest, many of the communities in which the Banks presently operate have experienced and are expected to experience no growth or a decline in population. The Company has operated profitably in these communities and has continued to acquire institutions in larger markets. However, if reductions in population or adverse economic trends in specific communities result in decreased profitability in the Banks or offices located in those communities, the Company may consider selling such Banks or offices or reducing the level of services provided in such communities. ACQUISITION STRATEGY The Company intends to continue its growth by making acquisitions of community banks and other financial institutions in selected communities in the Acquisition Area. The Company believes it is well-positioned to acquire and profitably operate community banks because of its experience in operating community banks, its ability to provide centralized management to those banks and its access to capital. The Company believes many owners of community banks are seeking to sell their banks for a variety of reasons, including lack of shareholder liquidity, management succession problems, the difficulty of compliance with current multiple-layered bank regulations and increasing competition from non-bank organizations. The Company believes there are over 4,500 community banks that are possible acquisition candidates in the Acquisition Area. The Company competes with individuals and institutions, including major regional bank holding companies, for suitable acquisition candidates within the Acquisition Area. Acquisition competitors of the Company in the Acquisition Area range from regional bank holding companies to individual bank owners who own or control banks in the Acquisition Area. The process of industry consolidation is likely to accelerate as a result of the adoption of the Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"). The IBBEA largely eliminated restrictions on interstate banking and since June 1, 1997, has permitted interstate branching, subject to special "opt-in" and "opt-out" provisions which states were able to enact by law. Most states have adopted implementing legislation. Certain aspects of the IBBEA were clarified and amended in 1997 with the passage of the Riegle-Neal Clarification Act. The Economics and Growth Regulatory Paperwork Reduction Act of 1996 ("EGRPRA") streamlined application processes and eased regulations in several areas facilitating acquisitions and expansion of nonbanking activities. The effect of this legislation is 3 likely to both facilitate the Company's acquisitions and to increase the number of potential acquirers of banks in the Acquisition Area. The Company has established a due diligence review process to evaluate acquisition targets and has established acquisition parameters for target acquisitions relating to market factors, financial performance and certain nonfinancial factors. Market factors considered by the Company include the size and long-term viability of the community and market area served by the target bank, the dominance of the acquisition target (which should be the largest or second largest financial institution in the market) and the proximity of other existing Banks owned by the Company. In exploring markets in regions not currently served by the Company, management looks for similarities between the new market areas and the Company's existing market areas in terms of culture and economic bases. Financial analyses performed by the Company in evaluating acquisition prospects include review of historical performance, comparison to peers and the Company's Banks in terms of key operating performance ratios (including earnings, staffing and loan quality) and target ratios. The Company determines the price it is willing to pay for an institution based on, among other factors, cash flow and return on equity valuation models and an analysis of accretion/dilution on a marginal and a pro forma basis. Nonfinancial considerations in evaluating an acquisition prospect include the quality of the management team's skill and the demand on management resources to integrate the target institution. Finally, each target acquisition must undergo an extensive review of loan asset quality, operating procedures and deposit structure before the Company commits to a purchase. The Company's level of future acquisitions will depend, in part, on its ability to attract and retain management level employees capable of performing efficient review of credit quality standards of proposed acquisition candidates. Acquisition opportunities presented to the Company that have not met the requirements described above have not been pursued. Because of limited growth opportunities in many of the existing markets served by the Company, management believes future growth in the earnings of the Company will largely depend on successful execution of the Company's strategies. In addition to Company-wide efforts to increase non-interest income through sales of investment products, trust services and insurance, the future growth of the Company will depend upon consummation of acquisitions consistent with the Company's acquisition strategy, and the future growth of recent and expected acquisitions in higher growth markets. Successful completion of acquisitions by the Company depends upon such factors as the availability of suitable acquisition candidates, necessary regulatory approvals and necessary approvals of holders of the Company's and other providers of credit, compliance with applicable capital requirements and, in the case of expansion into new states, the availability of additional management resources required to operate banks in widely dispersed geographical areas. PENDING ACQUISITIONS The Company routinely solicits and reviews acquisition opportunities and, at any given time, may have bids outstanding or may be involved in negotiations with the owners of financial institutions or other parties relative to a particular financial institution, its branches or its deposit accounts. On January 12, 1998, the Company signed a definitive merger agreement with FNB, Inc. ("FNB"), a two-bank holding company headquartered in Greeley, Colorado. At December 31, 1997, FNB had total assets of $118 million and offices in Greeley and Fort Collins, Colorado. To facilitate completion of the transaction, which is expected to be accounted for using the pooling of interests method of accounting, the Company will issue approximately 570,000 shares of common stock to holders of FNB common stock. The transaction is subject to regulatory approval and is expected to close during the second quarter of 1998. 4 On January 8, 1998, the Company signed a definitive merger agreement with Community Bancorp, Inc. ("CBI"), a one-bank holding company headquartered in Thornton, Colorado. At December 31, 1997, CBI had total assets of $78 million and offices in Thornton and Arvada, Colorado. To facilitate completion of the transaction, which is expected to be accounted for using the pooling of interests method of accounting, the Company will issue approximately 452,000 shares of common stock to holders of CBI common stock. The transaction is subject to regulatory approval and is expected to close during the second quarter of 1998. On November 7, 1997, the Company entered into an agreement to acquire Pioneer Bank of Longmont, Longmont, Colorado ("Pioneer"). At December 31, 1997, Pioneer had total assets of $130 million and five banking offices in four Colorado communities. On completion of the merger and subject to adjustments set forth in the acquisition agreement, the Company expects to issue approximately 700,000 shares of its common stock to the holders of Pioneer common stock. Completion of the acquisition is subject to regulatory approvals, approval by the Pioneer shareholders and other conditions. The transaction is anticipated to be completed during the second quarter of 1998 and is expected to be accounted for as a pooling of interests. RECENT SIGNIFICANT ACQUISITIONS On January 23, 1998, the Company acquired 37 banking offices located in Arizona, Colorado and Utah (the "Bank One Branches") from three subsidiary banks of Banc One Corporation (the "Bank One Banks"). At closing, the Bank One Branches had total deposits of approximately $730 million and loans of approximately $61 million. The Company paid a purchase price premium of approximately $43.8 million, equal to 6% of the deposits of the Bank One Branches at closing. The acquisition was accounted for as an acquisition of assets and assumption of liabilities and resulted in the recognition by the Company of deposit-based intangibles in an amount equal to the purchase price premium of approximately $43.8 million. Following the closing, the 25 Arizona offices and four Utah offices acquired from the Bank One Banks were merged into the Republic bank in Phoenix, Arizona that was recently acquired by the Company. The eight acquired Colorado offices were merged into the Company's existing Colorado affiliate bank. In January 1998, the Company signed an agreement to sell one of the former Bank One Branches located in Colorado. On December 1, 1997, the Company acquired First National Summit Bankshares, Inc., Gunnison, Colorado ("Summit"), a bank holding company that owned and operated a national bank with banking facilities in five Colorado communities. At closing, Summit had total assets of approximately $90 million, total deposits of approximately $82 million and total stockholders' equity of approximately $7 million. Upon completion of the merger, which was accounted for as a pooling of interests, the Company issued approximately 314,800 shares of common stock to the former holders of Summit common stock and paid approximately $1 million in cash to holders of Summit preferred stock cancelled in the merger. The value of the Company's common stock issued in the merger was approximately $15 million, based upon the trading value of the Company's common stock determined pursuant to the merger agreement. On November 24, 1997, the Company acquired Republic National Bancorp, Inc., Phoenix, Arizona ("Republic"), a bank holding company that owned and operated a national bank in Phoenix, Arizona. At closing, Republic had total assets of approximately $54 million, total deposits of approximately $49 million and total stockholders' equity of approximately $4 million. Upon completion of the merger, which was accounted for as a pooling of interests, the Company issued approximately 368,000 shares of common stock to the former holders of Republic common stock. The value of the Company's common stock issued in the merger was approximately $17.4 million, based upon the trading value of the Company's common stock determined pursuant to the merger agreement. 5 On July 14, 1997, the Company purchased KeyBank National Association, Cheyenne, Wyoming ("KeyBank Wyoming"), from KeyCorp, its parent corporation, ("KeyCorp"), for a purchase price of $135 million. KeyBank Wyoming has been renamed "Community First National Bank." At closing, KeyBank Wyoming had total assets of approximately $1.1 billion and 28 banking offices located in 24 communities in Wyoming, including Cheyenne, Laramie, Casper, Sheridan and Jackson. The Company believes its Wyoming banking network is the largest in Wyoming, providing a full range of commercial and consumer banking services throughout the state. The transaction was accounted for as a business combination using the purchase method of accounting and resulted in the recognition of goodwill by the Company of approximately $60 million. On December 18, 1996, the Company acquired Mountain Parks Financial Corp. ("Mountain Parks"), a bank holding company that operated a state chartered bank with full service commercial banking facilities in 17 Colorado communities. At closing, Mountain Parks had total assets of approximately $600.0 million and total stockholders' equity of approximately $60.9 million. Upon completion of the merger, which was accounted for as a pooling of interest, the Company issued approximately 5.2 million shares of common stock to the former holders of Mountain Parks common stock. The market value of the Company's common stock issued in the merger was approximately $142.2 million, based on the closing price of the Company's common stock on the Nasdaq National Market on December 18, 1996. The Mountain Parks banking offices are located in winter ski and summer recreational areas in the Colorado mountains and in the greater Denver/Boulder metropolitan area. Pursuant to commitments made with the Federal Reserve to address resulting concentrations in certain Colorado banking markets, on April 4, 1997, the Company sold Mountain Parks banking offices in two Colorado communities. ADMINISTRATION OF BANKS The Company provides policy and management direction and specialized staff support in general areas while relying on Bank managers for day-to-day operations, customer service decisions and community relations. The Company is responsible for policy-related functions, such as supervisory credit review, audits, personnel policies and internal examination activities. Resource allocations for administrative support by the Company are balanced to provide adequate support services for the Banks' operations, while carefully controlling service costs charged to the Banks. The major areas of administration are as follows: CREDIT. The Company's lending activities are guided by the general loan policy established by the Board of Directors. The Senior Credit Committee of the Company has established loan approval limits for each region of the Company and each subsidiary Bank. Amounts in excess of the individual Bank lending authority are presented to the Regional Credit Officers. Loans above $1,500,000 per nonclassified borrower and $250,000 per classified borrower are presented to the Senior Credit Committee for approval. The Company's credit policy establishes guidelines for approval of all credits, including local loans and purchased loans and loan participations. The credits of the Banks are subject to internal review by Bank officers every 12 months. The loan portfolios of the Banks are subject to examination by the Company's credit examination staff every 12 to 24 months, the frequency of which is based on a variety of factors, including the credit quality of the institution. The credit examination staff is also responsible for credit review with respect to the assets of banks to be acquired by the Company. 