**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                    |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                  |
|       |   | **For the quarterly period ended  March 31, 2004**                                                                                                                               |
|       |   |                                                                                                                                                                                  |
|       |   | **OR**                                                                                                                                                                                |
|       |   |                                                                                                                                                                                  |
| **o**      |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                   |
|       |   |                                                                                                                                                                                  |
|       |   | **For the transition period  from            to            ** |

 

**Commission file number  0-19368**

 

**COMMUNITYFIRST BANKSHARES, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                    |   | **46-0391436**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **520 Main Avenue  Fargo, ND**                                  |   | **58124**                            |
| (Address of principal executive offices)                        |   | (Zip Code)                           |

 

**(701) 298-5600**

(Registrant’s telephone number, includingarea code)

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days: YES ýNO o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act):  YES ýNO o

 

At May 6, 2004, 36,871,831 shares of Common Stock were outstanding.

 

 

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COMMUNITY FIRST BANKSHARES, INC.

 

FORM 10-Q

 

QUARTER ENDED MARCH 31, 2004

 

INDEX

 
| PART I - FINANCIAL INFORMATION: |                                                                                        |
|---------------------------------|---------------------------------------------------------------------------------------------|
|                            |                                                                                        |   |
| Item 1.                         | Condensed Consolidated Financial Statements  and Notes                                      |   |
|                            |                                                                                        |   |
| Item 2.                         | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                            |                                                                                        |   |
| Item 3.                         | Quantitative and Qualitative Disclosure  About Market Risk                                  |   |
|                            |                                                                                        |   |
| Item 4.                         | Controls and Procedures                                                                     |   |
|                            |                                                                                        |   |
| PART II - OTHER INFORMATION:    |                                                                                        |
|                            |                                                                                        |   |
| Item 1.                         | Legal  Proceedings                                                                          |   |
|                            |                                                                                        |   |
| Item 2.                         | Changes  in Securities, Use of Proceeds and Issuer Repurchase of Equity Securities          |   |
|                            |                                                                                        |   |
| Item 3.                         | Defaults  Upon Senior Securities                                                            |   |
|                            |                                                                                        |   |
| Item 4.                         | Submission  of Matters to a Vote of Security Holders                                        |   |
|                            |                                                                                        |   |
| Item 5.                         | Other  Information                                                                          |   |
|                            |                                                                                        |   |
| Item 6.                         | Exhibits  and Reports on Form 8-K                                                           |   |
|                            |                                                                                        |   |
| SIGNATURES  AND CERTIFICATIONS  |                                                                                        |

 

2

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COMMUNITY FIRST BANKSHARES, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OFFINANCIAL CONDITION

 
| **(Dollars in thousands, except per  share data)**                                                                                     |   | **March 31,  2004** |       | **December 31,  2003** |       |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|-----------------------------|------------|
|                                                                                                                                   |   | **(unaudited)**          | ** ** |                        | ** ** |
| ASSETS                                                                                                                                 |   |                     |       |                        |       |
| Cash and due from banks                                                                                                                |   | $                        | 212,583    |                        | $          | 234,076 |   |
| Interest-bearing deposits                                                                                                              |   | 4,373                    |       | 3,319                       |       |
| Available-for-sale securities                                                                                                          |   | 1,596,363                |       | 1,563,419                   |       |
| Loans                                                                                                                                  |   | 3,308,210                |       | 3,323,572                   |       |
| Less: Allowance for loan losses                                                                                                        |   | (52,558                  | )          | (52,231                     | )          |
| Net loans                                                                                                                              |   | 3,255,652                |       | 3,271,341                   |       |
| Bank premises and equipment, net                                                                                                       |   | 133,465                  |       | 131,008                     |       |
| Accrued interest receivable                                                                                                            |   | 29,632                   |       | 28,696                      |       |
| Bank owned life insurance                                                                                                              |   | 83,825                   |       | 81,018                      |       |
| Goodwill                                                                                                                               |   | 63,448                   |       | 63,448                      |       |
| Other intangible assets                                                                                                                |   | 29,815                   |       | 30,402                      |       |
| Other assets                                                                                                                           |   | 52,414                   |       | 58,380                      |       |
| Total assets                                                                                                                           |   | $                        | 5,461,570  |                        | $          | 5,465,107 |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                              |   |                     |       |                        |       |
| Deposits:                                                                                                                              |   |                     |       |                        |       |
| Noninterest-bearing                                                                                                                    |   | $                        | 436,279    |                        | $          | 447,648 |   |
| Interest-bearing:                                                                                                                      |   |                     |       |                        |       |
| Savings and NOW accounts                                                                                                               |   | 2,585,254                |       | 2,552,056                   |       |
| Time accounts over $100,000                                                                                                            |   | 511,756                  |       | 501,440                     |       |
| Other time accounts                                                                                                                    |   | 857,968                  |       | 888,066                     |       |
| Total deposits                                                                                                                         |   | 4,391,257                |       | 4,389,210                   |       |
| Federal funds purchased and securities sold  under agreements to repurchase                                                            |   | 416,732                  |       | 416,689                     |       |
| Other short-term borrowings                                                                                                            |   | 62,996                   |       | 75,577                      |       |
| Long-term debt                                                                                                                         |   | 178,211                  |       | 172,211                     |       |
| Accrued interest payable                                                                                                               |   | 13,238                   |       | 13,081                      |       |
| Other liabilities                                                                                                                      |   | 37,863                   |       | 36,539                      |       |
| Total liabilities                                                                                                                      |   | 5,100,297                |       | 5,103,307                   |       |
|                                                                                                                                   |   |                     |       |                        |       |
| Shareholders’ equity:                                                                                                             |   |                     |       |                        |       |
| Common stock, par value $.01 per share:  Authorized Shares – 80,000,000  Issued Shares – 51,021,896                          |   | 510                      |       | 510                         |       |
| Capital surplus                                                                                                                        |   | 195,155                  |       | 194,911                     |       |
| Retained earnings                                                                                                                      |   | 440,322                  |       | 432,574                     |       |
| Accumulated other comprehensive income                                                                                                 |   | 13,348                   |       | 7,053                       |       |
| Less cost of common stock in treasury -  March 31, 2004 – 14,158,897 shares  December 31, 2003 – 13,664,482 shares |   | (288,062                 | )          | (273,248                    | )          |
| Total shareholders’ equity                                                                                                        |   | 361,273                  |       | 361,800                     |       |
| Total liabilities and shareholders’ equity                                                                                        |   | $                        | 5,461,570  |                        | $          | 5,465,107 |   |

 

*Seeaccompanying notes*.

 

3

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COMMUNITY FIRST BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
| **(Dollars in thousands, except per  share data)**   |   | **For the Three Months Ended  March 31,** |   |
|------------------------------------------------------|--------|------------------------------------------------|--------|
| **(Unaudited)**                                      |   | **2004**                                       |   | **2003** |   |
| Interest income:                                     |   |                                           |   |   |   |
| Loans                                                |   | $                                              | 54,543 |   | $ | 63,210 |   |
| Investment securities                                |   | 15,999                                         |   | 18,783 |   |
| Interest-bearing deposits                            |   | 9                                              |   | 12 |   |
| Federal funds sold and resale agreements             |   | 1                                              |   | — |   |
| Total interest income                                |   | 70,552                                         |   | 82,005 |   |
|                                                 |   |                                           |   |   |   |
| Interest expense:                                    |   |                                           |   |   |   |
| Deposits                                             |   | 9,202                                          |   | 14,707 |   |
| Short-term and other borrowings                      |   | 1,085                                          |   | 1,358 |   |
| Long-term debt                                       |   | 3,927                                          |   | 4,776 |   |
| Total interest expense                               |   | 14,214                                         |   | 20,841 |   |
| Net interest income                                  |   | 56,338                                         |   | 61,164 |   |
| Provision for loan losses                            |   | 2,365                                          |   | 3,487 |   |
| Net interest income after provision for  loan losses |   | 53,973                                         |   | 57,677 |   |
| Noninterest income:                                  |   |                                           |   |   |   |
| Service charges on deposit accounts                  |   | 9,257                                          |   | 9,380 |   |
| Insurance commissions                                |   | 4,633                                          |   | 4,081 |   |
| Fees from fiduciary activities                       |   | 1,306                                          |   | 1,278 |   |
| Security sales commissions                           |   | 3,200                                          |   | 2,051 |   |
| Bank owned life insurance income                     |   | 889                                            |   | 1,399 |   |
| Net gain on sales of available-for-sale  securities  |   | 1,511                                          |   | 464 |   |
| Gain on sale of loans                                |   | 675                                            |   | 1,486 |   |
| Other                                                |   | 1,448                                          |   | 1,727 |   |
| Total noninterest income                             |   | 22,919                                         |   | 21,866 |   |
| Noninterest expense:                                 |   |                                           |   |   |   |
| Salaries and employee benefits                       |   | 28,760                                         |   | 27,914 |   |
| Net occupancy                                        |   | 8,789                                          |   | 8,608 |   |
| FDIC insurance                                       |   | 164                                            |   | 191 |   |
| Legal and accounting                                 |   | 337                                            |   | 407 |   |
| Other professional services                          |   | 987                                            |   | 889 |   |
| Advertising                                          |   | 1,042                                          |   | 930 |   |
| Telephone                                            |   | 1,474                                          |   | 1,526 |   |
| Data processing                                      |   | 2,044                                          |   | 1,718 |   |
| Amortization of intangibles                          |   | 867                                            |   | 831 |   |
| Other                                                |   | 7,288                                          |   | 7,675 |   |
| Total noninterest expense                            |   | 51,752                                         |   | 50,689 |   |
|                                                 |   |                                           |   |   |   |
| Income before income taxes                           |   | 25,140                                         |   | 28,854 |   |
| Provision for income taxes                           |   | 8,236                                          |   | 9,453 |   |
| Net income                                           |   | $                                              | 16,904 |   | $ | 19,401 |   |
|                                                 |   |                                           |   |   |   |
| Earnings per common and common equivalent  share:    |   |                                           |   |   |   |
| Basic net income                                     |   | $                                              | 0.46   |   | $ | 0.50 |   |
| Diluted net income                                   |   | $                                              | 0.45   |   | $ | 0.50 |   |
|                                                 |   |                                           |   |   |   |
| Average common shares outstanding:                   |   |                                           |   |   |   |
| Basic                                                |   | 37,041,345                                     |   | 38,601,216 |   |
| Diluted                                              |   | 37,514,081                                     |   | 39,044,529 |   |
|                                                 |   |                                           |   |   |   |
| Dividends per share                                  |   | $                                              | 0.24   |   | $ | 0.22 |   |

