** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC  20549**

 

**FORM 10-Q**

 

 

 

**ý****                                 QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thequarterly period ended   June 30, 2002**

 

**OR**

 

 

**o        TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from                           to**

 

 

**Commission file number   0-19368 **

 

 

**COMMUNITY FIRST BANKSHARES, INC.**

(Exact name of registrant as specified in its charter)

 

 

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

 

 

**(701) 298-5600**

(Registrant’s telephone number, including area code)

 

Indicated by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days: YES  ý NO  o

 

At August 8, 2002,39,527,312 shares of Common Stock were outstanding.

 

----

                COMMUNITY FIRSTBANKSHARES, INC.

 

FORM 10-Q

 

QUARTER ENDED JUNE 30, 2002

 

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                                  |   |
|                             |                                                                                        |   |
| PART II - OTHER  INFORMATION:    |                                                                                        |
|                             |                                                                                        |   |
| Item  1.                         | Legal  Proceedings                                                                          |   |
|                             |                                                                                        |   |
| Item 2.                          | Changes  in 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                       |                                                                                        |

 

 

2

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                COMMUNITY FIRSTBANKSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 
| **(Dollars  in thousands, except per share data)**                                                                         |   | **June 30,** |      | **December  31,** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|-------------------|--------|
| **(Unaudited)**                                                                                                            |   | **2002**     |      | **2001**          |   |
| ASSETS                                                                                                                     |   |         |      |              |   |
| Cash and due  from banks                                                                                                   |   | $            | 220,914   |              | $      | 248,260 |   |
| Federal funds  sold and securities purchased under agreements to resell                                                    |   | 1,750        |      | —            |   |
| Interest-bearing  deposits                                                                                                 |   | 1,850        |      | 341               |   |
| Available-for-sale  securities                                                                                             |   | 1,391,944    |      | 1,437,066         |   |
| Held-to-maturity  securities   (fair value: 6/30/02 - $78,403, 12/31/01 - $76,765)                                         |   | 78,403       |      | 76,765            |   |
| Loans                                                                                                                      |   | 3,652,749    |      | 3,736,692         |   |
| Less: Allowance  for loan losses                                                                                           |   | (55,552      | )         | (54,991           | )      |
| Net loans                                                                                                                  |   | 3,597,197    |      | 3,681,701         |   |
| Bank premises  and equipment, net                                                                                          |   | 126,811      |      | 125,947           |   |
| Accrued interest  receivable                                                                                               |   | 35,804       |      | 39,491            |   |
| Goodwill                                                                                                                   |   | 62,903       |      | 62,903            |   |
| Other intangible  assets                                                                                                   |   | 33,626       |      | 34,554            |   |
| Other assets                                                                                                               |   | 52,753       |      | 65,298            |   |
| Total assets                                                                                                               |   | $            | 5,603,955 |              | $      | 5,772,326 |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                 |   |         |      |              |   |
| Deposits:                                                                                                                  |   |         |      |              |   |
| Noninterest-bearing                                                                                                        |   | $            | 399,769   |              | $      | 487,864 |   |
| Interest-bearing:                                                                                                          |   |         |      |              |   |
| Savings and NOW  accounts                                                                                                  |   | 2,353,191    |      | 2,367,255         |   |
| Time accounts  over $100,000                                                                                               |   | 668,421      |      | 692,315           |   |
| Other time  accounts                                                                                                       |   | 1,106,089    |      | 1,203,379         |   |
| Total deposits                                                                                                             |   | 4,527,470    |      | 4,750,813         |   |
| Federal funds  purchased and securities sold under agreements to repurchase                                                |   | 353,288      |      | 318,859           |   |
| Other short-term  borrowings                                                                                               |   | 52,932       |      | 23,780            |   |
| Long-term debt                                                                                                             |   | 132,847      |      | 136,841           |   |
| Accrued interest  payable                                                                                                  |   | 20,014       |      | 29,966            |   |
| Other  liabilities                                                                                                         |   | 27,219       |      | 35,362            |   |
| Total  liabilities                                                                                                         |   | 5,113,770    |      | 5,295,621         |   |
| Company-obligated  mandatorily redeemable preferred securities of CFB Capital I, II, & III                             |   | 120,000      |      | 120,000           |   |
| Shareholders’  equity:                                                                                                |   |         |      |              |   |
| Common stock,  par value $.01 per share:                                                                                   |   |         |      |              |   |
| Authorized  Shares — 80,000,000                                                                                       |   |         |      |              |   |
| Issued Shares —  51,021,896                                                                                           |   | 510          |      | 510               |   |
| Capital surplus                                                                                                            |   | 192,550      |      | 193,103           |   |
| Retained  earnings                                                                                                         |   | 370,938      |      | 348,101           |   |
| Unrealized gain  on available-for-sale securities, net of tax                                                              |   | 14,477       |      | 3,847             |   |
| Less cost of  common stock in treasury - June 30, 2002 — 11,436,861 shares  December 31, 2001 — 9,155,144 shares |   | (208,290     | )         | (188,856          | )      |
| Total  shareholders’ equity                                                                                           |   | 370,185      |      | 356,705           |   |
| Total  liabilities and shareholders’ equity                                                                           |   | $            | 5,603,955 |              | $      | 5,772,326 |   |
| *See accompanying notes*.                                                                                                  |   |         |      |              |   |

 

 

3

----

 

COMMUNITY FIRSTBANKSHARES, INC.

CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME

 
|                                                                                          |   | **For the  Three Months Ended** |   | **For the  Six Months Ended** |   |
|-----------------------------------------------------------------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
| **(Dollars in thousands, except per share data)**                                             |   | **June 30,**                    |   | **June 30,**                  |   |
| **(Unaudited)**                                                                               |   | **2002**                        |   | **2001**                      |   | **2002** |   | **2001** |   |
| Interest income:                                                                              |   |                            |   |                          |   |   |   |   |   |
| Loans                                                                                         |   | $                               | 69,721 |                          | $      | 86,529 |   | $ | 140,480 |   | $ | 174,050 |   |
| Investment  securities                                                                        |   | 20,942                          |   | 25,251                        |   | 41,899 |   | 52,807 |   |
| Interest-bearing  deposits                                                                    |   | 9                               |   | 77                            |   | 18 |   | 139 |   |
| Federal funds  sold and resale agreements                                                     |   | 12                              |   | 18                            |   | 27 |   | 54 |   |
| Total interest  income                                                                        |   | 90,684                          |   | 111,875                       |   | 182,424 |   | 227,050 |   |
| Interest  expense:                                                                            |   |                            |   |                          |   |   |   |   |   |
| Deposits                                                                                      |   | 18,590                          |   | 37,076                        |   | 40,158 |   | 79,407 |   |
| Short-term and  other borrowings                                                              |   | 1,812                           |   | 4,420                         |   | 3,407 |   | 9,984 |   |
| Long-term debt                                                                                |   | 1,986                           |   | 2,089                         |   | 3,977 |   | 4,282 |   |
| Total interest  expense                                                                       |   | 22,388                          |   | 43,585                        |   | 47,542 |   | 93,673 |   |
| Net interest  income                                                                          |   | 68,296                          |   | 68,290                        |   | 134,882 |   | 133,377 |   |
| Provision for  loan losses                                                                    |   | 3,297                           |   | 3,303                         |   | 6,612 |   | 8,920 |   |
| Net interest  income after provision for loan losses                                          |   | 64,999                          |   | 64,987                        |   | 128,270 |   | 124,457 |   |
| Noninterest  income:                                                                          |   |                            |   |                          |   |   |   |   |   |
| Service charges  on deposit accounts                                                          |   | 8,999                           |   | 10,138                        |   | 17,677 |   | 19,591 |   |
| Insurance  commissions                                                                        |   | 3,330                           |   | 2,928                         |   | 6,607 |   | 5,978 |   |
| Fees from  fiduciary activities                                                               |   | 1,403                           |   | 1,419                         |   | 2,829 |   | 2,925 |   |
| Security sales  commissions                                                                   |   | 3,467                           |   | 2,085                         |   | 5,590 |   | 3,161 |   |
| Net (loss) gain  on sales of available-for-sale securities                                    |   | (188                            | )      | (252                          | )      | (171 | ) | 232 |   |
| Other                                                                                         |   | 2,522                           |   | 2,479                         |   | 5,022 |   | 6,202 |   |
| Total  noninterest income                                                                     |   | 19,533                          |   | 18,797                        |   | 37,554 |   | 38,089 |   |
| Noninterest  expense:                                                                         |   |                            |   |                          |   |   |   |   |   |
| Salaries and  employee benefits                                                               |   | 29,269                          |   | 29,620                        |   | 57,759 |   | 57,627 |   |
| Net occupancy                                                                                 |   | 8,109                           |   | 7,562                         |   | 15,983 |   | 15,749 |   |
| FDIC insurance                                                                                |   | 205                             |   | 234                           |   | 417 |   | 476 |   |
| Legal and  accounting                                                                         |   | 915                             |   | 1,085                         |   | 1,652 |   | 1,920 |   |
| Other  professional services                                                                  |   | 1,030                           |   | 1,099                         |   | 1,907 |   | 2,413 |   |
| Advertising                                                                                   |   | 1,028                           |   | 1,355                         |   | 1,993 |   | 2,600 |   |
| Telephone                                                                                     |   | 1,430                           |   | 1,387                         |   | 2,958 |   | 2,806 |   |
| Restructuring  charge                                                                         |   | —                          |   | —                        |   | — |   | 7,656 |   |
| Data processing                                                                               |   | 666                             |   | 1,062                         |   | 1,492 |   | 1,952 |   |
| Company-obligated  mandatorily redeemable preferred securities of CFB Capital I, II & III |   | 2,892                           |   | 2,590                         |   | 5,507 |   | 5,151 |   |
| Amortization of  intangibles                                                                  |   | 836                             |   | 2,518                         |   | 1,654 |   | 5,119 |   |
| Other                                                                                         |   | 8,223                           |   | 8,500                         |   | 15,411 |   | 16,558 |   |
| Total  noninterest expense                                                                    |   | 54,603                          |   | 57,012                        |   | 106,733 |   | 120,027 |   |
|                                                                                          |   |                            |   |                          |   |   |   |   |   |
| Income before  income taxes                                                                   |   | 29,929                          |   | 26,772                        |   | 59,091 |   | 42,519 |   |
| Provision for  income taxes                                                                   |   | 10,072                          |   | 9,039                         |   | 19,973 |   | 14,558 |   |
| Net income                                                                                    |   | $                               | 19,857 |                          | $      | 17,733 |   | $ | 39,118 |   | $ | 27,961 |   |
|                                                                                          |   |                            |   |                          |   |   |   |   |   |   |   |   |   |
| Earnings per common and common equivalent share:                                              |   |                            |   |                          |   |   |   |   |   |   |
| Basic net income                                                                              |   | $                               | 0.50   |                          | $      | 0.43 |   | $ | 0.98 |   | $ | 0.68 |   |
| Diluted net  income                                                                           |   | $                               | 0.49   |                          | $      | 0.43 |   | $ | 0.96 |   | $ | 0.67 |   |
|                                                                                          |   |                            |   |                          |   |   |   |   |   |   |   |   |
| Average common  shares outstanding:                                                           |   |                            |   |                          |   |   |   |   |   |   |   |   |   |
| Basic                                                                                         |   | 39,772,344                      |   | 41,126,894                    |   | 39,877,633 |   | 41,357,510 |   |
| Diluted                                                                                       |   | 40,515,906                      |   | 41,633,795                    |   | 40,579,858 |   | 41,814,307 |   |
| Dividends per  share                                                                          |   | $                               | 0.19   |                          | $      | 0.16 |   | $ | 0.38 |   | $ | 0.32 |   |
| *See accompanying notes.*                                                                     |   |                            |   |                          |   |   |   |   |   |
|                                                                                               |        |                                 |        |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

4

----

 

STATEMENTS OFCOMPREHENSIVE INCOME

 
|                                                                         |   | **For the  Three Months Ended** |   | **For the  Six Months Ended** |   |
|------------------------------------------------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
| **(Dollars in thousands)**                                                   |   | **June 30,**                    |   | **June 30,**                  |   |
| **(Unaudited)**                                                              |   | **2002**                        |   | **2001**                      |   | **2002** |   | **2001** |   |
| Net income                                                                   |   | $                               | 19,857 |                          | $      | 17,733 |   | $ | 39,118 |   | $ | 27,961 |   |
| Other  comprehensive income, net of tax:                                     |   |                            |   |                          |   |   |   |   |   |
| Unrealized gains  (losses) on securities:                                    |   |                            |   |                          |   |   |   |   |   |
| Unrealized  holding gains arising during period                              |   | 14,450                          |   | 1,656                         |   | 10,527 |   | 13,238 |   |
| Less: Reclassification  adjustment for gains (losses) included in net income |   | 114                             |   | 151                           |   | 103 |   | (139 | ) |
| Other  comprehensive income                                                  |   | 14,564                          |   | 1,807                         |   | 10,630 |   | 13,099 |   |
| Comprehensive  income                                                        |   | $                               | 34,421 |                          | $      | 19,540 |   | $ | 49,748 |   | $ | 41,060 |   |
| *See accompanying notes*.                                                    |   |                            |   |                          |   |   |   |   |   |   |   |   |   |