6 FINANCE. The Board of Directors of the Company has established policies in the areas of asset/liability management, investments, capital expenditures, accounting procedures and capital and dividend management. Policies are implemented and monitored for compliance by the Chief Financial Officer and the Asset/Liability Committee of the Company. OPERATIONS. Community First Service Corporation ("CFSC"), a subsidiary of the Company, provides data processing and operations support services to the Banks by contract. CFSC's system is designed to provide for all Bank and customer data processing needs at the lowest possible cost and can be expanded to accommodate future growth and additional service applications. The Company believes CFSC has sufficient capacity to provide services to the banks the Company has agreed to acquire. In addition to its own office facilities in Fargo, North Dakota, CFSC also has a data processing facility in Golden, Colorado. Additional expenditures for equipment, consistent with the increased data processing volumes, would likely be necessary if additional significant acquisitions occur during 1998. OTHER SERVICES. The Company provides other services for the benefit of the Banks, such as outside professional services, central human resources services, benefits administration, marketing guidance and centralized purchasing of supplies. INSURANCE AGENCIES The Company currently owns and operates insurance agencies located in 32 communities served by the Banks through its subsidiaries, Community Insurance, Inc. ("CII"), and Community First Insurance Agencies, Inc. ("CFIA"). These agencies are primarily engaged in the sale of property and casualty insurance and make some sales of other types of insurance, such as life, accident and crop hail insurance. The Company had commission revenue of $5.4 million in 1997. OTHER ACTIVITIES The Company has steadily consolidated Banks located in each state into single legal charters with multiple locations. As of December 31, 1997, the Company had 10 separately chartered subsidiary Banks and 6 nonbank subsidiaries. The subsidiary Banks of the Company in seven locations maintain trust departments, but their services are more broadly available and the Company may expand its trust activities in the future. Trust services are made available to customers in several locations through local trust officers or by appointment with members of the trust department. Most of the Banks also sell annuities. Federal bank regulation permits bank holding companies to engage in other limited activities, such as the distribution of certain types of securities, and future changes in such regulation may further expand the types of activities in which the Company may engage. Although the Company intends to maintain its focus on the banking business in its targeted market areas, the Company will consider other permitted business activities as opportunities arise. COMPETITION Commercial banking is highly competitive. In the conduct of certain aspects of their business, the Banks compete with other commercial banks, savings and loan institutions, issuers of fixed income investments, finance corporations, credit unions and money market funds, among other types of institutions. The Banks compete with these institutions in such areas as obtaining new deposits, offering new types of services and setting loan rates and interest rates on various types of deposits, as well as other aspects of the banking 7 business. Management believes community residents and businesses prefer to deal with local banks and the Banks have generally been able to compete successfully in their respective communities because of the Company's emphasis on local ownership and the autonomy of Bank management in community relations. At the same time, the Company provides the Banks with the advantages of centralized sophisticated administration and the opportunity to make larger loans and diversify their lending activity through Bank group participations. Further, because most of the Banks have a significant market share in the communities they serve, the Company believes the Banks can, to a degree, influence deposit and loan pricing in their markets and are subject to less competition based on deposit and loan pricing than would be the case in larger metropolitan markets with more competitors. However, the Banks have experienced increased price competition from credit unions in certain market areas in recent periods. Recent changes in government regulation of banking, particularly the legislation which removes restrictions on interstate banking and permits interstate branching, or legislation in certain states to permit statewide branching, may increase competition by both out-of-state and in-state banking organizations and by other financial institutions. See "Supervision and Regulation," below. The Banks compete with other financial institutions, including government lending agencies, for high quality loans in the Banks' market areas and for purchases of loan assets and investment assets. While management believes the Banks will continue to compete successfully in their communities, there is no assurance that future competition will not adversely affect the Banks' earnings. EMPLOYEES The Company had 2,241 employees at December 31, 1997, including 1,681 full-time employees and 560 part-time employees. Of these individuals, 128 were employed at the holding company level, 1,841 (including 1,381 full-time employees) were employed at the Bank level, 200 were employed by CFSC and 72 were employed by CII and CFIA. SUPERVISION AND REGULATION GENERAL. In addition to a variety of generally applicable state and federal laws governing businesses and employers, the Company and the Banks are extensively regulated by federal and state laws applicable only to financial institutions. Virtually all aspects of the Company's operations are subject to specific requirements or restrictions and general regulatory oversight from laws regulating consumer finance transactions, such as Truth In Lending Act, Home Mortgage Disclosure Act and Equal Credit Opportunity Act, to laws regulating collections and confidentiality, such as Fair Debt Collections Practices Act, Fair Credit Reporting Act and Right to Financial Privacy Act. With few exceptions, state and federal banking laws have as their principal objective either the maintenance of the safety and soundness of the Federal Deposit Insurance System or the protection of consumers or classes of consumers, rather than the specific protection of security holders of the Company. With the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), the FDIC Improvement Act of 1991 ("FDICIA") and the Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"), Congress enacted comprehensive legislation affecting the commercial banking and thrift industries. FIRREA, among other things, abolished the Federal Savings and Loan Insurance Corporation and established two new insurance funds under the jurisdiction of the FDIC: the Bank Insurance Fund ("BIF"), which insures most commercial banks, including the Banks, and the Savings Association Insurance Fund, which insures most thrift institutions. In addition to effecting far-reaching restructuring of the financial industry, FIRREA provided a phased-in increase in the rate of annual insurance assessments paid by insured depository institutions. FDICIA increased funding for the BIF and expanded regulation of 8 depository institutions and their affiliates, including parent holding companies. FDICIA further provided authority for special assessments against insured deposits and for the development of a system of assessing deposit insurance premiums based upon the institutions's risk. IBBEA generally liberalized multi-state expansion. Effective September 29, 1995, IBBEA significantly eased restrictions on interstate acquisition of banks by bank holding companies. Beginning June 1, 1997, banks located in different states may merge and operate the resulting institution as a single charter with interstate branches. However, the legislation includes special "opt-out" and "opt-in" provisions that individual states may adopt prior to the effective date of interstate branching. IBBEA does NOT affect the branching laws within a state, and imposes concentration limits limiting the resulting organization's market share to 30% of state deposits and 10% of total United States deposits. Congress continues to consider wide-ranging proposals for altering the structure, regulation and competitive relationships of the nation's financial institutions. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of the Company may be affected thereby. BANK HOLDING COMPANY REGULATION. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "BHC Act"). As a result, the Company's activities are subject to certain limitations under the BHC Act, and transactions between the Company and the Banks and other affiliates are subject to certain restrictions. As a registered bank holding company, the Company is required to file semiannual reports with the Federal Reserve Board ("FRB") and such other information as the FRB may require, and is subject to examination by the FRB. The FRB has the authority to issue cease and desist orders against the Company and its nonbank subsidiaries if the FRB determines that actions by the Company are unsafe, unsound or violate the law. Under certain circumstances, redemptions, dividends or distributions by the Company with respect to its equity securities may be considered unsafe or unsound practices. As a bank holding company, the acquisition of "control" of the Company by an individual or a "company" is subject to the prior approval of the FRB. The term "company" is broadly defined to include any corporation, partnership, association or trust or similar organization, while the definition or control for these purposes may be met by (i) the ownership, control or power to vote 10% or more of the outstanding shares of any class of voting stock of the Company, directly or indirectly, (ii) control over the election priority of Directors of the Company, or (iii) the power to exercise, directly or indirectly, controlling influence over the management or policies of the Company. Under the BHC Act, a bank holding company must obtain prior FRB approval before it acquires direct or indirect ownership or control of any voting shares of any bank or other bank holding company if, after such acquisition, it will own or control directly or indirectly more than 5% of the voting stock of the target, unless it already owns a majority of the voting stock of the target. A bank holding company also must obtain prior FRB approval before it acquires all or substantially all of the assets of a bank or merges or consolidates with another bank holding company. A bank holding company is, with limited exceptions, prohibited from acquiring direct or indirect ownership or control of a company that is not a bank or a bank holding company, and must engage in the business of banking or managing or controlling banks or furnishing services to or performing services for its subsidiary banks. The FRB, by order or regulation, may authorize a bank holding company to engage in or acquire stock 9 in a company engaged in activities so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities the FRB has determined by regulation to be incidental to the business of banking are: making and servicing loans or certain types of leases, engaging in discount brokerage activities, performing certain data processing services and providing insurance brokerage services under certain conditions and subject to certain limitations. In reviewing any application or proposal by a bank holding company, the FRB is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the community to be served, as well as the probable effect of the transaction upon competition. Recent decisions by the FRB under the BHC Act have underscored the importance placed by the FRB upon the record of the applicant and its subsidiary banks in meeting the credit needs of its community in accordance with the Community Reinvestment Act of 1977. BANK REGULATION. The Banks are subject to detailed federal and state laws and regulations. National bank subsidiaries of the Company are primarily supervised by the Office of the Comptroller of the Currency (the "OCC"), a bureau of the United States Department of Treasury. The OCC regularly examines national banks in such areas as reserves, loans, investments, trust services, management practices, Community Reinvestment Act compliance and other aspects of bank operations. These examinations are designed for the protection of the deposit insurance system and the enforcement of federal and state laws and regulations, and not for the shareholders of the Company. In addition to undergoing these regular examinations, national banks must furnish reports containing detailed and accurate financial statements and schedules to the OCC quarterly. Bank subsidiaries of the Company that are chartered under state law are regulated and supervised by the respective state's banking agency. In addition, state-chartered banks, as members of the FDIC, are regulated and supervised by the FDIC. Each of these agencies conducts regular examinations of each Bank, generally on an alternate basis, reviewing the adequacy of the reserves, quality of the loans and investments, propriety of management practices, compliance with laws and regulations, including the Community Reinvestment Act, trust, and other aspects of Bank operations. These examinations are designed for the protection of the deposit insurance system and the enforcement of federal and state laws and regulations, and are not conducted for the benefit of the shareholders of the Company. Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, investments a bank may make, reserves a bank must maintain, loans a bank makes and collateral it takes, the activities of a bank with respect to mergers and consolidations and the establishment of branches. The OCC, in the case of national banks, and the FDIC, in the case of state-chartered, nonmember banks, are the respective primary regulatory authorities under the Financial Institution Supervisory Act, and are thereby provided authority under that Act to impose penalties, initiate civil and administrative actions and take other steps intended to prevent a bank from engaging in an unsafe or an unsound practice in the conduct of its business. In extreme cases, the FDIC has authority to revoke deposit insurance, and may assess civil money penalties and impose cease and desist orders against the bank and affiliated individuals, including the bank's attorneys and accountants. Under FDICIA, federal banking authorities are also authorized to establish safety and soundness standards for banks, thrifts and their parent holding companies covering a wide range of operational and managerial matters, including asset quality, earnings, stock valuation and employee compensation. Under current law, national and state bank subsidiaries of the Company are subject to state law restrictions in branching, including restrictions on the number, location and characteristics of branches. The laws vary from liberal branching states, like North Dakota and Wisconsin, which allow banks to branch freely, subject 10 only to application and approval, to states like Iowa and Nebraska, which severely restrict branching, although they allow banks to combine and retain preexisting locations. In June 1993, the FDIC adopted a risk-based premium schedule that increases the assessment rates for depository institutions. Under the new schedule, which took effect for the assessment period beginning January 1, 1994, each financial institution is assigned to one of three capital groups: well capitalized, adequately capitalized or undercapitalized, as defined in the regulations implementing the prompt corrective action provisions of the FDICIA; and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors and other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution depends upon the risk assessment classification so assigned to the institution by the FDIC. Because the BIF has reached its required reserve level of 1.25% of insured deposits, banks in the lowest risk classification pay no deposit insurance premiums currently. Each of the Banks currently qualifies for the lowest level of deposit insurance. EXECUTIVE OFFICERS The executive officers of the Company are as follows:
Name Age Position - ---- --- -------- Donald R. Mengedoth 53 President, Chief Executive Officer and Chairman of the Board Mark A. Anderson 40 Executive Vice President, Chief Financial Officer, Chief Information Officer, Secretary and Treasurer Ronald K. Strand 51 Executive Vice President - Banking Group David E. Groshong 49 Executive Vice President - Financial Services Thomas R. Anderson 42 Senior Vice President - Treasury Randall L. Dancliff 50 Senior Vice President and Wyoming Region Manager Cynithia U. Davis 45 Senior Vice President and Arizona/Utah Region Manager Keith A. Dickelman 43 Senior Vice President and Eastern Colorado Region Manager Thomas E. Hansen 45 Senior Vice President and Central Region Manager Bruce A. Heysse 46 Senior Vice President - Acquisitions Thomas A. Hilt 55 Senior Vice President - Operations and Administration
11 Gary A. Knutson 50 Senior Vice President and Integration Manager David A. Lee 54 Senior Vice President and Eastern Region Manager Charles A. Mausbach 46 Senior Vice President and Western Colorado Region Manager Harriette S. McCaul 47 Senior Vice President - Human Resources Patricia J. Staples 42 Senior Vice President - Marketing Craig A. Weiss 36 Senior Vice President - Finance
Donald R. Mengedoth has been President, Chief Executive Officer, Chairman of the Board and a director of the Company since its organization in 1986. He was Senior Vice President of First Bank System, Inc. ("FBS") from 1982 to 1987 and has worked in the banking business since 1966, including management positions in retail banking operations, human resources and commercial lending. From 1984 to 1987, Mr. Mengedoth was Regional Managing Director of FBS. From 1979 to 1982, Mr. Mengedoth was Vice President - Operations for FBS. Prior to that time, he was Senior Vice President of First Bank Milwaukee. Mark A. Anderson has been Executive Vice President, Chief Financial Officer, Secretary and Treasurer of the Company since its organization in 1986 and Chief Information Officer since February 1998. He was Vice President and Regional Controller for FBS from 1984 to 1987. From 1979 to 1984, he held various positions with FBS-affiliated banks in the finance and credit analysis areas. Mr. Anderson is a Chartered Financial Analyst and a Certified Management Accountant. Ronald K. Strand has been Executive Vice President - Banking Group since February 1993. He was previously Senior Vice President and Regional Manager for South Dakota and North Dakota for the Company from January 1991 to February 1993. Previously, Mr. Strand had been Vice President and Regional Manager for the Company and President, Chief Executive Officer and a director of the Company's affiliate bank in Wahpeton, North Dakota since 1988. Prior to his affiliation with the Company, he served as President and Chief Executive Officer of Norwest Bank of North Dakota, N.A., Wahpeton, from 1985 until 1988. He was employed by Norwest for a total of 15 years, having previously worked in Norwest banks in Jamestown, North Dakota, and Moorhead, Minnesota. David E. Groshong has been Executive Vice President - Financial Services since May 1996. He was previously Chairman and Chief Executive Officer of the Company's affiliate bank in Alliance, Nebraska from May 1995 to May 1996. Previously, Mr. Groshong had been President and Chief Executive of the Company's affiliate bank in Fergus Falls, Minnesota since 1992 and as Senior Vice President and Senior Loan Officer of the Fargo Bank since 1985. He was employed by Norwest Bank of Minnesota, N.A. for a total of eight years and prior to that worked in the consumer finance industry. Thomas R. Anderson has been Senior Vice President - Treasury since February 1998. He was previously Vice President/Funds Manager of the Company from 1988 to 1997 and Funds Management Officer from 1987 to 1988. Prior to 1987, he was employed by Norwest Corporation for seven years, most recently as a Senior Financial Analyst. 12 Randall L. Dancliff has been Senior Vice President and Wyoming Region Manager since July 1997. He was President and Chief Executive Officer of KeyBank Wyoming since April 1995 until the acquisition of KeyBank Wyoming by the Company in July 1997. Prior to that, he served as President, Chief Operating Officer and Chief Financial Officer of KeyBank Wyoming from 1992 to April 1995, and as Regional Vice President of KeyBank Cheyenne from 1985 to 1991. From 1973 through 1985, he served in a variety of capacities with First Wyoming Bank, the predecessor to KeyBank Wyoming. Cynthia U. Davis has been Senior Vice President and Arizona/Utah Region Manager since October 1997. From October 1987 to October 1997, she held various positions for Banc One Corporation, including positions as Vice President, Retail Delivery for Banc One Corporation and Vice President Region Manager for 36 Bank One banking centers in Northern Arizona. She has a total of 23 years of banking experience in Arizona, Idaho and California. Keith A. Dickelman has been Senior Vice President and Eastern Colorado Region Manager since January, 1998. He was previously President of Community First National Bank, Fergus Falls, Minnesota from 1995 to 1997 and from 1992 to 1995 served as a Senior Loan Officer and Senior Vice President of Community First National Bank, Fargo, North Dakota. Thomas E. Hansen has been Senior Vice President and Central Region Manager since April 1993. He also served as President, Chief Executive Officer and a director of the Company's affiliate bank in Fargo, North Dakota from April 1993 to December 1996. Previously, he was employed by Norwest Bank Fargo for 19 years, most recently as President. Bruce A. Heysse has been Senior Vice President - Acquisitions since July 1996. He was Senior Vice President and Integration Manager of the Company from November 1995 to June 1996. He was Vice President and Senior Credit Officer of the Company from 1987 to November 1995. He began his banking career at the Company's affiliate bank in Wahpeton, North Dakota, and had a total of 11 years of banking experience prior to joining the Company. Thomas A. Hilt has been Senior Vice President - Operations and Administration of the Company since 1987 and President of Community First Service Corporation, the Company's data processing subsidiary, since 1988. He was Vice President and Manager - Operations Support for the Regional Division of FBS from 1984 to 1987. Prior to 1984, he held various positions with FBS since 1967, including responsibility for systems development, programming, audit and examination functions. Gary A. Knutson has been Senior Vice President and Integration Manager since July, 1996 and previously was Senior Vice President and Western Region Manager of the Company since September 1993. He was President, Chief Executive Officer and director of the Company's affiliate bank in Wahpeton, North Dakota from January 1991 to September 1993. He began his banking career at the Company's affiliate bank in Lidgerwood, North Dakota, and had a total of 14 years of banking experience prior to joining the Company. David A. Lee has been Senior Vice President and Eastern Region Manager of the Company since January 1991. He had been a Region Manager of the Company since 1988. He was President and Chief Executive Officer and a director of the Company's affiliate bank in Little Falls from 1987 to January 1991. Mr. Lee held various positions with FBS from 1966 to 1987. 13 Charles A. Mausbach has been Senior Vice President and Western Colorado Region Manager since March 1998. He was President of Community First National Bank, Worthington, Minnesota from October 1992 to February 1998. Harriette S. McCaul, Ph.D., has been Senior Vice President of Human Resources since February 1997. Previously, she was the Dean of the College of Business Administration at North Dakota State University in Fargo, North Dakota. She joined NDSU in 1983 and held various teaching and administrative positions in the Business Department and human resources area. Prior to that time, she was an instructor at Moorhead State University, Moorhead, Minnesota, and the director of faculty and staff benefits at the University of Kansas. Patricia J. Staples has been Senior Vice President - Marketing since July 1994. Previously, Ms. Staples was employed as the public relations manager with MeritCare Health System for 10 years. Craig A. Weiss has been Senior Vice President - Finance since February 1998. He was previously Vice President Finance of the Company from 1988 to 1997 and Finance and Accounting Manager from 1987 to 1998. Prior to 1987, he was employed by First Bank System, most recently as a Regional Financial Analyst. Mr. Weiss is a certified public accountant. ELECTION. The Company's officers are elected by the Board of Directors. The officers serve until their successors are elected or until their earlier resignation, removal or death. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (c) EXHIBITS.