 

*See accompanyingnotes.*

 

4

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STATEMENTS OF COMPREHENSIVE INCOME

 
| **(Dollars in thousands)**                                          |   | **For the Three Months Ended  March 31** | ** ** |
|---------------------------------------------------------------------|--------|-----------------------------------------------|------------|
| **(Unaudited)**                                                     |   | **2004**                                      | ** ** | **2003** | ** ** |
|                                                                |   |                                          |       |   |   |
| Net income                                                          |   | $                                             | 16,904     |   | $ | 19,401 |   |
| Other comprehensive income:                                         |   |                                          |       |   |   |
| Unrealized gains (losses) on securities:                            |   |                                          |       |   |   |
| Unrealized holding gains (losses) arising  during period            |   | 11,933                                        |       | (6,882 | ) |
| Related taxes                                                       |   | (4,731                                        | )          | 2,723 |   |
| Less: Reclassification adjustment for gains  included in net income |   | (1,511                                        | )          | (464 | ) |
| Related taxes                                                       |   | 604                                           |       | 186 |   |
| Other comprehensive income (loss)                                   |   | 6,295                                         |       | (4,437 | ) |
| Comprehensive income                                                |   | $                                             | 23,199     |   | $ | 14,964 |   |

 

*See accompanyingnotes*.

 

5

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COMMUNITY FIRST BANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS

 
| **(In thousands)**                                                                 |   | **For the Three Months Ended  March 31,** |    |
|------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|
| **(Unaudited)**                                                                    |   | **2004**                                       |    | **2003** |   |
| **Cash flows from operating activities:**                                          |   |                                           |    |   |   |
| Net income                                                                         |   | $                                              | 16,904  |   | $ | 19,401 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                                           |    |   |   |
| Provision for loan losses                                                          |   | 2,365                                          |    | 3,487 |   |
| Depreciation                                                                       |   | 4,460                                          |    | 4,296 |   |
| Amortization of intangibles                                                        |   | 867                                            |    | 831 |   |
| Net amortization of premiums (discounts) on  securities                            |   | 1,847                                          |    | 1,280 |   |
| Net (gain) on sale of available-for-sale  Securities                               |   | (1,511                                         | )       | (464 | ) |
| (Increase) decrease in interest receivable                                         |   | (936                                           | )       | 1,019 |   |
| Increase in interest payable                                                       |   | 157                                            |    | 1,034 |   |
| Other - net                                                                        |   | 76                                             |    | (27,888 | ) |
| Net cash provided by operating activities                                          |   | 24,229                                         |    | 2,996 |   |
|                                                                               |   |                                           |    |   |   |
| **Cash flows from investing activities:**                                          |   |                                           |    |   |   |
| Net increase in interest-bearing deposits                                          |   | (1,054                                         | )       | (3,625 | ) |
| Purchases of available-for-sale securities                                         |   | (229,341                                       | )       | (604,607 | ) |
| Maturities of available-for-sale securities                                        |   | 138,462                                        |    | 504,332 |   |
| Proceeds from sales of available-for-sale  securities                              |   | 68,021                                         |    | 62,089 |   |
| Net increase in loans                                                              |   | 13,324                                         |    | 78,373 |   |
| Net increase in bank premises and equipment                                        |   | (6,917                                         | )       | (4,910 | ) |
| Net cash (used) provided by investing  activities                                  |   | (17,505                                        | )       | 31,652 |   |
|                                                                               |   |                                           |    |   |   |
| **Cash flows from financing activities:**                                          |   |                                           |    |   |   |
| Net increase (decrease) in demand deposits,  savings and NOW                       |   | 21,829                                         |    | (23,353 | ) |
| Net decrease in time accounts                                                      |   | (19,782                                        | )       | (103,673 | ) |
| Net (decrease) increase in short-term &  other borrowings                      |   | (12,538                                        | )       | 14,399 |   |
| Proceeds from issuance of long-term debt                                           |   | 8,000                                          |    | 61,856 |   |
| Repayment of long-term debt                                                        |   | (2,000                                         | )       | (10,000 | ) |
| Net purchase of common stock held in  treasury                                     |   | (16,283                                        | )       | (8,552 | ) |
| Net sale of common stock held in treasury                                          |   | 1,395                                          |    | 1,470 |   |
| Common dividends paid                                                              |   | (8,838                                         | )       | (8,497 | ) |
| Net cash used in financing activities                                              |   | (28,217                                        | )       | (76,350 | ) |
| Net decrease in cash and cash equivalents                                          |   | (21,493                                        | )       | (41,702 | ) |
| Cash and cash equivalents at beginning of  period                                  |   | 234,076                                        |    | 242,887 |   |
| Cash and cash equivalents at end of period                                         |   | $                                              | 212,583 |   | $ | 201,185 |   |

 

*See accompanyingnotes*.

 

6

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COMMUNITY FIRST BANKSHARES, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS

 

March 31, 2004

 

**Note A - BASIS OFPRESENTATION**

 

The accompanying unaudited condensed consolidated financial statements,which include the accounts of Community First Bankshares, Inc. (the “Company”),its wholly-owned data processing, credit origination and insurance agencysubsidiaries, and its wholly-owned subsidiary bank, have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments consisting of only normal recurring adjustmentsnecessary for fair presentation have been made.  Certain amounts in prior periods have been reclassified toconform to current presentations.

 

**EarningsPer Common Share**

 

Basic earnings per common share is calculated by dividing net income bythe weighted average number of shares of common stock outstanding.

 

Diluted earnings per common share is calculated by adjusting theweighted average number of shares of common stock outstanding for shares thatwould be issued assuming the exercise of stock options and warrants during eachperiod.  Such adjustments to theweighted average number of shares of common stock outstanding are made onlywhen such adjustments dilute earnings per share.

 

**Note B – BUSINESSCOMBINATIONS**

 

On March 16, 2004, the Company and BancWest Corporation announcedthat they had entered into an agreement and plan of merger pursuant to whichBancWest would acquire the Company. Under the merger agreement, BancWest has agreed to pay $32.25 for each shareof Company common stock outstanding, without interest.  The boards of directors of BancWestCorporation, the Company, and the board of BancWest’s parent, BNP Paribas, haveapproved the transaction.  Thetransaction requires approval of Company shareholders and the Board ofGovernors of the Federal Reserve System. Upon approval of shareholders and the Federal Reserve, the transactionis expected to close during the third quarter of 2004.  Following the transaction, all CommunityFirst branches will become branches of Bank of the West, a banking subsidiaryof BancWest Corporation.

 

On January 2, 2004, the Company, through its insurance subsidiary,completed the purchase of Arnold & Arnold, Inc., an insurance agency inLittleton, Colorado. At the time of the transactions, the agency hadapproximately $250,000 in annual commission revenue.

 

**Note C - ACCOUNTINGCHANGES**

 

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”),Consolidation of Variable Interest Entities (as revised).  FIN 46 clarifies the application ofAccounting Research Bulletin No. 51, Consolidated Financial Statement, tocertain entities in which equity investors do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties.  Therecognition and measurement provisions of this Interpretation are effective fornewly created variable interest entities formed after January 31, 2003,and for existing variable interest entities, until the end of the first interimor annual reporting period beginning after December 15, 2003. The Companyadopted the accounting provisions of FIN 46 for existing variable interestentities on October 1, 2003. Adoption of FIN 46 with regard to existing variable interest entitiesdid not have a material effect on the Company’s financial

 

7

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statements. The Company determined that the provisions of FIN 46 requiredde-consolidation of subsidiary trusts that issued Company-obligated mandatorilyredeemable preferred securities (“Trust Preferred Securities”).  Prior to the adoption of FIN 46, the Companyconsolidated the trusts and included the Trust Preferred Securities of thetrusts in the mezzanine section of the statement of financialcondition.  Upon adoption of theaccounting provisions of FIN 46, the trusts were de-consolidated and the juniorsubordinated debentures of the Company owned by the trusts are reflected aslong-term debt in the statement of financial conditions.  The Trust Preferred Securities currentlyqualify as Tier 1 capital of the Company for regulatory capital purposes.  The banking regulatory agencies have notissued any guidance that would change the capital treatment for Trust PreferredSecurities based on the impact of the adoption of FIN 46.  As provided by FIN 46, the Company restatedits financial statements to reflect the adoption for all periods presented.

