10-K

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(MARK ONE)

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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 NO. 000-19368

COMMUNITY FIRST BANKSHARES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)	46-0391436 (I.R.S. Employer Identification No.)
520 MAIN AVENUE FARGO, ND 58124-0001 (Address of principal executive offices and zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (701) 298-5600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:	COMMON STOCK, $.01 PAR VALUE PREFERRED STOCK PURCHASE RIGHTS 87/8% CUMULATIVE CAPITAL SECURITIES, $25 LIQUIDATION AMOUNT(1) 8.20% CUMULATIVE CAPITAL SECURITIES, $25 LIQUIDATION AMOUNT(2)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        As of March 13, 2002, assuming as market value the price of $26.03 per share, the average between the bid and asked sale prices on the Nasdaq National Market, the aggregate market value of shares held by nonaffiliates was approximately $964 million.

        As of March 13, 2002, the Company had outstanding 39,857,503 shares of Common Stock, $.01 par value, net of treasury shares.

(1)

The 8 ⁷/8% Cumulative Capital Securities (the "CFB I Capital Securities") were issued by CFB Capital I ("CFB Capital I"), a wholly owned Delaware business trust subsidiary of the Company. The Company has also fully and unconditionally guaranteed all of CFB Capital I's obligations under the CFB I Capital Securities.

(2)

The 8.20% Cumulative Capital Securities (the "CFB II Capital Securities") were issued by CFB Capital II ("CFB Capital II"), a wholly owned Delaware business trust subsidiary of the Company. The Company has also fully and unconditionally guaranteed all of CFB Capital II's obligations under the CFB II Capital Securities.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2001 and the Proxy Statement for the Company's Annual Meeting of Shareholders to be held April 23, 2002, are incorporated by reference into Parts II and III, respectively, of this Form 10-K, to the extent described in such Parts.

TABLE OF CONTENTS

PART I
	ITEM 1.    BUSINESS
	ITEM 2.    PROPERTIES
	ITEM 3.    LEGAL PROCEEDINGS
	ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6.    SELECTED FINANCIAL DATA
	ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11.    EXECUTIVE COMPENSATION
	ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES

PART I

ITEM 1. BUSINESS

GENERAL

        Community First Bankshares, Inc. (the "Company" or "we") is a bank holding company that, as of December 31, 2001, operated through one bank subsidiary with banking offices in 138 communities in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming. Total assets of the Company were approximately $5.8 billion as of December 31, 2001.

        The banking offices are community banks that provide a full range of commercial and consumer banking services primarily to businesses and individuals in small and medium-sized communities and the surrounding market areas. The Company provides its banking offices with the advantages of affiliation with a bank holding company, such as access to its lines of financial services, including trust products and administration, insurance and investment services, data processing services, credit policy formulation and review, investment management and specialized staff support. The Company grants autonomy to managers of the banking offices with respect to day-to-day operations, customer service decisions and marketing. Credit and product offerings are being centralized to increase efficiency. The banking offices are encouraged to participate in community activities, support local charities and community development, and otherwise enhance their images in their communities.

        The Company has built a network of banks and a solid customer base through acquisitions. The Company's plan is to increase the revenues and profit derived from that customer base by profitably increasing the number of products and services delivered per household and by expanding the channels through which customers can access those products and services. An enhanced online banking Web site is supplementing channels of in-person, mail, ATM, and telephone banking. A computer-based customer software system will enable the banks to focus on the products and services most relevant to each customer. The Company has recently introduced a program of Company-wide sales campaigns focusing on individual products.

RECENT STRATEGIES AND INITIATIVES

        During 2001, the Company implemented a series of strategic initiatives designed to improve customer service and strengthen its position as a provider of diversified financial services. These initiatives involved: refining the Company's model for delivery of services; centralizing credit operations; consolidating its bank charters into one bank charter and insurance operations into a single entity; contracting the asset base of the Company to enhance utilization of shareholder capital; and establishing a mortgage joint venture with Wells Fargo Home Mortgage.

Refining the Company's delivery model

        To bring product distribution focus to the Company's extensive banking network, the Company has designated certain of its banking offices Regional Financial Centers and Community Financial Centers. Regional Financial Centers are located in markets that have shown strong commercial banking potential and offer a full array of financial products and services for both the corporate and retail markets, including banking, trust and investment products. In some cases, Regional Financial Centers are typically aligned so that one larger banking office directs and supports smaller banking offices in close geographic proximity. Regional Financial Centers are managed by bank presidents. At December 31, 2001, the Company had 52 Regional Financial Centers.

        Community Financial Centers are less geographically concentrated and, although they offer a complete line of financial products and services, their emphasis is on retail banking products,

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investments and insurance. Community Financial Centers are headed by branch managers. At December 31, 2001, the Company had 22 Community Financial Centers.

        To further enhance the Financial Center delivery model, the Company is integrating its insurance and investment sales forces into its retail sales delivery network. The Company believes this moves it towards a one-stop financial services supermarket and strengthens its opportunity to deepen customer relationships.

        The Company believes this structure allows the Company to staff its banking offices with financial service professionals who are sensitive to the financial needs of customers and to better respond to those needs. In addition to improving staffing, a key part of the Company's strategy is to improve its product and service delivery channels through improved technology. The Company is focusing on online banking, electronic bill paying and increased opportunities to sell investment products online. In addition, the Company is also implementing a data-warehoused customer relationship management system to improve customer-focused sales initiatives. To provide more products and services to its customers, the Company's employees are encouraged to be more sales-focused and to build a complete financial management relationship with customers. As a part of this strategy, the Company expects to continue to increase its efforts in insurance product sales. The Company acquired three insurance agencies in 2001, and expects to acquire additional insurance agencies to expand its local product offerings.

        In conjunction with the restructuring of its banking network, during 2001, the Company sold 14 banking offices and closed eight additional banking offices. Banking offices sold included ten Arizona banking offices, three Nebraska banking offices and one banking office in North Dakota. In the 14 banking offices sold, total deposits were $132 million. Four of the eight banking offices closed were located in communities where the Company maintains one or more additional banking offices, thus the Company continues to serve those customers from existing locations.

        The initiatives resulted in changes in staffing needs within the Company. In conjunction with the restructuring of the banking network, 21 eligible management staff took advantage of an early retirement program. This restructuring resulted in the Company taking a one-time after-tax charge against earnings of $5.1 million, or $0.12 per share in the first quarter of 2001.

Centralizing credit operations

        Under the redesigned delivery structure, the Company began implementation of a centralized credit process. When fully operational, the centralized structure will result in centralizing documentation and collection services for all banking offices from a Fargo, North Dakota location. As of December 31, 2001, decision making, documentation and collection services for indirect consumer loans have been centralized.

Consolidation of bank charters and insurance agencies

        Prior to 2001, the Company consolidated 11 of its bank charters into one national bank charter, Community First National Bank. During the first quarter of 2001, the Company completed the consolidation of its South Dakota state chartered bank into its national chartered bank. As a result, all banking operations are conducted under a single national charter. Additionally, Community First's insurance sales and operations, which had previously been conducted by two separate entities, have been merged into one subsidiary, Community First Insurance, Inc.

Enhanced use of shareholder capital

        Beginning in 2000 in connection with the consolidation of the Company's several bank charters into one charter, the Company focused on contracting its balance sheet to better utilize shareholder

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capital. This strategy involved several elements, including reducing the Company's reliance on wholesale funding sources, reducing Community First Financial Inc.'s purchased asset portfolio and redirecting capital towards repurchasing the Company's common stock to reduce the number of shares of common stock outstanding, all in an effort to deploy capital more efficiently.

Joint venture mortgage company

        On September 5, 2001, the Company announced the formation of a joint venture mortgage company through its subsidiary, Community First Home Mortgage, Inc., with Wells Fargo Home Mortgage called Community First Mortgage, LLC ("CFM"). The joint venture is designed to offer the Company's customers a broader line of mortgage products and increase the efficiency of the Company's back office support through improved access to current and future technology and expertise provided by Wells Fargo. The Company expects that access to Wells Fargo's products and technology will, over time, permit the Company to grow its mortgage business. CFM provides mortgage origination, documentation, processing and support for all of the Company's residential mortgage business. The joint venture became operational in November 2001.

        Under the terms of CFM's limited liability company agreement, with limited exceptions, while it is a member of CFM, the Company cannot engage directly or indirectly, in the residential mortgage lending business other than through CFM. The joint venture has a minimum term of ten years; however, the venture may be terminated earlier upon the occurrence of certain events, including a change in control of Wells Fargo or the Company or the failure of either party to perform its obligations under the agreement. Under the terms of the joint venture agreement, in exchange for the payment of certain fees by CFM, Wells Fargo (1) provides certain administrative services to CFM, including accounting, data processing and management information services, and leases to CFM the computer software and computer network used to conduct the business of CFM; (2) funds the loans made by CFM through a warehouse line of credit it provides to CFM; and (3) purchases the loans from CFM. Wells Fargo and the Company each made initial capital contributions of $125,000 and now each own 50% of CFM. Distributions of cash and allocations of profits and losses from CFM are to be made to each member in proportion to its ownership interest. CFM is governed by an operating committee consisting of four individuals, with each member of the joint venture appointing individuals to the operating committee in proportion to its interest.

REVIEW OF ACQUISITION OPPORTUNITIES

        As opportunities present themselves, the Company seeks to acquire banks in communities which generally have populations between 3,000 and 50,000 and are located in the Company's key target acquisition states of Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming. The Company takes a disciplined approach to acquisitions, requiring a certain return on equity for potential targets. The Company looked at several potential targets in 2001, and placed bids on a few opportunities. In general, bank acquisitions have been difficult and can be expected to be difficult to conclude by the Company because of the Company's parameters of valuation, and insistence that any acquired bank be accretive within a short period of time and because larger acquirors with market expansion goals and greater resources have been and can be expected in the foreseeable future to be prepared to make significantly higher acquisition bids than the Company. Therefore, the Company did not complete any bank acquisitions in 2001. The Company routinely reviews acquisition opportunities and, at any given time, may have bids outstanding or may be involved in negotiations with the owners of financial institutions or other parties relative to a particular financial institution, its branches or its deposit accounts. The Company currently has no agreements in place to acquire other banks, branches or deposit accounts.

        The Company made a number of significant acquisitions in 1999 and 1998, as outlined below. On December 21, 1999, the Company acquired River Bancorp, Inc., the bank holding company for

3

Northland Security Bank, located in Ramsey, Minnesota. On October 7, 1999, the Company acquired Valley National Corporation, a publicly-held corporation and the bank holding company for Valle de Oro Bank, National Association, headquartered in El Cajon, California, with six bank locations in Spring Valley, El Cajon, La Mesa and Santee, California. On August 7, 1998, the Company acquired Guardian Bancorp, the bank holding company for Guardian State Bank, headquartered in Salt Lake City, Utah, with banking offices in Salt Lake City and Sandy, Utah. On July 1, 1998, the Company acquired Western Bancshares of Las Cruces, Inc., the bank holding company for Western Bank, headquartered in Las Cruces, New Mexico with offices in Anthony, Hatch and Las Cruces, New Mexico. On May 7, 1998, the Company acquired FNB, Inc., a two-bank holding company headquartered in Greeley, Colorado with offices in Greeley and Fort Collins, Colorado. On April 30, 1998, the Company acquired Pioneer Bank of Longmont, Longmont, Colorado, with five banking offices in four Colorado communities. On April 3, 1998, the Company acquired Community Bancorp, Inc., the parent company of Community First National Bank, Thornton, Colorado. On January 23, 1998, the Company acquired 37 banking offices located in Arizona, Colorado and Utah from three subsidiary banks of Banc One Corporation.

BANKING ACTIVITY

        The banking offices operated by the Company provide a full range of commercial and consumer banking services primarily to individuals and businesses in small and medium-sized communities and the surrounding market areas. The banking offices draw most of their deposits from, and make most of their loans within, their respective market areas. The banking offices owned by the Company as of December 31, 2001, were located in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming.

COMMUNITIES SERVED

        As of December 31, 2001, the Company had banking offices in communities with populations ranging from approximately 200 to 50,000, except for the larger communities of Fargo, North Dakota; Denver, Englewood (a Denver suburb), Boulder, Colorado; El Cajon (a San Diego suburb), California, Salt Lake City, Utah, Cheyenne, Wyoming and Ramsey, Minnesota (a Minneapolis-St. Paul suburb). The Company has operated profitably in these communities and has continued to acquire institutions in larger markets, reducing the percentage of revenues derived from smaller markets. Each of the banking offices seeks to serve a market area with greater population. As with other small, non-metropolitan communities, many of the smaller communities in which the banking offices presently operate have experienced or are expected to experience no growth or a decline in population. The economies of some of the smaller communities, especially those in Nebraska, North Dakota and South Dakota, depend primarily on farming, farm service and agricultural supply businesses. If reductions in population or adverse economic trends in specific communities result in decreased profitability in the banking offices in those communities, the Company may consider selling bank assets and reducing the level of services provided in such communities.

        Management believes that future growth in the business of the Company will largely depend on successful execution of the Company's strategies. By offering customers a full suite of financial products and services through a broader range of channels, the Company will endeavor to increase the number of products sold to each customer. Sophisticated customer analysis tools will enable the Company to target the marketing of these products more effectively. In addition, the Company will undertake Company-wide marketing initiatives to increase noninterest income through sales of investment products, trust services and insurance.

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ADMINISTRATION OF BANKING OFFICES

        The Company provides policy and management direction and specialized staff support while relying on bank managers for day-to-day operations, customer service decisions and community relations. The Company is responsible for policy-related functions, such as supervisory credit review, audits, personnel policies and internal examination activities. Resource allocations for administrative support by the Company are balanced to provide adequate support services for each banking office's operations, while carefully controlling service costs charged to each office. The major areas of administration are as follows:

        CREDIT. The Company's lending activities are guided by the general loan policy established by the Board of Directors. The Board of Directors of the bank subsidiary has established loan approval limits for each banking office of the Company. The limits established for each bank location range from $25,000 to $500,000 per borrower. Renewals of any criticized or classified loans have a limit of $25,000. Amounts in excess of the individual banking office's lending authority are presented to the regional credit officers. The regional credit officers have lending authority up to $750,000 per non-classified borrower. With concurrence of a second regional credit officer, or the respective division manager, the limit increases to $1.5 million. Loans above $1,500,000 per pass-rated borrower, $1,000,000 per watch-rated borrower and $250,000 per classified borrower are presented to the Senior Credit Committee of the Company for approval.

        FINANCE. The Board of Directors of the Company has established policies in the areas of asset/liability management, investments, capital expenditures, accounting procedures and capital and dividend management. Policies are implemented and monitored for compliance by the Chief Financial Officer and the Asset/Liability Committee of the Company.

        OPERATIONS. Community First Technologies, Inc. ("CFT"), a subsidiary of the Company, provides data processing and operations support services to the Company by contract. CFT's system is designed to provide for all of the Company's data-processing needs and can be expanded to accommodate future growth and additional service applications. In addition to its facilities in Fargo, North Dakota, CFT also has a data processing facility in Golden, Colorado. Additional expenditures for equipment, consistent with the increased data processing volumes, would likely be necessary if any significant acquisitions occur during 2002.

        MARKETING. The Company is implementing a computer-based data-warehoused customer relationship management system that will enable the banking offices to deliver more value to their customers by focusing on the products and services most relevant to each customer. It has also initiated a regular schedule of Company-wide sales campaigns that will focus on individual products. The success of the first campaign, for an annuity product, demonstrated the power of a focused marketing effort across the entire network. Future Company-wide marketing efforts will be aided by the enhanced online banking Web site that will be upgraded in 2002.

        OTHER SERVICES. The Company provides other services for the benefit of the banking offices, such as outside professional services, central human resources services, benefits administration, marketing guidance and centralized purchasing of supplies.

INSURANCE AGENCIES

        The Company currently owns and operates insurance agencies located in 45 communities served by the bank through its indirect subsidiary, Community First Insurance, Inc. These agencies are primarily engaged in the sale of property and casualty insurance and make some sales of other types of insurance, such as life, accident and crop hail insurance. The Company had commission revenue of $12.5 million in 2001.

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OTHER ACTIVITIES

        Although the Company intends to maintain its focus on the banking business in its targeted market areas, the Company will consider other permitted business activities as opportunities arise. The noninterest income activities of the Company in insurance, trust and securities sales are expected to become collectively a material revenue and profit center of the Company in the future.

        The Company administers all of its trust activity through the trust department in Fargo, North Dakota. Eight banking offices maintain trust departments, and their services are more broadly available in other Company banking offices. Trust services are made available to customers in those locations through local trust officers or by appointment with members of the trust department.