 

 

5

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COMMUNITY FIRSTBANKSHARES, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

 
|                                                                                                       |   | **For the  Six Months Ended** |    |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
| **(In thousands)**                                                                                         |   | **June 30,**                  |    |
| **(Unaudited)**                                                                                            |   | **2002**                      |    | **2001** |   |
| **Cash flows from operating activities:**                                                                  |   |                          |    |   |   |
| Net income                                                                                                 |   | $                             | 39,118  |   | $ | 27,961 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:                         |   |                          |    |   |   |
| Provision for  loan losses                                                                                 |   | 6,612                         |    | 8,920 |   |
| Depreciation                                                                                               |   | 7,017                         |    | 6,665 |   |
| Amortization of  intangibles                                                                               |   | 1,654                         |    | 5,119 |   |
| Net amortization  of premiums (discounts) on securities                                                    |   | 600                           |    | (365 | ) |
| Decrease in  interest receivable                                                                           |   | 3,687                         |    | 6,899 |   |
| Decrease in  interest payable                                                                              |   | (9,952                        | )       | (7,466 | ) |
| Other - net                                                                                                |   | (3,294                        | )       | (12,794 | ) |
| Net cash  provided by operating activities                                                                 |   | 45,442                        |    | 34,939 |   |
|                                                                                                       |   |                          |    |   |   |
| **Cash flows from investing  activities:**                                                                 |   |                          |    |   |   |
| Net increase in  interest-bearing deposits                                                                 |   | (1,509                        | )       | (9,606 | ) |
| Purchases of  available-for-sale securities                                                                |   | (644,385                      | )       | (228,265 | ) |
| Maturities of  available-for-sale securities                                                               |   | 698,460                       |    | 470,305 |   |
| Sales of  available-for-sale securities, net of gains                                                      |   | 8,047                         |    | 26,362 |   |
| Purchases of  held-to-maturity securities                                                                  |   | (1,638                        | )       | (1,740 | ) |
| Net decrease  (increase) in loans                                                                          |   | 77,892                        |    | (78,414 | ) |
| Net increase in  bank premises and equipment                                                               |   | (7,881                        | )       | (10,684 | ) |
| Net cash  provided by investing activities                                                                 |   | 128,986                       |    | 167,958 |   |
|                                                                                                       |   |                          |    |   |   |
| **Cash flows from financing  activities:**                                                                 |   |                          |    |   |   |
| Net decrease in  demand deposits, NOW accounts and savings accounts                                        |   | (102,159                      | )       | (153,699 | ) |
| Net decrease in  time accounts                                                                             |   | (121,184                      | )       | (145,116 | ) |
| Net increase in  short-term and other borrowings                                                           |   | 63,581                        |    | 87,146 |   |
| Net (decrease)  increase  in long-term debt                                                           |   | (3,994                        | )       | 13,175 |   |
| Net cost of  redemption of Company-obligated mandatorily redeemable preferred  securities of CFB Capital I |   | (1,118                        | )       | — |   |
| Purchase of  common stock held in treasury                                                                 |   | (24,223                       | )       | (23,317 | ) |
| Sale of common  stock held in treasury                                                                     |   | 4,224                         |    | 2,047 |   |
| Common stock  dividends paid                                                                               |   | (15,151                       | )       | (13,219 | ) |
| Net cash used in  financing activities                                                                     |   | (200,024                      | )       | (232,983 | ) |
| Net decrease in  cash and cash equivalents                                                                 |   | (25,596                       | )       | (30,086 | ) |
| Cash and cash  equivalents at beginning of period                                                          |   | 248,260                       |    | 256,136 |   |
| Cash and cash  equivalents at end of period                                                                |   | $                             | 222,664 |   | $ | 226,050 |   |
| *See accompanying notes*.                                                                                  |   |                          |    |   |   |   |   |

 

 

6

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COMMUNITY FIRSTBANKSHARES, INC.

 

NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

JUNE 30, 2002

 

**Note A - BASIS OF PRESENTATION**

 

The accompanyingunaudited condensed consolidated financial statements, which include theaccounts of Community First Bankshares, Inc. (the ‘Company’), its wholly-owneddata processing, credit origination, and insurance agency subsidiaries, and itswholly-owned subsidiary bank, have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of management, all adjustmentsconsidered necessary for fair presentation have been included.

 

**Earnings Per Common Share**

 

Basic earnings per commonshare is calculated by dividing net income by the weighted average number ofshares of common stock outstanding.

 

Dilutedearnings per common share is calculated by dividing net income by the weightedaverage number of shares of common stock outstanding.  The weighted average number of shares of common stock outstandingis increased by the number of shares of common stock that would be issuedassuming the exercise of stock options and warrants during each period.  Such adjustments to the weighted averagenumber of shares of common stock outstanding are made only when suchadjustments dilute earnings per share.

 

**Note B — BUSINESS DIVESTITURES**

 

On February 8,2002, the Company completed the sale of its Phoenix, Arizona branch toCommunity Bank of Arizona.  The branchhad assets of approximately $16 million.

 

**Note C — ACCOUNTING CHANGES**

 

Statement of Financial Accounting Standards Nos. 141 and 142 - BusinessCombinations and Goodwill and Other Intangible Assets  — In June 2001, the Financial Accounting Standards Board issuedStatements 141 and 142.  Statement 141requires that the purchase method of accounting be used for all business combinationsinitiated after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangibleassets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment atleast annually.  Intangible assets with finitelives continue to be amortized over their estimated useful lives.

 

Effective January 1, 2002, the Company adoptedStatement 142.  During the first quarterof 2002, the Company performed the first of the required impairment tests ofgoodwill as of January 1, 2002.  TheCompany tested  for impairment using thetwo-step process described in Statement 142. The first step was a review for potential impairment, while the secondstep measures the amount of the impairment, if any. The Company found no impairmentof goodwill; therefore, the Company did not record any transitional impairmentas a cumulative effect of a change in accounting principle.