Exhibit Number Description - ------ ----------- 2.1 Master Agreement dated July 22, 1994, between the Registrant and Bank of Colorado Holding Company, including as Exhibit A the form of Purchase and Assumption Agreement executed by Colorado Community First State Bank of Steamboat Springs and Vail Bank (incorporated by reference to Exhibit 2.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 [the "1994 Form 10-K"]). 2.2 Agreement and Plan of Merger dated as of August 12, 1994, between the Registrant and Minowa Bancshares, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 [File No. 33-84746], as declared effective by the Securities and Exchange Commission (the "Commission") on January 23, 1995). 2.3 Agreement and Plan of Merger dated as of November 28, 1994, between the Registrant and Abbott Bank Group, Inc. (incorporated by reference to Exhibit 10.2 to the Form 8-K report of the Registrant dated January 20, 1995).
14
Exhibit Number Description - ------ ----------- 2.4 Restated Agreement and Plan of Merger dated as of December 6, 1994, among the Registrant, Colorado Acquisition Corporation and First Community Bankshares, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K report of the Registrant dated January 20, 1995). 2.5 Stock Purchase Agreement dated as of June 7, 1995 by and among BNCCORP, Inc., Gregory Cleveland and Tracy Scott, and the Registrant relating to Farmers & Merchants Bank of Beach (incorporated by reference to Exhibit 2.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 [the "1995 Form 10-K"]). 2.6 Agreement and Plan of Merger dated as of March 8, 1996 among the Registrant, Trinidad Acquisition Corporation and Financial Bancorp, Inc. (the holding company for Trinidad National Bank) (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 [File No. 333-6239], as declared effective by the Commission on August 9, 1996). 2.7 Agreement and Plan of Reorganization dated as of June 25, 1996 between the Registrant and Mountain Parks Financial Corp. (incorporated by reference to the Appendix to the Registrant's Joint Proxy Statement with Mountain Parks Financial Corp. included in the Registration Statement on Form S-4 [File No. 333-14439], as declared effective by the Commission on November 7, 1996). 2.8 Stock Purchase Agreement dated as of February 18, 1997 by and among the Registrant, KeyCorp and Key Bank of the Rocky Mountains, Inc. (incorporated by reference to Exhibit 2.8 to the Registrant's Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed with the Commission as of May 8, 1997 [the "1996 Form 10-K"]). 2.9 Restated Agreement and Plan of Merger dated as of August 22, 1997, including Agreement and First Amendment to Agreement dated as of the same date, between the Registrant and First National Summit Bankshares, Inc.(incorporated by reference to Appendices A and B to the Proxy Statement-Prospectus contained in the Registrant's Registration Statement on Form S-4 [File No. 333-38997] filed with the Commission on October 29, 1997). 2.10 Restated Agreement and Plan of Merger dated as of August 28, 1997 between the Registrant and Republic National Bancorp, Inc. (incorporated by reference to Appendix A to the Proxy Statement-Prospectus contained in Registrant's Registration Statement on Form S-4 [File No. 333-38225] filed with the Commission on October 20, 1997). 2.11 Office Purchase and Assumption Agreement dated as of the 10th day of September, 1997 by and between Bank One, Arizona, National Association, Bank One, Colorado, National Association, Bank One, Utah, National Association and the Registrant, (incorporated by reference to Exhibit 2.6 to the Registrant's Registration Statement on Form S-4 [File No. 333-36091], filed with the Commission on September 22, 1997). 2.12 Agreement and Plan of Merger dated as of November 6, 1997 among the Registrant, Community First National Bank and Pioneer Bank of Longmont (incorporated by reference to Exhibit 2.7 to the
15
Exhibit Number Description - ------ ----------- Registrant's Registration Statement on Form S-4 [File No. 333-37527], filed with the Commission on November 21, 1997). 2.13 First Amendment to Agreement and Plan of Merger dated as of the 19th day of December, 1997 by and among the Registrant, Community First National Bank and Pioneer Bank of Longmont.* 3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the 1996 Form 10-K). 3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 [File No. 33-41246], as declared effective by the Commission on August 13, 1991 [the "1991 S-1"]). 4.1 Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit A to Exhibit 1 to the Registrant's Registration Statement on Form 8-A, filed with the Commission on January 9, 1995 [the "Form 8-A"]). 4.2 Form of Rights Agreement dated as of January 5, 1995, between the Registrant, and Norwest Bank Minnesota, National Association, which includes as Exhibit B thereto the form of Rights Certificate (incorporated by reference to Exhibit 1 to the Form 8-A.) 4.3 Subordinated Indenture dated February 5, 1997, between the Registrant and Wilmington Trust Company, as Indenture Trustee, including form of Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 [File No. 333-19921] filed with the Commission as of January 30, 1997 [the "1997 CFB Capital I Form S-3"]). 4.4 Amended and Restated Trust Agreement of CFB Capital I dated February 5, 1997, including Form of Capital Security Certificate of CFB Capital I (incorporated by reference to Exhibit 4.5 to the 1997 CFB Capital I Form S-3). 4.5 Capital Securities Guarantee Agreement dated as of February 5, 1997, between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.7 to the 1997 CFB Capital I Form S-3). 4.6 Indenture dated June 24, 1997 relating to the Registrant's 7.30% Subordinated Notes Due 2004 (the "New Notes") between the Registrant and Norwest Bank Minnesota, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 [File No. 333-36091] as declared effective by the Commission on November 10, 1997 [the "1997 Subordinated Note Form S-4"]).
16
Exhibit Number Description - ------ ----------- 4.7 Registration Rights Agreement dated as of June 24, 1997, among the Registrant, Piper Jaffray Inc. and Keefe, Bruyette & Woods, Inc. (incorporated by reference to Exhibit 4.2 to the 1997 Subordinated Note Form S-4). 4.8 Subordinated Indenture dated December 10, 1997, between the Registrant and Wilmington Trust Company, as Indenture Trustee, including form of Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 [File No. 333-37521] as declared effective by the Commission on December 4, 1997 [the "1997 CFB Capital II Form S-3"]). 4.9 Amended and Restated Trust Agreement of CFB Capital I dated December 10, 1997, including Form of Capital Security Certificate of CFB Capital II (incorporated by reference to Exhibit 4.5 to the 1997 CFB Capital II Form S-3). 4.10 Capital Securities Guarantee Agreement dated as of December 10, 1997, between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.7 to the 1997 CFB Capital II Form S-3). 10.1 1997 Annual Incentive Plan for Holding Company Management.* , ** 10.2 Restated 1987 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-8 [File No. 33-46744], as declared effective by the Commission on May 6, 1992).** 10.3 Form of Tax Sharing Agreement between the Registrant and each of its subsidiary Banks (incorporated by reference to Exhibit 10.3 to the 1995 Form 10-K). 10.4 Form of Service Agreement for Data Processing between Community First Service Corporation and each of the subsidiary Banks of the Registrant (incorporated by reference to Exhibit 10.4 to the 1995 Form 10-K). 10.5 Form of Bank Services Agreement between the Registrant and each of its subsidiary Banks (incorporated by reference to Exhibit 10.5 to the 1995 Form 10-K). 10.6 Form of Agency Agreement between the Registrant and each of its subsidiary Banks, and Assignment of Agency Agreement and Second Assignment of Agency Agreement, which assign the Registrant's interest in the Agency Agreement to Community First Financial, Inc. (relating to the Registrant's subsidiary Banks) (incorporated by reference to Exhibit 10.6 to the 1995 Form 10-K). 10.7 Lease dated April 27, 1993, between Community First Properties, Inc. (formerly Fargo Tower Partners) and the Registrant (incorporated by reference to Exhibit 10.11 to the 1994 10-K).