        In February 2001, the Company entered into an agreement with PrimeVest Financial Services, Inc. under which PrimeVest would provide securities brokerage, insurance and investment advisory services to the Company's customers through PrimeVest centers located within the Company's banking offices. The agreement provides for shared sales commissions with the Company pursuant to an agreed upon commission schedule and requires PrimeVest to perform various compliance and administrative functions related to its securities and insurance activities. In addition to full service brokerage, insurance and investment advisory services, the PrimeVest agreement also provides the Company's customers with online financial services to complement the Company's focus on technology enhancements to improve product and service delivery. The PrimeVest agreement is a three-year agreement.

        Federal bank regulation permits bank holding companies to engage in other limited activities, such as the distribution of certain types of securities, and future changes in such regulation are expected to further expand the types of activities in which the Company may engage.

COMPETITION

        Commercial banking is highly competitive. In the conduct of certain aspects of its business, the Company competes with other commercial banks, savings and loan institutions, issuers of fixed income investments, finance corporations, credit unions and money market funds, securities and insurance firms, among other types of institutions. The Company competes with these institutions in such areas as obtaining new deposits, offering new types of services and setting loan rates and interest rates on various types of deposits, as well as other aspects of the banking business. Management believes community residents and businesses prefer to deal with local banks and the Company has generally been able to compete successfully in its respective communities because of the Company's emphasis on local management and the autonomy of management in community relations. At the same time, the Company provides its locations with the advantages of centralized sophisticated administration and the opportunity to make larger loans and diversify their lending activity through group participations. Further, because most of the Company's locations have a significant market share in the communities they serve, the Company believes the banking offices can, to a degree, influence deposit and loan pricing in their markets and are subject to less competition based on deposit and loan pricing than would be the case in larger metropolitan markets with more competitors. However, the Company has experienced increased price competition from credit unions and brokerage firms in certain market areas in recent periods.

        The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the "GLB Act") permits affiliation among banks, securities firms and insurance companies by creating a new type of financial services company called a "financial holding company." Financial holding companies may offer many kinds of financial services, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Under the GLB Act, securities firms and insurance companies that elect to become a financial holding company may acquire banks and other financial institutions. The GLB Act significantly changes the competitive environment in which our bank does business. The

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GLB Act also imposes new restrictions on the bank's use of customer financial information that could make it difficult or costly for the Company to cross-sell banking, insurance and investment products to its customers. See "Supervision and Regulation," below.

EMPLOYEES

        The Company had 2,517 employees at December 31, 2001, including 1,999 full-time employees and 518 part-time employees. Of these individuals, 206 were employed at the holding company, 1,816 were employed at the bank, 358 were employed by CFT and 137 were employed by Community First Insurance, Inc.

SUPERVISION AND REGULATION

        GENERAL. As a bank holding company, the Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The Company's national bank subsidiary is regulated by the Office of the Comptroller of the Currency ("OCC"). The deposits of the Company's banking subsidiary are insured by the Bank Insurance Fund ("BIF"), which subjects the subsidiary to regulation by the Federal Deposit Insurance Corporation ("FDIC"). In addition to the impact of direct regulation, commercial banks are affected significantly by action taken by the Federal Reserve Board with respect to the money supply and credit availability.

        The Company has other financial services subsidiaries that are subject to regulation by the Federal Reserve Board and other applicable federal and state agencies. For example, the Company's insurance subsidiary is subject to regulation by the state insurance licensing and regulatory agencies having jurisdiction in each office location.

        FINANCIAL MODERNIZATION. On November 12, 1999, the GLB Act became law. The GLB Act repealed provisions of the Glass-Steagall Act of 1933 and extensively revised the BHC Act by significantly expanding the range of permissible activities of banks and bank holding companies and permitting affiliations of banking, insurance and securities organizations. The Company continues to review the implications of the GLB Act on its business activities.

        The GLB Act imposes new requirements on financial institutions with respect to customer privacy by generally prohibiting disclosure of customer information to non-affiliated third parties unless the customer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to customers annually.

        HOLDING COMPANY REGULATION. The Company is a bank holding company within the meaning of the BHC Act. As a result, the Company's activities are subject to limitations under the BHC Act, and certain transactions between the Company and its affiliates are subject to restrictions. Further, the Company is required to file periodic reports with the Federal Reserve Board and is subject to examination. The Federal Reserve Board has the authority to issue cease and desist orders against the Company if the Federal Reserve Board determines that actions by the Company are unsafe, unsound or violate the law. The Federal Reserve expressed its view that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could be funded only in ways that weakened the bank holding company's financial health, such as by borrowing. Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Under a longstanding policy of the Federal Reserve, the Company is expected to act as a source of financial strength to its banking subsidiary and to commit resources to support it.

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        Under the BHC Act, the Company must obtain prior Federal Reserve Board approval before the Company acquires direct or indirect ownership or control of 5% or more of the voting stock of any bank or bank holding company, or the Company merges or consolidates with another bank holding company. Further, the bank holding company is generally prohibited from acquiring direct or indirect ownership or control of a company that is not a bank or bank holding company, unless (i) the Federal Reserve Board has, by order or regulation, determined that the proposed non-banking activity is so closely related to banking or managing or controlling banks as to be a proper incident thereto, or (ii) the Company elects to become a "financial holding company" under the GLB Act and the proposed non-banking activity is a "financial activity," within the terms of the GLB Act, or an "incidental" or "complementary" activity, as determined by order or regulation of the Federal Reserve Board and the Secretary of the Treasury. In reviewing any application or proposal by a bank holding company, the Federal Reserve Board is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the community to be served, as well as the probable effect of the transaction upon competition.

        BANK REGULATION. The bank is subject to detailed federal and state laws and regulation. The national bank subsidiary of the Company is primarily supervised by the OCC, a bureau of the United States Department of the Treasury. The OCC regularly examines national banks in such areas as reserves, loans, investments, trust services, management practices, compliance with the Community Reinvestment Act and other aspects of bank operations and policies. These examinations are designed for the protection of the deposit insurance system and the enforcement of federal and state laws and regulations and not for the shareholders of the Company. In addition to undergoing these regular examinations, national banks must furnish quarterly reports to the OCC containing detailed and accurate financial statements and schedules.

        Federal and state banking laws and regulations govern, among other things, the scope of a bank's business and investments a bank may make, reserves a bank must maintain, loans a bank may make and the collateral it takes, activities of banks with respect to mergers and consolidations and the establishment and closure of branches. The OCC, in the case of national banks, is the primary federal regulatory authority under the Financial Institutions Supervisory Act, and is thereby provided authority under that Act to impose penalties, initiate civil and administrative actions and take other steps intended to prevent a bank from engaging in an unsafe or an unsound practice in the conduct of its business.

        With the adoption of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"), Congress made comprehensive revisions to the bank regulatory and funding provisions of the Federal Deposit Insurance Act. Under FDICIA and the IBBEA, the primary regulatory authorities are required to take "prompt corrective action" with respect to depository institutions insured by the FDIC that do not meet the criteria for classification as either "well capitalized" or "adequately capitalized," based upon the institution's leverage ratio, risk-adjusted Tier 1 capital ratio and risk-adjusted total capital ratio. As of December 31, 2001, the Company's subsidiary Bank was classified as "well capitalized." Under-capitalized depository institutions are subject to a wide range of limitations in operations and activities, including capital distributions, payment of management fees, and limitations upon institution growth.

        FDICIA, as amended by IBBEA, directs each primary federal regulatory agency to establish regulations or guidelines relating to operational and managerial standards. The federal banking agencies have published final rules implementing the safety and soundness standards required by FDICIA in the areas of internal controls and information systems, internal audit systems, loan documentation, asset growth, asset quality, earnings and compensation, fees and benefits. The impact of such standards on the Company has not been material.

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        FDIC INSURANCE. The FDIC insures deposits of the national bank subsidiary up to the prescribed limit per depositor through the BIF, and the amount of FDIC assessments paid by each BIF member institution is based upon its relative risk of default as measured by regulatory capital ratios and other factors. The BIF assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. Under current FDIC assessment guidelines, the Company expects that it will not incur any FDIC deposit insurance assessments during the next fiscal year, although the current system for assigning assessment risk classification to insured depository institutions is being reviewed by the FDIC and the deposit insurance assessments are subject to change. The Company is subject to separate assessments to repay bonds ("FICO bonds") issued in the late 1980's to recapitalize the former Federal Savings and Loan Insurance Corporation. The assessment for the payments on the FICO bonds for the quarter beginning January 1, 2002 is 1.82 basis points for BIF-assessable deposits. As of December 31, 2001, each of the Company's bank locations qualified for the lowest BIF assessment rate.

        FDIC insurance on deposits may be terminated by the FDIC, after notice and hearing, upon a finding by the FDIC that the insured bank has engaged or is engaging in unsafe or unsound practices, or is in an unsafe or unsound condition to continue operations as an insured bank, or has violated any applicable law, regulation, rule or order of or condition imposed by or written agreement entered into with the FDIC.

        USA PATRIOT ACT. On October 26, 2001, the President signed the USA Patriot Act of 2001 (the "Patriot Act") into law. The Patriot Act contains sweeping anti-money laundering and financial transparency provisions, including:

•

Due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-US persons;



•

Standards for verifying customer identification at account opening; and



•

Rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

        The Patriot Act now specifically requires the Federal Reserve Board, when reviewing applications by bank holding companies, to take into consideration the effectiveness of applicants in combating money-laundering activities. The Patriot Act grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions' operations. The Company will establish policies and procedures to ensure compliance with the Patriot Act; while the Company has not determined the impact that Patriot Act will have on its operations, the impact is not expected to be material.

FORWARD-LOOKING STATEMENTS

        This annual report on Form 10-K and other documents filed by the Company with the SEC contain forward-looking statements under the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings or results from those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Forward-looking statements can be identified by 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 verbs such as "will," "would," "should," "could" or "may."

9

        Forward-looking statements give the Company's expectations or predictions of future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. A number of factors, many of which are beyond the Company's control, could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Factors that could cause actual results to differ from the results discussed in forward-looking statements include, but are not limited the factors described below.

Our Earnings are Significantly Affected by General Business and Economic Conditions. Our business and financial results are affected by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the condition of the U.S. economy, in general, and the local economies in which we operate. Should economic conditions continue to worsen in the United States or abroad, demand for loans and other products and services we offer could decrease and the number of borrowers who fail to repay their loans could increase. In addition, interest rates in the United States have been at their lowest levels in decades and if interest rates now rise, demand for loans could decrease. Banks depend largely on the relationship between the cost of funds, primarily deposits, and the yield on earning assets. This relationship, known as the interest rate spread, is subject to fluctuation and is affected by economic and competitive factors which influence interest rates, including the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets. Our performance is subject to interest rate risk to the degree that our interest-bearing liabilities reprice or mature more slowly or more rapidly or on a different basis than our interest earning assets. Although we have an asset liability management strategy designed to control our risk from changes in market interest rates, rapid and sustained changes in interest rates still could have an adverse effect on our profitability. At December 31, 2001, based on the difference between repricing assets and repricing liabilities, we were liability sensitive which means that our liabilities would reprice more quickly than our assets as interest rates change.

Credit Losses are Inherent in Our Business, and Our Allowance for Loan Losses May be Inadequate to Cover Actual Loan Losses. Every loan carries a risk of non-payment. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our loan portfolio. We make a number of assumptions and judgments about the collectibility of our loan portfolio when determining the amount of the loan loss allowance. We determine the amount of the allowance through a periodic review and consideration of several factors, including: the quality, size and diversity of our loan portfolio; an evaluation of non-performing loans; our historical loan loss experience; and the amount and quality of collateral, including guarantees, securing the loans.

        If our assumptions are wrong, our allowance for loan losses may be insufficient to cover our losses and have an adverse effect on our operating results and we may need to increase our allowance in the future. During 2001, we modified the methodology we use to allocate the allowance within individual loan portfolios. These policies and procedures, however, may not prevent unexpected losses and substantial allocations to our allowance for loan losses that could materially adversely affect our results of operations. In the first quarter of 2001 we recorded a special loan loss provision to maintain our loan loss reserves. We cannot assure you that we will not need to record similar provisions in the future.

The Financial Services Industry is Highly Competitive. We operate in a competitive environment for our financial products and services. The competition among financial services companies to attract and retain customers is intense. Customer loyalty can be easily influenced by a competitor's new products, especially offerings that provide cost savings to the customer. Some of our competitors may be better able to provide a wider range of products and services. We expect these competitive pressures to increase due to legislative, regulatory and technological changes and the continued consolidation in

10

the financial services industry. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. Also, investment banks and insurance companies are competing with banks in traditional banking businesses such as lending and consumer banking. Many of our competitors are larger and better capitalized than we are. Many of our competitors may also have fewer regulatory constraints and lower cost structures. We expect that the consolidation of the financial services industry will result in larger, better-capitalized companies offering a wide array of financial services and products. The GLB Act permits affiliation among banks, securities firms and insurance companies by creating a new type of financial services company called a "financial holding company." Financial holding companies may offer many kinds of financial services, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Under the GLB Act, securities firms and insurance companies that elect to become a financial holding company may acquire banks and other financial institutions. The GLB Act significantly changes the competitive environment in which we do business. The GLB Act also imposes new restrictions on our use of customer financial information that could make it difficult or costly for us to cross-sell banking, insurance and investment products to our customers.

Our Earnings are Significantly Affected by the Fiscal and Monetary Policies of the Federal Government and its Agencies. The policies of the Federal Reserve Board impact us significantly. The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest that commercial banks pay on their interest-bearing deposits and can affect the value of financial instruments we hold. Those policies also determine to a significant degree our cost of funds for lending and investing. Changes in those policies are beyond our control and are hard to predict. Federal Reserve Board policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans.

Maintaining or Increasing our Market Share Depends on Market Acceptance of New Products and Services. Our success depends, in part, on our ability to develop, and gain customer acceptance of, new products and services. Financial services companies face increasing pressure to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including Internet- based services, could require us to make substantial expenditures to modify or adapt our existing products and services. We may not be able to successfully introduce new products and services, achieve market acceptance of our products and services, or develop and maintain loyal customers.

Changes in the regulatory structure or the statutes or regulations that apply to us could have a material impact on our operations. We are subject to extensive regulation, supervision and examination by the Federal Reserve Board and the Office of the Comptroller of the Currency. The supervision, regulation and examination of banks and bank holding companies by bank regulatory agencies are intended primarily for the protection of depositors rather than the shareholders of these entities. Our success depends on our continued ability to comply with these regulations. Some of these regulations may increase our costs and thus place non-bank financial institutions in stronger, more competitive positions. Regulatory authorities have extensive discretion in carrying out their supervisory and enforcement responsibilities. They have also implemented regulations which have increased capital requirements, increased insurance premiums, required approval of acquisitions and other changes of control and resulted in increased administrative and professional expenses. Any change in the existing regulatory structure or the applicable statutes or regulations could have a material impact on our operations. Additional legislation and regulations may be enacted or adopted in the future which could significantly affect our powers, authority and operations, which in turn could have a material adverse effect on our operations.

        We are dependent upon key executives who would be difficult to replace.    Our continued profitability is dependent on our senior management team. We would likely have a difficult transition period if the services of any of our senior executives were lost for any reason. Recruiting talent in the

11

competitive financial services industry is difficult generally. There is no assurance that we will be able to retain our current key executives or attract additional qualified key persons as needed.

        Other factors, such as credit, market, operational, liquidity, interest rate, governmental regulation and other risks are described elsewhere in this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

EXECUTIVE OFFICERS

        The executive officers of the Company are as follows:

Name	Age	Position
Donald R. Mengedoth	57	Chairman of the Board
Mark A. Anderson	44	President and Chief Executive Officer
Ronald K. Strand	55	Vice Chairman—Chief Operating Officer
Craig A. Weiss	40	Executive Vice President—Chief Financial Officer
Thomas R. Anderson	46	Executive Vice President—Treasury, Treasurer and Chief Investment Officer
Dan M. Fisher	47	Chief Information Officer, President and Chief Executive Officer of Community First Technologies, Inc.
Douglas G. Vang	43	Senior Vice President—Director of Human Resources
Bruce A. Heysse	50	Senior Vice President—Credit Administration
Thomas A. Hilt	59	Senior Vice President—Chief Administrative Officer
Gary A. Knutson	54	Executive Vice President—Eastern/California Division President
Dean D. Kling	45	Senior Vice President—Financial Services Program Manager
Charles A. Mausbach	50	Executive Vice President—Western Region President
Bradley J. Rasmus	40	Senior Vice President—Community Financial Center President
Patricia J. Staples	46	Senior Vice President—Director of Market Development

        Donald R. Mengedoth has been Chairman of the Board and a director of the Company since its organization in 1986. Until March 1, 2000, he had also served as President and Chief Executive Officer of the Company. Under an Employment Agreement entered into on March 1, 2000, Mr. Mengedoth will serve as Chairman of the Board of Directors from March 1, 2000 to December 31, 2002. Mr. Mengedoth was with First Bank System, Inc. ("FBS"), currently known as U.S. Bancorp, from 1982 to 1987 and has worked in the banking business since 1966, including management positions in retail banking operations, human resources and commercial lending. From 1984 to 1987, Mr. Mengedoth was Regional Managing Director of FBS. From 1979 to 1982, Mr. Mengedoth was Vice President—

12

Operations for FBS. Prior to that time, he was Senior Vice President of First Bank Milwaukee. He is a past President of the American Bankers Association.