 

The following table sets forth the computation of net income and basicand diluted earnings per share as though goodwill amortization had not beenrecorded as an expense during the three and six month periods ended June30  (dollars in thousands, except pershare data):

 

7

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** **

** **
|                                                    |   | **For the  Three Months Ended** |   | **For the  Six Months Ended** |   |
|---------------------------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|
|                                                    |   | **June 30**                     |   | **June 30**                   |   |
|                                                    |   | **2002**                        |   | **2001**                      |   | **2002** |   | **2001** |   |
| Reported Net  income                                    |   | $                               | 19,857 |                          | $      | 17,733 |   | $ | 39,118 |   | $ | 27,961 |   |
|                                                    |   |                            |   |                          |   |   |   |   |   |
| Effect of SFAS  142                                     |   |                            |   |                          |   |   |   |   |   |
| After-tax  goodwill amortization included in net income |   | —                          |   | 1,253                         |   | — |   | 2,493 |   |
| Adjusted Net  Income                                    |   | 19,857                          |   | 18,986                        |   | 39,118 |   | 30,454 |   |
|                                                    |   |                            |   |                          |   |   |   |   |   |
| Adjusted basic  earnings per share                      |   | $                               | 0.50   |                          | $      | 0.46 |   | $ | 0.98 |   | $ | 0.74 |   |
| Adjusted diluted  earnings per share                    |   | $                               | 0.49   |                          | $      | 0.46 |   | $ | 0.96 |   | $ | 0.73 |   |
|                                                         |        |                                 |        |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

The aggregate amortization expense of intangible assets other thangoodwill for the year ended December 31, 2001 was $3,375,000.  The following table sets forth estimatedamortization expense for intangible assets other than goodwill for each of thefive years subsequent to December 31, 2001 (in thousands):

 

| For year ended  December 31, 2002 | $     | 3,283 |
|-----------------------------------|-------|-------|
| For year ended  December 31, 2003 | 3,250 |
| For year ended  December 31, 2004 | 3,235 |
| For year ended  December 31, 2005 | 3,200 |
| For year ended  December 31, 2006 | 3,144 |

 

All of the Company’s intangible assets other than goodwill are subjectto amortization.  The following tablesets forth the gross carrying amount and accumulated amortization, in total andby major class of intangible assets as of December 31, 2001 (dollars in thousands):

 
|                          |   | **Gross  Carrying** |   | **Accumulated**  |   |
|-------------------------------|--------|---------------------|--------|------------------|--------|
|                          |   | **Amount**          |   | **Amortization** |   |
| Amortized  intangible assets: |   |                |   |             |   |
| Deposit-based  intangibles    |   | $                   | 39,620 |             | $      | 11,652 |   |
| Insurance list  premiums      |   | 7,874               |   | 1,630            |   |
| Non-compete  agreements       |   | 659                 |   | 317              |   |
| Total                         |   | $                   | 48,153 |             | $      | 13,599 |   |
|                          |   |                |   |             |   |

** **

**Note D- INVESTMENTS**

 

The following is asummary of available-for-sale and held-to-maturity securities at June 30, 2002(in thousands):

 
|                                 |   | **Available-for-Sale  Securities** |      |
|--------------------------------------|--------|------------------------------------|-----------|
|                                 |   |                               |      | **Gross** |   | **Gross** |   | **Estimated** |   |
|                                 |   | **Amortized**                      |      | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                                 |   | **Cost**                           |      | **Gains** |   | **Losses** |   | **Value** |   |
| United States  Treasury              |   | $                                  | 60,040    |   | $ | 1,599 |   | $ | 0 |   | $ | 61,639 |   |
| United States  Government agencies   |   | 219,289                            |      | 4,330 |   | 111 |   | 223,508 |   |
| Mortgage-backed  securities          |   | 899,426                            |      | 21,604 |   | 334 |   | 920,696 |   |
| Collateralized  mortgage obligations |   | 3,957                              |      | 38 |   | 0 |   | 3,995 |   |
| State and  political securities      |   | 90,299                             |      | 1,988 |   | 40 |   | 92,247 |   |
| Other securities                     |   | 94,964                             |      | 877 |   | 5,982 |   | 89,859 |   |
|                                 |   | $                                  | 1,367,975 |   | $ | 30,436 |   | $ | 6,467 |   | $ | 1,391,944 |   |
|                                 |   |                               |      |   |   |   |   |   |   |

 

8

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|             |   | **Held-to-Maturity Securities** |   |
|------------------|--------|---------------------------------|--------|
|             |   |                            |   | **Gross** |   | **Gross** |   | **Estimated** |   |
|             |   | **Amortized**                   |   | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|             |   | **Cost**                        |   | **Gains** |   | **Losses** |   | **Value** |   |
| Other securities |   | $                               | 78,403 |   | — |   | — |   | $ | 78,403 |   |
|             |   | $                               | 78,403 |   | $ | — |   | $ | — |   | $ | 78,403 |   |
|                  |        |                                 |        |  |  |  |  |  |  |  |  |  |  |

 

Proceeds from thesale of available-for-sale securities during the three months ended June 30,2002 and 2001 were $1,412,000 and $2,624,000, respectively.  Gross gains of $30,000 and $0 were realizedon sales during the second quarter of 2002 and 2001, respectively.  Gross losses of $218,000 and $252,000 wererealized on sales during the second quarter of 2002 and 2001,respectively.  Gains and losses ondisposition of these securities were computed using the specific identificationmethod.

 

**Note E - LOANS**

 

The composition ofthe loan portfolio at June 30, 2002 was as follows (in thousands):

 

| Real estate                     |   | $         | 1,524,436 |   |
|---------------------------------|--------|-----------|-----------|--------|
| Real estate  construction       |   | 480,195   |      |
| Commercial                      |   | 787,487   |      |
| Consumer and  other             |   | 618,566   |      |
| Agriculture                     |   | 242,065   |      |
|                            |   | 3,652,749 |      |
| Less allowance  for loan losses |   | (55,552   | )         |
| Net loans                       |   | $         | 3,597,197 |   |

 

**Note F - FINANCIAL INSTRUMENTS WITHOFF-BALANCE SHEET RISK**

 

In the normal course ofbusiness, the Company is party to financial instruments with off-balance sheetrisk to meet the financing needs of its customers and to manage its interest raterisk.  These financial instrumentsinclude commitments to extend credit and letters of credit.  The contract or notional amounts of thesefinancial instruments at June 30, 2002 were as follows (in thousands):

 

| Commitments to  extend credit |   | $      | 608,461 |   |
|-------------------------------|--------|--------|---------|--------|
| Letters of  credit            |   | 34,032 |    |

 

**Note G- SUBORDINATED NOTES**

 

Long-term debt atJune 30, 2002 included $60 million of 7.30% Subordinated Notes issued in June1997.  These notes are due June 30,2004, with interest payable semi-annually. At June 30, 2002, $12 million qualified as Tier 2 capital. At June 30,2002, the subsidiary bank had a $25 million unsecured subordinated term note,maturing on December 22, 2007.  Thesubsidiary bank note bears an interest rate of LIBOR, plus 140 basis points.