17
Exhibit Number Description - ------ ----------- 10.8 Promissory Note dated July 14, 1997 (Term Note) in the principal amount of $30,000,000, issued to Norwest Bank Minnesota, National Association ("Norwest"), as Agent, on behalf of Harris Trust and Savings Bank ("Harris"), Band of America National Trust and Savings Association ("Bank of America") and Norwest.* 10.9 Promissory Notes dated July 14, 1997 (Current Notes), each in the principal amount of $8,333,333.33, issued to each of Harris, Bank of America, and Norwest.* 10.10 Credit Agreement dated July 14, 1997 among the Company, Harris, Bank of America, Norwest as a lender, and Norwest as Agent.* 10.11 Form of Indemnification Agreement entered into by and between the Registrant and the Registrant's officers and directors (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 [the "1993 Form 10-K']). 10.12 1996 Stock Option Plan, as approved by the Board of Directors on February 6, 1996 (incorporated by reference to Exhibit 10.15 to the 1995 Form 10-K).* 10.13 Supplemental Executive Retirement Plan, effective as of August 1, 1995.*, ** 13.1 Annual Report to Shareholders.* 21.1 Subsidiaries of the Registrant.* 23.1 Consent of Ernst & Young LLP. 27.1 Financial Data Schedule relating to Financial Statements at December 31, 1997. 27.2 Financial Data Schedule relating to Financial Statements at June 30, 1996, September 30, 1996 and December 31, 1996. 27.3 Financial Data Schedule relating to Financial Statements at March 31, 1997, June 30, 1997 and September 30, 1997. 99.1 Historical Financial Statements of KeyBank National Association (Wyoming) ("KeyBank Wyoming") for the year ended December 31, 1996 and unaudited Historical Financial Information for the Six Months Ended June 30, 1997.
- ---------------- *Previously filed. **Executive compensation plans and arrangements. 18 SIGNATURE Pursuant to the requirements of section 13 or 15(d) 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. ("Registrant") Dated: March 26, 1998 By /s/ Mark A. Anderson ---------------------- Mark A. Anderson Executive Vice President, Chief Financial Officer, Chief Information Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) 19 EX-23.1 2 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated January 22, 1998, incorporated by reference in the Annual Report on Form 10-K of Community First Bankshares, Inc. for the year ended December 31, 1997, with respect to the consolidated financial statements, incorporated by reference in this Form 10-K/A No. 1 We also consent to the use of our report dated September 19, 1997, with respect to the financial statements of KeyBank National Association (Wyoming), included in this Form 10-K/A No. 1. /s/ Ernst & Young LLP Ernst & Young LLP Minneapolis MN March 25, 1998 EX-27.1 3 EXHIBIT 27.1
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S ANNUAL REPORT IN FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 222,088 1,287 12,690 0 1,498,877 180,512 182,335 2,637,057 36,194 4,855,526 3,619,334 230,571 429,851 116,476 120,000 0 204 339,090 4,855,526 218,588 59,103 906 278,597 102,632 117,253 161,344 5,352 463 125,190 67,366 45,850 702 0 46,552 2.52 2.44 0 12,507 3,616 140 0 26,215 7,857 2,419 36,194 0 0 0
EX-27.2 4 EXHIBIT 27.2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S ANNUAL REPORT IN FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND UNAUDITED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORTS IN FORM 10-Q FOR QUARTERS ENDED JUNE 30, 1996 AND SEPT. 30, 1996. 1,000 YEAR 6-MOS 9-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 DEC-31-1996 JUN-30-1996 SEP-30-1996 175,732 112,363 138,085 3,598 1,683 2,488 3,600 860 310 0 0 0 506,888 494,444 499,035 222,348 228,769 237,235 223,200 226,120 235,790 2,064,108 1,851,429 1,976,592 26,215 23,995 25,771 3,116,398 2,818,818 2,999,736 2,537,440 2,322,394 2,424,315 169,265 105,593 153,056 117,061 136,510 155,440 46,750 39,086 38,898 0 0 0 22,988 23,000 22,997 172 163 165 244,399 213,836 226,614 3,116,398 2,818,818 2,999,736 183,530 44,223 47,255 44,936 11,088 11,367 960 226 89 229,426 55,537 58,711 81,655 19,743 20,214 95,234 22,871 24,002 134,192 32,666 34,709 6,757 1,416 2,241 93 (1) (8) 104,288 23,789 25,834 50,517 14,137 13,149 32,510 9,288 8,593 0 0 0 0 0 0 32,510 9,288 8,593 1.87 .55 .50 1.79 .52 .47 0 0 0 12,796 4,368 5,897 1,956 2,393 2,774 267 642 298 0 0 0 22,712 22,712 22,712 4,971 1,574 2,717 933 482 660 26,215 23,995 25,771 0 0 0 0 0 0 0 0 0
EX-27.3 5 EXHIBIT 27.3
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORTS IN FORM 10-Q FOR QUARTERS ENDED MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 123,430 124,364 209,498 9,953 14,898 12,782 100 705 260 0 0 0 508,837 481,500 920,835 223,768 229,857 227,234 222,665 230,204 228,545 2,081,912 2,175,593 2,617,085 27,580 30,137 37,522 3,095,065 3,164,899 4,248,258 2,493,500 2,470,691 3,457,537 155,332 189,151 215,345 118,831 105,106 122,961 18,644 78,566 120,988 0 0 0 0 0 0 187 187 187 248,552 261,198 271,240 2,341,228 3,164,899 4,248,258 50,615 53,124 65,825 11,465 11,330 16,697 45 324 281 62,125 64,778 82,803 21,166 21,369 29,292 25,117 25,972 35,132 37,008 38,806 47,671 1,761 3,271 2,785 0 64 62 27,060 30,656 37,894 16,370 16,664 17,873 10,797 11,135 12,299 (265) 0 0 0 0 0 10,532 11,135 12,299 .60 .60 .66 .56 .58 .65 0 0 0 14,886 14,642 17,185 2,028 2,077 6,411 251 195 156 0 0 0 26,215 26,215 26,215 1,786 3,486 7,553 607 1,266 2,228 27,580 30,137 37,522 0 0 0 0 0 0 0 0 0
EX-99.1 6 EXHIBIT 99.1 EXHIBIT 99.1 The following financial statements of KeyBank National Association (Wyoming) ("KeyBank Wyoming") are supplied with this report: FINANCIAL STATEMENTS OF KEYBANK WYOMING Statement of Financial Condition - December 31, 1996. . . . . F-1 Statement of Income - Year Ended December 31, 1996. . . . . . F-2 Statement of Shareholder's Equity - Year Ended December 31, 1996 . . . . . . . . . . . . . . . . . . . . . F-3 Statement of Cash Flows - Year Ended December 31, 1996. . . . F-4 Notes to Financial Statements . . . . . . . . . . . . . . . . F-5 Report of Independent Accountants . . . . . . . . . . . . . . F-15 Quarterly Results of Operations (Unaudited) . . . . . . . . . F-16 UNAUDITED CONDENSED FINANCIAL STATEMENTS OF KEYBANK WYOMING Condensed Statement of Financial Condition - June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . F-17 Condensed Statement of Income - Six Months Ended June 30, 1997. . . . . . . . . . . . . . . F-18 Condensed Statement of Cash Flows - Six Months Ended June 30, 1997. . . . . . . . . . . . . . . F-19 KEYBANK NATIONAL ASSOCIATION (Wyoming) STATEMENT OF FINANCIAL CONDITION December 31, 1996 (Dollars in thousands, except per share data) ASSETS Cash and due from banks. . . . . . . . . . . . . . . . . . $ 56,513 Federal funds sold and securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . 4,955 Interest-bearing deposits. . . . . . . . . . . . . . . . . 98 Available-for-sale securities. . . . . . . . . . . . . . . 216,275 Held-to-maturity securities (Fair Value: $48,904). . . . . . . . . . . . . . . . . 48,230 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 851,753 Less: Allowance for Loan Losses . . . . . . . . . . (14,875) - ---------------------------------------------------------------------------- Net Loans. . . . . . . . . . . . . . . . . . . . . . . . . 836,878 Bank premises and equipment, net . . . . . . . . . . . . . 19,356 Accrued interest receivable. . . . . . . . . . . . . . . . 8,805 Intangibles. . . . . . . . . . . . . . . . . . . . . . . . 811 Other Assets . . . . . . . . . . . . . . . . . . . . . . . 35,855 - ---------------------------------------------------------------------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . $1,227,776 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDER'S EQUITY Deposits: Noninterest-bearing. . . . . . . . . . . . . . . . . . 154,135 Interest-bearing: Savings and NOW accounts. . . . . . . . . . . . . 367,654 Time accounts over $10,000. . . . . . . . . . . . 163,134 Other Time Accounts . . . . . . . . . . . . . . . 310,565 - ---------------------------------------------------------------------------- Total deposits . . . . . . . . . . . . . . . . . . . . . . 995,488 Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . 57,958 Other short-term borrowings. . . . . . . . . . . . . . . . 52,472 Long-term debt . . . . . . . . . . . . . . . . . . . . . . 712 Accrued interest payable . . . . . . . . . . . . . . . . . 2,845 Other Liabilities. . . . . . . . . . . . . . . . . . . . . 4,859 - ---------------------------------------------------------------------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . 1,114,334 Shareholder's equity: Common stock, par value $100 per share: Authorized Shares - 5,000 Issued Shares - 5,000 . . . . . . . . . . . . . . 500 Capital surplus . . . . . . . . . . . . . . . . . 62,666 Retained earnings. . . . . . . . . . . . . . . . . . . 49,734 Unrealized gain on available-for-sale Securities, Net of Tax. . . . . . . . . . . . . . . 542 - ---------------------------------------------------------------------------- Total Shareholder's Equity . . . . . . . . . . . . . . . . 113,442 - ---------------------------------------------------------------------------- Total liabilities and shareholder's equity . . . . . . . . $ 1,227,776 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- SEE ACCOMPANYING NOTES. F-1 KEYBANK NATIONAL ASSOCIATION (Wyoming) STATEMENT OF INCOME Year ended December 31, 1996 (Dollars in thousands, except per share data) INTEREST INCOME: Loans. . . . . . . . . . . . . . . . . . . . . . . . . $ 81,044 Investment securities. . . . . . . . . . . . . . . . . 16,629 Interest-bearing deposits. . . . . . . . . . . . . . . 5 Federal Funds Sold and Resale Agreements . . . . . . . 478 - ---------------------------------------------------------------------------- Total interest income. . . . . . . . . . . . . . . . . . . 98,156 INTEREST EXPENSE: Deposits . . . . . . . . . . . . . . . . . . . . . . . 35,640 Short-term and other borrowings. . . . . . . . . . . . 5,934 Long-term Debt . . . . . . . . . . . . . . . . . . . . 85 - ---------------------------------------------------------------------------- Total Interest Expense . . . . . . . . . . . . . . . . . . 41,659 - ---------------------------------------------------------------------------- Net interest income. . . . . . . . . . . . . . . . . . . . 56,497 Provision for Loan Losses. . . . . . . . . . . . . . . . . 9,258 - ---------------------------------------------------------------------------- Net interest income after provision for loan losses. . . . 