        Mark A. Anderson was appointed President and Chief Executive Officer of the Company on March 1, 2000. Prior to this time, he was Vice Chairman—Corporate Services of the Company from October 1998 to March 2000. He also served as Chief Financial Officer, Secretary and Treasurer of the Company since the Company began operation in 1986 to March 2000, and he was Chief Information Officer from February 1998 to March 2000. He was Vice President and Regional Controller for FBS from 1984 to 1987. From 1979 to 1984, he held various positions with FBS-affiliated banks in the finance and credit analysis areas. Mr. Anderson is a Chartered Financial Analyst and a Certified Management Accountant.

        Ronald K. Strand was appointed Vice Chairman—Chief Operating Officer of the Company on March 1, 2000. He had been Vice Chairman—Financial Services Division since October 1998. Mr. Strand was Executive Vice President—Banking Group from February 1993 to October 1998, and was previously Senior Vice President and Region Manager for South Dakota and North Dakota for the Company from January 1991 to February 1993. Previously, Mr. Strand had been Vice President and Regional Manager for the Company and President, Chief Executive Officer and a director of the Company's affiliate bank in Wahpeton, North Dakota since 1988. Prior to his affiliation with the Company, he served as President and Chief Executive Officer of Norwest Bank of North Dakota, N.A., Wahpeton, from 1985 until 1988. He was employed by Norwest for a total of 15 years, having previously worked in Norwest banks in Jamestown, North Dakota, and Moorhead, Minnesota.

        Craig A. Weiss was appointed Chief Financial Officer on March 1, 2000 and Executive Vice President—Chief Financial Officer in August 2001. He was Senior Vice President—Finance of the Company from February 1998 to March 2000. He also served as Vice President Finance of the Company from 1988 to 1998 and Finance and Accounting Manager from 1987 to 1988. Prior to 1987, he was employed by First Bank System, most recently as a Regional Financial Analyst. Mr. Weiss is a Certified Public Accountant.

        Thomas R. Anderson was appointed Treasurer of the Company on March 1, 2000 and has been Executive Vice President—Treasury since August 2001. From 1997 to 2001, he was Senior Vice President—Treasury. He was previously Vice President/Funds Manager of the Company from 1988 to 1997 and Funds Management Officer from 1987 to 1988. Prior to 1987, he was employed by Norwest Corporation for seven years, most recently as a Senior Financial Analyst.

        Dan M. Fisher was appointed Chief Information Officer of the Company on March 1, 2000. He has been President and Chief Executive Officer of Community First Technologies, Inc. (formerly known as Community First Service Corporation) since October 1998 and previously served as Executive Vice President—Bank Operations at this subsidiary. Mr. Fisher was previously District Manager and Senior Vice President of Fiserv Inc., a financial services data and item processor from October 1996 to September 1998. Prior to that, he served as Senior Vice President and Operations Manager of Norwest Bank Minnesota, N.A. from August 1988 to October 1996.

        Douglas G. Vang has been Senior Vice President—Director of Human Resources since April 2001. From 1995 to 2001, he served in various senior executive officer positions, including Senior Vice President, Chief Operating Officer and Division President for Banner Health System, a nonprofit health care system.

        Bruce A. Heysse was appointed Senior Vice President—Credit Administration in February 2001. Prior to this time, he served as Senior Vice President—Acquisitions and Integration from July 1996 to January 2001. He was Senior Vice President and Integration Manager of the Company from November 1995 to June 1996. He was Vice President and Senior Credit Officer of the Company from

13

1987 to November 1995. He began his banking career at the Company's affiliate bank in Wahpeton, North Dakota, and had a total of 11 years of banking experience prior to joining the Company.

        Thomas A. Hilt has been Senior Vice President—Chief Administrative Officer of the Company since 1988 and served as President of Community First Service Corporation (now known as Community First Technologies, Inc.), the Company's data processing subsidiary, from 1988 to 1998. He was Vice President and Manager—Operations Support for the Regional Division of FBS from 1984 to 1987. Prior to 1984, he held various positions with FBS since 1967, including responsibility for systems development, programming, audit and examination functions.

        Gary A. Knutson has been Executive Vice President—Eastern/California Division President since August, 2001. He previously was Executive Vice President—Division President from July 1996 to August 2001. He also served as Senior Vice President and Western Manager from September 1993 to July 1996. He was President, Chief Executive Officer and a director of the Company's affiliate bank in Wahpeton, North Dakota from January 1991 to September 1993. He began his banking career at the Company's affiliate bank in Lidgerwood, North Dakota, and had a total of 14 years of banking experience prior to joining the Company.

        Dean D. Kling has been Senior Vice President—Financial Service Program Manager since April 2001. Previously, he served as Regional Sales Manager for Wells Fargo Bank North Dakota, N.A. from 1983 to April 2001.

        Charles A. Mausbach has been Executive Vice President—Western Division President since August 2001. From March 1998 to August 2001 he was Senior Vice President—Southwestern Region President. He also served as President of Community First National Bank, Worthington, Minnesota from October 1992 to February 1998.

        Bradley J. Rasmus was appointed Senior Vice President—Community Financial Center President in February 2001. Prior to that time, he was Senior Vice President—Financial Services from February 1999 to January 2001. He was previously Vice President & Financial Services Sales Manager from 1995 to 1999. From 1992 until 1995, he was Regional Vice President of Account Development for Richard Leahy Corporation, a financial services company.

        Patricia J. Staples has been Senior Vice President—Director of Market Development since July 1994. Previously, Ms. Staples was employed as the public relations manager with MeritCare Health System in Fargo, North Dakota for 10 years.

        ELECTION. The Company's officers are elected by the Board of Directors. The officers serve until their successors are elected or until their earlier resignation, removal or death.

ITEM 2. PROPERTIES

        In January 1996, the Company formed a new subsidiary, Community First Properties, Inc. ("CFPI"), for the purpose of acquiring and owning the space currently occupied by the Company. CFPI owns all of the portions of the office building not owned by the Company's Bank subsidiary at 520 Main Avenue, Fargo, North Dakota.

        The Company maintains its offices at 520 Main Avenue, Fargo, North Dakota, consisting of approximately 51,000 square feet at an annual rental of $803,000, payable to its subsidiary, CFPI. The Company believes these facilities will be adequate for the foreseeable future. The Company also utilizes office space at its bank's offices located in Denver, Colorado and Cheyenne, Wyoming. The bank owns each of its offices and those of its branches, and these facilities range in size from approximately 1,200 to 36,000 square feet. During 1997, the Company constructed and owns a 47,000 square foot two-story building in Fargo, North Dakota which is leased to CFT. During the latter part of 2001, the Company

14

entered into a lease for a 15,000 square foot credit service center in Fargo, North Dakota at an annual rental rate of $291,000.

ITEM 3. LEGAL PROCEEDINGS

        From time to time, the Company and its subsidiaries are subject to various legal actions and proceedings in the normal course of business, some of which may involve substantial claims for compensatory damages. In some cases, these actions and proceedings relate in whole or in part to activities of banks prior to their acquisition and may be covered by agreements of former owners of these banks to indemnify the Company. Although litigation is subject to many uncertainties and the ultimate exposure with respect to current matters cannot be ascertained, management does not believe that the final outcome will have a material adverse effect on the financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

15

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Information as to the principal market on which the Company's common stock is traded, market price information for the common stock of the Company, the approximate number of holders of record as of the most recent practicable date, and the Company's dividend policy is incorporated herein by reference to page 17 of the 2001 Annual Report to Shareholders attached hereto as Exhibit 13.1.

ITEM 6. SELECTED FINANCIAL DATA

        Selected financial data for the five years ended December 31, 2001, consisting of data captioned "Financial Highlights" on the inside cover page of the 2001 Annual Report to Shareholders, "Consolidated Statement of Condition—Five-Year Summary" on page 32 of the "Financial Review" section of the Annual Report and "Consolidated Statement of Income-Five Year Summary" on page 33 of the "Financial Review" section of the 2001 Annual Report are incorporated herein by reference to such information included in the 2001 Annual Report to Shareholders attached hereto as Exhibit 13.1.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 3 through 14 of the "Financial Review" section of the 2001 Annual Report to Shareholders is incorporated hereby by reference, and attached hereto as Exhibit 13.1.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The information set forth on pages 3 through 14 of the "Financial Review" section of the 2001 Annual Report to Shareholders under the caption "Management's Discussion and Analysis—Results of Operations, Financial Condition and Asset/Liability Management" is incorporated herein by reference, and attached hereto as Exhibit 13.1.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Consolidated Statements of Financial Condition of the Company as of December 31, 2001 and 2000, and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Shareholders' Equity and Cash Flows for each of the three years ended December 31, 2001, the Notes to the Consolidated Financial Statements and the Report of Ernst & Young LLP, independent auditors, contained in the Company's 2001 Annual Report to Shareholders on pages 15 through 31 of the section entitled "Financial Review" are incorporated herein by reference, and attached hereto as Exhibit 13.1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information set forth in the Company's Proxy Statement as filed with the Securities and Exchange Commission under the captions "Election of Directors" on pages 4-10 and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16 for the Annual Meeting of Stockholders to

16

be held April 23, 2002, is incorporated herein by reference. Information regarding the executive officers of the Company is included under separate caption in Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

        The information set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002, under the caption "Executive Compensation" on pages 8-13 is incorporated herein by reference, except that information under the captions "Compensation Committee Report on Executive Compensation" and "Comparative Stock Performance" is not so incorporated.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002, under the caption "Security Ownership of Principal Shareholders and Management" on page 3 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 2002, under the caption "Certain Transactions" on pages 15-16 is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

DOCUMENTS FILED AS PART OF THIS FORM 10-K:

1.

FINANCIAL STATEMENTS. See Item 8, above and Exhibit 13.1.

2.

FINANCIAL STATEMENT SCHEDULES. All financial statement schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

3.

PRO FORMA FINANCIAL INFORMATION. None.

(b)

REPORTS ON FORM 8-K.

        None.

(c)

EXHIBITS.

Exhibit Number	Description
3.1	Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the 1996 Form 10-K), as amended by a Certificate of Amendment to the Registrant's Certificate of Incorporation as filed with the Delaware Secretary of State on May 7, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1998 [the "1998 Form 10-K"]).
3.2	Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 [File No. 33-41246], as declared effective by the Commission on August 13, 1991 [the "1991 S-1"] ).

17

4.1	Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit A to Exhibit 1 to the Registrant's Registration Statement on Form 8-A, filed with the Commission on January 9, 1995 [the "Form 8-A"]).
4.2	Form of Rights Agreement dated as of January 5, 1995, between the Registrant, and Norwest Bank Minnesota, National Association ("Norwest Bank"), which includes as Exhibit B thereto the form of Rights Certificate (incorporated by reference to Exhibit 1 to the Form 8-A.)
4.3	Subordinated Indenture dated February 5, 1997, between the Registrant and Wilmington Trust Company, as Indenture Trustee, including form of Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 [File No. 333-19921] filed with the Commission as of January 30, 1997 [the "1997 CFB Capital I Form S-3"]).
4.4	Amended and Restated Trust Agreement of CFB Capital I dated February 5, 1997, including Form of Capital Security Certificate of CFB Capital I (incorporated by reference to Exhibit 4.5 to the 1997 CFB Capital I Form S-3).
4.5	Capital Securities Guarantee Agreement dated as of February 5, 1997, between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.7 to the 1997 CFB Capital I Form S-3).
4.6	Indenture dated June 24, 1997 relating to the Registrant's 7.30% Subordinated Notes Due 2004 (the "New Notes") between the Registrant and Norwest Bank, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 [File No. 333-36091] as declared effective by the Commission on November 10, 1997 [the "1997 Subordinated Note Form S-4"]).
4.7	Subordinated Indenture dated December 10, 1997, between the Registrant and Wilmington Trust Company, as Indenture Trustee, including form of Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 [File No. 333-37521] as declared effective by the Commission on December 4, 1997 [the "1997 CFB Capital II Form S-3"]).
4.8	Amended and Restated Trust Agreement of CFB Capital II dated December 10, 1997, including Form of Capital Security Certificate of CFB Capital II (incorporated by reference to Exhibit 4.5 to the 1997 CFB Capital II Form S-3).
4.9	Capital Securities Guarantee Agreement dated as of December 10, 1997, between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.7 to the 1997 CFB Capital II Form S-3).
10.1	2001 Annual Incentive Plan for Holding Company Management.*
10.2	Restated 1987 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-8 [File No. 33-46744], as declared effective by the Commission on May 6, 1992).*
10.3	Form of Tax Sharing Agreement between the Registrant and each of its subsidiary Banks (incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 [the "1995 Form 10-K"]).

18

10.4	Form of Service Agreement for Data Processing between Community First Service Corporation and each of the subsidiary Banks of the Registrant (incorporated by reference to Exhibit 10.4 to the 1995 Form 10-K).
10.5	Form of Bank Services Agreement between the Registrant and each of its subsidiary Banks (incorporated by reference to Exhibit 10.5 to the 1995 Form 10-K).
10.6	Form of Agency Agreement between the Registrant and each of its subsidiary Banks, and Assignment of Agency Agreement and Second Assignment of Agency Agreement, which assign the Registrant's interest in the Agency Agreement to Community First Financial, Inc. (relating to the Registrant's subsidiary Banks) (incorporated by reference to Exhibit 10.6 to the 1995 Form 10-K).
10.7	Lease dated April 27, 1993, between Community First Properties, Inc. (formerly Fargo Tower Partners) and the Registrant (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994).
10.8	Promissory Note dated July 14, 1997 (Term Note) in the principal amount of $30,000,000, issued to Norwest Bank, as Agent, on behalf of Harris Trust and Savings Bank ("Harris"), Bank of America National Trust and Savings Association ("Bank of America") and Norwest (incorporated by reference to Exhibit 10.8 to Registrant's Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 21, 1997 [the "1997 Form 10-K"]).
10.9	Promissory Notes dated July 14, 1997 (Current Notes), each in the principal amount of $8,333,333.33, issued to each of Harris, Bank of America and Norwest Bank (incorporated by reference to Exhibit 10.9 to the 1997 Form 10-K).
10.10	Credit Agreement dated July 14, 1997 among the Company, Harris, Bank of America, Norwest Bank as a lender, and Norwest Bank as Agent (incorporated by reference to Exhibit 10.10 to the 1997 Form 10-K).
10.10.1	Amended and Restated Credit Agreement dated as of April 30, 1999 between the Company, Harris and Wells Fargo National Association (incorporated by reference to Exhibit 10.10.1 to the 2000 Form 10-K).
10.10.2	First Amendment dated April 21, 2000 to Amended and Restated Credit Agreement dated April 30, 1999 between the Company and Harris and Wells Fargo National Association (incorporated by reference to Exhibit 10.10.2 to the 2000 Form 10-K).
10.10.3	Second Amendment dated December 22, 2000 to Amended and Restated Credit Agreement dated as of April 30, 1999 between the Company and Harris and Wells Fargo National Association (incorporated by reference to Exhibit 10.10.3 to the 2000 Form 10-K).
10.10.4	Current note dated December 22, 2000 in the principal amount of 35,000,000 issued to Wells Fargo Bank Minnesota, National Association (incorporated by reference to Exhibit 10.10.4 to the 2000 Form 10-K).
10.11	Form of Indemnification Agreement entered into by and between the Registrant and the Registrant's officers and directors (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 [the "1992 Form 10-K"]).