 

In May 2003, the FASB issued Statement No. 150 (“FAS 150”), Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity, which establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequities.  FAS 150 was effectiveimmediately for financial instruments entered into or modified after May 31,2003, and otherwise was effective at the beginning of the first interim periodbeginning after June 15, 2003. However, in November 2003, the FASB announced that the provisionsas they relate to certain mandatorily redeemable securities (including theCompany’s Trust Preferred Securities) were delayed indefinitely. The bankingregulatory agencies have not issued any guidance that would change the capitaltreatment of the Trust Preferred Securities based on the impact, if any, of theadoption of FAS 150.

 

**Note D –SUBSEQUENT EVENTS**

 

On April 1, 2004, the Company, through its insurance subsidiarycompleted: (i) the purchase of Shepard Insurance Agency in Englewood, Colorado;(ii) an insurance book of business from Western Insurance Agency of Cody,Wyoming; (iii) and the renewal rights to client accounts of Van GilderInsurance Corporation, Sterling, Colorado. At the time of the three transactions, the agencies had approximately$891,000 in annual aggregate commission revenue.

 

**Note E – STOCK BASEDCOMPENSATION**

 

At March 31, 2004, the Company had one stock-based employeecompensation plan.  The Company accountsfor this plan under the recognition and measurement principles of APB OpinionNo. 25, Accounting for Stock Issued to Employees, and relatedinterpretations.  No stock-basedemployee compensation expense is reflected in net income, as all optionsgranted under this plan have an exercise price equal to the market value of theunderlying common stock on the date of grant. The following table illustrates the effect on net income and earningsper share if the Company had applied the fair value recognition provisions ofFAS 123 to stock-based employee compensation:

 
|                                               |                                                                                                                                  | **Three  Months  Ended March 31** |   |
|----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|--------|
| **(Dollars in thousands, except per  share data)** |                                                                                                                                  | **2004**                               |   | **2003** |   |
| Net income, as reported                            |                                                                                                                                  | $                                      | 16,904 |   | $ | 19,401 |   |
| Deduct:                                            | Total stock-based employee compensation expense determined under fair  value based method for all awards, net of related tax effects. |                                   | (533   | ) | (653 | ) |
|                                               |                                                                                                                                  |                                   |   |   |   |
| Pro forma net income                               |                                                                                                                                  | $                                      | 16,371 |   | $ | 18,748 |   |
|                                               |                                                                                                                                  |                                   |   |   |   |
| Earnings per share:                                |                                                                                                                                  |                                   |   |   |   |
| Basic – as reported                           |                                                                                                                                  | $                                      | 0.46   |   | $ | 0.50 |   |
| Basic – pro forma                             |                                                                                                                                  | $                                      | 0.44   |   | $ | 0.49 |   |
|                                               |                                                                                                                                  |                                   |   |   |   |
| Diluted – as reported                         |                                                                                                                                  | $                                      | 0.45   |   | $ | 0.50 |   |
| Diluted – pro forma                           |                                                                                                                                  | $                                      | 0.44   |   | $ | 0.48 |   |
|                                                    |                                                                                                                                       |                                        |        |  |  |  |  |  |

 

8

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The fair value of the options was estimated at the grant date using aBlack-Scholes option-pricing model. Option valuation models require the inputof highly subjective assumptions. Because the Company’s employee stock optionshave characteristics significantly different from traded options, and becausechanges in the subjective input assumptions can materially affect the fair valueestimate, in management’s opinion, the existing models do not necessarilyprovide a reliable single measure of the fair value of its employee stockoptions.

 

The following weighted-average assumptions were used in the valuationmodel:

 
|                    |   | **Three Months  Ended March 31** | ** ** |
|-------------------------|--------|---------------------------------------|------------|
|                    |   | **2004**                              |       | **2003** |   |
| Risk free interest rate |   | 3.63                                  | %          | 2.59 | % |
| Dividend yield          |   | 3.49                                  | %          | 3.33 | % |
| Price volatility        |   | .253                                  |       | .257 |   |
| Expected life (years)   |   | 7.5                                   |       | 7.5 |   |

 

**Note F- INVESTMENTS**

 

The following is a summary of available-for-sale securities at March 31,2004 (in thousands):

 
|                                |   | **Available-for-Sale Securities** | ** ** |
|-------------------------------------|--------|-----------------------------------|------------|
|                                |   | **Amortized  Cost**               |       | **Gross  Unrealized  Gains** |   | **Gross  Unrealized  Losses** |   | **Estimated  Fair  Value** |   |
| United States Treasury              |   | $                                 | 43,614     |   | $ | 493 |   | $ | 2 |   | $ | 44,105 |   |
| United States Government agencies   |   | 380,770                           |       | 4,109 |   | 1,312 |   | 383,567 |   |
| Mortgage-backed securities          |   | 1,012,462                         |       | 15,212 |   | 1,787 |   | 1,025,887 |   |
| Collateralized mortgage obligations |   | 1,711                             |       | 19 |   | — |   | 1,730 |   |
| State and political securities      |   | 58,822                            |       | 3,071 |   | 19 |   | 61,874 |   |
| Other securities                    |   | 76,885                            |       | 2,582 |   | 267 |   | 79,200 |   |
|                                |   | $                                 | 1,574,264  |   | $ | 25,486 |   | $ | 3,387 |   | $ | 1,596,363 |   |

 

The Company had no held-to-maturity securities at March 31, 2004and 2003.

 

Proceeds from the sale of available-for-sale securities during thethree months ended March 31, 2004 and 2003 were $68,021,000 and$62,089,000, respectively.  Gross gainsof $1,581,000 and $561,000 were realized on sales during the three months endedMarch 31, 2004 and 2003, respectively. Gross losses of $70,000 and $97,000 were realized on sales during thethree months ended March 31, 2004 and 2003, respectively.  Gains and losses on disposition of thesesecurities were computed using the specific identification method.

 

**Note G - LOANS**

 

The composition of the loan portfolio at March 31, 2004 was asfollows (in thousands):

 

| Real estate                    |   | $         | 1,585,914 |   |
|--------------------------------|--------|-----------|-----------|--------|
| Real estate construction       |   | 309,609   |      |
| Commercial                     |   | 572,229   |      |
| Consumer and other             |   | 682,698   |      |
| Agriculture                    |   | 157,760   |      |
|                           |   | 3,308,210 |      |
| Less allowance for loan losses |   | (52,558   | )         |
| Net loans                      |   | $         | 3,255,652 |   |

 

9

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**Note H - FINANCIALINSTRUMENTS WITH OFF-BALANCE SHEET RISK**

 

In the normal course of business, the Company is party to financialinstruments with off-balance sheet risk to meet the financing needs of itscustomers and to manage its interest rate risk.  These financial instruments include commitments to extend creditand letters of credit.  Since theconditions requiring the Company to fund letters of credit may not occur andsince customers may not utilize the total loan commitments, the Company expectsits liquidity requirements to be less than the outstanding commitments.  The contract or notional amounts of thesefinancial instruments at March 31, 2004 were as follows (in thousands):

 
| Commitments to extend credit             |   | $      | 682,183 |   |
|------------------------------------------|--------|--------|---------|--------|
| Standby and commercial letters of credit |   | 29,043 |    |

 

**Note I – GUARANTEESOF INDEBTEDNESS OF OTHERS**

 

Standby letters of credit are conditional commitments the Companyissues to guarantee the performance of a customer to a third-party. The guaranteesfrequently support public and private borrowing arrangements, includingcommercial paper issuances, bond financings and other similar transactions. Inthe event of a customer’s nonperformance, the Company’s credit loss exposure isthe same as in any extension of credit, up to the letter’s contractual amount.Management assesses the borrower’s credit to determine the necessarycollateral, which may include marketable securities, real estate, accountsreceivable and inventory. The maximum potential future payments guaranteed bythe Company under standby letter of credit arrangements at March 31, 2004,is approximately $22 million with a weighted average term of approximately fourmonths. The fair value of standby letters of credit is not material to the Company’sfinancial statements.

 

**Note J- SUBORDINATEDNOTES**

 

At March 31, 2004, the Company had  $50 million of 7.30% Subordinated Notes issued in June 1997,which are due on June 30, 2004, with interest payable semi-annually.  At March 31, 2004, the subsidiary bankhad a $25 million unsecured subordinated term note, maturing onDecember 22, 2007.  The subsidiarybank note bears interest at the rate of LIBOR, plus 140 basis points.