47,239 NONINTEREST INCOME: Service charges on deposit accounts. . . . . . . . . . 6,191 Insurance commissions. . . . . . . . . . . . . . . . . 586 Net gains on sales of securities . . . . . . . . . . . 18 Other. . . . . . . . . . . . . . . . . . . . . . . . . 4,023 - ---------------------------------------------------------------------------- Total noninterest income . . . . . . . . . . . . . . . . . 10,818 NONINTEREST EXPENSE: Salaries and employee benefits . . . . . . . . . . . . 13,845 Net occupancy. . . . . . . . . . . . . . . . . . . . . 5,234 FDIC insurance . . . . . . . . . . . . . . . . . . . . 937 Legal and accounting . . . . . . . . . . . . . . . . . 399 Other professional service . . . . . . . . . . . . . . 3,834 Data processing. . . . . . . . . . . . . . . . . . . . 10,049 Amortization of intangibles. . . . . . . . . . . . . . 749 Other. . . . . . . . . . . . . . . . . . . . . . . . . 8,119 - ---------------------------------------------------------------------------- Total Noninterest Expense. . . . . . . . . . . . . . . . . 43,166 - ---------------------------------------------------------------------------- Income before income taxes . . . . . . . . . . . . . . . . 14,891 Provision for Income Taxes . . . . . . . . . . . . . . . . 3,967 - ---------------------------------------------------------------------------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . $ 10,924 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Earnings per common and common equivalent share: $2,184.80 Average common and common equivalent shares outstanding: 5,000 SEE ACCOMPANYING NOTES. F-2 KEYBANK NATIONAL ASSOCIATION (Wyoming) STATEMENT OF SHAREHOLDER'S EQUITY Year ended December 31, 1996 (Dollars in thousands, except per share data)
Common Stock --------------------- Capital Retained Unrealized Shares Amount Surplus Earnings Gain(Loss) Total - ----------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995 . . . 5,000 $500 $62,666 $38,810 $1,324 $103,300 Net income . . . . . . . . . . . . 10,924 10,924 Change in unrealized loss on available-for-sale securities, net of income tax benefit of $421 . . . . . . . -- -- -- -- (782) (782) - ----------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1996 . . . 5,000 $500 $62,666 $49,734 $ 542 $113,442 - ----------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES. F-3 KEYBANK NATIONAL ASSOCIATION (Wyoming) STATEMENT OF CASH FLOWS Year ended December 31, 1996 (In thousands) - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 10,924 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses . . . . . . . . . . . . 9,258 Depreciation. . . . . . . . . . . . . . . . . . . 1,614 Amortization of intangibles . . . . . . . . . . . 749 Net amortization of premiums and discounts on securities. . . . . . . . . . . . . . . . . . . (175) Deferred income tax benefit . . . . . . . . . . . (1,518) Decrease in interest receivable . . . . . . . . . 3,493 Decrease in interest payable. . . . . . . . . . . (1,049) Increase in Company-owned life insurance. . . . . (20,599) Other, Net. . . . . . . . . . . . . . . . . . . . (5,481) - -------------------------------------------------------------------------------- Net cash used in operating activities. . . . . . . . . . . (2,784) CASH FLOWS FROM INVESTING ACTIVITIES Net Purchases of available-for-sale securities . . . . . . (1,617) Net Maturities of held-to-maturity securities. . . . . . . 3,635 Net decrease in loans. . . . . . . . . . . . . . . . . . . 41,604 - -------------------------------------------------------------------------------- Net cash provided by investing activities. . . . . . . . . 43,622 CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in demand deposits, NOW accounts and savings accounts. . . . . . . . . . . . . (45,802) Net decrease in time accounts . . . . . . . . . . . . . . (3,290) Net decrease in short-term and other Borrowings . . . . . . . . . . . . . . . . . . . . . . (2,907) - -------------------------------------------------------------------------------- Net Cash used in Financing Activities. . . . . . . . . . . (51,999) - -------------------------------------------------------------------------------- Net Decrease in Cash and Cash Equivalents. . . . . . . . . (11,161) Cash and Cash Equivalents at Beginning of Year . . . . . . 72,629 - -------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year . . . . . . . . . $ 61,468 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES. F-4 KEYBANK NATIONAL ASSOCIATION (Wyoming) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES KeyBank National Association (Wyoming) (the "Company"), formerly known as KeyBank of Wyoming, serves 24 communities in Wyoming. The Company's community banking offices provide a full range of banking services, primarily in small and medium-sized communities and the surrounding communities. In addition to its primary emphasis on commercial and consumer banking services, the Company offers nondeposit investment products and services. The Company is a wholly owned subsidiary of KeyBank of the Rocky Mountains, Inc., which is a wholly owned subsidiary of KeyCorp. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. HELD-TO-MATURITY AND AVAILABLE-FOR-SALE SECURITIES Management determines the classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of retained earnings in shareholder's equity. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is included as an adjustment to interest income from investment securities. Realized gains and losses and declines in value judged to be other-than-temporary are included in net securities gains (losses). The cost of securities sold is based on the specific identification method. LOANS Loans are carried at the principal amount outstanding, net of unearned income, including net deferred loan fees and costs. Certain nonrefundable loan origination and commitment fees and the direct costs associated with originating or acquiring the loans are deferred. The net deferred amount is amortized as an adjustment to the yield over the estimated lives of the related loans. F-5 IMPAIRED AND OTHER NONACCRUAL LOANS The accrual of interest on loans is discontinued generally when payment is 90 days or more past due, unless the loan is well secured and in the process of collection. When accrual of interest is discontinued on a loan, the interest accrued but not collected is charged against the allowance for loan losses. Thereafter, payments received are generally applied to principal. However, based on management's assessment of the ultimate collectibility of a nonaccrual loan interest income may be recognized on a cash basis. Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure". In accordance with SFAS No. 114, the Company excludes smaller-balance, homogeneous from its impairment evaluation. All other loans with payments 90 days or more past due and on nonaccrual status are considered to be impaired. Impaired loans and other nonaccrual loans (smaller-balance, homogeneous loans) are returned to accrual status when management determines that the circumstances have improved to the extent that there has been a sustained period (generally at least six months) of repayment performance and both principal and interest are deemed to be collectible. Impaired loans are evaluated individually. Where collateral exists, the extent of impairment is determined based on the estimated fair value of the underlying collateral. If collateral does not exist, or is insufficient to support the carrying amount of the loan, management looks to other means of collection. Where the estimated fair value of the collateral and the present value of the estimated future cash flows from other means of collection do not support the carrying amount of the loan, management charges off that portion of the loan balance which it believes will not ultimately be collected. In instances where collateral or other sources of repayment are sufficient, yet uncertainty exists regarding the ultimate repayment, an allowance is specifically allocated for in the allowance for loan losses. For all other nonaccrual loans (smaller-balances, homogeneous loans) management applies historical loss experience rates, adjusted based on management's assessment of emerging credit trends and other factors. The resulting loss estimates are specifically allocated for by loan type in the allowance for loan losses. In general, such loans are charged off when payment is 120-180 days past due. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained through charges to expense at an amount that will provide for estimated loan losses. These estimates are based principally on a continual review of the loan portfolio, loan charge-off experience, economic conditions and industry guidelines. Ultimate losses may vary from current estimates, and as adjustments become necessary, the allowance for loan losses is adjusted in the periods in which such losses become known or fail to occur. Actual loan charge-offs and subsequent recoveries are deducted from and added to the allowance, respectively. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is provided on the straight-line method over the estimated lives of the assets and includes amortization of assets recorded under capital leases. Estimated lives range from three to twenty and twenty-five to forty years for equipment and premises, respectively. F-6 INTANGIBLE ASSETS Goodwill, the excess cost over net assets acquired is amortized over a period not exceeding 25 years. At December 31, 1996, goodwill totaled $319,000 net of accumulated amortization of $1,137,000. Other intangible assets totaled $492,000 net of accumulated amortization of $8,610,000 and are amortized over their estimated useful lives ranging from three to twenty-five years. INCOME TAXES Income taxes have been provided using the liability method in accordance with SFAS No. 109 "Accounting for Income Taxes". The provision for income taxes has been calculated based on statutory rates applicable had the Company filed a separate return. EARNINGS PER SHARE Earnings per common share is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding. CASH AND CASH EQUIVALENTS Cash and cash equivalents is defined as cash and due from banks, federal funds sold and securities purchased under agreements to resell. 2. ACCOUNTING CHANGES Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. The Company's adoption of SFAS No. 121 did not have a material impact on the Company's financial position. SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," addresses whether the transfer of financial assets should be accounted for as a sale and removed from the balance sheet, or as a financing recognized as a borrowing. SFAS No. 125 uses a "financial components" approach to determine the accounting results of the transfers of financial assets and focuses on control to determine whether assets have been sold. If the entity has surrendered control over the transferred assets, the transaction is considered a sale. Control is considered surrendered only if the seller has no legal right to the assets, even in bankruptcy; the buyer has the right to pledge or exchange the assets; and the seller does not maintain effective control over the assets through an agreement to repurchase or redeem them. SFAS No. 125 is effective on a prospective basis for all transactions occurring after December 31, 1996. The Company regularly uses participations of loans to manage its asset/liability mix. The accounting for such transactions is included in SFAS No. 125. However, the adoption of SFAS No. 125 is not expected to have a material effect on the Company's operations or financial position. F-7 3. SECURITIES The following is a summary of available-for-sale securities and held-to-maturity securities at December 31, 1996 (in thousands):