19

10.12	1996 Stock Option Plan, as approved by the Board of Directors on February 6, 1996 (incorporated by reference to Exhibit 10.15 to the 1995 Form 10-K), and as amended by resolution of the Board of Directors on February 1, 1999 (incorporated by reference to Exhibit 10.12 to the 1998 Form 10-K).
10.13	Supplemental Executive Retirement Plan, effective as of August 1, 1995 (incorporated by reference to Exhibit 10.13 to the 1997 Form 10-K).*
10.14	Registrant's Deferred Compensation Plan for Members of the Board of Directors, effective August 1, 1993, including First Amendment to the Registrant's Deferred Compensation Plan for Members of the Board of Directors, effective as of February 1, 1999 (incorporated by reference to Exhibit 10.14 to the 1998 Form 10-K).
10.15.5	Amended and Restated Employment Agreement dated July 1, 1999, among Valle de Oro Bank, N.A., Valley National Corporation and William V. Ehlen, assumed by the Registrant effective October 7, 1999 (incorporated by reference to Exhibit 10.15.5 to the 2000 Form 10-K).*
10.15.6	Salary Continuation Agreement dated January 10, 1996, by and between Valle de Oro Bank, N.A. and William V. Ehlen, assumed by the Registrant effective October 7, 1999. (incorporated by reference to Exhibit 10.15.6 to the 2000 Form 10-K)*
10.15.7	Employment Agreement made as of the 1st day of March, 2000, between the Registrant and Donald R. Mengedoth (Incorporated by reference to Exhibit 10.15.17 to the 1999 Form 10-K).*
10.16	Plan of Reorganization and Merger Agreement dated as of May 31, 2000 by and between Community First National Bank, Phoenix, Arizona, Community First National Bank, Spring Valley, California, Community First National Bank, Fort Morgan, Colorado, Community First National Bank, Decorah, Iowa, Community First National Bank, Fergus Falls, Minnesota, Community First National Bank, Alliance, Nebraska, Community First National Bank, Las Cruces, New Mexico, Community First National Bank, Salt Lake City, Utah, Community First National Bank, Spooner, Wisconsin, Community First National Bank, Cheyenne, Wyoming and Community First National Bank, Fargo, North Dakota (incorporated by reference to Exhibit 10.16 to the 2000 Form 10-K).
10.17	Credit Agreement dated as of December 22, 2000 between the Company and Harris (incorporated by reference to Exhibit 10.17 to the 2000 Form 10-K).
10.18	Subordinated Term Note dated December 22, 2000 in the principal amount of $25,000,000 issued to Harris (incorporated by reference to Exhibit 10.18 to the 2000 Form 10-K).
10.19	Plan of Reorganization and Merger Agreement dated as of December 31, 2000, by and between Community First State Bank, a South Dakota banking corporation and Community First National Bank, a national banking association (incorporated by reference to Exhibit 10.19 to the 2000 Form 10-K).
10.20	Agreement of Limited Liability Company of Community First Mortgage, LLC dated June 15, 2001 between Wells Fargo Ventures, LLC and Community First Home Mortgage, Inc. (pursuant to Rule 24b-2, certain information has been deleted from this Exhibit and filed separately with the Commission.)
10.21	Separation Agreement dated as of March 12, 2001, by and between the Company and David A. Lee.

20

13.1	Annual Report to Shareholders.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Ernst & Young LLP.

*

Executive compensation plans and arrangements.

21

SIGNATURES

        Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COMMUNITY FIRST BANKSHARES, INC. ("Registrant")
Dated: March 14, 2002	By:	/s/  MARK A. ANDERSON Mark A. Anderson President and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant, in the capacities and on the dates indicated.

Signature and Title	Date
Donald R. Mengedoth Chairman of the Board of Directors	March    , 2002
/s/  MARK A. ANDERSON Mark A. Anderson President and Chief Executive Officer (Principal Executive Officer)	March 14, 2002
/s/  CRAIG A. WEISS Craig A. Weiss Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 14, 2002
/s/  PATRICK DELANEY Patrick Delaney, Director	March 14, 2002
/s/  JOHN H. FLITTIE John H. Flittie, Director	March 14, 2002
/s/  DARRELL G. KNUDSON Darrell G. Knudson, Director	March 14, 2002

22

/s/  DENNIS M. MATHISEN Dennis M. Mathisen, Director	March        , 2002
/s/  MARILYN R. SEYMANN Marilyn R. Seymann, Director	March 18, 2002
/s/  HARVEY L. WOLLMAN Harvey L. Wollman, Director	March 14, 2002
/s/  ANNETTE QUINTANA Annette Quintana, Director	March 18, 2002
/s/  THOMAS GALLAGHER Thomas Gallagher, Director	March 18, 2002
/s/  RAHN K. PORTER Rahn K. Porter, Director	March 14, 2002

23

EX-10.1

COMMUNITY FIRST BANKSHARES, INC.

ANNUAL INCENTIVE PLAN

2001

2001 AIP

GROUP		TARGET INCENTIVE	MAXIMUM
I	CEO	50%	100%
II	Vice Chairs	40%	80%
III	Region Presidents Chief Financial Officer Chief Investment Officer CIO/Pres. Of CFSC	30%	60%
IV	All other SVPs	25%	50%
V	VPs	15%	30%

SPLIT 50% INTERNAL & 50% EXTERNAL

	TARGET	INTERNAL	EXTERNAL
I	50%	25%	25%
II	40%	20%	20%
III	30%	15%	15%
IV	25%	12.5%	12.5%
V	15%	7.5%	7.5%

1

INTERNAL AWARD CALCULATION

Based on performance versus plan EPS as target.
No award if less than 91% of plan.
Double internal amount @ 110% of plan (see schedule).
Round up at .5 (plan) and down at <.5.

		Fully		% of Base Salary
		Diluted
% of Plan		EPS		I		II		III		IV		V
90.000	%	$	1.530	0.000	%	0.000	%	0.000	%	0.000	%	0.000	%
91.000	%	$	1.547	2.500	%	2.000	%	1.500	%	1.250	%	0.750	%
92.000	%	$	1.564	5.000	%	4.000	%	3.000	%	2.500	%	1.500	%
93.000	%	$	1.581	7.500	%	6.000	%	4.500	%	3.750	%	2.250	%
94.000	%	$	1.598	10.000	%	8.000	%	6.000	%	5.000	%	3.000	%
95.000	%	$	1.615	12.500	%	10.000	%	7.500	%	6.250	%	3.750	%
96.000	%	$	1.632	15.000	%	12.000	%	9.000	%	7.500	%	4.500	%
97.000	%	$	1.649	17.500	%	14.000	%	10.500	%	8.750	%	5.250	%
98.000	%	$	1.666	20.000	%	16.000	%	12.000	%	10.000	%	6.000	%
99.000	%	$	1.683	22.500	%	18.000	%	13.500	%	11.250	%	6.750	%
100.000	%	$	1.700	25.000	%	20.000	%	15.000	%	12.500	%	7.500	%
101.000	%	$	1.717	27.500	%	22.000	%	16.500	%	13.333	%	8.000	%
102.000	%	$	1.734	30.000	%	24.000	%	18.000	%	14.167	%	8.500	%
103.000	%	$	1.751	32.500	%	26.000	%	19.500	%	15.000	%	9.000	%
104.000	%	$	1.768	35.000	%	28.000	%	21.000	%	15.833	%	9.500	%
105.000	%	$	1.785	37.500	%	30.000	%	22.500	%	16.667	%	10.000	%
106.000	%	$	1.802	40.000	%	32.000	%	24.000	%	17.500	%	10.500	%
107.000	%	$	1.819	42.500	%	34.000	%	25.500	%	18.333	%	11.000	%
108.000	%	$	1.836	45.000	%	36.000	%	27.000	%	19.167	%	11.500	%
109.000	%	$	1.853	47.500	%	38.000	%	28.500	%	20.000	%	12.000	%
110.000	%	$	1.870	50.000	%	40.000	%	30.000	%	25.000	%	12.500	%

2

EXTERNAL AWARD CALCULATION

Compares CFB performance in 2001 on Return on Equity (ROE) and Total Shareholder Return (TSR) to SNL peer group (30 banks).

Percentile	85th or higher	100%	150%	200%
ROE	50th	50%	100%	150%
	49th or lower	0%	50%	100%
		49th or lower	50th*	85th or higher
			Percentile TSR

*Award will be prorated from 50^th% to 85^th%.

External award calculation:

			% of Salary at Performance Level
	Target		50%		100%		150%		200%
I	25	%	12.5	%	25	%	37.5	%	50	%
II	20	%	10	%	20	%	30	%	40	%
III	15	%	7.5	%	15	%	22.5	%	30	%
IV	12.5	%	6.25	%	12.5	%	18.76	%	25	%
V	7.5	%	3.75	%	7.5	%	11.25	%	15	%

The Selected Peer Group reflects our selection of the 29 other institutions most like the subject institution to be used as a peer group in comparing relative compensation levels.  The automated process searches in sequence for:

1.Banks in the same state within 40% of total assets.

2.Banks in the same region within 40% of total assets.

3.Banks in the same state within 80% of total assets.

4.Banks in the same region within 80% of total assets.

5.Any bank within 40% of total assets.

6.Any bank within 80% of total assets.

7.Banks closest in asset size.

If at any point in the sequence 29 banks are found, the sequence stops and those banks form the Selected Peer Group.  If step six is reached and there are still not 29 other banks, the banks closest in asset size any where in the country are chosen to round out the peer group.

3

Community First Bankshares, Inc.

Balanced Scorecard/Regional Incentives

Target Levels for “Sales Management Group”

Corporate AIP	Internal		External		Total
Mark A. Anderson	25	%	25	%	50	%
Ronald K. Strand	20	%	20	%	40	%
David A. Lee	20	%	20	%	40	%
Six Region Presidents	15	%	15	%	30	%

Corporate AIP with Balanced Scorecard

	Internal		Corporate AIP External		Total		Balanced Scorecard
Mark A. Anderson	18.75	%	18.75	%	37.5% (1	)	25.0% (2	)
Ronald K. Strand	15.00	%	15.00	%	30.0% (1	)	25.0% (2	)
David A. Lee	10.00	%	10.00	%	20.0% (3	)	50.0% (4	)
Six Region Presidents	7.50	%	7.50	%	15.0% (3	)	37.5% (4	)

(1)The target level would be 40% for Ron Strand and 50% for Mark Anderson, weighted 75% to yield 30% for Ron and 37.5% for Mark.

(2)The target level would be 100% for Mark and Ron, weighted 25% to yield 25%.  This amount is multiplied by the Balanced performance points to derive the Base Balanced incentive.

(3)The target level would be 40% (30% for Regional Presidents) weighted 50% to yield 20% (15% for Regional Presidents).

(4)The target level would be 100% (75% for Regional Presidents) weighted 50% to yield 50% (37.5% for Regional Presidents).  This amount is multiplied by the Balanced performance points to derive the Base Balanced Incentive.

NOTE:  For Mark Anderson, Ron Strand, and Dave Lee, the Balanced Scorecard will be based on the Combined Results for All Financial Centers.  For each Region Presidents, the Balanced Scorecard component will be based on his specific region and only that region.

4

2001 Annual Incentive Plan —

Bank Presidents and Region Presidents

As we approach new challenges and opportunities in offering our customers quality financial services, it is important that our compensation package rewards outstanding performance in meeting our profitability, sales, financial, and credit quality goals.

The Annual Incentive Plan has been redesigned to motivate superior performance and create additional shareholder value.  The goals stated for each manager are intended to emphasize behaviors over which they have control and will lead to increased profitability in the future.

There are three sets of factors included in the Annual Incentive Plan:  sales, financial, and credit quality.  Traditional measures, such as ROA, Loan Growth, Deposit Growth, etc., are not measured directly but will be reflected in these three sets of factors.  Sales measures are weighted heavily because we believe that sales activities will drive future financial performance in each bank.

Sales Measures, weighted at 40%, include three key indicators:

•Number of sales per FTE per week — see attached list of qualifying products

•New Client cross-sell ratio

•Campaign performance

Financial Measures, weighted at 40%, include four key indicators:

•Net Controllable Revenue per FTE

•Controllable Non-Interest Income per FTE

•Loan Fees as percent of Profit Plan

•Investment Product Sales as percent of Profit Plan

The Credit Quality measure, weighted at 20%, is the Credit Store that has been used in prior years and ranges from 1 to 5.

In addition to these measures, the bank’s performance against plan is an important indicator of success and is included in the Annual Incentive Plan.  The Profit Plan is based on historical performance but is designed to drive higher level performance.  If the actual performance is less than 90% of plan, no incentive will be awarded.  Where actual performance exceeds planned performance, a bonus incentive will be paid to reward bank presidents for exceeding their profit plan.  In addition, bank presidents who establish aggressive plans, with higher levels of performance over the previous year, and exceed those plans, will receive an additional incentive.

The attached Balanced Scorecard illustrates how performance is measured against the goals and scores are assigned.  There will be no maximum or upper limit in the incentive plan.  As performance exceeds goals, the incentive paid will increase accordingly.

Attached is a Sample AIP Calculation to illustrate how the new plan works:

A.The Sales, Financial, and Credit scores are assigned based on actual performance and multiplied by the weight assigned to each set of measurements.  These weighted scores are added to obtain the Balanced Scorecard Points.

B.The Bank’s actual Performance vs. Profit Plan is then computed.  If it is less than 90%, no AIP will be awarded.

C.The Balanced Performance Points number is computed by multiplying the Total Performance Points in Part A by the Bank’s Performance vs. Profit Plan from Part B.  This provides for a higher incentive when the bank’s performance exceeds its plan.

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D.The Target Incentive for each bank is based on a grid showing the Bank’s Net Controllable Revenue per FTE vs. its Annualized Pretax Adjusted Earnings.  This target incentive takes into account bank earnings and efficiency, rewarding banks that achieve higher earnings and greater efficiency.

E.The Base Balanced Incentive is computed by multiplying the Target Incentive (D) by the Balanced Performance index (C).  This is the percent of base salary to be paid as the AIP.

F.A Bonus Incentive is added to the AIP if the bank’s Balanced Scorecard Points (A) are greater than 50 and the bank’s performance vs. plan exceeds 100%.  The bonus incentive is based on a schedule reflecting the percentage increase in the 2001 Plan over the 2000 actual performance.  This is intended as an additional reward for Bank Presidents who set aggressive plans and exceed them.

G.The Total Balanced Incentive Percentage equals the Base Balanced Incentive plus the Bonus Incentive, if applicable.  This is the total percentage of the Bank President’s salary to be paid out as the AIP.

6

CFB Balanced Scorecard

Performance Measurement Schedule

Sales Measurements (Weight 40%):

1.  Number of Sales/FTE/Week [40%]	Score	3.  Campaign Performance—% of goal [30%]		Score
<3.00	0.0	<90.0	%	0.0
3.00 — 3.64	25.0	90.0 — 99.9	%	25.0
3.65 — 4.34	50.0	100.0 — 109.9	%	50.0
4.35 — 4.99	75.0	110.0 — 119.9	%	75.0
>= 5.00	100.0	>=120.0	%	100.0
2.  New Customer Cross-Sell Ratio [30%]	Score
<1.50	0.0
1.50 — 1.84	25.0
1.85 — 2.19	50.0
2.20 — 2.49	75.0
>= 2.50	100.0

Financial Measurement: (Weight 40%):

4.  Net Controllable Revenue/FTE [40%]	Score	6.  Loan Fees as % Plan [15%]		Score
< $200,000	0.0	<90.0	%	0.0
$200,000 — $221,999	25.0	90.0 — 99.9	%	25.0
$222,000 — $243,999	50.0	100.0 — 109.9	%	50.0
$244,000 — $264,999	75.0	110.0 — 119.9	%	75.0
>= $265,000	100.0	>=120.0	%	100.0
5.  Controllable NII/FTE [20%]	Score	7.  Investment Sales as % Plan [25%]		Score
<$45,000	0.0	<90.0	%	0.0
$45,000 — $45,999	25.0	90.0 — 99.9	%	25.0
$50,000 — $54,999	50.0	100.0 — 109.9	%	50.0
$55,000 — $59,999	75.0	110.0 — 119.9	%	75.0
>$60,000	100.0	>=120.0	%	100.0

Credit Measurements (Weight 20%):

8.  Credit Goal Scoring [100%]	Score
>3.50	0.0
3.50 — 3.01	25.0
3.00 — 2.51	50.0
2.50 — 2.01	75.0
<= 2.00	100.0

7

EX-10.20

EXHIBIT 10.20

[Pursuant to Rule 24b-2, certain information has been deleted and filed separately with the Commission.]

AGREEMENT OF LIMITED LIABILITY COMPANY OF

COMMUNITY FIRST MORTGAGE, LLC

This Agreement of Limited Liability Company (the “Agreement”), is entered into June 15, 2001 by and between Wells Fargo Ventures, LLC, with its principal place of business at 1 Home Campus, Des Moines, Iowa 50328-0001, (“Wells Fargo Member”) and Community First Home Mortgage, Inc. with its principal place of business at 520 Main, Fargo, ND 58124-0001, (“Community Member”) who do hereby form the limited liability company agreement of Community First Mortgage, LLC (the “Company”), pursuant to the Delaware Limited Liability Company Act, upon the following terms and conditions:

ARTICLE I

Definitions and Glossary of Terms

Section 1.1  Definitions. The following terms used in the Agreement shall have (unless otherwise expressly provided herein or unless the context otherwise requires) the following respective meanings:

“Accountants” means KPMG Peat Marwick, or such other certified public accountants as the Operating Committee may select.