 

**Note K - INCOME TAXES**

 

The reconciliation between the provision for income taxes and theamount computed by applying the statutory federal income tax rate was asfollows (in thousands):

 
|                                          |   | **For the  three months ended,  March 31, 2004** | ** ** |
|-----------------------------------------------|--------|-------------------------------------------------------|------------|
| 35% of pretax income                          |   | $                                                     | 8,799      |   |
| State income tax, net of federal tax  benefit |   | 650                                                   |       |
| Tax-exempt interest                           |   | (685                                                  | )          |
| Other                                         |   | (528                                                  | )          |
| Provision for income taxes                    |   | $                                                     | 8,236      |   |

 

**Note L – JUNIORSUBORDINATED DEBENTURES**

 

The Company has unconditionally guaranteed the obligation of CFBCapital III, under the $60 million, 8.125% junior subordinated debentures issuedMarch 27, 2002 and the obligation of CFB Capital IV, under the $60million, 7.60% junior subordinated debentures issued March 4, 2003.  The $60 million Capital III securities,which mature April 15, 2032 may be redeemed any time on or afterApril 15, 2007.  The $60 millionCapital IV securities, which mature March 15, 2033, may be redeemed at anytime on or after March 15, 2008. At March 31, 2004, $120 million incapital securities qualified as Tier 1 capital under capital guidelines of theFederal Reserve.  Refer to Note C –Accounting Changes for a discussion of FIN 46 and its impact on the recordingand reporting of these securities on the Company’s financial

 

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statements.

 

**Note M - SUPPLEMENTALDISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| **Three months ended March 31 (in thousands)**      |   | **2004** |   | **2003** |   |
|----------------------------------------------------------|--------|----------|--------|----------|--------|
| Unrealized gain (loss) on  available-for-sale securities |   | $        | 10,422 |     | $      | (7,346 | ) |
|                                                          |        |          |        |          |        |  |  |

 

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**Item2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Basis of Presentation**

 

The following is a discussion of the Company’s financial condition asof March 31, 2004 and December 31, 2003, and its results ofoperations for the three-month periods ended March 31, 2004 and 2003.

 

**Merger Transaction**

 

On March 16, 2004, the Company and BancWest Corporation announcedthe signing of an agreement and plan of merger pursuant to which BancWest wouldacquire the Company.  Under terms of theagreement, BancWest will pay $32.25 for each share of Company common stockoutstanding, without interest.  Theboards of directors of BancWest Corporation, the Company, and the board ofBancWest’s parent, BNP Paribas, have approved the transaction.  The transaction requires approval of Companyshareholders and the Board of Governors of the Federal Reserve System.  Upon approval of shareholders and theFederal Reserve, the transaction is expected to close during the third quarterof 2004.  Following the transaction, allCommunity First branches will become branches of Bank of the West, a bankingsubsidiary of BancWest Corporation.

 

In light of the pending transaction, the Company postponed itsscheduled April 20, 2004 Annual Meeting of Shareholders.  The Company expects that its Annual Meetingof Shareholders will be held in conjunction with the meeting at which itsshareholders will vote on the transaction with BancWest Corporation.

 

**Strategic Initiatives**

 

During the first quarter of 2004, the Company continued to implement aseries of previously announced strategic initiatives that are designed toimprove customer service and strengthen its position as a provider ofdiversified financial services. These initiatives included a redesign of theCompany’s delivery model.

 

Under the redesigned delivery structure, the Company is implementing acentralized consumer credit process, which, when fully operational, will offera complete range of decision, origination, documentation and collectionservices to all Company offices through a Fargo, North Dakota location. As ofMarch 31, 2004, all indirect consumer underwriting, administration,documentation and collection activities have been centralized.  Centralization of the underwriting,administration, documentation and collection of direct consumer loans, as wellas documentation of commercial and agricultural loans, is expected to becomplete by the second quarter of 2004, at which time the centralized deliveryinitiative will be complete.

 

During 2003, the Company initiated a strategy, which consists of amarket extension model, wherein the Company intends to open additional officesin selected areas of the Company’s current geographic footprint that theCompany believes are growth or emerging growth markets.  The initial market extension office locatedin Lino Lakes, Minnesota was opened on February 16, 2004.  The Company anticipates opening an office inBlaine, Minnesota during the second quarter of 2004 and four additional officesin Chaska, Chanhassen, Lakeville, and Inver Grove Heights, Minnesota later in2004.  All six of these locations arelocated in the Twin Cities metropolitan area. Additional offices are expected to be within the 12-state area withinwhich the Company currently operates, including the suburban Minneapolis-St.Paul, Minnesota and Denver, Colorado areas. Services provided at the new locations will be determined by theopportunities identified in that area, and may include business, retail,investment sales, insurance products, mortgage products and wealth management.The addition of these offices is not expected to have a material impact on theCompany’s financial condition or results of operation during 2004.  The Company has announced that it plans toopen 30 new offices by 2007.

 

During the first quarter of 2004, the Company completed the transitionof 16 Regional Financial Centers to Community Financial Centers. RegionalFinancial Centers offer a broad mix of business and retail activity, whileCommunity Financial Centers maintain a retail focus. Transitioning branchesinto the

 

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Community Financial Center model is consistent with the Company’slong-term strategic plan to specifically address the client needs of itsindividual markets through highly targeted service offerings.

 

The Company continues to focus on insurance agency acquisitions and thecommitment to providing insurance in each of its markets.  During the first quarter, through itsinsurance subsidiary, the Company completed the purchase of one insuranceagency, that at the time of acquisition had annual commission revenue ofapproximately $250,000.  During 2003,through its insurance subsidiary, the Company completed the purchase of fiveinsurance agencies, which at the time of acquisition, had a combined annualcommission revenue of approximately $1.3 million.

 

# **CriticalAccounting Policies**

# ** **

The Company has established various accounting policies that govern theapplication of accounting principles generally accepted in the United States inthe preparation of the Company’s financial statements. The significantaccounting policies of the Company are described in the footnotes to theconsolidated financial statements included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2003.  Certain accounting policies involve significant judgments andassumptions by management that have a material impact on the carrying value ofcertain assets and liabilities; management considers such accounting policiesto be critical accounting policies.  Thejudgments and assumptions used by management are based on historical experienceand other factors, that are believed to be reasonable under the circumstances.  Because of the nature of the judgments andassumptions made by management, actual results could differ from thesejudgments and estimates that could have a material impact on the carryingvalues of assets and liabilities and the results of operations of theCompany.  The Company believes that itscritical accounting policies include the allowance for loan losses, goodwillimpairment and income taxes.

 

The Company believes the allowance for loan losses is a criticalaccounting policy that requires the most significant judgment and estimatesused in the preparation of its consolidated financial statements. The currentlevel of the allowance for loan losses is a result of management’s assessmentof the risks within the portfolio based on the information revealed in creditevaluation processes. This assessment of risk takes into account thecomposition of the loan portfolio, previous loan experience, current economicconditions and other factors that, in management’s judgment, deserverecognition. An allowance is recorded for individual loan categories based onthe relative risk characteristics of the loan portfolios. Commercial,commercial real estate, construction and agricultural amounts are based on aquarterly review of the individual loans outstanding, including outstandingcommitments to lend. Residential real estate and consumer amounts are based ona quarterly analysis of the performance of the respective portfolios, includinghistorical and expected delinquency and charge-off statistics.  Ultimate losses may vary from currentestimates, and as adjustments become necessary, the allowance for loan lossesis 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 addedto the allowance, respectively.  TheCompany’s recorded allowance for loan losses and related provisions for loanlosses could be materially different than the amounts recorded under differentconditions or using different assumptions.

 

The Company believes the annual testing for impairment of goodwill is acritical accounting policy that requires significant judgment and estimates.The Company performed its initial annual impairment test during the fourthquarter of 2003.  The test indicated noimpairment existed, thus no adjustment to the carrying amount of goodwill wasrecorded.  The Company will perform itsannual impairment test during the fourth quarter each year.  The Company uses a multi-period discountedearnings model to determine if the equity fair value of the underlyingreporting unit is equal to or greater than the current book value.  The model is based on management’s estimateof the Company’s projected earnings stream over the following five years. Thevaluation model includes various management estimates and assumptions and thus,to the extent these estimates and assumptions vary from actual future results,are subject to error and may not be indicative of actual impairment.

 

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The Company also believes the estimation of its income tax liability isa critical accounting policy that requires significant judgment and estimateson the part of management.  The Companyestimates its income tax liability based on an estimate of its current anddeferred taxes, which are based on its estimates of taxable income.  The Company makes its estimate based on itsinterpretations of the existing income tax laws as they relate to the Company’sactivities.  Such interpretations coulddiffer from those of the taxing authorities. Periodically, the Company isexamined by various federal and state tax authorities.  In the event management’s estimates andassumptions vary from the views of the taxing authorities, adjustments to theperiodic tax accruals may be necessary.

 

The Company’s accounting policies for the allowance for loan losses,testing for the impairment of goodwill and estimation of its income taxliability are outlined in the Company’s Form 10-K for the year endedDecember 31, 2003.  The Companyfurther believes that there have been no significant changes to the methodologyused in the assessment of these estimates and judgments, since the prior yearend.

 

**Overview**

 

For the three months ended March 31, 2004, net income was $16.9million, a decrease of $2.5 million or 12.9% from $19.4 million during the 2003period.  Basic earnings per common sharefor the three months ended March 31, 2004 were $0.46, compared to $0.50 inthe same period of 2003.  Dilutedearnings per share for the three months ended March 31, 2004 were $0.45.  The decrease is due principally to thereduction in net income, which reflects a $4.8 million decrease in net interestincome for the period ended March 31, 2004.

 

Return on average assets and return on common equity for the threemonths ended March 31, 2004 were 1.25% and 18.98%, respectively, as comparedto the 2003 ratios of 1.38% and 21.01%. The decrease in return on assets and return on equity is principally dueto the decrease in net income.