 

**Note H - INCOME TAXES**

 

The reconciliationbetween the provision for income taxes and the amount computed by applying thestatutory federal income tax rate was as follows (in thousands):

 

|                                          |   | **For the  six months ended,** |   |
|-----------------------------------------------|--------|--------------------------------|--------|
|                                          |   | **June 30,  2002**             |   |
| 35% of pretax  income                         |   | $                              | 20,682 |   |
| State income  tax, net of federal tax benefit |   | 1,053                          |   |
| Tax-exempt  interest                          |   | (2,009                         | )      |
| Other                                         |   | 247                            |   |
| Provision for  income taxes                   |   | $                              | 19,973 |   |

 

9

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**Note I — COMPANY OBLIGATEDMANDATORILY REDEEMABLE PREFERRED SECURITIES**

 

On March 27, 2002,the Company issued $60 million of 8.125% Cumulative Capital Securities, throughCFB Capital III, a Delaware business trust subsidiary organized in February2002.  The proceeds of the offering wereinvested by CFB Capital III in Junior Subordinated Debentures of theCompany.  On May 1, 2002, the Companyused the net proceeds to redeem all of the 8 7/8% Junior SubordinatedDebentures that it issued in 1997, thereby triggering the redemption of all2,400,000 of the 8 7/8% Cumulative Capital Securities issued by CFB Capital I,a Delaware business trust.  Thedebentures will mature not earlier than April 15, 2007, and not later thanApril 15, 2032.  The capital securitiesqualified as Tier I capital under capital guidelines of the Federal Reserve.

 

**Note J - SUPPLEMENTAL DISCLOSURES TOCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

| **Six months  ended June 30 (in thousands)**      |   | **2002** |   | **2001** |   |
|---------------------------------------------------|--------|----------|--------|----------|--------|
| Unrealized gain  on available-for-sale securities |   | $        | 17,600 |     | $      | 21,692 |   |
|                                                   |        |          |        |          |        |  |  |

 

10

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**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Basis of Presentation**

 

The following is adiscussion of the Company’s financial condition as of June 30, 2002 andDecember 31, 2001, and the results of its operations for the three and sixmonth periods ended June 30, 2002 and 2001.

 

**Strategic Initiatives**

 

On March 22, 2001the Company announced a series of strategic initiatives designed to improvecustomer service and strengthen its position as a provider of diversifiedfinancial services.  Initiativesincluded a redefinition of the Company’s delivery model and the sale or closureof banking offices.  These initiativesare continuing in 2002 and the results of operations for the three and sixmonth periods ended June 30, 2002 reflect the Company’s continuing efforts atimplementing the initiatives described below.

 

In an effort toproperly align resources with market opportunities and provide the deliverysupport structure to optimize individual market potential, each of theCompany’s offices was redefined as either a Regional Financial Center or aCommunity Financial Center.  RegionalFinancial Centers are those locations exhibiting strong commercial banking potential;requiring a broader based support structure. Community Financial Centers, which are less geographically concentrated,typically offer greater retail opportunities, including emphasis on insuranceand investment product sales.

 

In conjunctionwith the restructuring of the banking network, the Company sold 13 offices andclosed eight additional offices. Offices sold, in four separate transactions, included nine Arizonaoffices, three Nebraska offices and one office in North Dakota.  Four of the eight offices closed werelocated in communities where the Company maintains one or more additionaloffices, thus continuing to serve those customers from existing locations.

 

As part of theseinitiatives, the Company made available an early-out program that was acceptedby 21 eligible management personnel.

 

As a result ofthese initiatives, the Company recorded a one-time after-tax restructuringcharge totaling $5.1 million.  Thecharge was recorded during the first quarter of 2001 and representsapproximately $0.12 per share.

 

In preparation forthe sale of the nine Arizona offices, the Company charged off its largestnon-performing asset, a credit facility in the Arizona bank.  To maintain the current loan loss reservelevel, the Company recorded a special loan loss provision equal to the amountof the charge-off.  The specialprovision of $2.4 million, or approximately $0.04 per share after tax wasrecorded during the first quarter of 2001. In the first quarter of 2002, $1.2 million of this loan was recovered.

 

Under theredesigned delivery structure, the Company is implementing a centralizedconsumer credit process. Once fully operational, the central structure willoffer a complete range of decision, origination, documentation and collectionservices to all Company offices through a Fargo, North Dakota location.

 

# **Critical Accounting Policies**

 

The Company has established various accounting policies which governthe application of accounting principles generally accepted in the UnitedStates in the preparation of the Company’s financial statements. Thesignificant accounting policies of the Company are described in the footnotesto the annual consolidated financial statements included in the Company’sAnnual Report on Form 10-K.  Certainaccounting policies involve significant judgments and assumptions by managementwhich have a material impact on the carrying value of certain assets andliabilities; management considers such accounting policies to be criticalaccounting policies.  The judgments andassumptions used by management are based on historical 

 

11

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experience and other factors, which are believed to be reasonable underthe circumstances.  Because of thenature of the judgments and assumptions made by management, actual resultscould differ from these judgments and estimates which could have a materialimpact on the carrying values of assets and liabilities and the results ofoperations of the Company.

 

The Company believes the allowance for loan losses is a criticalaccounting policy that requires the most significant judgments and estimatesused in preparation of its consolidated financial statements.  The Company’s accounting policy for theallowance for loan losses is outlined in the Company’s Form 10-K dated March14, 2002.

 

**Overview**

 

For the three months ended June 30, 2002, net incomewas $19.9 million, an increase of $2.2 million or 12.4% from $17.7 millionduring the 2001 period.  Basic earningsper common share for the three months ended June 30, 2002 were $0.50, comparedto $0.43 in the same period in 2001. Diluted earnings per share for the three months ended June 30, 2002 were$0.49.

 

Return on average assets and return on common equity for the threemonths ended June 30, 2002 were 1.42% and 22.26%, respectively, as compared tothe 2001 ratios of 1.20% and 20.87%. The increase in return on assets and return on equity is principally dueto the increase in net income.

 

For the six monthsended June 30, 2002, net income was $39.1 million, an increase of $11.1 millionor 39.6% from $28.0 million during the 2001 period.  Basic earnings per common share for the six months ended June 30,2002 were $0.98, compared to $0.68 in the same period in 2001.  Diluted earnings per share for the sixmonths ended June 30, 2002 were $0.96. In addition to increased core earnings, the increase in earnings pershare is also due to a one-time after-tax charge of $5.1 million, or 12 centsper share, to account for the financial impact of a restructuring chargerecorded in the first quarter of 2001 and, the write-off of the Company’slargest non-performing loan and recognize a special loan loss provision equalto the amount of the write-off of $1.5 million after-tax, or 4 cents pershare.  Excluding the one-time charge andthe special loan loss provision, diluted earnings per share would have been$0.83 cents per share for the six months ended June 30, 2001.  The 2002 period includes the positive impactof 3 cents per share per quarter for a cumulative impact of 6 cents per share,year to date, due to the accounting change ending the amortization ofgoodwill.  The six months ended June 30,2001 includes $3.3 million in goodwill amortization.