“Act” shall mean the Delaware Limited Liability Company Act, 6 Del, C. §18-101 through §18-1107, as amended from time to time.

“Affiliate” means any person or entity that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person or entity specified.

“Agreement” shall mean this Agreement of Limited Liability Company of Community First Mortgage, LLC.

“Budget” means the budget established annually pursuant to Section 8.3.

“Capital Account” means, with respect to any Unit Holder, the account maintained for such Unit Holder in accordance with the provisions of Section 4.1 hereof.

“Capital Contribution” shall mean any contribution to the capital of the Company in cash or property by a Member whenever made.

“Certificate” means the Certificate of Formation of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company with the office of the Secretary of State of the State of Delaware pursuant to the Delaware Act.

“Closing Date” shall mean the date of execution of this Agreement.

“Code” shall mean the Internal Revenue Code of 1986, as amended.  Any reference to any specific provision of the Code or any regulations thereunder shall be deemed to refer also to any successor provisions thereto.

“Company” shall mean Community First Mortgage, LLC, the Delaware limited liability company governed by this Agreement.

“Company Distributions” shall mean cash or property which is distributed pursuant to Section 5.4 or Section 11.7 of this Agreement.

“Company Expenses” shall mean all expenditures and costs paid out by the Company in the course of the conduct of its business.

“Company Revenues” shall mean all receipts from operations and use of assets received by the Company and all other income, receipts, or gain received by the Company in the course of the conduct of its business.

“Fiscal Year” means (i) the period commencing upon the formation of the Company and ending on December 31, of the year of formation, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in Clause (ii) of this sentence for which the Company is required to allocate Profits, Losses and other items of company income, gain, loss or deduction pursuant to Article V hereof.

“Intercompany Net Cash Balance” means the net of the Company’s funds on deposit with Wells Fargo and any amounts owed by the Company to Wells Fargo excluding advances by Wells Fargo pursuant to Section 8.8.

“Interest” shall mean the personal property ownership right of a Member in the Company and shall entitle such Member to an allocation of Company Revenues and Company Expenses pursuant to Article V of the Agreement and to a share of the Company Distributions pursuant to Article V of the Agreement.  Each Member’s Interest is evidenced by and composed of the Units owned by that Member, and such allocation and share of Company Revenues, Company Expenses, and Company Distributions shall be determined based upon the number of Units owned by such Member.

“Loan Policies” shall mean those policies, standards and procedures of Wells Fargo, as amended from time to time, relating to residential mortgage loan origination by Retail Offices including the All-Office Memos, Loan Production Memos, Product Catalogs, Conventional Loan Standards Manual, VA Handbook, FHA Underwriting Manual, Compliance Manual, Disclosure Manual, Code of Ethics, Ncyclopedia and other communications with their terminology adjusted to apply to the Company rather than to Retail Offices.

“Losses” shall mean the taxable loss of the Company as determined for federal income tax purposes under Code section 703(a) including items separately stated pursuant to section 703(a)(1).

“Managing Officer” means the individual responsible for the day to day operation of the Company.

“Member” shall mean a person who has been admitted to the Company as a member as provided in the Agreement and section 18-301 of the Act.

“Net Cash Available” means cash on deposit or cash equivalents which includes the Intercompany Net Cash Balance less amounts required to maintain minimum regulatory net worth requirements (in excess of other Company assets if otherwise insufficient, or if cash is required) and less such other amounts the Operating Committee may determine are required to be set aside in reserve to fund future operating and capital expenditures.

2

“Wells Fargo” shall mean Wells Fargo Home Mortgage, Inc., a California corporation.

“Operating Committee” means the Operating Committee of the Company, constituted as provided in Section 6.1.

“Person” includes any individual, association, partnership (general or limited), joint venture, trust, estate, limited liability company, corporation or partnership, or other legal entity or organization.

“Profits” shall mean the taxable income of the Company as determined for federal income tax purposes under Code section 703(a) including items separately stated pursuant to section 703(a)(1).

“Retail Offices” means Wells Fargo’s wholly-owned loan production offices in operation from time to time.

“Units” with respect to any Member, shall mean the ownership interests of the particular Member which quantify the share of that particular Member in the right, privilege, or interest being addressed.

“Unit Holder” means any person who holds one (1) or more Units, regardless of whether such Person is a Member and regardless of whether such Units were initially acquired by such Person from the Company or by assignment from another Unit Holder.

ARTICLE II

Formation, Name and Registered Agent

Section 2.1  Formation.  Wells Fargo Member and Community Member, by execution of this Agreement and the filing of the Certificate with the Delaware Secretary of State, hereby enter into and form the Company as a limited liability company under and pursuant to the Delaware Act.  The name and mailing address of each Member or Unit Holder shall be listed on the Schedule of Capital Contributions attached hereto.  The Company shall be required to update the names and addresses on the Schedule of Capital Contributions from time to time as necessary to accurately reflect the information therein.  Any amendment or revision to the names and addresses on the Schedule of Capital Contributions made in accordance with this Agreement shall not be deemed an amendment to this Agreement.  Any reference in this Agreement to the Schedule of Capital Contributions shall be deemed to be a reference to the Schedule of Capital Contributions as amended and in effect from time to time.  The Members agree that the rights, powers, duties and liabilities of the Members and Managing Officer shall be as provided in the Delaware Act, except as otherwise provided in this Agreement.

Section 2.2  Name and Registered Agent.  The name of the Company is Community First Mortgage, LLC.  Its registered agent is Corporation Service Company or such other agent as the Members may hereafter determine.

ARTICLE III

Business Purpose

Section 3.1  Character of the Business.  The purpose of the Company shall be to carry on the business of residential mortgage lending.

3

Section 3.2  Other Qualifications.  The Members agree that the Company shall file or record such documents and take such other actions under the laws of any jurisdiction as are necessary or desirable to permit the Company to do business in any such jurisdiction as is selected by the Company and to promote the limitation of liability for the Members in any such jurisdiction.

Section 3.3  Prohibited Activities.  The Company shall not participate in any activity that violates the Real Estate Settlement Procedures Act of 1974 or any other law or regulation.  The Company shall not engage in any prohibited activities for a national bank or its subsidiaries and shall obtain any required regulatory approvals for a national bank subsidiary before commencing any activity.

Section 3.4  Limitations on Other Activities.

(a)  Except as provided in this section, [Confidential Treatment Requested]

(b)  While it is a Member, subject to the exceptions stated below Community Member shall not, nor shall it suffer or permit any of its Affiliates, other than the Company, to engage in the residential mortgage lending business, directly or indirectly, either by themselves or through a joint venture or any other similar arrangement with any other party that would permit Community Member or any of its Affiliates to engage or participate in such residential mortgage lending business.[Confidential Treatment Requested]

(c)  [Confidential Treatment Requested]

(d)  Neither Member shall be accountable to Company or to the other Member for any activity or business permitted under this Article 3 except for the business of Company.  Neither Member shall have any right by virtue of this Agreement or by their status as a Member to be apprised of the independent business or activities of the other Member, nor to be allowed to participate therein or to the income or profits derived therefrom.  Neither Member shall be required to devote full time to Company, but only so much time as may be necessary to accomplish the purposes of Company and the duties specifically set forth in any agreements related to Company.

Section 3.5  Transactions Involving the Members.

(a)  Community Member shall cooperate with and promote Company and its loan products to customers of Community Member or its Affiliates consistent with all applicable legal requirements. [Confidential Treatment Requested]

(b)  Except as may be expressly provided for in this Agreement or in any agreements executed between Company and any Member or as approved by the Operating Committee, no payment will be made by Company to any Member for the services of such Member or the employees of such Member.

(c)  [Confidential Treatment Requested]

ARTICLE IV

Capital Accounts

Section 4.1  Capital Accounts.  A separate capital account shall be maintained for each Member of the Company.  Each Member’s Capital Contributions and its share of all Company Revenues shall be credited to its capital account and each Member’s share of all costs, expenses, losses and Distributions (including return of capital) of the Company shall be debited to its account, all as allocated under this Agreement. Each Member’s initial Capital Contribution,

4

as reflected on Exhibit A, is due and payable upon execution of this Agreement.  Any subsequent Capital Contribution pursuant to Section 8.8 shall be due and payable within 15 days of receipt of notice of the need for the additional Capital Contribution.

Section 4.2  Units.  A Unit Holder’s limited liability company interest in the Company shall be represented by the “Unit” or “Units” held by such Unit Holder.  Each Unit Holder’s respective Units shall be set forth on the Schedule of Capital Contributions attached hereto.  Each Unit Holder hereby agrees that its limited liability company interest in the Company and its Units shall for all purposes be personal property.  A Unit Holder has no interest in specific Company property.

Section 4.3  Status of Capital Contributions.

(a)  Except as otherwise provided in this Agreement, the amount of a Unit Holder’s Capital Contributions may be returned to it, in whole or in part, at any time, but only with the consent of all Members.  Any such returns of Capital Contributions shall be made to all Unit Holders in proportion to the number of Units then held by each Unit Holder.  Notwithstanding the foregoing, no return of a Unit Holder’s Capital Contributions shall be made hereunder if such distribution would violate applicable state law.  Under circumstances requiring a return of any Capital Contribution, no Unit Holder shall have the right to demand or receive property other than cash, except as may be specifically provided in this Agreement.

(b)  Except as provided in Section 8.8 and by applicable state law, the Members shall be liable only to make their capital contributions pursuant to Section 4.1 hereof, and no Member or Assignee shall be required to lend any funds to the Company or, after a Member’s Capital Contributions have been fully paid pursuant to Section 4.1 hereof, to make any additional capital contributions to the Company.  No Unit Holder shall have any personal liability for the repayment of any Capital Contribution of any other Member or Assignee.

ARTICLE V

Allocation of Revenues, Expenses, Profits and Losses

Section 5.1  Allocation of Revenues and Expenses.  All Company Revenues and Company Expenses shall be allocated among the Members in proportion to their respective Units.

Section 5.2  Allocation of Profits and Losses.  All Profits and Losses shall be allocated among the Members in proportion to their respective Units.

Section 5.3  Allocation of Items for Federal Income Tax Purposes.  To the extent permitted by law, all items of Company taxable income, gain, loss, credit, and deduction recognized or allowable for Federal income tax purposes shall be allocated and credited or charged to the Members in the same manner as the revenues, income, receipts, costs, or expenses giving rise to such items of taxable income, gain, loss, credit, or deduction are allocated and credited or charged.  Any Member allocated and charged a particular cost or expense shall be entitled to such deductions or credits as are attributable to such cost or expense in computing such Member’s taxable income or tax liability to the exclusion of any other Member.  Upon the sale or other transfer of any asset of the Company, any recapture of depreciation deductions or other deductions previously taken shall be allocated to the Member to whom such deductions were originally allocated, and any recapture of investment tax credit shall be allocated to the Member to whom such credit was originally allocated.

5

Section 5.4.  Distribution of Cash.  All Company Distributions shall be made among the Members in proportion to their respective Units.  Cash of the Company which is not required, in the judgment of the Members, to meet obligations of the Company nor reasonably necessary for future Company operations shall be distributed not less frequently than quarter-annually to the Members in proportion to their respective Units, not later than ninety (90) days after the end of each quarter-annual period with respect to which such distribution is being made.

Section 5.5  [Confidential Treatment Requested]

ARTICLE VI

Management of the Company

Section 6.1  General.  The overall management and control of the business and affairs of the Company shall be vested in the Operating Committee consisting of four individuals, with each Member appointing individuals to the Operating Committee in proportion to their respective Units.  The Company may have a Managing Officer appointed by the Operating Committee.  The Managing Officer of the Company shall not be appointed to the Operating Committee.  The number of individuals on the Operating Committee may be reset by the Operating Committee from time to time, provided that each Member shall appoint individuals to the Operating Committee in proportion to its respective Units.  Each Member may remove and replace the individuals appointed by it at any time and for any reason.  Any vacancy on the Operating Committee shall be filled by the Member that had appointed the individual to the position that has become vacant.

Section 6.2  Operating Committee Procedures.  Except where herein expressly provided to the contrary, all decisions with respect to the management and control of the Company shall be made and agreed to by the Operating Committee and shall be binding on the Company.  [Confidential Treatment Requested]  Action may be taken by the Operating Committee by telephone conference, by meeting in person, by written action in lieu of a meeting or in such other manner approved by all Members.

Section 6.3  Loan Policies.  The Company expressly adopts the Loan Policies effective on the Closing Date as provided to the Company by Wells Fargo.  Any updates to the Loan Policies issued by Wells Fargo shall automatically be adopted by the Company unless the Operating Committee expressly decides not to adopt a particular policy.  Any employee who violates the Loan Policies shall be subject to termination unless the Operating Committee expressly decides not to terminate the employee.

Section 6.4  Major Decisions.  No act shall be taken or funds expended or obligation incurred by the Company, any individual on the Operating Committee, or the Managing Officer with respect to a matter within the scope of any of the major decisions (“Major Decisions”) affecting the Company, as defined below, unless such Major Decision has been approved by the Operating Committee.  A decision shall be a Major Decision if it satisfies one of the following:

(a)  Decisions relating to the selection, evaluation, retention and compensation of the Managing Officer or any other executive officers of the Company as may be appointed by the Operating Committee;

(b)  Decisions regarding new business ventures and material deviations by the Company from the Loan Policies in effect from time to time;

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(c)  Decisions relating to the hiring policy, compensation, terms of employment or termination of non-clerical or non-support staff employees of the Company;

(d)  Decisions relating to matters involving transactions, expenditures, commitments or other contractual obligations (or groups of similar transactions or such other events) in an amount in excess of [Confidential Treatment Requested] except transactions to originate, fund and sell residential real estate mortgage loans that are in the day-to-day course of the Company’s business;

(e)  Decisions relating to obtaining any financing for the Company pursuant to Section 8.8;

(f)  Decisions relating to the terms, conditions, limits and deductibles of any risk financing program in addition to the program provided by Wells Fargo or its Affiliate pursuant to the Service Agreement referenced under Section 6.9;

(g)  Decisions related to establishing or maintaining cash, cash equivalents or reserves for the Company;

(h)  Decisions relating to amendment or termination of the Service Agreement referenced under Section 6.9 and obtaining a substitute service provider upon termination of such Service Agreements; and

(i)  Any other decision or action referred to the Operating Committee by an individual on the Operating Committee which by any provision of this Agreement or by law is required to be approved by the Operating Committee.

Section 6.5  Managing Officer. The Managing Officer shall be responsible for the implementation of the decisions of the Operating Committee and for conducting the ordinary and usual day-to-day business and affairs of the Company, as limited by this Agreement.  The Managing Officer of the Company, shall in good faith use his or her best efforts to implement or cause to be implemented all Major Decisions approved by the Operating Committee and to conduct or cause to be conducted the ordinary and usual business of the Company in accordance with and subject to the direction of the Operating Committee and the Loan Policies and in accordance with the business plan and current Budget approved by the Members.  The Managing Officer may, except as otherwise determined by the Operating Committee, delegate in writing to other officers, employees or agents of the Company matters for which the Managing Officer may be responsible in accordance with this section, but the Managing Officer shall continue to be responsible for such matters. The initial and successor managing officers are listed on the Schedule of Initial and Successor Managing Officers.

Section 6.6  FHA Matters.  Section 6.6 shall be limited in application solely to any and all matters involving the Federal Housing Administration (“FHA”) of the United States Department of Housing and Urban Development and FHA-insured loans.  In the event of any conflict between the provisions set forth in this Section and any other provision of this Agreement, the provisions set forth in this Section will take precedence over all other provisions of this Agreement with respect to all FHA matters.  The Managing Officer is designated to deal exclusively with FHA in all aspects of the FHA mortgage insurance program, including, without limitation, the making of applications for mortgage insurance claims and collecting the benefits of mortgage insurance for the Company.  The Managing Officer is hereby appointed as the managing agent (the “Managing Agent”) of the Company with respect to FHA matters.  The Operating Committee may choose a person other than the Managing Officer as Managing

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Agent on the condition that there will at any time be one and only one Managing Agent with which FHA deals exclusively.  Any such substitute person shall have the rights and responsibilities of the Managing Officer as Managing Agent under this Section.  If (a) the Managing Agent resigns or (b) another Managing Agent is appointed, FHA will be immediately advised of such event and, if applicable, the name of the new Managing Agent.  The Company shall inform FHA of any amendment to this Agreement it intends to make that could affect the Company’s dealings with FHA and FHA-insured mortgages.  Upon dissolution of the Company, any FHA-insured mortgages owned or serviced by the Company may only be transferred to another FHA-approved mortgage lender.