 

**Results of Operations**

 

**NetInterest Income**

 

Net interest income for the three months ended March 31, 2004 was$56.3 million, a decrease of $4.9 million, or 8.0%, from the net interestincome of $61.2 million earned during the 2003 period. The decrease wasprincipally due to the combination of a $11.5 million reduction in interestincome and a $6.6 million decrease in interest expense resulting from thecontinued low interest rate environment and a change in the earning asset mix.During the first quarter of 2004, loans comprised 67% of total average earningassets, down from 69% during the comparable period in 2003.  The decrease in the percentage of loans inthe earning asset mix reflects the Company’s strategy of focusing on loanquality, rather than seeking to build loan volume that could possibly increasenonperforming assets in a challenging economic environment.** **The net interest margin of 4.70% for the quarter endedMarch 31, 2004 was down from 4.90% for the 2003 period. The decline in netinterest margin is due primarily to a reduced interest spread and downwardrepricing of assets which has outpaced the ability to reprice liabilities and areduced level of loan fees during the first quarter of 2004.  This is a reflection of the current interestrate levels as well as the competitive environment in which we are operating aswe pursue the generation of quality loan assets. A shift in earning asset mix,including increased loan demand, will be necessary for the Company to show anysignificant increase in net interest margin. With current economic conditions, the Company expects minimal change inloan volume in the near term.

 

**Provisionfor Loan Losses**

 

The provision for loan losses for the three months ended March 31,2004 was $2.4 million, a decrease of $1.1 million, or 31.4%, from the $3.5million provision during the 2003 period. Net charge-offs were $2.0 million or..25% (annualized), of average loans for the first quarter of 2004, compared to$4.7 million or .54% for the first quarter of 2003.  Nonperforming assets at March 31, 2004 were $25.4 million, adecrease of $9.8 million, or 27.8%, from $35.2 million at March 31, 2003**.**  The decrease in nonperforming assets isattributed primarily to two specific credits, an agri-business loan and a

 

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construction contract credit, which were included in the March 31,2003 total.  Nonperforming assetscomprised .47 percent and .61 percent of total assets at March 31, 2004and March 31, 2003, respectively. Under the merger agreement with BancWest, the Company is required tomaintain a loan loss allowance at least equal to the Company’s loan lossallowance as of December 31, 2003.

 

#### **Noninterest Income**

#### ** **

Noninterest income for the three months ended March 31, 2004 was$22.9 million, an increase of $1.0 million, or 4.6%, from the 2003 level of$21.9 million. Insurance commissions, which continue to demonstrate stronggrowth, were $4.6 million for the 2004 quarter, an increase of $552,000, or13.5%, from the $4.1 million recorded in the 2003 quarter. Insurance commissiongrowth is partially due to the addition of five agencies during 2003, which atthe time of acquisition had estimated annual commission revenue of $1.3million. Commissions on the sale of investment securities were $3.2 million forthe quarter ended March 31, 2004 and an increase of $1.1 million, or 56.0%,from $2.1 million for the quarter ended March 31, 2003, due principally toa stronger stock market, more efficient positioning of the Company as ourclients’ primary financial advisor and improved efficiency in the timeliness ofperformance reports by our third-party provider. Service charges on depositaccounts decreased $123,000 or 1.3%, to $9.3 million as of March 31, 2004,compared to $9.4 million during the 2003 period.  Other income decreased $1.6 million, or 34.8%, from $4.6 millionin 2003 to $3.0 million in 2004, principally as a result of a $811,000reduction in the gain on sale of loans as a result in a decline in the volumeof small business administration loans generated.  Noninterest income in the three-month period ended March 31,2004 included an increase of $1.0 million in net gains on the of saleavailable-for-sale investment securities over the 2003 period.  The gains in part offset front loadedexpenses related to a deposit promotion and a modest repositioning of theinvestment portfolio in light of the current economic environment.

 

**NoninterestExpense**

 

Noninterest expense for the three months ended March 31, 2004 was$51.8 million, a decrease of $1.1 million, or 2.2%, from the level of $50.7million during the 2003 period. The increase is due to a $846,000, or 3.0%,increase in salary and benefits from $27.9 million for the three months endedMarch 31, 2003 to $28.8 million for the three months ended March 31,2004.  Occupancy expenses increased$181,000, or 2.1%, from $8.6 million at March 31, 2003 to $8.8 million atMarch 31, 2004, due principally to increases in real estate propertytaxes.  Data processing expense was $2.0million at March 31, 2004, a $326,000, or 19.0%, increase from $1.7 millionat March 31, 2003, due principally to increased costs associated with ourdata processing support function.  Inaddition, other real estate expense declined $246,000, or 66.5%, from $370,000at March 31, 2003 to $124,000 at March 31, 2004.

 

**Provisionfor Income Taxes**

 

The provision for income taxes for the three months endedMarch 31, 2004 was $8.2 million, a decrease of $1.3 million, or 13.7%,from the 2003 level of $9.5 million. The decrease was due principally to thedecrease in pre-tax net income.  Theeffective tax rate for the three months ended March 31, 2004 was 32.76%,the same as for the three months ended March 31, 2003.

 

**Financial Condition**

 

**Loans**

 

Total loans were $3.3 billion at March 31, 2004, a decrease of$15.4 million, or 0.5%, from $3.3 billion at December 31, 2003.  The decrease reflects management’s continuedreluctance to maintain loan volume at the expense of loan quality.  While the Company continues to seek qualityloan opportunities, the current economic environment, in the Company’s judgment,does not provide sufficient opportunities to re-deploy cash flow generated fromexisting loan repayments.  The Companycontinues to stress disciplined loan underwriting and strong creditadministration.  Loan volumes are belowour targets due to pre-payments, aggressive competition and limited new qualityloan opportunities throughout the marketplace.

 

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While loan volume is down on both a linked-quarter and year-over-yearbasis, the Company continues to experience strong activity in select marketsand loan segments, specifically indirect consumer and commercial real estateportfolios.  Some markets continue towitness strong commercial and single-family home activity.  The Company continues to approach realestate construction cautiously, and as a result, the construction and landdevelopment category at March 31, 2004 decreased  $101 million, or 24.6% since March 31, 2003. Modest growthin the consumer loan portfolio is due to an expanded network of automobiledealers served by the Company’s centralized indirect lending function.  The Company expects continued growth in thisportfolio.

 

The following table presents the Company’s balance of each majorcategory of loans:

 
|                           |   | **March 31,  2004**    |      | **December 31,  2003** |   |
|--------------------------------|--------|-----------------------------|-----------|-----------------------------|--------|
|                           |   | **Amount**                  |      | **Percent of  Total Loans** |   | **Amount** |   | **Percent of  Total Loans** |   |
|                           |   | **(Dollars in Thousands )** |      |
| Loan category:                 |   |                        |      |
| Real estate                    |   | $                           | 1,585,914 |                        | 47.9   | % | $ | 1,562,443 |   | 47.0 | % |
| Real estate construction       |   | 309,609                     |      | 9.4                         | %      | 321,323 |   | 9.7 | % |
| Commercial                     |   | 572,229                     |      | 17.3                        | %      | 582,861 |   | 17.5 | % |
| Consumer and other             |   | 682,698                     |      | 20.6                        | %      | 678,457 |   | 20.4 | % |
| Agricultural                   |   | 157,760                     |      | 4.8                         | %      | 178,488 |   | 5.4 | % |
| Total loans                    |   | 3,308,210                   |      | 100.0                       | %      | 3,323,572 |   | 100.0 | % |
| Less allowance for loan losses |   | (52,558                     | )         |                        |   | (52,231 | ) |   |   |
| Total                          |   | $                           | 3,255,652 |                        |   |   | $ | 3,271,341 |   |   |   |

 

#### **Nonperforming Assets**

#### ** **

AtMarch 31, 2004, nonperforming assets were $25.4 million, a decrease of$841,000 or 3.2% from the $26.3 million level at December 31, 2003. AtMarch 31, 2004, nonperforming loans as a percent of total loans were .60%,down from the December 31, 2003 level of .63%. OREO was $5.5 million atMarch 31, 2004, a slight increase of $73,000, or 1.3% from $5.5 million atDecember 31, 2003.

 

Nonperforming assets of the Company are summarized in the followingtable:

 
| **(Dollars in thousands)**                              |   | **March 31, 2004** |   | **December 31, 2003** |   |
|---------------------------------------------------------|--------|-------------------------|--------|----------------------------|--------|
| Loans                                                   |   |                    |   |                       |   |
| Nonaccrual loans                                        |   | $                       | 19,725 |                       | $      | 20,630 |   |
| Restructured loans                                      |   | 179                     |   | 188                        |   |
| Nonperforming loans                                     |   | 19,904                  |   | 20,818                     |   |
| Other real estate owned                                 |   | 5,534                   |   | 5,461                      |   |
| Nonperforming assets                                    |   | $                       | 25,438 |                       | $      | 26,279 |   |
| Loans 90 days or more past due but still  accruing      |   | $                       | 3,416  |                       | $      | 3,220 |   |
| Nonperforming loans as a percentage of  total loans     |   | 0.60                    | %      | 0.63                       | %      |
| Nonperforming assets as a percentage of  total assets   |   | 0.47                    | %      | 0.48                       | %      |
| Nonperforming assets as a percentage of  loans and OREO |   | 0.77                    | %      | 0.79                       | %      |

 

#### **Allowance for Loan Losses**

#### ** **

At March 31, 2004, the allowance for loan losses was $52.6million, a decrease of $2.3 million from the March 31, 2003 balance of$54.9 million.  Net charge-offs duringthe three months ended March 31, 2004 were $2.0 million, a decrease of$2.7 million or 57.4% from the $4.7 million during the three months endedMarch 31, 2003. The decrease in net charge-offs was due principally to thepartial charge-off during the first quarter of 2003 of two specific credits, anagri-business loan and a construction contractor credit. Management believesthe current allowance for loan losses is appropriate based on management’sassessment of losses inherent in the remaining nonperforming asset portfolioand the

 

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reduction in total loans outstanding.