Available-for-Sale Securities - ---------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------- United States Treasury . . . . . . . . $ 24,625 $ 344 - $ 24,969 Mortgage-backed securities . . . . . . 86,728 1,151 - 87,879 Collateralized mortgage obligations. . . . . . . . . . . . 104,048 - 661 103,387 Other Securities . . . . . . . . . . . 40 - - 40 - ---------------------------------------------------------------------------------------------------- Total. . . . . . . . . . . . . . . . . $ 215,441 $ 1,495 $ 661 $ 216,275 - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Held-to-Maturity Securities - ---------------------------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------- State and political securities . . . . $ 48,230 851 177 48,904 - ---------------------------------------------------------------------------------------------------- Total. . . . . . . . . . . . . . . . . $ 48,230 851 177 48,904 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Amortized Fair Available-for-sale Cost Value - ---------------------------------------------------------------------- (IN THOUSANDS) Due in one year or less. . . . . . . . . . . $7,469 7,640 Due after one year through five years. . . . 71,512 72,314 Due after five years through ten years . . . 113,182 113,389 Due after Ten Years. . . . . . . . . . . . . 23,278 22,932 - ---------------------------------------------------------------------- Total. . . . . . . . . . . . . . . . . . . . $215,441 216,275 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Estimated Amortized Fair Held-to-Maturity Cost Value - ---------------------------------------------------------------------- (IN THOUSANDS) Due in one year or less. . . . . . . . . . . $6,754 6,806 Due after one year through five years. . . . 29,863 30,192 Due after five years through ten years . . . 11,190 11,480 Due after Ten Years. . . . . . . . . . . . . 423 426 - ---------------------------------------------------------------------- Total. . . . . . . . . . . . . . . . . . . . $48,230 48,904 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- F-8 Available-for-sale and held-to-maturity securities carried at $241,150,000 at December 31, 1996, was pledged to secure borrowings, public and trust deposits and for other purposes required by law. Securities sold under agreement to repurchase were collateralized by available-for-sale and held-to-maturity securities with an aggregate carrying value of $2,929,000 at December 31, 1996. 4. LOANS The composition of the loan portfolio at December 31 was as follows (in thousands): 1996 - ---------------------------------------------------------------------------- Real estate. . . . . . . . . . . . . . . . . . . . . $433,567 Commercial . . . . . . . . . . . . . . . . . . . . . 108,923 Consumer and other . . . . . . . . . . . . . . . . . 205,747 Agriculture. . . . . . . . . . . . . . . . . . . . . 103,516 - ---------------------------------------------------------------------------- 851,753 Less allowance for loan losses . . . . . . . . . . . (14,875) - ---------------------------------------------------------------------------- Net Loans. . . . . . . . . . . . . . . . . . . . . . 836,878 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 5. ALLOWANCE FOR LOAN LOSSES Activity in the allowance was as follows (in thousands): 1996 - ---------------------------------------------------------------------------- Balance at beginning of year . . . . . . . . . . . . $ 11,194 Provision charged to operating expense . . . . . . . 9,258 Loans charged off. . . . . . . . . . . . . . . . . . (8,475) RECOVERIES OF LOANS CHARGED OFF. . . . . . . . . . . 2,898 - ---------------------------------------------------------------------------- Balance at end of year . . . . . . . . . . . . . . . $ 14,875 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Nonaccrual loans totaled $16,408,000 at December 31, 1996. The Company includes all loans considered impaired under SFAS No. 114 in nonaccrual loans. The amount of impaired loans was not material at December 31, 1996. Interest income of $421,000 on nonaccrual loans would have been recorded during 1996 if the loans had been current in accordance with their original terms. During 1996, the Company recorded interest income of $176,000 related to loans that were on nonaccrual status as of December 31, 1996. F-9 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments at December 31 are shown in the table below (in thousands): 1996 - ------------------------------------------------------------- Carrying Fair Amount Value - ----------------------------------------------------------------- Financial assets: Cash and due from banks (1). . . . . . . $ 56,513 56,513 Federal funds sold and resale agreements (1). . . . . . . . . . . 4,955 4,955 Interest-bearing deposits (1). . . . . . 98 98 Available-for-sale securities (2). . . . 216,275 216,275 Held-to-maturity securities (2). . . . . 48,230 48,904 Loans, net of allowance (3). . . . . . . 836,878 846,124 Financial liabilities: Deposits (4) . . . . . . . . . . . . . . $995,488 $995,674 Federal funds purchased and repurchase agreements (1) . . . . . 57,958 57,958 Other short-term borrowings (1). . . . . 52,472 52,472 Long-term debt (5) . . . . . . . . . . . 712 764 (1) Fair value equals or approximates carrying amount. (2) Fair values of securities available for sale and investment securities generally were based on quoted market prices. Where quoted market prices were not available, fair values were based on quoted market prices of similar instruments. (3) Fair values of loans were generally estimated using discounted cash flow models. (4) Fair values of certificates of deposit were estimated based on discounted cash flows. For all other deposits, carrying amounts were used as a reasonable approximation of fair values. (5) Fair values of long-term debt were estimated based on discounted cash flows. 7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk. These transactions enable customers to meet their financing needs and enable the Company 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 December 31, 1996 are as follows (in thousands): 1996 - -------------------------------------------- Commitments to extend credit $ 148,038 Standby letters of credit 3,017 Commitments to extend credit are legally binding and have fixed expiration dates or other termination clauses. The Company's exposure to credit loss on commitments to extend credit, in the event of nonperformance by the counterparty, is represented by the contractual amounts of the commitments. The Company monitors its credit risk for commitments to extend credit by applying the same credit policies in making commitments as it does for loans and by obtaining collateral to secure commitments based on management's credit assessment of the counterparty. Collateral held varies, but may include marketable securities, receivables, inventory, agricultural commodities, equipment and real estate. Because many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent the Company's future liquidity requirements. In addition, the Company also offers various consumer credit line products to its customers that are cancelable upon notification by the Company, which are included above in commitments to extend credit. F-10 Standby letters of credit are conditional commitments issued by the Company to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The amount of collateral obtained to support letters of credit is based on a credit assessment of the counterparty. Collateral held may include marketable securities, receivables, inventory, agricultural commodities, equipment and real estate. Because the conditions under which the Company is required to fund letters of credit may not materialize, the liquidity requirements of letters of credit are expected to be less than the total outstanding commitments. The Company grants real estate, agricultural, commercial, consumer and other loans and commitments and letters of credit to customers throughout Wyoming. Although the Company has a diversified loan portfolio, the ability of a significant portion of its debtors to honor their contracts is dependent upon the agricultural economic sector. The maximum exposure to accounting loss that could occur, if the borrowers fail to perform according to the loan agreements and the underlying collateral proved to be of no value, is the total loan portfolio balances and commitments and letters of credit. 8. BANK PREMISES AND EQUIPMENT Bank premises and equipment at December 31 consisted of the following (in thousands): 1996 - ----------------------------------------------- Land. . . . . . . . . . . . . . . . . $ 4,576 Buildings . . . . . . . . . . . . . . 22,165 Furniture, fixtures and equipment . . 17,915 Leased property under capital lease Obligations . . . . . . . . . . . 2,200 - ----------------------------------------------- 46,856 Less accumulated depreciation . . . . (27,500) - ----------------------------------------------- $ 19,356 - ----------------------------------------------- - ----------------------------------------------- 9. SHORT-TERM BORROWINGS As of December 31, 1996, the weighted average interest rate on short-term borrowings was 5.02%. 10. SHAREHOLDER'S EQUITY F-11 CAPITAL REQUIREMENTS The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. As of December 31, 1996, the Company is considered well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table.