Section 6.7  Office Space.  The Members shall lease to the Company in each of their offices as determined by the Operating Committee, space from which the Company will conduct the business of the Company.  Such space shall be separately identified and segregated in a manner required by all applicable laws and regulations.  Rental rates charged to the Company by a Member shall be set at rates that reflect actual market rates for comparable space in the area in which each office used by the Company is located.  The foregoing lease arrangements, which shall terminate automatically upon the dissolution of the Company subject to an additional period as necessary to wind down the business of the Company, shall be set forth in separate written lease agreements to be agreed upon and executed between the lessor Member and the Company.

Section 6.8  Computer Network.  If the Company will process its own loans or otherwise needs access to a loan origination system, Wells Fargo, or one of its Affiliates, shall lease to the Company (and the Company shall be required to utilize), the computer software and computer network used by Retail Offices to conduct a residential mortgage business.  The terms and conditions of these lease arrangements, which shall terminate automatically upon any dissolution of the Company subject to an additional period as necessary to wind down the business of the Company, shall be set forth in a separate written lease agreement to be agreed upon and executed by the Wells Fargo or its Affiliate and the Company (attached as Exhibit 1).  Terms of the lease agreement shall be set at rates that reflect actual rates charged Retail Offices for Wells Fargo’s internal reporting purposes for similar software and network access as adjusted from time to time.

Section 6.9  Service Agreement.  Wells Fargo, or its Affiliate, shall provide to the Company, certain services required by the Company in conducting a residential mortgage lending business, as set forth in the Service Agreement (attached as Exhibit 2) to be executed between Wells Fargo and the Company.

Section 6.10  Loan Sales.  The Company shall provide residential mortgage loan financing to its customers.  Wells Fargo, or one of its Affiliates, shall purchase mortgage loans if offered by the Company in accordance with the terms of a separate written Loan Purchase Agreement (attached as Exhibit 3) to be executed by Wells Fargo or one of its Affiliates, and the Company.  The Company shall sell at least [Confidential Treatment Requested] of its annual loan production to investors other than Wells Fargo.

Section 6.11  Credit Agreement.  The Company shall fund its loans through a warehouse line of credit provided by Wells Fargo (attached as Exhibit 4) or such other source as determined by the Operating Committee.

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ARTICLE VII

Other Rights, Liabilities and Obligations of Members

Section 7.1  Liability of Members.  No Member shall be personally liable for the expenses, liabilities, debts, or obligations of the Company except as specifically set forth in this Agreement or as provided in the Act.

Section 7.2  Other Provisions Applicable to Members.  Except as otherwise specifically provided in this Agreement, no Member shall have the right to withdraw or retire from, or reduce its contribution to the capital of, the Company.  No Member shall have the right to demand or receive property other than cash in return for its Capital Contribution.  No Member shall have priority over any other Member either as to the return of its Capital Contribution or as to profits or distributions except as specifically set forth in this Agreement.

ARTICLE VIII

Accounting and Fiscal Matters

Section 8.1  Maintenance of and Access to Records.  Wells Fargo or its Affiliate on behalf of the Company shall keep complete and accurate books of account and records relative to the Company’s business based on information submitted to it by the Company.  The accrual method of accounting shall be used by the Company for financial and income tax purposes.  The Company’s books and records shall at all times be maintained at the principal business office of Wells Fargo, or the Accountants, or such other place agreed upon by the Members, and shall be available for inspection by each of the Members or their duly authorized representatives during reasonable business hours.  The fiscal year of the Company shall end on December 31 of each year or such other date as determined by the Operating Committee and allowed by the Code. Wells Fargo shall cause to be prepared financial statements in accordance with the Service Agreement attached as Exhibit 2.

Section 8.2  Bank Accounts.  Wells Fargo shall deposit all of the funds of the Company into one or more bank accounts for the Company.  Unless otherwise required by regulatory authority, each such account shall be established with an Affiliate of Wells Fargo that holds deposits insured by the Federal Deposit Insurance Corporation.  Wells Fargo shall separately account for all funds of the Company.  The Company may withdraw its funds only to pay the Company’s debts, pay expenses or to be distributed to the Members or as directed by the Operating Committee pursuant to this Agreement.

Section 8.3  Budget.  The Company shall prepare a preliminary annual Budget for the first partial fiscal year of the Company.  At least thirty (30) days prior to the end of each fiscal year of the Company, the Managing Officer will develop and deliver to the Operating Committee for its review and approval a Budget for the Company for the next fiscal year.  As set forth in Section 6.4(d), approval of the Budget shall be a Major Decision.

Section 8.4  Company Tax Returns.  Wells Fargo, its Affiliate, or such other person agreed upon by the Members, shall, for each fiscal year, cause to be prepared and filed on behalf of the Company such federal, state and city tax returns as may be required by law, and in connection therewith, shall make any elections deemed advisable; provided, however, the Company shall be given prior written notice thereof.  Copies of such tax returns shall be delivered to each Member within 10 days after each such filing.  The Company’s federal and state income tax returns shall be approved by the Operating Committee in advance of filing.

Section 8.5  Tax Audits.  Wells Fargo or its Affiliate is hereby designated to manage administrative tax proceedings conducted by the Internal Revenue Service or state tax authorities with respect to the Company.  The taking of any action or the failure to take any action in connection with any such proceeding, except to the extent required by law, is a matter

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for Wells Fargo, subject to the direction of the Operating Committee.  Wells Fargo shall give prompt written notice to the Members of any such administrative proceeding.  Any Member has the right to participate in such administrative proceedings relating to the determination of tax items at the Company level.  Expenses of such administrative proceedings undertaken by Wells Fargo will be paid for out of the assets of the Company.  If any Member elects to participate in such proceedings, the Member will be responsible for its expenses incurred in connection with such participation.  Further, the cost of any adjustments to a Member and the cost of any resulting audits or adjustments of a Member’s tax return, will be borne solely by the affected Member.

Section 8.6  Internal Audit.  The ongoing activities of the Company shall be subject to regulatory audit by Wells Fargo Audit Services, Inc. at no direct cost to the Company.  Wells Fargo Audit Services, Inc. shall have no liability with respect to the Company.  A copy of any regulatory audit report prepared by Wells Fargo Audit Services, Inc. related to the Company shall be provided to the Operating Committee.

Section 8.7  The Accountants.  Any services provided by the Accountants under this Agreement shall be an expense of the Company.  The Accountants shall prepare annual audited financial statements as set forth in Exhibit 2.

Section 8.8  [Confidential Treatment Requested]

ARTICLE IX

Limitations on Dispositions of Members’ Interests

Section 9.1  Basic Restrictions.  Except as otherwise provided in this Article IX, no Member may sell, assign, give, hypothecate, pledge, transfer, bequeath, or otherwise dispose of any or all of its Interest, in whole or in part, voluntarily, involuntarily, by operation of law, or otherwise, to any other person or entity.

Section 9.2  Representations and Warranties.  Each Member hereby represents and warrants to the Company and to the other Members that its acquisition of its Interest is made as principal for its account for investment purposes only and not with a view to the resale or distribution of such Interest.  Each Member agrees that it will not sell, assign, give, hypothecate, pledge, transfer, bequeath, or otherwise dispose of any or all of its Interest to any person or entity who or which does not similarly represent and warrant and agree as provided in this Section 9.2.

Section 9.3  Disposition of Interests.  The sale, assignment, gift, hypothecation, pledge, transfer, or other disposition (“Transfer”) of Interests by or in respect of a Member shall be subject to the following conditions and restrictions in addition to any others which are provided for in this Agreement:

(a)  No Member may Transfer any or all of its Interest without the consent of all of the Members.

(b)  No Member may Transfer any or all of its Interest if such Transfer would cause the termination of the Company for Federal income tax purposes.  Any purported Transfer which would cause the termination of the Company for Federal income tax purposes shall be void ab initio.  Counsel for the Company shall give to the Company its opinion, at the expense of the Member seeking to effect such Transfer, as to whether such Transfer would cause the termination of the Company for Federal income tax purposes.

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(c)  No Transfer of, or offer to Transfer, any Interest may be made unless the Company shall have received, at the expense of the Member seeking to effect such Transfer an opinion of counsel satisfactory to the Members that such proposed Transfer (i) may be effected without registration of the Interest under the Securities Act of 1933, as amended, and (ii) would not be in violation of any applicable state securities or “Blue Sky” law (including investment suitability standards).

Section 9.4  Admission of Transferee as Additional or Substitute Member.  Any person to whom any Interest or portion thereof is Transferred (“Transferee”) shall be entitled to be admitted as a Member hereunder and to have all of the rights herein conferred upon a Member only if

(a)  such transferee’s admission as a Member will not violate, nor cause the Company to violate, any applicable laws, rules, or regulations, including federal and state securities laws, and either such transferee shall have delivered an opinion of counsel satisfactory to the Members, or counsel for the Company shall have delivered an opinion, to such effect;

(b)  the consent of all of the Members shall have been given, which consent may be evidenced by the execution by all of the Members of a Certificate evidencing the admission of such transferee as a Member;

(c)  the transferee shall have accepted and agreed to be bound by the terms and provisions of this Agreement by executing a counterpart thereof and such other documents or instruments as the Members may require in order to effect the admission of such transferee as a Member;

(d)  such transferee qualifies and becomes a Member within the meaning of the Act by the procedures set forth in the Act;

(e)  such transferee shall have delivered to the Members a letter containing a representation and an agreement in the form set forth in Section 9.2 of this Agreement;

(f)  if the transferee is not an individual, the transferee shall have provided the Members with evidence satisfactory to counsel for the Company of its authority to become a Member under the terms and provisions of this Agreement;

(g)  such transferee pays to the Company a sum which is sufficient to cover all expenses (including legal fees) connected with the admission of the transferee as a Member pursuant to this Agreement and the Act, including without limitation the cost of any opinion of counsel referred to above.

Section 9.5  Execution of Documents, Etc.  Each Member hereby consents to the execution and recordation on its behalf by the Company of any amendment hereto required for the purpose of admitting as a Member the transferee of any or all of the Interest of a Member in the Company in this Article IX and to the execution and recordation on its behalf of any other instruments required in connection therewith, and the Company is hereby granted the right to admit any such transferee upon all of the terms set forth above.  In addition, each Member agrees to execute at the request of the Company any and all documents required to be executed by such Member to effect the admission as a Member of the transferee of any or all of the Interest of a Member in the Company pursuant to this Article IX.

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Section 9.6  Filings By Company.  The Company shall cooperate with any transferee seeking to become a Member by preparing the documentation required by this Article IX and making all official filings and publications.

Section 9.7  Pledges.  No Member shall mortgage, pledge, or otherwise encumber all or any part of such Member’s Interest in the Company at any time.

Section 9.8  No Withdrawal Rights Prior to Dissolution.  Prior to the dissolution of the Company, no Member may withdraw from the Company or receive any return of capital or other distribution of Company assets in respect of any withdrawal or attempted withdrawal.

ARTICLE X

Amendment of Agreement

Section 10.1  Amendment.  Any amendment or supplement to this Agreement shall only be effective if in writing and if the same shall be consented to by all of the Members.

Section 10.2  Procedure for Amendment.  Any Member may propose an amendment or supplement to this Agreement, and any such amendment or supplement may be proposed by mailing to all of the Members a written request for consent to such amendment or supplement, accompanied by the text of the proposed amendment or supplement, and a written statement of the reasons for such proposal.  A Member shall be deemed to have voted its Interest in consent to any amendment or supplement hereto if such Member does not respond in writing, sent to all Members, to such written request for consent within thirty days from the date of mailing of the same to such Member.

ARTICLE XI

Dissolution

Section 11.1  No Dissolution.  The Company shall not be dissolved by the admission of additional or substitute Members in accordance with the terms of this Agreement or by the death, retirement, resignation, expulsion, bankruptcy or dissolution of a Member or the occurrence of any other event under the Act that terminates the continued membership of a Member in the Company except as expressly provided in the Agreement.

Section 11.2  Term.  The Company shall be in effect for a term beginning on the date the Certificate of Formation of the Company is filed with the Delaware Secretary of State in accordance with the provisions of the Act and shall continue for a minimum of ten (10) years unless sooner dissolved and liquidated in accordance with the provisions of this Article.

Section 11.3  [Confidential Treatment Requested]

Section 11.4  Bankruptcy.  If:

(a)  any Member shall file a voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under the present or any future Federal Bankruptcy Act, or any other present or future applicable Federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of said Member or of all or any substantial part of its properties or its interest in the Company (the term “acquiesce” includes, but is not limited to, the failure to file a

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petition or motion to vacate or discharge any order, judgment or decree providing for such appointment within ten (10) days after the appointment); or

(b)  a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against any Member seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future Federal Bankruptcy Act, or any other present or future applicable Federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors, and said Member shall acquiesce in the entry of such order judgment or decree (the term “acquiesce” includes, but is not limited to, the failure to file a petition or motion to vacate or discharge any order, judgment or decree within ten (10) days after the entry of the order, judgment or decree), or such order, judgment or decree shall remain unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive from the date of entry thereof), or any trustee, receiver, conservator or liquidator of said Member or of all or any substantial part of its property or its interest in the Company shall be appointed without the consent or acquiescence of said Member and such appointment shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive); or

(c)  any Member shall give notice to any governmental body of insolvency or pending insolvency, or suspension or pending suspension of operations.

then, and in any such event such Member shall be deemed, as of the date of occurrence of the respective event, to be the “Electing Member” for purposes of Section 11.8.  The filing date of the  bankruptcy petition shall be the “Section 11.4 Termination Date” and the Company shall be liquidated in accordance with Section 11.7.

Section 11.5  Automatic Termination.

(a)  In the event:

(1)  any Member, or its Affiliate, is prohibited by a change of law or regulation or an administrative action or judicial decree subsequent to this Agreement (including the application or interpretation of the change of law or regulation or the subsequent administrative action or judicial decree by opinion of counsel) from participating in the Company substantially upon the material terms and conditions of this Agreement and the prohibition cannot be corrected by amendment of the Agreement to put the Members in substantially the same financial position as prior to the prohibition; or

(2)  [Confidential Treatment Requested]

(b)  [Confidential Treatment Requested]  In order for Community Member to elect to withdraw pursuant to this Section 11.5(b), Community Member must [Confidential Treatment Requested].  In the event that Community Member elects to withdraw pursuant to this Section 11.5(b), no Member shall be deemed an “Electing Member”, [Confidential Treatment Requested].

(c)  [Confidential Treatment Requested]  In order to withdraw pursuant to this Section 11.5(c), the Member not subject [Confidential Treatment Requested].  In the event the Member not subject [Confidential Treatment Requested], no Member shall be deemed an “Electing Member”, the expiration of the thirty day notice period shall be the termination date

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(“Section 11.5(c) Termination Date”), and the Company shall be liquidated pursuant to Section 11.7.

Section 11.6  Default.

(a)  If any Member fails to perform any of its obligations set forth in this Agreement, any other Member (“Non-defaulting Member”) shall have the right within 30 days of the date of the default to give the defaulting party (“Defaulting Member”) a written notice of the default (“Notice of Default”).  The Notice of Default shall set forth in detail the obligation(s) that the Defaulting Member has not performed.

(b)  If, within a 15-day period following receipt of the Notice of Default, the Defaulting Member cures such default, it shall be deemed that the Notice of Default was not given and the Defaulting Member shall lose no rights hereunder.  If, within such 15-day period, the Defaulting Member does not cure such default, the Non-Defaulting Member hereunder shall have the right within 30 days of the expiration of the 15 day cure period to terminate this Company by giving the Defaulting Member written notice thereof “Termination Notice”).  The Company shall terminate on the date of the Termination Notice (“Section 11.6(b) Termination Date”).  The remedy of the Non-Defaulting Member shall be limited to the damages provisions provided for under Section 11.8.

(c)  If a Defaulting Member disputes the basis set forth in the Notice of Default, the Defaulting Member must file for arbitration pursuant to Section 13.9 below within thirty (30) days of the Section 11.6 (b) Termination Date.  If it is ultimately determined by the arbitrator that the Defaulting Member was not in default as specified in the Notice of Default, then the Non–Defaulting Member shall be deemed an “Electing Member” under Section 11.8.  The Company shall be deemed to have terminated on the date of the Termination Notice (“Section 11.6(c) Termination Date”).  The Company shall be liquidated pursuant to Section 11.7.  The remedy of the Non-Electing Member shall be limited to the damages provisions provided for under Section 11.8.

Section 11.7  Liquidation.

(a)  In the event the Company is terminated, the Company shall be liquidated as described below.  Upon the earlier of a Section 11.3 Termination Date, a Section 11.4 Termination Date, a Section 11.5(a) Termination Date, a Section 11.5(b) Termination Date, a Section 11.5(c) Termination Date, a Section 11.6(b) Termination Date, or a Section 11.6(c) Termination Date:

(1)  the Company shall not take any additional loan applications;

(2)  [Confidential Treatment Requested];

(3)  [Confidential Treatment Requested];

(4)  any restrictions on the activities of the Members contained in this Agreement shall cease unless the restriction specifically provides that it shall continue after termination; and

(5)  the Accountants or other third party mutually agreed to between the Members shall be retained to handle the liquidation consistent with the provisions of this Agreement.