 

At March 31, 2004, the allowance for loan losses as a percentageof total loans was 1.59%, an increase from the March 31, 2003 level of1.57%.

 

The following table sets forth the Company’s allowance for loan losses:

 
|                                                     |   | **March 31,** |       |
|----------------------------------------------------------|--------|--------------------|------------|
| **(Dollars in thousands)**                               |   | **2004**           | ** ** | **2003** | ** ** |
| Balance at beginning of period                           |   | $                  | 52,231     |   | $ | 56,156 |   |
| Charge-offs:                                             |   |               |       |   |   |
| Real estate                                              |   | 528                |       | 400 |   |
| Real estate construction                                 |   | 57                 |       | 250 |   |
| Commercial                                               |   | 764                |       | 2,227 |   |
| Consumer and other                                       |   | 2,288              |       | 2,757 |   |
| Agricultural                                             |   | 22                 |       | 930 |   |
| Total charge-offs                                        |   | 3,659              |       | 6,564 |   |
| Recoveries:                                              |   |               |       |   |   |
| Real estate                                              |   | 86                 |       | 192 |   |
| Real estate construction                                 |   | —             |       | — |   |
| Commercial                                               |   | 257                |       | 339 |   |
| Consumer and other                                       |   | 1,265              |       | 1,260 |   |
| Agricultural                                             |   | 13                 |       | 25 |   |
| Total recoveries                                         |   | 1,621              |       | 1,816 |   |
| Net charge-offs                                          |   | 2,038              |       | 4,748 |   |
| Provision charged to operations                          |   | 2,365              |       | 3,487 |   |
| Balance at end of period                                 |   | $                  | 52,558     |   | $ | 54,895 |   |
| Allowance as a percentage of total loans                 |   | 1.59               | %          | 1.57 | % |
| Annualized net charge-offs to average loans  outstanding |   | 0.25               | %          | 0.54 | % |
|                                                     |   |               |       |   |   |
| Total Loans                                              |   | $                  | 3,308,210  |   | $ | 3,494,772 |   |
| Average Loans                                            |   | 3,305,392          |       | 3,587,067 |   |

 

**Investments**

#### ** **

The investment portfolio, consisting of available-for-sale securities,was $1.6 billion at March 31, 2004, a slight increase of $33 million, or2.1%, from $1.6 billion at December 31, 2003.  At March 31, 2004, the investment portfolio represented29.2% of total assets, compared with 28.6% at December 31, 2003.  In addition to investment securities, theCompany had investments in interest-bearing deposits of $4.4 million atMarch 31, 2004, an increase of $1.1 million, or 33.3%, from $3.3 millionat December 31, 2003.

 

**Deposits**

 

Total deposits were $4.4 billion at March 31, 2004 andDecember 31, 2003. Noninterest-bearing deposits at March 31, 2004 were $436 million, adecrease of $12.0 million, or 2.7%, from $448 million at December 31,2003.  The slight increase in totaldeposits was principally the result of the continued low interest rateenvironment and the Company’s focus on maintaining interest bearing liabilitiesat interest rate levels that contribute to a strong net interest margin. TheCompany’s core deposits, which are all deposits, excluding time accounts over$100,000, as a percent of total deposits were 88.3% and 88.6% as ofMarch 31, 2004 and December 31, 2003, respectively.  Interest-bearing deposits were $4.0 billionat March 31, 2004 and at December 31, 2003.

 

**Borrowings**

 

Federal funds purchased and securities sold under agreements torepurchase of the Company were $416.7 million as of March 31, 2004, and atDecember 31, 2003.

 

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Short-term borrowings of the Company were $63.0 million as ofMarch 31, 2004, a decrease of $12.6 million, or 16.7%, from $75.6 millionas of December 31, 2003.  Thedecrease reflects the Company’s strategy of funding short-term liquidity needsin the most cost-effective manner. Short-term borrowings include borrowing arrangements wherein theoriginal maturity is less than one year, as well as previously classifiedlong-term borrowings maturing within one year, which includes the $50 million,7.30% Subordinated Notes issued in June 1997 which mature on June 30,2004.  The Company will pay the notes atmaturity and will not refinance. The 7.30% Notes no longer qualify as Tier 2Capital, as they mature in less than one year.

 

Long-term debt of the Company was $178.2 million as of March 31,2004, an increase of $6 million, or 3.5%, from the $172.2 million as ofDecember 31, 2003.

 

**Asset and LiabilityManagement**

 

*LIQUIDITY MANAGEMENT*

 

Liquidity management is an effort of management to provide a continuingflow of funds to meet its financial commitments, customer borrowing needs anddeposit withdrawal requirements. The liquidity position of the Company and itssubsidiary bank is monitored by the Asset and Liability Management Committee(“ALCO”) of the Company. The largest category of assets representing a readysource of liquidity for the Company is its short-term financial instruments, whichinclude federal funds sold, interest-bearing deposits at other financialinstitutions, U.S. Treasury securities and other securities maturing within oneyear. Liquidity is also provided through the regularly scheduled maturities ofassets. The investment portfolio contains a number of high quality issues withvarying maturities and regular principal payments. Maturities in the loanportfolio also provide a steady flow of funds, and strict adherence to thecredit policies of the Company helps ensure the collectability of these loans.The liquidity position of the Company is also greatly enhanced by itssignificant base of core deposits.

 

In the normal course of business, the Company is party to financialinstruments with off-balance-sheet risk. Because many of the commitments areexpected to expire without being drawn upon, total commitment amounts do notnecessarily represent the Company’s future liquidity requirements. Theseinstruments are further described in Note H - Financial Instruments With Off-BalanceSheet Risk.

 

The liquidity ratio is one measure of a bank’s ability to meet itscurrent obligations and is defined as the percentage of liquid assets todeposits. Liquid assets include cash and due from banks, unpledged investmentsecurities with maturities of less than one year and federal funds sold. AtMarch 31, 2004 and December 31, 2003, the liquidity ratio was 5.16%and 5.53%, respectively. The level of loans maturing within one year greatlyadd to the Company’s liquidity position. Including loans maturing within oneyear, the liquidity ratio was 19.07% and 21.87%, respectively, for the sameperiods.  The decrease in both liquidityratios is principally due to the $21 million reduction in cash and the $106 millionreduction  in the volume of loansmaturing in less than one year.

 

The Company has revolving lines of credit with its primary lenders,which provide for borrowing up to $85 million. These lines could be utilized tofinance stock repurchase activity, underwrite commercial paper and fund otheroperating expenses. At March 31, 2004, the Company had $5 million incommercial paper outstanding, that is supported by the Company’s revolving lineof credit.

 

The Company maintains available lines of federal funds borrowings atthe Federal Reserve Bank of Minneapolis. The Company’s subsidiary bank has theability to borrow an aggregate of $537 million in federal funds from fourteennonaffiliated financial institutions. At March 31, 2004, the Company had$74 million outstanding on these lines.

 

The Company also has a $172 million line of credit from the FederalReserve under its Primary Credit program, which permits financial institutionswith collateralized lines of credit at the Federal Reserve to borrow funds on ashort-term basis.  Funds are priced at aspread above the federal funds target rate and are available on an as-neededbasis.  At March 31, 2004, therewas no balance owing on this line.

 

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Additionally, the Company’s subsidiary bank is a member of the FederalHome Loan Bank (“FHLB”) System. As part of membership, the Company’s subsidiarybank purchased a modest amount of stock of FHLB and obtained advance lines ofcredit that represent an aggregate of $450 million in additional funding capacity.  At March 31, 2004, the Company had $38million outstanding on this line.

 

The $50 million, 7.30% Subordinated Notes issued in June 1997 aredue June 30, 2004.  The Companywill pay the notes at maturity and will not refinance.

 

INTEREST RATE SENSITIVITY

 

Interest rate sensitivity indicates the exposure of a financialinstitution’s earnings to future fluctuations in interest rates. Management ofinterest rate sensitivity is accomplished through the composition of loans andinvestments and by adjusting the maturities on earning assets andinterest-bearing liabilities. Rate sensitivity and liquidity are related sinceboth are affected by maturing assets and liabilities. However, interest ratesensitivity also takes into consideration those assets and liabilities withinterest rates that are subject to change prior to maturity.

 

ALCO attempts to structure the Company’s balance sheet to provide foran approximately equal amount of rate-sensitive assets and rate-sensitiveliabilities. In addition to facilitating liquidity needs, this strategy assistsmanagement in maintaining relative stability in net interest income despiteunexpected fluctuations in interest rates. ALCO uses three methods formeasuring and managing interest rate risk: Repricing Mismatch Analysis, BalanceSheet Simulation Modeling and Equity Fair Value Modeling.