 

Return on average assetsand return on common equity for the six months ended June 30, 2002 were 1.40%and 22.16%, respectively, as compared to the 2001 ratios of .95% and16.37%.  The increase in return onassets and return on equity is principally due to an increase in net income,resulting from the restructuring charge and special loan loss provision.  Return on average assets and return onaverage common equity, exclusive of the one-time charge and the special loanloss provision recorded in the first quarter of 2001, would have been 1.17% and20.22%, respectively for the six months ended June 30, 2001.

 

**Results of Operations**

 

**Net Interest Income**

 

Net interestincome for the three months ended June 30, 2002 was $70.4 million, on atax-equivalent basis, a slight increase of $78,000, or 0.1%, from the netinterest income of $70.3 million earned during the 2001 period. The net interestmargin of 5.48% for the three months ended June 30, 2002 was up from 5.22% forthe corresponding 2001 period.

 

Net interestincome for the six months ended June 30, 2002 was $139.0 million, on atax-equivalent basis, an increase of $1.5 million, or 1.1%, from the netinterest income of $137.5 million earned during the corresponding 2001 period.The increase was principally due to the combination of a $44.6 millionreduction in interest income and a $46.1 million decrease in interest expenseresulting from a $276 million reduction in average assets, coupled with an 33basis point increase in net interest margin. The net interest margin of 5.42% for the period ended June 30, 2002 wasup from 5.09% for the corresponding 2001 period.

 

12

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**Provision for Loan Losses**

 

The provision for loan losses for the three months ended June 30, 2002was $3.3 million, the same as the provision during the corresponding 2001period.  Net charge-offs were $3.1million or .34 percent (annualized) of average loans for the second quarter of2002, compared to $2.9 million or .31 percent for the second quarter of 2001.At June 30, 2002, nonperforming assets were $24.0 million, a decrease of$138,000, or 0.6% from $24.2 million at June 30, 2001.  Nonperforming assets comprised .43% of totalassets at June 30, 2002 and .42% of total assets at June 30, 2001.

 

The provision for loanlosses for the six months ended June 30, 2002 was $6.6 million, a decrease of$2.3 million, or 25.9%, from the $8.9 million provision during thecorresponding 2001 period.  The 2001period includes a $2.4 million special loan loss provision to reflect thecharge-off of the Company’s largest non-performing asset, an Arizona basedcredit facility.

 

**Noninterest Income**

 

Noninterest incomefor the three months ended June 30, 2002 was $19.5 million, an increase of$736,000, or 3.9%, from the 2001 level of $18.8 million. Commissions on thesale of investment securities were $3.5 million, a $1,382,000 or 66.3% increasefrom the $2.1 million recorded in the 2001 period, due primarily to the effectof a recent investment sales campaign. Insurance commissions were $3.3 million for the 2002 quarter, anincrease of $402,000 or 13.7% from the $2.9 million recorded in the 2001quarter.  Service charges on depositaccounts decreased $1.1 million or 11.2%, to $9.0 million as of June 30, 2002,compared to $10.1 million during the 2001 period.

 

Noninterest incomefor the six months ended June 30, 2002 was $37.6 million, a decrease of$535,000, or 1.4%, from the 2001 level of $38.1 million. Investment salescommissions increased $2.4 million, or 76.8%, as a result of a sales campaigncompleted during the second quarter. Insurance commissions increased $629,000 or 10.5%.  These increases were offset by a $1.9million, or 9.8% decrease in service charges on deposit accounts and a $1.2million, or 19.0% decrease in other income. The decrease in other income wasprincipally due to a $1.0 million decrease in fees earned on the issuance ofmoney orders as a result of a lower rate environment.  The 2002 period included a $171,000 loss on the sale ofinvestment securities, compared to a $232,000 gain in the corresponding 2001period.

 

**Noninterest Expense**

 

Noninterest expense for the three months ended June 30, 2002 was $54.6million, a decrease of $2.4 million, or 4.2%, from the level of $57.0 millionduring the corresponding 2001 period. The 2001 period included $1.6 million ofgoodwill amortization.

 

Noninterest expense forthe six months ended June 30, 2002 was $106.7 million, a decrease of $13.3million, or 11.1%, from the level of $120.0 million during the 2001 period. Thedecrease was principally due to the $7.7 million one-time restructuring chargerecorded in the first quarter of 2001. The 2001 period included $3.3 million in goodwill amortization.  During the first quarter of 2001, theCompany also recorded a $462,000 early payment penalty, when it elected to payoff various Federal Home Loan Bank borrowings, which carried higher than marketinterest rates.

 

13

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**Provision for Income Taxes**

 

The provision forincome taxes for the three months ended June 30, 2002 was $10.1 million, anincrease of $1.1 million, or 12.2%, from the 2001 level of $9.0 million. Theincrease was due principally to the increase in pre-tax net income.  The effective tax rate for the three monthsended June 30, 2002 was 33.65%, as compared to 33.76% in the corresponding periodin 2001.

 

The provision forincome taxes for the six months ended June 30, 2002 was $20.0 million, anincrease of $5.4 million, or 37.2%, from the 2001 level of $14.6 million.  The increase was due primarily to theincrease in pre-tax net income as a result of the one-time restructuring charge,which included the write-off of various non-deductible intangible assets andthe special loan loss provision recorded in the 2001 period.

 

**Financial Condition**

 

**Loans**

 

Total loans were$3.7 billion at June 30, 2002 and at December 31, 2001.

 

The followingtable presents the Company’s balance of each major category of loans:

 
|                            |   | **June 30,  2002**          |      | **December  31, 2001** |   |
|---------------------------------|--------|-----------------------------|-----------|------------------------|--------|
|                            |   |                        |      | **Percent of**         |   |   |   | **Percent of** |   |
|                            |   | **Amount**                  |      | **Total Loans**        |   | **Amount** |   | **Total Loans** |   |
| Loan category:                  |   | **(Dollars in Thousands )** |      |
| Real estate                     |   | $                           | 1,524,436 |                   | 41.7   | % | $ | 1,515,118 |   | 40.5 | % |
| Real estate  construction       |   | 480,195                     |      | 13.2                   | %      | 519,031 |   | 13.9 | % |
| Commercial                      |   | 787,487                     |      | 21.6                   | %      | 824,318 |   | 22.1 | % |
| Consumer and  other             |   | 618,566                     |      | 16.9                   | %      | 627,034 |   | 16.8 | % |
| Agricultural                    |   | 242,065                     |      | 6.6                    | %      | 251,191 |   | 6.7 | % |
| Total loans                     |   | 3,652,749                   |      | 100.0                  | %      | 3,736,692 |   | 100.0 | % |
| Less allowance  for loan losses |   | (55,552                     | )         |                   |   | (54,991 | )  |   |   |
| Total                           |   | $                           | 3,597,197 |                   |   |   | $ | 3,681,701 |   |   |   |

 

#### **Nonperforming Assets**

 

At June 30, 2002,nonperforming assets were $24.0 million, an increase of $84,000 or 0.4% from the$23.9 million level at December 31, 2001. At June 30, 2002, nonperforming loansas a percent of total loans were .60%, up from the December 31, 2001 level of..56%.  OREO was $1.9 million at June 30,2002, a decrease of $926,000 from $2.9 million at December 31, 2001.