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(b)  The assets of the Company shall be paid or distributed in the following order of priority, unless otherwise required by applicable law:

(1)  To pay (or make provision for the payment of) all creditors of the Company, including the Members, in the order of priority provided by law; and

(2)  To distribute to the Members in accordance with (or in direct proportion to if less than) their respective Units, as adjusted for item (1) above and all Company operations up to and including such liquidation.

[Confidential Treatment Requested]

Section 11.8  Liquidated Damages.

(a)  It is understood that in the course of operation of the Company, the Members will contribute to the Company significant funds, resources and knowledge, including information, techniques, processes and business clientele, the value of which cannot be calculated.  As a material inducement to enter into this Agreement and to develop and disclose such information, the Members agree to the liquidated damages provisions set forth in this Section 11.8. [Confidential Treatment Requested]

(1)  [Confidential Treatment Requested]

(2)  [Confidential Treatment Requested].

(b)  [Confidential Treatment Requested]

ARTICLE XII

Representations and Warranties; Closing Requirements

Section 12.1  Member Representations and Warranties. Community Member represents and warrants as of the Closing Date that:

(a)  Community Member is a corporation duly organized, validly existing and in good standing under the laws of the State of North Dakota and has all requisite power and authority and licenses to own or lease its property and to carry on its business as it is now being conducted.  The execution, delivery and performance of this Agreement by Community Member have been duly authorized by all proper action on the part of Community Member, and are within its powers and will not conflict with or be in violation of Community Member’s organizational documents.  This Agreement constitutes the legal, valid and binding obligation of Community Member, enforceable against Community Member in accordance with its terms.

(b)  The performance of this Agreement by Community Member will not violate or result in a breach of, constitute a default under, give rise to any right of acceleration or termination under any law or any contract, agreement, note, bond, license, indenture, mortgage, lease agreement or other instrument or obligation to which Community Member is a party or by which it is bound or affected or violate any rule or regulation of any administrative agency, or order, writ, injunction, judgment or decree of any court, administrative agency or governmental body applicable to it.

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(c)  Community Member has obtained and kept in force all material governmental licenses and permits necessary to conduct its business as it is now being conducted.

(d)  The balance sheet of Community Member or its affiliate group provided to Wells Fargo Member and the related statements of earnings, stockholders’ equity and changes in financial position for the year provided, with notes thereto, reported upon or reviewed by independent certified public accountants, present fairly the financial position of Community Member or its affiliate group as of the date thereof and the results of operations, stockholders’ equity and changes in financial position thereof for the year then ended, in accordance with GAAP applied on a consistent basis throughout such period.

(e)  Except as has been disclosed in writing to Wells Fargo Member, Community Member is not a party to any pending or, to the best knowledge of Community Member, threatened, claim, action suit, investigation or proceeding, nor is subject to any order, judgment or decree which may have a materially adverse effect on the Community Member’s assets or business as currently conducted.

(f)  There are no claims for brokerage or other commissions or finder’s or other similar fees in connection with the transactions covered by this Agreement insofar as such claims shall be based on arrangements or agreements made by or on behalf of Community Member, and Community Member hereby agrees to indemnify and hold harmless Wells Fargo Member from and against all liabilities, costs, damages and expenses from any such claim.

Section 12.2  Wells Fargo Member Representations and Warranties.  Wells Fargo Member represents and warrants as of the Closing Date that:

(a)  Wells Fargo Member is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority and licenses to own or lease its property and to carry on its business as it is now being conducted.  The execution, delivery and performance of this Agreement by Wells Fargo Member have been duly authorized by all proper action on the part of Wells Fargo Member, and are within its powers and will not conflict with, result in the breach or violation of, constitute a default under, give rise to any right of acceleration or termination under Wells Fargo Member’s organizational documents or any indenture, mortgage, lease agreement, contract, order, injunction, judgment, decree or other instrument, rule or regulation to which Wells Fargo Member is a party or by which Wells Fargo Member is bound.  This Agreement constitutes the legal, valid and binding obligation of Wells Fargo Member, enforceable against Wells Fargo Member in accordance with its terms.

(b)  The performance of this Agreement by Wells Fargo Member will not violate or result in a breach of any law or any contract, agreement, note, bond, license or other instrument or obligation to which Wells Fargo Member is a party or by which it is bound or affected or violate any rule or regulation of any administrative agency, or order, writ, injunction or decree of any court, administrative agency or governmental body applicable to it.

(c)  Wells Fargo Member has obtained and kept in force all material governmental licenses and permits necessary to conduct its business as it is now being conducted.

(d)  The balance sheet of Wells Fargo Member or its affiliate group provided to Community Member and the related statements of earnings, stockholders’ equity and changes in financial position for the year provided, with notes thereto, reported upon or reviewed by independent certified public accountants, present fairly the financial position of Wells Fargo

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Member or its affiliate group as of the date thereof and the results of operations, stockholders’ equity and changes in financial position thereof for the year then ended, in accordance with GAAP applied on a consistent basis throughout such period.

(e)  Except as has been disclosed in writing to Community Member, Wells Fargo Member is not a party to any pending or, to the best knowledge of Wells Fargo Member, threatened, claim, action suit, investigation or proceeding, nor is subject to any order, judgment or decree which may have a materially adverse effect on the Wells Fargo Member’s assets or business as currently conducted.

(f)  There are no claims for brokerage or other commissions or finder’s or other similar fees in connection with the transactions covered by this Agreement insofar as such claims shall be based on arrangements or agreements made by or on behalf of Wells Fargo Member, and Wells Fargo Member hereby agrees to indemnify and hold harmless Community Member from and against all liabilities, costs, damages and expenses from any such claim.

Section 12.3  Closing Requirements.  On the Closing Date, the Members shall each deliver to the other the following:

(a)  a certified copy of an authorization to enter into this Agreement by the appropriate authority of the other party.

(b)  a certificate, dated as of the Closing Date, signed by the president or any vice president  and by the Secretary of the other party as to the matters set forth in Section 12.1 or 12.2 respectively.

(c)  an opinion of counsel, dated as of the Closing Date, in form and substance satisfactory to counsel for such party, to the effect that:

(1)  The other party is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of its state of incorporation or organization and has the power and authority to own and operate its properties and to carry on its business as now being conducted.

(2)  The other party has the requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement; all necessary action required to be taken under the other Member’s organizational documents has been taken to authorize and approve this Agreement and the transactions contemplated hereby; and this Agreement has been duly executed and delivered.

(3)  The execution, delivery and performance of this Agreement by the other party and consummation by the other party of the transactions contemplated by this Agreement will not result in a breach or violation of, or constitute a default under, the organizational documents of the other party or any judgment, decree, order, governmental permit or license, agreement, trust agreement, indenture or instrument actually known to such counsel to which the other is a party or by which it is bound, the breach or violation of which would have a material adverse effect on the other party;

(4)  To the best of such counsel’s knowledge without independent investigation, there is no legal action or governmental proceeding or investigation pending or threatened against or affecting the other party or which prevents the other party from

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entering into or being bound by this Agreement or prevents the other party from consummating the transactions contemplated by this Agreement or which questions the validity of this Agreement or the transactions contemplated by this Agreement and there is no bankruptcy or other insolvency proceeding pending against or affecting the other party.

ARTICLE XIII

Miscellaneous Provisions

Section 13.1  Notices.  Notices, requests, reports, payments, calls or other communications required to be given or made to any Member hereunder shall be in writing and shall be deemed to be given or made when properly addressed and delivered.  Delivery may be by registered or certified mail, postage prepaid, or by overnight courier to such Member at such Member’s last known address.  Addresses shown on the Schedule of Capital Contributions for each Member shall be considered the last known address of such Member unless and until the Company is otherwise notified by such Member in the manner set forth in this Section 13.1.

Section 13.2  Nature of Interest of Members.  The Interest of each Member in the Company is personal property.

Section 13.3  Applicable Law.  Notwithstanding the place where this Agreement may be executed by any of the parties hereto, this Agreement, the rights and obligations of the parties hereto, and any claims and disputes relating thereto, shall be subject to and governed by the Act and the other laws of the State of Delaware as applied to agreements among Delaware residents to be entered into and performed entirely within the State of Delaware, and such laws shall govern the limited liability company aspects of this Agreement.

Section 13.4  Execution in Counterparts.  This Agreement may be executed in one or more counterparts with the effect as if the parties executing the several counterparts had all executed one counterpart, but in such event each such counterpart shall constitute an original and all of such counterparts shall constitute one and the same agreement.

Section 13.5  Successors in Interest.  Each and all of the covenants, agreements, terms, and provisions of this Agreement shall be binding upon and inure to the benefit of each of the Members and, to the extent permitted by this Agreement, their respective heirs, executors, administrators, personal representatives, successors and assigns.

Section 13.6  Severability.  Any provision of this Agreement which is invalid, illegal, or unenforceable in any respect in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality, or unenforceability without in any way affecting the validity, legality, or enforceability of the remaining provisions hereof, and any such invalidity, illegality, or unenforceability in any jurisdiction shall not invalidate or in any way affect the validity, legality, or enforceability of such provisions in any other jurisdiction.

Section 13.7  Headings.  The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

Section 13.8  Waiver of Right to Partition.  Each of the Members irrevocably waives during the term of the Company any right that such Member may have to maintain any action for partition with respect to the property and assets of the Company.

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Section 13.9  Arbitration.

(a)  The Members agree to take all reasonable steps to resolve disputes between them without resorting to arbitration.  The Members agree to submit to binding arbitration any and all claims, disputes and controversies between or among them which cannot be resolved without arbitration, whether in tort, contract or otherwise (and their respective employees, officers, directors, attorneys, and other agents) arising out of or relating in any way to this Agreement, any related ancillary documents and their negotiation, execution, administration, modification, extension, substitution, formation, inducement, enforcement, default or termination.  However, “Core proceedings” under the United States Bankruptcy Code shall be exempted from arbitration.  Should the need arise for such arbitration, the Members agree that the determination of the arbitrator shall be final and shall not be capable of being appealed to any other court or form of resolution.  Notwithstanding this prohibition, the Members do agree that the decision of any arbitrator shall be capable of being enforced through an action filed in the appropriate court having jurisdiction.

(b)  Arbitration under this Agreement shall be governed by the Federal Arbitration Act (Title 9 of the U.S. Code), and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”).  When the need for selection of an arbitrator shall arise, the Members shall request AAA to supply them with a list of no less than seven (7) arbitrators having no less than five (5) years experience in arbitrating complex business arrangements.  Upon receipt of that list of potential arbitrators, each Member shall communicate within 7 days to AAA four (4) arbitrators from the list they would agree to use or their right to participate in the selection of the arbitrator shall be forfeited.  As soon as AAA receives the selections from both Members, AAA shall review the selected arbitrators and appoint one of those arbitrators whose name appears on both Members’ lists of acceptable arbitrators.  AAA shall have the discretion to select the arbitrator from those arbitrators approved by both Members based upon availability and experience and AAA’s selection shall be final.  The arbitrator shall give effect to statutes of limitation in determining any claim.  Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator. Each Member shall each pay its own costs and expenses of the arbitration proceeding and the cost of the arbitrator shall be divided equally between the Members.

Section 13.10 Confidentiality.

(a)  The parties agree that the terms of this Agreement shall be maintained in confidence, and shall not be disclosed to any third party, except (i) as is required by law, (ii) pursuant to court order during the course of litigation after notice to the other Member, (iii) for internal communications purposes, (iv) as necessary for tax, accounting, and other regulatory purposes and, (v) as necessary or desirable to facilitate procurement of insurance protection.  This clause shall not restrict the release of financial statements of the Company by either party to any third party for regulatory requirements.

(b)  Community Member will hold in confidence all documents and information concerning Wells Fargo Member and its Affiliates furnished to it and its representatives in connection with this Agreement.  Community Member will not release or disclose such information to any other person, except as required by law or in connection with any proceedings to enforce or construe this Agreement and except its advisers in connection with this Agreement, with the same undertaking from such advisers.  If the Company shall not commence operation, such confidence shall be maintained and such information shall not be used in competition with Wells Fargo Member, unless Community Member can show that that such information was previously known to Community Member, in the public domain, or later

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acquired from other legitimate sources.  Upon request, all such documents and any copies thereof and extracts therefrom shall immediately thereafter be returned to Wells Fargo Member.  Upon termination of this Agreement, all confidential documents and information shall be returned upon completion of the liquidation of the Company.

(c)  Wells Fargo Member will hold in confidence all documents and information concerning Community Member and its Affiliates furnished to it and its representatives in connection with this Agreement.  Wells Fargo Member will not release or disclose such information to any other person, except as required by law or in connection with any proceedings to enforce or construe this Agreement and except its advisers in connection with this Agreement, with the same undertaking from such advisers.  If the Company shall not commence operation, such confidence shall be maintained and such information shall not be used in competition with Community Member, unless Wells Fargo Member can show that that such information was previously known to Wells Fargo Member, in the public domain, or later acquired from other legitimate sources.  Upon request, all such documents and any copies thereof and extracts therefrom shall immediately thereafter be returned to Community Member.  Upon termination of this Agreement, all confidential documents and information shall be returned upon completion of the liquidation of the Company.

Section 13.11  Publicity.  The Members shall consult with each other as to the form and substance of any proposed press release or other proposed public disclosure of matters related to this Agreement or any of the transactions contemplated hereby.

Section 13.12  Survival.  The provisions of Sections 13.9 and 13.10 shall continue to bind the Members should either withdraw from or otherwise leave the Company and shall survive any termination of this Agreement.

IN WITNESS WHEREOF, the Members hereto have executed and delivered this Agreement of Limited Liability Company the day and year first above written.

WELLS FARGO VENTURES, LLC	COMMUNITY FIRST HOME MORTGAGE, INC.
By:	By:
Printed Name:	Printed Name:
Title:	Title:

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SCHEDULE OF CAPITAL CONTRIBUTIONS

Name & Address	Amount of Capital Contribution		Units
Wells Fargo Ventures, LLC	$	125,000	50
1 Home Campus, X2406-011
Des Moines, IA 50328-0001
Community First Home Mortgage, Inc.	$	125,000	50
520 Main Avenue
Fargo, ND 58124-0001

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SCHEDULE OF INITIAL AND SUCESSOR MANAGING OFFICERS

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Exhibit 1

COMPUTER ACCESS AGREEMENT

This Computer Access Agreement (“Agreement”) is entered into effective November 1, 2001 (the “Effective Date”) by and between Community First Mortgage, LLC  (“Company”) and Wells Fargo Home Mortgage, Inc. (“WFHM”).

RECITALS

WHEREAS, WFHM is willing to offer and provide Company with access to its residential mortgage origination computer system in operation from time to time, including the programs necessary for its operation (the “System”) subject to the terms and limitations of this Agreement.

NOW, therefore, in consideration of the covenants contained herein, WFHM and Company agree as follows:

1.             WFHM Responsibilities. WFHM shall provide Company access to the System under the same terms and conditions which WFHM gives its loan production offices (“Retail Franchisees”) access.  The System will be available to Company during the same hours as it is available to Retail Franchisees in the Company’s market area.  In the event of any System outage, the Company’s access shall be restored on the same basis as the Retail Franchisees in the Company’s marketplace.  Access shall consist of allowing the Company to:

(a)prequalify applicants;

(b)register residential mortgage loan applications (“Applications”) under WFHM’s various loan programs in effect from time to time;

(c)price protect interest rates on registered Applications according to WFHM’s price protection guidelines;

(d)           process registered Applications;

(e)prepare documents required to close Applications which have been approved by WFHM’s underwriting department; and

(f)approve funding of closed Applications for which WFHM has provided price protection.

2.             Ownership.  The System is proprietary to WFHM.  Company shall not sell, transfer, publish, disclose, display, or otherwise make access to the System or information regarding the System available to any third parties without the express written consent of WFHM other than disclosure or display through the normal course of the mortgage origination business.  Company agrees to secure and protect the System in a manner consistent with WFHM’s rights therein and to take appropriate action by instruction or agreement with its employees or consultants who are permitted access to the System to satisfy its obligations hereunder.  Upon termination of this Agreement, all information regarding the System, including all manuals, shall be returned to WFHM.  Violation of any provision of this section shall be basis for immediate termination of this Agreement.

3.Fees And Taxes.

3.1           Fees.  For each Company office location provided with access to the System pursuant to this Agreement, the Company shall pay WFHM a fee of [Confidential Treatment Requested] per month.  The fee due under this Agreement shall be adjusted by the amount of any adjustment by WFHM applicable for Retail Franchisees for internal accounting purposes.  All fees due under this Agreement shall be paid on the last day of the

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month during which the fees accrue.  This monthly fee includes all costs of maintaining the System.