 

Repricing Mismatch Analysis

 

Management performs a Repricing Mismatch Analysis (“Gap Analysis”)which represents a point in time net position of assets, liabilities andoff-balance sheet instruments subject to repricing in specified time periods.Gap Analysis is performed quarterly. However, management believes Gap Analysis alone does not accuratelymeasure the magnitude of changes in net interest income because changes ininterest rates do not impact all categories of assets, liabilities andoff-balance sheet instruments equally or simultaneously.

 

Balance Sheet Simulation Modeling

 

Balance Sheet Simulation Modeling allows management to analyze theshort-term (12 months or less) impact of interest rate fluctuations onprojected earnings.  Using financialsimulation computer software, management has built a model that projects anumber of interest rate scenarios.  Eachscenario captures the impact of contractual obligations embedded in theCompany’s assets and liabilities.  Thesecontractual obligations include maturities, loan and security payments,repricing dates, interest rate caps, and interest rate floors.  The projection results also measure theimpact of various management assumptions including loan and deposit volumetargets, security and loan prepayments, pricing spreads and implied repricingcaps and floors on variable rate non-maturity deposits. Management completes anearnings simulation quarterly.  Thesimulation process is the Company’s primary interest rate risk management tool.

 

While management strives to use the best assumptions possible in thesimulation process, all assumptions are uncertain by definition.  Due to numerous market factors, and thepotential for changes in management strategy over time, actual results maydeviate from model projections.

 

Based on the results of the simulation model as of March 31, 2004,management would expect net interest income to decrease 1.19%, assuming a 100basis point increase in market rates. This exposure is within the ALCO guidelines of 1.40%. Assuming ratesdropped 100 basis points, management would expect net interest income todecline 3.80%.  This decline exceeds theCompany’s internal ALCO guidelines of 1.40%. Under this declining ratescenario, because of projected security prepayments and the assumed floor ontransaction account pricing, assets reprice faster than liabilities.  Given the current

 

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interest rate environment, management and the Board have discussed andaccepted operating outside the approved guidelines.

 

Several factors mitigate the Company’s projected exposure to decliningrates.  First, management-establishedrisk guidelines are measured against instantaneous rate shocks.  Gradual rate shifts over several monthsreduce the level of projected risk under both rising and declining ratescenarios.  Also, the current modelassumes that there is no room to downprice non-maturity transactiondeposits.  Management has effectivelyfloored these liability accounts at current levels in its model.  As an abundance of caution, managementbelieves this is an appropriate assumption for risk management purposes, butmanagement believes there would be the potential for some downpricing on thissizeable volume of liabilities.

 

In addition to earnings at risk, the simulation process is also used asa tool in liquidity and capital management. Management models the impact of interest rate fluctuations on theanticipated cash flows from various financial instruments, ultimately measuringthe impact that changing rates will have on the Company’s liquidityprofile.  Management also reviews theimplications of strategies that impact asset mix and capital levels, measuringseveral key regulatory capital ratios under various interest rate scenarios.

 

Equity Fair Value Modeling

 

Because Balance Sheet Simulation Modeling is dependent on accuratevolume forecasts, its usefulness as a risk management tool is limited torelatively short time frames.  As acomplement to the simulation process, management uses Equity Fair ValueModeling to measure long-term interest rate risk exposure.  This method estimates the impact of interestrate changes on the discounted future cash flows of the Company’s currentassets, liabilities and off-balance sheet instruments.  This risk model does not incorporateprojected volume assumptions.

 

Similar to the simulation process, fair value results are heavilydriven by management assumptions.  Whilemanagement strives to use the best assumptions possible, due to numerous marketfactors, actual results may deviate from model projections.

 

Based on the model results from March 31, 2004,management would expect equity fair value to decline 4.64% assuming a 100 basispoint increase in rates.  This exposureis within the ALCO established guidelines of 10.00%.  Assuming rates declined 100 basis points, the model projects adecline in equity fair value of 2.36%. This exposure is also within the ALCO established policy guidelines of10.00%.

 

The Company does not engage in the speculative use of derivativefinancial instruments.

 

**CapitalManagement**

 

Shareholders’ equity was $361 million at March 31, 2004, adecrease of $527,000, or 0.1% from $362 million at December 31, 2003.  Unrealized gain on available-for-salesecurities, net of taxes, increased $6.2 million, or 87.3% from $7.1 million atDecember 31, 2003 to $13.3 million at March 31, 2004.  At March 31, 2004, the Company’s Tier 1capital, total risk-based capital and leverage ratios were 9.60%, 11.33%, and6.84%, respectively, compared to minimum required levels of 4%, 8% and 3%,respectively (subject to change and the discretion of regulatory authorities toimpose higher standards in individual cases). Ratios of 6%, 10%, and 5%, respectively, are generally regarded as wellcapitalized ratios.  At March 31,2004, the Company had risk-weighted assets of $3.9 billion.  The March 31, 2004 capital ratiosinclude both the $60 million 7.60% junior subordinated debentures issued March 4,2003 and the $60 million 8.125% junior subordinated debentures issuedMarch 27, 2002.  Capital andleverage ratios remain substantially within minimum regulatory capital limitsfor a well-capitalized institution.

 

**Stock Repurchases**

#### ** **

During the first quarter of 2004, the Company repurchased 582,500shares of its common stock at

 

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prices ranging from $27.28 to $28.33. The Company has 1,783,000 sharesthat remain authorized for repurchase under existing authorizations.  Since the first quarter of 2000, the Companyhas repurchased a total of 14.9 million shares of its common stock, whichrepresents approximately 30% of the shares that were outstanding as of March 2000.  For more information on the share repurchaseprogram, see Part II, Item 2.

 

**Off-Balance SheetArrangements, Contractual Obligations and Other Commercial Commitments**

 

**Off-BalanceSheet Arrangements**

 

In the normal course of business, the Company enters into variousbusiness arrangements wherein it may be required by the terms of thearrangement to guarantee or invest additional capital as a result of investmentopportunities and financial performance.

 

***Mortgage Loan JointVenture:*** The Company, through its subsidiary bank, and Wells Fargo & Company,through its mortgage subsidiary, formed a joint venture mortgage company forthe purpose of providing mortgage origination, documentation, servicing processand support for substantially all the residential mortgage business of theCompany.  The Company has 50% ownershipand 50% voting rights over the affairs of the joint venture and accordinglyrecords its investment and its continuing share of the income or loss of thejoint venture under the equity method of accounting.  As a 50% holder of the joint venture, the Company may be requiredto increase its investment in the joint venture in the event additionalinvestment capital were required.  As ofMarch 31, 2004, the Company’s investment in the joint venture totaled$46,000.

 

***Federal ReserveStock:***  TheCompany’s affiliate bank is required by Federal banking regulations to be amember of the Federal Reserve System. As a member of the Federal Reserve System, the Company may be requiredto maintain stock ownership in the Federal Reserve System in an amount equal tosix percent of the affiliate bank’s paid-in capital and surplus.  The affiliate bank is required and currentlyhas purchased an amount of common stock equal to three percent, or one-half thebank’s subscription amount.  At thediscretion of the Federal Reserve System, the bank may be required to increaseits investment to an amount equal to the full six percent of its total paid-incapital and surplus.  At March 31,2004, the Company’s investment in the Federal Reserve System totaled $9.6 million.

 

**ContractualObligations and Other Commercial Commitments:**

 

In the normal course of business, the Company arranges financingthrough entering into debt arrangements with various creditors for the purposeof financing specific assets or providing a funding source.  The contract or notional amounts of thesefinancing arrangements at March 31, 2004, as well as the maturity of thesecommitments are (in thousands):

 
|                                            |   | **Payment  Due by Period** | ** ** |
|-------------------------------------------------|--------|----------------------------|------------|
| **Contractual Obligations**                     |   | **Total**                  | ** ** | **Less than  1 Year** | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **More than  5 Years** | ** ** |
| **(in thousands)**                              |   |                       | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Capital lease obligations                       |   | $                          | 5,744      |   | $ | 1,479 |   | $ | 2,957 |   | $ | 1,245 |   | $ | 63 |   |
| Operating leases                                |   | 8,015                      |       | 2,318 |   | 3,167 |   | 1,505 |   | 1,025 |   |
| Demand deposits                                 |   | 436,279                    |       | 436,279 |   | — |   | — |   | — |   |
| Savings deposits and interest-bearing  checking |   | 2,585,254                  |       | 2,585,254 |   | — |   | — |   | — |   |
| Time deposits                                   |   | 1,369,724                  |       | 1,001,999 |   | 283,058 |   | 84,373 |   | 294 |   |
| Federal funds purchased                         |   | 73,800                     |       | 73,800 |   | — |   | — |   | — |   |
| Securities sold under agreement to  repurchase  |   | 342,932                    |       | 342,932 |   | — |   | — |   | — |   |
| Other short-term borrowings                     |   | 62,996                     |       | 62,996 |   | — |   | — |   | — |   |
| Long term debt                                  |   | 178,211                    |       | — |   | 17,500 |   | 35,000 |   | 125,711 |   |
| Lines of credit                                 |   | 682,183                    |       | 483,076 |   | 70,125 |   | 23,159 |   | 105,823 |   |
| Standby letters of credit                       |   | 21,941                     |       | 17,491 |   | 3,499 |   | 183 |   | 768 |   |
| Commercial letters of Credit                    |   | 7,102                      |       | 6,905 |   | 94 |   | 103 |   | — |   |
| Total                                           |   | $                          | 5,774,181  |   | $ | 5,014,529 |   | $ | 380,400 |   | $ | 145,568 |   | $ | 233,684 |   |

 

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***Long Term Debt:***  At March 31, 2004, the Company had longterm debt outstanding of $178.2 million. The subsidiary bank had Federal HomeLoan Bank advances totaling $29.5 million outstanding at March 31, 2004.