 

Nonperformingassets of the Company are summarized in the following table:

 
| **(Dollars  in thousands)**                             |   | **June 30,  2002** |      | **December  31, 2001** |   |
|---------------------------------------------------------|--------|--------------------|-----------|------------------------|--------|
| Loans                                                   |   |               |      |                   |   |
| Nonaccrual loans                                        |   | $                  | 21,843    |                   | $      | 20,818 |   |
| Restructured  loans                                     |   | 237                |      | 252                    |   |
| Nonperforming loans                                     |   | 22,080             |      | 21,070                 |   |
| Other real  estate owned                                |   | 1,943              |      | 2,869                  |   |
| Nonperforming  assets                                   |   | $                  | 24,023    |                   | $      | 23,939 |   |
| Loans 90 days or  more past due but still accruing      |   | $                  | 4,067     |                   | $      | 6,270 |   |
| Nonperforming  loans as a percentage of total loans     |   | .60                | %         | .56                    | %      |
| Nonperforming  assets as a percentage of total assets   |   | .43                | %         | .41                    | %      |
| Nonperforming  assets as a percentage of loans and OREO |   | .66                | %         | .64                    | %      |
|                                                    |   |               |      |                   |   |
| Total Loans                                             |   | $                  | 3,652,749 |                   | $      | 3,736,692 |   |
| Total Assets                                            |   | 5,603,955          |      | 5,772,326              |   |

 

14

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**Allowancefor Loan Losses**

** **

At June 30, 2002 theallowance for loan losses was $55.6 million, an increase of $2.7 million fromthe June 30, 2001 balance of $52.9 million. Net charge-offs during the three months ended June 30, 2002 were $237,000less than those incurred during the three months ended June 30, 2001.

 

At June 30, 2002,the allowance for loan losses as a percentage of total loans was 1.52%, anincrease from the June 30, 2001 level of 1.39%.

 

The followingtable sets forth the Company’s allowance for loan losses:
|                                                     |   | **For the  Six Months Ended June 30,** |      |
|----------------------------------------------------------|--------|----------------------------------------|-----------|
| **(Dollars  in thousands)**                              |   | **2002**                               |      | **2001** |   |
| Balance at  beginning of period                          |   | $                                      | 54,991    |   | $ | 52,168 |   |
| Charge-offs:                                             |   |                                   |      |   |   |
| Real estate                                              |   | 2,092                                  |      | 503 |   |
| Real estate  construction                                |   | 50                                     |      | 2,480 |   |
| Commercial                                               |   | 3,480                                  |      | 2,782 |   |
| Consumer and  other                                      |   | 4,946                                  |      | 4,519 |   |
| Agricultural                                             |   | 115                                    |      | 173 |   |
| Total  charge-offs                                       |   | 10,683                                 |      | 10,457 |   |
| Recoveries:                                              |   |                                   |      |   |   |
| Real estate                                              |   | 126                                    |      | 94 |   |
| Real estate  construction                                |   | 1,205                                  |      | 3 |   |
| Commercial                                               |   | 354                                    |      | 407 |   |
| Consumer and  other                                      |   | 2,870                                  |      | 1,604 |   |
| Agricultural                                             |   | 77                                     |      | 152 |   |
| Total recoveries                                         |   | 4,632                                  |      | 2,260 |   |
| Net charge-offs                                          |   | 6,051                                  |      | 8,197 |   |
| Provision  charged to operations                         |   | 6,612                                  |      | 8,920 |   |
| Balance at end  of period                                |   | $                                      | 55,552    |   | $ | 52,891 |   |
| Allowance as a  percentage of total loans                |   | 1.52                                   | %         | 1.39 | % |
| Annualized net  charge-offs to average loans outstanding |   | 0.33                                   | %         | 0.44 | % |
|                                                     |   |                                   |      |   |   |
| Total Loans                                              |   | $                                      | 3,652,749 |   | $ | 3,808,419 |   |
| Average Loans                                            |   | 3,698,147                              |      | 3,761,312 |   |

#### ** **

#### **Investments**

 

The investment portfolio,including available-for-sale securities and held-to-maturity securities, was$1.5 billion at June 30, 2002 and December 31, 2001.  At June 30, 2002, the investment portfolio represented 26.2% oftotal assets, the same as at December 31, 2001.  In addition to investment securities, the Company had investmentsin interest-bearing deposits of $1.9 million at June 30, 2002, an increase of$1.5 million from $341,000 at December 31, 2001.

 

**Deposits**

 

Total deposits were $4.5billion at June 30, 2002, a decrease of $223.3 million, or 4.7%, from $4.8billion at December 31, 2001. Noninterest-bearing deposits at June 30, 2002 were $400 million, adecrease of $88 million, or 18.0%, from $488 million at December 31, 2001.  The decrease in total deposits andnoninterest bearing deposits was principally due to the impact of the sale ofCompany offices during 2001 and 2002, which had $134 million in deposits at thetime of sale.  The Company’s coredeposits as a percent of total deposits were 84.8% and 85.3% as of June 30,2002 and December 31, 2001, respectively. Interest-bearing deposits were $4.1 billion at June 30, 2002, a decreaseof $135 million, or 3.2% from $4.3 billion at December 31, 2001.

 

15

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**Borrowings**

 

Short-term borrowings ofthe Company were $53 million as of June 30, 2002, an increase of $29 million,or 120.8%, from $24 million as of December 31, 2001.  The increase is due primarily to the fluctuation in the level ofdaily deposits and its impact on short-term liquidity, and reflects theCompany’s strategy of funding short-term liquidity needs in the most costeffective manner.

 

Long-term debt of theCompany was $133 million as of June 30, 2002, a decrease of $4 million, or2.9%, from the $137 million as of December 31, 2001.