At December 31, 1996 ------------------------------------------------------------ (Dollars in thousands) Tier I Total Risk- Total Risk- REGULATORY CAPITAL REQUIREMENTS: Capital Based Capital Leverage Based Assets - -------------------------------------------------------------------------------------------------------- Minimum 4.00% 8.00% 3.00% N/A Well-Capitalized 6.00% 10.00% 5.00% N/A - -------------------------------------------------------------------------------------------------------- KeyBank Wyoming 11.93% 13.18% 9.07% $939,564
11. EMPLOYEE BENEFIT PLANS Employees of the Company participate in the pension plan of KeyCorp. Separate actuarial information and asset valuation for the company are not available. Contributions by the Company to the KeyCorp pension plan totaled $316,000 in 1996. The Company also provides certain healthcare and life insurance benefits for retired employees. The Company expensed $200,000 during 1996. Separate actuarial information for the Company is not available. 12. RESTRICTIONS ON CASH AND DUE FROM BANKS Bank subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. Balances of $7,274,000 at December 31, 1996 exceeded required amounts. F-12 13. INCOME TAXES The components of the provision for income taxes were (in thousands): 1996 - -------------------------------------------------- Federal: Current. . . . . . . . . . . . . . $ 5,442 Deferred . . . . . . . . . . . . . (1,518) - -------------------------------------------------- 3,924 State: Current. . . . . . . . . . . . . . 43 Deferred . . . . . . . . . . . . . -- - -------------------------------------------------- Provision for income taxes . . . . . . $ 3,967 - -------------------------------------------------- - -------------------------------------------------- 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): 1996 - -------------------------------------------------- Tax at Statutory rate (35%). . . . . . $ 5,212 Tax-exempt interest. . . . . . . . . . (1,286) Other. . . . . . . . . . . . . . . . . 41 - -------------------------------------------------- Provision for income taxes . . . . . . $ 3,967 - -------------------------------------------------- - -------------------------------------------------- Deferred income tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. As of December 31, 1996, the Company had a net deferred tax asset of $4,826,000. The significant components of the deferred taxes are the allowance for loan losses, unrealized gains on available for sale securities, intangibles and depreciation. The Company realized its deferred tax assets in connection with the sale of the Company described in Note 17. 14. COMMITMENTS AND CONTINGENT LIABILITIES Total rent expense was $1,122,000 in 1996. Future minimum payments, by year and in the aggregate, under noncancelable leases with initial or remaining terms of one year or more, consisted of the following at December 31, 1996: (In thousands) Operating - ---------------------------------------- 1997 . . . . . . . . . . . . $ 935 1998 . . . . . . . . . . . . 1,929 1999 . . . . . . . . . . . . 1,019 2000 . . . . . . . . . . . . 892 2001 . . . . . . . . . . . . 892 --- $ 5,667 In the normal course of business, there are various outstanding legal proceedings, claims, commitments and contingent liabilities. In the opinion of management, the Company and its subsidiaries will not be materially affected by the outcome of such matters. 15.RELATED PARTY TRANSACTIONS F-13 Certain directors and executive officers of the Company and its subsidiaries, including their immediate families, companies in which they are principal owners and trusts in which they are involved, are loan customers of the bank subsidiaries. The aggregate dollar amounts of these loans were $6,929,000 at December 31, 1996. During 1996, net loans loan repayments totaled $1,111,000. 16. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31 1996 - ---------------------------------------------------------------------------- (IN THOUSANDS) Unrealized gain on available-for-sale securities . . . . . . . $ 1,265 Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . 42,708 Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . 4,752 17. SUBSEQUENT EVENTS On July 14, 1997, KeyCorp sold the Company to Community First Bankshares, Inc. In connection with this sale, approximately $350 million of loans included on the balance sheet as of December 31, 1996 were retained by KeyCorp. In addition, a dividend of approximately $46 million was paid by the Company to KeyCorp. prior to the sale. F-14 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- Report of Independent Auditors The Board of Directors and Shareholders Community First Bankshares, Inc. We have audited the accompanying statement of condition of KeyBank National Association (Wyoming) as of December 31, 1996, and the related statements of income, shareholder's equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of KeyBank National Association (Wyoming), at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP September 19, 1997 F-15 KEYBANK NATIONAL ASSOCIATION (Wyoming) QUARTERLY RESULTS OF OPERATIONS (unaudited) The following is a summary of the quarterly results of operations for the year ended December 31, 1996 (in thousands, except per share and per share data): First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1996 Interest income $24,988 $23,977 $24,741 $24,450 Interest Expense 10,693 10,039 10,658 10,269 - --------------------------------------------------------------------------- Net interest income 14,295 13,938 14,083 14,181 Provision for Loan Losses 2,500 1,000 2,358 3,400 - --------------------------------------------------------------------------- Net interest income after provision for loan losses 11,795 12,938 11,725 10,781 Net gains on sales of securities -- 18 -- -- Noninterest income 2,488 2,644 2,839 2,829 Noninterest Expense 10,785 10,779 11,554 10,048 - --------------------------------------------------------------------------- Income before income taxes 3,498 4,821 3,010 3,562 Provision for Income Taxes 914 1,416 738 899 - --------------------------------------------------------------------------- Net income $ 2,584 $ 3,405 $ 2,272 $ 2,663 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Earnings per common share: $516.80 $681.00 $454.40 $532.60 Average common shares outstanding: 5,000 5,000 5,000 5,000 F-16 KEYBANK NATIONAL ASSOCIATION (WYOMING) CONDENSED STATEMENT OF FINANCIAL CONDITION June 30, 1997 (Dollars in thousands, except per share data) (Unaudited) ASSETS Cash and due from banks. . . . . . . . . . . . . . . . . . . . $ 80,432 Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . 172,000 Interest-bearing deposits. . . . . . . . . . . . . . . . . . . 0 Available-for-sale securities. . . . . . . . . . . . . . . . . 245,010 Held-to-maturity securities (Fair Value: 1996 - $48,904). . . . . . . . . . . . . . . . 43,819 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508,263 Less: Allowance for Loan Losses. . . . . . . . . . . . . . (7,508) -------- Net Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 500,755 Bank premises and equipment, net . . . . . . . . . . . . . . . 18,387 Accrued interest receivable. . . . . . . . . . . . . . . . . . 4,677 Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . 443 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 10,333 -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,075,856 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing. . . . . . . . . . . . . . . . . . . . . $ 153,459 Interest-bearing: Savings and NOW accounts . . . . . . . . . . . . . . . . 362,260 Time accounts over $100,000. . . . . . . . . . . . . . . 134,404 Other time accounts. . . . . . . . . . . . . . . . . . . 281,752 -------- Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . 931,875 Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . . 14,087 Other short-term borrowings . . . . . . . . . . . . . . . . . . 2,023 Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . 605 Accrued interest payable. . . . . . . . . . . . . . . . . . . . 2,681 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,495 -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 954,766 Shareholders' equity: Common stock, par value $100 per share: Authorized Shares - 5,000 Issued Shares - 5,000. . . . . . . . . . . . . . . . . . 500 Capital surplus. . . . . . . . . . . . . . . . . . . . . . . 62,665 Retained earnings. . . . . . . . . . . . . . . . . . . . . . 57,713 Unrealized gain on available-for-sale securities, net of tax . . . . . . . . . . . . . . . . . 212 ------- Total shareholders' equity. . . . . . . . . . . . . . . . . . . 121,090 ------- Total liabilities and shareholders' equity. . . . . . . . . . . $ 1,075,856 ------------ ------------ SEE ACCOMPANYING NOTES. F-17 KEYBANK NATIONAL ASSOCIATION (WYOMING) CONDENSED STATEMENT OF INCOME Six Months Ended June 30, 1997 (Dollars in thousands, except per share data) (Unaudited) INTEREST INCOME: Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,222 Investment securities. . . . . . . . . . . . . . . . . . . . 8,713 Interest-bearing deposits. . . . . . . . . . . . . . . . . . 1 Federal funds sold and resale agreements . . . . . . . . . . 893 ------- Total interest income . . . . . . . . . . . . . . . . . . . . . 44,829 INTEREST EXPENSE: Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 16,398 Short-term and other borrowings. . . . . . . . . . . . . . . 2,026 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 29 ------- Total interest expense. . . . . . . . . . . . . . . . . . . . . 18,453 ------- Net interest income . . . . . . . . . . . . . . . . . . . . . . 26,376 Provision for loan losses . . . . . . . . . . . . . . . . . . . 1,976 ------- Net interest income after provision for loan losses . . . . . . 24,400 NONINTEREST INCOME: Service charges on deposit accounts. . . . . . . . . . . . . 2,996 Insurance commissions. . . . . . . . . . . . . . . . . . . . 14 Net gains on sales of securities . . . . . . . . . . . . . . 0 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,283 ------- Total noninterest income. . . . . . . . . . . . . . . . . . . . 5,293 NONINTEREST EXPENSE: Salaries and employee benefits . . . . . . . . . . . . . . . 5,329 Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . 2,571 FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . 12 Legal and accounting . . . . . . . . . . . . . . . . . . . . 143 Other professional service . . . . . . . . . . . . . . . . . 174 Data processing. . . . . . . . . . . . . . . . . . . . . . . 4,778 Amortization of intangibles. . . . . . . . . . . . . . . . . 368 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,082 ------- Total noninterest expense . . . . . . . . . . . . . . . . . . . 18,457 ------- Income before income taxes. . . . . . . . . . . . . . . . . . . 11,236 Provision for income taxes. . . . . . . . . . . . . . . . . . . 3,257 ------- Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $7,979 ------- ------- Earnings per common and common equivalent share:. . . . . . . . $1,595.80 Average common and common equivalent shares outstanding:. . . . 5,000 SEE ACCOMPANYING NOTES. F-18 KEYBANK NATIONAL ASSOCIATION (WYOMING) CONDENSED STATEMENT OF CASH FLOWS Six Months ended June 30, 1997 (Unaudited) (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,979 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses. . . . . . . . . . . . . . . . 1,976 Depreciation . . . . . . . . . . . . . . . . . . . . . . 811 Amortization of intangibles. . . . . . . . . . . . . . . 368 Net amortization of premiums and discounts on securities. . . . . . . . . . . . . . . . . . . . . . (83) Decrease in interest receivable . . . . . . . . . . . . 4,128 Decrease in interest payable . . . . . . . . . . . . . . (164) Other, net . . . . . . . . . . . . . . . . . . . . . . . 24,558 ------- Net cash provided by operating activities . . . . . . . . . . . 39,573 CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in interest bearing deposits . . . . . . . . . . . 98 Net Purchases of available-for-sale securities. . . . . . . . . (29,490) Net Maturities of held-to-maturity securities . . . . . . . . . 4,411 Net decrease in loans . . . . . . . . . . . . . . . . . . . . . 334,147 Net decrease in bank premises and equipment . . . . . . . . . . 158 ------- Net cash provided by investing activities . . . . . . . . . . . 309,324 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, NOW accounts and savings accounts . . . . . . . . . . . . . . . . . . . . 28,824 Net decrease in time accounts . . . . . . . . . . . . . . . . . (92,437) Net decrease in short-term and other borrowings . . . . . . . . (94,320) ------- Net cash used in financing activities . . . . . . . . . . . . . (157,933) -------- Net increase in cash and cash equivalents . . . . . . . . . . . 190,964 Cash and cash equivalents at beginning of year. . . . . . . . . 61,468 -------- Cash and cash equivalents at end of period. . . . . . . . . . . $ 252,432 -------- -------- SEE ACCOMPANYING NOTES. F-19 -----END PRIVACY-ENHANCED MESSAGE-----