 

Also at March 31, 2004, the subsidiary bank had a $25 millionunsecured subordinated term note payable to a non-affiliated bank, with amaturity date of December 22, 2007. The subsidiary bank note payable is subject to covenants that includeremaining in compliance with all regulatory agency requirements, providingtimely financial information and providing access to certain Companyrecords.  The Company believes it is infull compliance with all long-term debt covenants at March 31, 2004.

 

At March 31, 2004, the Company has unconditionally guaranteed theobligation of CFB Capital IV, under the $60 million, 7.60% junior subordinateddebentures issued March 4, 2003, and the obligation of CFB Capital III,under the $60 million, 8.125% junior subordinated debentures issuedMarch 27, 2002. The $60 million Capital IV securities, which mature March 15,2033, may be redeemed any time on or after March 15, 2008.  The $60 million Capital III securities,which mature April 15, 2032, may be redeemed any time on or afterApril 15, 2007.

 

***Capital LeaseObligations:*** The Company frequently acquires the rights to equipment used in theoperation of the Company by entering into long-term capital leases.  At March 31, 2004, the Company wasliable for the payment of lease schedules associated with the acquisition ofequipment and premises totaling $4,958,000, exclusive of finance charges.  The effect of capital leases recorded atMarch 31, 2004 is summarized in the table above.

 

***Operating Leases:***  In the normal course of business, theCompany enters into operating lease arrangements for the use of premises andequipment.  Operating leases includerental agreements with tenants providing facilities through which the Companydelivers its products and services.

 

***Commitments toextend credit***are legally binding and have fixedexpiration dates or other termination clauses. The Company’s exposure to creditloss on commitments to extend credit, in the event of nonperformance by thecounterparty, is represented by the contractual amounts of the commitments. TheCompany monitors its credit risk for commitments to extend credit by applyingthe same credit policies in making commitments as it does for loans and byobtaining collateral to secure commitments based on management’s creditassessment of the counterparty. Collateral held by the Company may includemarketable securities, receivables, inventory, agricultural commodities,equipment and real estate. Because many of the commitments are expected toexpire without being drawn upon, total commitment amounts do not necessarilyrepresent the Company’s future liquidity requirements. In addition, the Companyalso offers various consumer credit line products to its customers that arecancelable upon notification by the Company, which are included above incommitments to extend credit.

 

***Standby letters ofcredit*** are conditional commitments issued by theCompany to guarantee the financial performance of a customer to a third party.Those guarantees are primarily issued to support public and private borrowingarrangements.

 

***Commercial lettersof credit*** are issued by the Company on behalf ofcustomers to ensure payments of amounts owed or collection of amountsreceivable in connection with trade transactions. The Company’s exposure tocredit loss in the event of nonperformance by the counterparty is thecontractual amount of the letter of credit and represents the same exposure asthat involved in extending loans.

 

**Forward-looking Statements**

#### ** **

**This Form 10-Q contains forward-looking statements underthe Private Securities Litigation Reform Act of 1995 that are subject tocertain risks and uncertainties that could cause actual results to differ**

 

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materially from historical earnings and those presently anticipated orprojected. The Company wishes to caution readers not to place undue reliance onany such forward-looking statements, which speak only as of the date made.  Forward-looking statements can be identifiedby the fact that they do not relate strictly to historical or current facts.They often include words such as “believe,” “expect,” “anticipate,” “intend,”“plan,” “estimate,” or words of similar meaning, or future or conditional verbssuch as “will,” “would,” “should,” “could” or “may.” Factors that could causeactual results to differ from the results discussed in the forward-looking statementsinclude, but are not limited to:  riskof loans and investments, including dependence on local economic conditions;competition for the Company’s customers from other providers of financialservices; possible adverse effects of changes in interest rates; balance sheetand critical ratio risks related to the share repurchase program; risks relatedto the Company’s acquisition and market extension strategy, including risks ofadversely changing results of operations and factors affecting the Company’s abilityto consummate further acquisitions or extend its market, and other risksdetailed in the Company’s filings with the Securities and Exchange Commission,including the risks identified in the Company’s Form 10-K filed with theCommission on March 12, 2004, all of which are difficult to predict andmany of which are beyond the control of the Company.

 

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**Item 3. Quantitative and Qualitative Disclosure About Market Risk**

 

There have been no material changes in market risk exposures thataffect the quantitative and qualitative disclosures presented as ofDecember 31, 2003 in the Company’s Form 10-K and Annual Report.

 

**Item 4. Controls and Procedures**

 

The Company, with the participation of management, including the ChiefExecutive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated theeffectiveness of the Company’s disclosure controls and procedures as of the endof the period covered by this report. Disclosure controls and procedures are designed to provide a reasonablelevel of assurance that information required to be disclosed in the Company’sreports under the Securities and Exchange Act of 1934 is recorded and reportedwithin the appropriate time periods. Based upon that review, the CEO and CFO concluded that the Company’sdisclosure controls and procedures are effective.  During the fiscal quarter covered by this report, there have beenno changes in internal control over financial reporting that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**PART II - OTHER INFORMATION**

 

Item 1.             Legal Proceedings:

 

None.

 

Item 2.             Changes inSecurities, Use of Proceeds and Issuer Repurchase of Securities:

 

The following table provides information about purchases by the Companyduring the quarter ended March 31, 2004 of Common Stock.

 

Company Purchases of Equity Securities

 
| **Period**         |   | **Total Number  of Shares  Purchased** |   | **Average  Price Paid  Per Share** |   | **Total Number of  Shares Purchased  as Part of Plan** |      | **Maximum  Number of Shares  Yet to Purchase** |      |
|--------------------|--------|----------------------------------------|--------|------------------------------------|--------|--------------------------------------------------------|-----------|------------------------------------------------|-----------|
| January 2004  |   | 219,700                                |   | $                                  | 27.98  |                                                   | 854,300   |                                           | 2,145,700 |   |
| February 2004 |   | 362,800                                |   | $                                  | 27.76  |                                                   | 1,217,100 |                                           | 1,782,900 |   |
| March 2004    |   | 0                                      |   | n/a                                |   | 1,217,100                                              |      | 1,782,900                                      |      |

 

(1)              The Company repurchased an aggregate of582,500 shares of common stock pursuant to the repurchase program that theCompany announced on April 24, 2003 (the “Program”).

 

(2)              The Company’s board of directors approvedthe repurchase by the Company of up to an aggregate of 3,000,000 shares ofcommon stock, without limitation to aggregate value, pursuant to theProgram.  Unless terminated earlier byresolution of the board of directors, the Program will expire when the Companyhas repurchased all shares authorized for repurchase thereafter.

 

(3)              At the present time, the Company does notintend to make further purchases under this Program.  The Company has suspended its repurchase program due to themerger with BancWest.  The mergeragreement contains a covenant prohibiting the Company from repurchasing itscommon stock.

 

Item 3.             Defaults upon SeniorSecurities:

 

None.

 

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Item 4.             Submission of Mattersto a Vote of Security Holders:

 

None.

 

Item 5.             Other Information:

 

On March 16, 2004, the Company and BancWest Corporation announcedthey had signed a definitive agreement wherein the Company would be acquired byBancWest Corporation, issued a press release and filed a current report on Form8-K with the Commission.

 

In light of the pending transaction, the Company postponed itsscheduled April 20, 2004 Annual Meeting of Shareholders.  The Company expects that its Annual Meetingof Shareholders will be held in conjunction with the meeting at which its shareholderswill vote on the transaction with BancWest Corporation.

 

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Item 6.             Exhibits and Reportson Form 8-K:

 

(a)                      Exhibits:

 

12.1                Statement re computation of ratios.

 

31.1                Certification of principal executiveofficer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules13a-14 and 15d-14 of the Exchange Act)

 

31.2                Certification of principal financialofficer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules13a-14 and 15d-14 of the Exchange Act).

 

32                         Certifications pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).

 

(b)                     Reports on Form 8-K:

 

During the quarter, the Company furnished toor filed with the Commission the following reports on Form 8-K.

 

On January 15, 2004, the Company furnished a current report underItems 9 and 12 on Form 8-K related to a press release dated January 15,2004 announcing the Company’s results for the quarter ended December 31,2003.

 

On March 16, 2004, the Company filed a current report under Item 5on Form 8-K related to the announcement of an Agreement and Plan of Mergerdated March 15, 2004 among BancWest Corporation, Newco, Inc. and theCompany, pursuant to which BancWest Corporation has agreed to acquire theCompany.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                    | **COMMUNITY FIRST  BANKSHARES, INC.**                |
|-------------------------|------------------------------------------------------|
|                    |                                                 |
|                    |                                                 |
| Date:  May 6, 2004 | /s/                                                  | Mark A. Anderson |   |
|                    | Mark A. Anderson                                     |
|                    | President and Chief Executive Officer                |
|                    |                                                 |
|                    |                                                 |
| Date:  May 6, 2004 | /s/                                                  | Craig A. Weiss |   |
|                    | Craig A. Weiss                                       |
|                    | Executive Vice President and Chief Financial Officer |

 

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