 

**Capital Management**

 

Shareholders’ equityincreased $13 million to $370 million at June 30, 2002 from $357 million atDecember 31, 2001.  Unrealized gain andloss on available-for-sale securities, net of taxes, increased $10.6 millionfrom December 31, 2001.  At June 30,2002, the Company’s Tier 1 capital, total risk-based capital and leverageratios were 9.16%, 11.35%, and 6.79%, respectively, compared to minimumrequired levels of 4%, 8% and 3%, respectively (subject to change and thediscretion of regulatory authorities to impose higher standards in individualcases).  At June 30, 2002, the Companyhad risk-weighted assets of $4.1 billion.

 

On March 27, 2002,the Company issued $60 million in 8.125% Cumulative Capital Securities, throughCFB Capital III, a business trust subsidiary organized in February 2002.  All $60 million of the capital securitiesqualify as Tier I Capital for regulatory capital calculation purposes.  The proceeds from the offering were used onMay 1, 2002 to redeem the $60 million of 8-7/8% junior subordinated debenturesthat were issued in February 1997.  TheCompany has unconditionally guaranteed the obligations of CFB Capital III underthe 8.125% cumulative capital securities.

 

#### **Stock Repurchases**

 

In August 2001,the Company adopted a common stock repurchase program providing for therepurchase of up to 3 million shares of the Company’s common stock.  Previously, in April 2000 and in August2000, the Company had adopted similar repurchase programs for up to 5 million shareseach.  During 2000 and 2001, the Companyrepurchased all shares authorized under the 2000 programs.  During the second quarter of 2002, theCompany repurchased 300,000 shares under the 2001 program, at prices rangingfrom $24.75 to $27.60.  At June 30,2002, 2.1 million shares remain under the current repurchase authorization.

 

#### **Forward-lookingStatements**

 

**This Form 10-Q containsforward-looking statements under the Private Securities Litigation Reform Actof 1995 that are subject to certain risks and uncertainties that could causeactual results to differ materially from historical earnings and thosepresently anticipated or projected. The Company wishes to caution readers notto place undue reliance on any such forward-looking statements, which speakonly as of the date made.  Forward–lookingstatements can be identified by the fact that they do not relate strictly tohistorical or current facts. They often include words such as “believe,”“expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similarmeaning, or future or conditional verbs such as “will,” “would,” “should,”“could” or “may.” Factors that could cause actual results to differ from theresults discussed in the forward-looking statements include, but are notlimited to:  risk of loans andinvestments, including dependence on local economic conditions; competition forthe company’s customers from other providers of financial services; possibleadverse effects of changes in interest rates; balance sheet and critical ratiorisks related to the share repurchase program; risks related to the company’sacquisition strategy, including risks of adversely changing results ofoperations and factors affecting the company’s ability to consummate furtheracquisitions, and other risks detailed in the company’s filings with the Securitiesand Exchange Commission including the risks identified in the Company’s Form10-K filed with the Commission on March 18, 2002, all of which are difficult topredict and many of which are beyond the control of the company.**

 

16

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

 

There have been nomaterial changes in market risk exposures that affect the quantitative andqualitative disclosures presented as of December 31, 2001 in the Company’s Form10-K and Annual Report.

 

**PART II - OTHER INFORMATION**

 

Item 1.            LegalProceedings:

 

None.

 

Item 2.            Changesin Securities:

 

On March 27, 2002, theCompany issued $60 million in 8.125% Cumulative Capital Securities, through CFBCapital III, a business trust subsidiary organized in February 2002.  All $60 million of the capital securitiesqualify as Tier I Capital for regulatory capital calculation purposes.  The proceeds from the offering were used onMay 1, 2002 to redeem the $60 million of 8-7/8% junior subordinated debenturesthat were issued in February 1997.  TheCompany has unconditionally guaranteed the obligations of CFB Capital III underthe 8.125% cumulative capital securities.

 

Item 3.            Defaults upon Senior Securities:

 

None.

 

Item 4.            Submissionof Matters to a Vote of Security Holders:

 

The Company heldits Annual Meeting of Shareholders on April 23, 2002.  The shareholders took the following actions:

 

(i)                         The shareholders elected twelve directorsto hold office until the next Annual Meeting of Shareholders or until theirsuccessors are elected.  Theshareholders present in person or by proxy cast the following numbers of votesin connection with the election of directors, resulting in the election of allof the nominees.

 

|                 |   | **Votes For** |   | **Votes Withheld** |   |
|----------------------|--------|---------------|--------|--------------------|--------|
| Mark A. Anderson     |   | 35,901,932    |   | 465,449            |   |
| Patrick Delaney      |   | 35,618,835    |   | 748,546            |   |
| John H. Flittie      |   | 35,760,715    |   | 606,666            |   |
| Thomas Gallagher     |   | 35,761,658    |   | 605,723            |   |
| Darrell G.  Knudson  |   | 35,922,638    |   | 444,743            |   |
| Dennis M.  Mathisen  |   | 35,315,972    |   | 1,051,409          |   |
| Donald R.  Mengedoth |   | 35,266,967    |   | 1,100,414          |   |
| Rahn Porter          |   | 35,759,134    |   | 608,247            |   |
| Annette Quintana     |   | 35,909,696    |   | 457,685            |   |
| Marilyn Seymann      |   | 35,478,279    |   | 889,102            |   |
| Harvey L.  Wollman   |   | 35,756,340    |   | 611,041            |   |
| Lauris N.  Molbert   |   | 35,919,621    |   | 447,760            |   |
|                      |        |               |        |                    |        |  |

 

(ii)                      The shareholders ratified and approvedthe election of Ernst & Young LLP as the independent public accountants forthe Company for the current fiscal year. 35,702,234 votes were cast for the resolution; 625,063 votes were castagainst the resolution.

 

 

Item 5.            OtherInformation:

 

None.

 

17

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Item 6.            Exhibitsand Reports on Form 8-K:

 

(a)                      Exhibits:

99.1                                 Certificate of the Chief ExecutiveOfficer pursuant to the Sarbanes — Oxley Act of 2002.

99.2                                 Certificate of the Chief FinancialOfficer pursuant to the Sarbanes — Oxley Act of 2002.

 

 (b)      Reportson Form 8-K:

 

None

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                       | **COMMUNITY FIRST BANKSHARES, INC.**   |
|----------------------------|----------------------------------------|
|                       |                                   |   |   |   |   |   |
|                       |                                   |   |   |   |   |   |
|                       |                                   |   |   |   |   |   |
| Date:  August 8, 2002 | /s/ Mark A. Anderson                   |
|                       | Mark A. Anderson                       |
|                       | President and Chief  Executive Officer |
|                       |                                   |   |   |   |   |   |
|                       |                                   |   |   |   |   |   |
| Date:  August 8, 2002 | /s/ Craig A. Weiss                     |
|                       | Craig A. Weiss                         |
|                       | Chief Financial Officer                |

 

 

 

 

18

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