3.2           Taxes.  Where applicable, Company shall be responsible for payment of any applicable taxes, however designated, exclusive of taxes based on the net income.

4.             Term.  Except as otherwise provided herein, this Agreement shall commence on the Effective Date and remain in effect until the agreement which established Company (“Joint Company Agreement”) is terminated including any period necessary to wind down the affairs of the Company.

5.             Confidentiality. WFHM acknowledges that during the term of this Agreement, WFHM will be required to access certain information relating to the Company’s customers prior to purchase of the customers’ closed loans (“Information”). WFHM recognizes that such Information is of a confidential and proprietary nature to the Company until 30 days after WFHM purchases the closed loans except WFHM may use the Information with respect to its own business in regard to the Loans.  Both parties agree to:  (1) use at least the  same degree of care to maintain the confidentiality of the Information as it uses in maintaining the confidentiality of its own confidential and proprietary information; (2) use the Information only for the origination of residential mortgage loans through the Company; and (3) upon termination of this Agreement, immediately cease using the Information, erase the Information from storage in each computer system in which it has been installed except where retention is required for regulatory purposes, maintain in confidence all knowledge of the Information gained pursuant to the contract and, either return or destroy all physical embodiments of the Information.

6.             Liability.  Each party shall be liable to the other party for any loss or damage proximately caused by the gross negligence or willful misconduct of its officers, employees or agents.  WFHM shall be granted the same level of discretion in operating the System as it exercises in regard to providing similar services to its Retail Franchisees.

7.             Inspection.  All documents and records produced by or stored on the System under this Agreement shall be made available from time to time to and at the reasonable request of (i) regulatory authorities having jurisdiction over either of the parties, (ii) officers, employees and agents of either party and (iii) WFHM & Company’s auditors.

8.             Notices.  All notices and other communications in connection with this Agreement to a party hereto shall be in writing and shall be deemed to have been duly given when delivered by hand or when deposited in the United States mail with first class postage prepaid or when delivered to any nationally recognized overnight courier with delivery charges paid to such party at its address set forth below, or to such other person or address as such other party may specify by similar notice to the other party hereto:

If to WFHM:	If to Company (Both Companies):
Wells Fargo Home Mortgage, Inc.	Wells Fargo Home Mortgage, Inc.	Community First Home Mortgage, Inc.
1 Home Campus, X2401-06T	1 Home Campus, X2401-06T	520 Main Avenue
Des Moines, IA 50328-0001	Des Moines, IA 50328-0001	Fargo, ND 58124-0001
Attn:  General Counsel	Attn:  General Counsel	Attn:

9.General

9.1           Applicable Law.  This Agreement and performance hereunder shall be governed by the laws of the State of Delaware.

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9.2           Amendment, Modification, or Waiver.  No amendment, modification, or waiver of any condition, provision, or term of this Agreement shall be valid or of any effect unless made in writing, signed by the party or parties to be bound or its duly authorized representative and specifying with particularity the extent and nature of such amendment, modification, or waiver.  No waiver of any term of condition set forth in this Agreement shall constitute a waiver of any other term or condition; nor shall it affect or impair any right arising from any subsequent default.

9.3           Assignment and Delegation.  No rights or interest in this Agreement may be assigned.  Nor, unless otherwise provided in this Agreement, may any obligations be delegated without the prior written consent of the other party, such consent not to be unreasonably withheld.

9.4           Severability.  Any invalidity, in whole or in part, of any provision of this Agreement, shall not affect the validity of any other provision of this Agreement.

9.5           Paragraph Heading.  Paragraph headings are provided for convenience of reference and do not constitute a part of this Agreement.

9.6           Force Majeure.  The parties shall be excused for delays in performing and failures to perform the obligations of this Agreement to the extent that any such delay or failure results from any cause beyond their reasonable control, including, solely by way of example and without limitation, delays caused by the other party, acts of God, strikes, and other labor disputes, civil disorder, catastrophes of nature, fire, explosion, natural or man–made floods or any severe weather, war, failure of a communications or computer system, nuclear attack, embargoes, actions or inactions of governmental authorities.  Each party agrees to make reasonable efforts to prevent such occurrences from affecting the performance of this Agreement.

9.7           The parties agree to submit to binding arbitration any and all claims, disputes and controversies between or among them which cannot be resolved without arbitration, whether in tort, contract or otherwise (and their respective employees, officers, directors, attorneys, and other agents) arising out of or relating in any way to this Agreement, and its negotiation, execution, administration, modification, extension, substitution, formation, inducement, enforcement, default or termination.  Arbitration under this Agreement shall be governed by the provisions regarding arbitration set forth in the Agreement of Limited Liability Company of Community First Mortgage, LLC as amended from time to time.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and do each hereby warrant and represent that their respective signatory, whose signature appears below, has been and is on the date of this Agreement duly authorized by all necessary and appropriate corporate action to execute this Agreement.

AGREED TO AND ACCEPTED BY:                                                            AGREED TO AND ACCEPTED BY:

WELLS FARGO HOME MORTGAGE, INC.	COMMUNITY FIRST MORTGAGE, LLC
(WFHM)	(Company)
By:	By:
Printed Name:	Printed Name:
Its:	Its:

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Exhibit 2

SERVICE AGREEMENT

This Service Agreement (“Agreement”) entered into effective November 1, 2001 (the “Effective Date”) by and between Community First Mortgage, LLC (“Venture”) and Wells Fargo Home Mortgage, Inc. (“WFHM “).

RECITALS

WHEREAS, WFHM is willing to offer and provide certain support services to Venture; and

WHEREAS, Venture desires to retain WFHM to provide certain support services.

NOW, therefore, WFHM and Venture agree as follows:

1.  RESPONSIBILITIES.

1.1      Scope of Services. WFHM shall perform the services for Venture as set forth in this Agreement and any amendments or addenda that may from time to time be made a part of this Agreement (the “Services”), by mutual agreement.

1.2      Performance of Services. WFHM shall perform the Services for Venture under this Agreement in accordance with reasonable commercial standards; generally accepted accounting principles (GAAP) except as otherwise contemplated by the Joint Venture Agreement which established Venture (“Joint Venture Agreement”); in conformity with regulations or laws governing their activities; and in accordance with Standard Operating Procedures established from time to time pursuant to Section 1.3 below.

1.3      Standard Operating Procedures. WFHM has established (or may from time to time establish) internal policies, rules and procedures (“Standard Operating Procedures”), which will govern how the Services are provided and which do not directly and materially affect the daily operation of the Venture as determined by the Operating Committee.  Any change in Standard Operating Procedures which directly and materially affects the daily operation of the Venture is subject to approval by the Operating Committee.  For example, the elimination of regional underwriting could directly and materially affect the daily operation of the Venture.  If the Operating Committee decides not to adopt such a change, the Venture shall bear the added incremental cost of providing the Services without the change.  Any other changes by WFHM in the Standard Operating Procedures are not subject to review by the Venture.

1.4      Designate Contact Person.  Each party shall designate a person or persons to respond to other party’s inquiries regarding activities related to the Services.

1.5      Confidentiality.  The parties acknowledge that during the term of this Agreement, the parties will be required to access certain information relating to the other party’s customers (“Information”).  The parties recognize that such Information is of a confidential and proprietary nature to the other party.  Both parties agree to: (1) use at least the same degree of care to maintain the confidentiality of the Information as it uses in maintaining the confidentiality of its own confidential and proprietary information; (2) use the Information only for the purpose of performing the Services agreed to in this Agreement; and (3) upon termination of this Agreement, immediately cease using the Information, erase same from

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storage in each computer system in which same has been installed except where retention is required for regulatory purposes, maintain in confidence all knowledge of same gained pursuant to the contract and, either return or destroy all physical embodiments of such Information.

1.6      Compliance with State and Federal Laws.  Both parties shall take reasonable steps to ensure that the Services performed under this Agreement are performed in compliance with applicable Federal and State laws.  Such steps may include, by way of example and not by way of limitation, ensuring that its employees are properly licensed to perform any Services that require such licensing.

2.  SERVICES.

2.1      Legal. WFHM will provide legal services required by Venture including litigation management, regulatory compliance and general corporate legal advice. The Venture shall be responsible for the expense of outside counsel and adverse judgments.

2.2      Accounting. WFHM will provide all accounting services required by Venture consistent with the Joint Venture Agreement including preparation of complete and accurate books of accounts and records, tax return preparation, regulatory reporting and preparation of income statements, balance sheets and commission reports.  In providing the accounting services required by this paragraph, WFHM may contract with a certified public accountant acceptable to the Venture for the performance of services.  The expense of the certified public accountant for performing any of WFHM’s responsibilities under this Agreement shall be paid by WFHM except that the Venture shall be responsible for the cost of preparing annual audited financial statements.

The books shall be prepared in accordance with generally accepted accounting principles (except as otherwise contemplated in the Joint Venture Agreement), consistently applied, utilizing the accrual method of accounting.  The accrual method of accounting shall also be used by the Venture for income tax purposes.  The Venture’s books and records shall at all times be maintained at the principal business office of WFHM, or the Accountants, or such other place agreed upon by the Venturers, and shall be available for inspection by each of the Venturers or their duly authorized representatives during reasonable business hours. WFHM shall use its reasonable best efforts to preserve the books and records for the same period of time that WFHM preserves its own records, and each Venturer shall have the right to copy any and all such books and records at its own expense prior to the destruction thereof. WFHM shall not be liable for the destruction of the books and records resulting from any cause beyond its reasonable control, including, solely by way of example and without limitation, delays caused by the other party, acts of God, strikes, and other labor disputes, civil disorder, catastrophes of nature, fire, explosion, natural or man–made floods or any severe weather, war, failure of a communications or computer system, nuclear attack, embargoes, actions or inactions of governmental authorities.

Within ninety (90) days after the end of each fiscal year, WFHM shall cause to be prepared and furnished to the Venturers at the expense of the Venture, a balance sheet of the Venture (dated as of the end of the fiscal year then ended), a related statement of earnings for the Venture for the same year, a statement of cash flows for the Venture for such year, related footnotes to the financial statements and all other financial information reasonably requested by either Venturer.  Such financial information shall reflect the beginning balance in each Venturer’s Capital Account as of the first day of such year, increases due to

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Capital Contributions or allocations of Profits, decreases due to allocations of Losses or distributions of profit made to each Venturer during the year, and the ending balance in each Venturer’s Capital Account as of the last day of such year. WFHM shall also on a monthly basis distribute to the Venturers (i) profit and loss statement showing revenue and expenses of the Venture for the previous calendar month, (ii) report showing the number and loan amount of loan applications and loans closed during the previous calendar month, (iii) a balance sheet for the Venture, and (iv) any other information with respect to the operations of the Venture for the previous calendar month which either Venturer may reasonably request.

2.3      Human Resources. WFHM or a third party vendor will provide employee relations services required by the employees of the Venture including representation at administrative hearings, assistance in handling personnel matters, and administration of the benefits program and payroll for employees of the Venture.  The Venture shall be responsible for the expense of the third party vendor’s services in providing the benefits program and payroll for employees of the Venture and any third party representation at any administration hearings.

2.4      Data Processing and Management Information. WFHM will provide data processing and management information services as agreed between Venture and WFHM.  Such services shall consist of those data processing services currently provided by WFHM to its 100% owned loan production offices (“Retail Offices”), and such additions and modifications as are  provided by WFHM.

2.5      Assignment Processing. WFHM will safeguard Venture’s loan files until such time as the loans are purchased by WFHM or other investors and will properly assign and endorse mortgages and notes as directed by Venture.

2.6      Post Closing. WFHM will provide all post closing services on Venture’s files purchased by WFHM or other investors as directed by Venture including loan file review, pooling and delivery.

2.7      Underwriting. WFHM will underwrite loans that Venture elects to sell to WFHM. For loans approved by an automated underwriting system without review by an underwriter, there will be no separate charge to the Venture.  For loans which must be reviewed by an underwriter, there shall be a charge to the Venture of [Confidential Treatment Requested] per file (“Underwriting Fee”).  In the event WFHM adjusts the amount of or how the Underwriting Fee is calculated for its Retail Offices, the Underwriting Fee amount or calculation for the Venture shall be similarly adjusted.

2.8      Facilities Management.  To the extent requested by the Operating Committee, WFHM will provide facilities management services for the office locations used by the Venture including supplying office equipment, and arranging long distance service.

2.9      Quality Control. WFHM will provide quality control services for loans that Venture elects to sell to WFHM as part of its normal quality control review.  Any additional quality control services required in order for the Venture to maintain its approval as a HUD Loan Correspondent shall be separately provided and billed.

2.10      Management Consulting. WFHM will provide the part time consulting services of its in market Regional and/or Divisional Manager and Regional Operations Specialist.

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2.11  Risk Management. WFHM will establish a risk management program for the Venture with terms, conditions, limits and deductibles as WFHM and the Venture determine to be appropriate from time to time. WFHM shall provide the Venture with a schedule of coverage for the risk management program in effect from time to time.  The Venture shall pay the premiums and deductibles, if any, on any insurance policies obtained by WFHM for the Venture as part of the risk management program.

2.12.  Promotions, Public Relations and Advertising. WFHM shall make available to the Venture all promotional materials, promotions and public relations services which are provided to Retail Offices.  The Venture shall pay any incremental cost of modifying or using the material in excess to the base cost charged to Retail Offices.  Programs involving WFHM trademarks may only be used if the Venture executes a written agreement with WFHM governing use of the trademarks.  The Venture shall be responsible for the cost of any employee of the Venture who qualifies to attend the WFHM sales conference, the WFHM service conference or any similar promotional event held by WFHM.

2.13.  Compliance with Credit Agreements. WFHM shall take all steps within its responsibilities under this Agreement which are necessary to ensure that the Venture complies with all terms of any credit or financing agreements to which it is a party.

2.14.  Loan Processing. WFHM shall process all mortgage loan applications taken by Venture in accordance with the standards set forth in Paragraph 2.15 below and shall comply with the covenants set forth in Paragraph 2.16 below.

2.15  Service Standards. WFHM shall conduct mortgage loan processing activities in accordance with the Standard Operating Procedures in a manner that is no less favorable to Venture customers than those applied by WFHM to customers of WFHM’s Retail Offices. WFHM shall meet the following service standards:

(a)  Establishing non-discriminatory practices consistent with federal, state and local equal opportunity and fair lending laws and regulations pertaining to such practices;

(b)  Periodically assessing and measuring customer satisfaction with the Venture through the use of customer satisfaction surveys and reporting the results to the Operating Committee;

(c)  Applying the same standards and efforts WFHM applies with respect to its own customers.

2.16  Covenants.  In conducting mortgage loan processing activities for Venture, WFHM shall:

(a)  comply in all material respects with all laws, statutes, regulations, orders and/or ordinances, whether federal, state or local or of any governmental agency, applicable to the activities contemplated, the Service Agreement, the Partnership Agreement and any agreements referred to herein or therein, including but not limited to, assuring that all credit practices and all preprinted forms and/or computer generated forms used by the Venture will be in compliance in all material respects with such laws, statutes, regulations, orders and/or ordinances;

(b)  periodically perform the normal and customary audits which WFHM performs for WFHM’s Retail Offices, the results of which shall be reported to the Operating Committee.

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2.17  Processing Fee.  The Venture shall pay WFHM a processing fee for each mortgage loan processed by WFHM equal to the processing fee paid by WFHM’s Retail Offices which use the same processing center (the “Processing Fee”).  In the event the Processing Fee for WFHM’s Retail Offices is adjusted, the Processing Fee for the Venture shall be similarly adjusted.  There shall be added to the Processing Fee any applicable taxes payable by WFHM for providing the processing services, however designated, exclusive of taxes based on net income, required by law to be added to the Processing Fee.  Except as otherwise expressly provided herein or agreed in writing by the Venture, WFHM shall be responsible for all fees, costs, and expenses associated or in connection with the processing of the mortgage loans.  All Processing Fees shall be payable in arrears within 15 days following the end of the calendar month during which such Processing Fees accrue.

3.  TERM.

This Agreement shall commence on the Effective Date and remain in effect until the Joint Venture Agreement is terminated subject to such period as required to wind down the affairs of the Venture.

4.  RELATIONSHIP OF THE PARTIES.

4.1  Agency.  Venture does hereby designate WFHM as its agent solely for the purpose of performing the Services.

4.2  Officer of Party.

4.2.1  Designating Officers.  Either party may, with the consent of the other, from time to time designate certain employees or officers of the other party as officers of the designating party with such authority and to perform such duties as set forth in this Agreement or as the designating party shall from time to time designate in writing.

4.2.2  Performance Of Duties As Officer.  When an employee or officer of the other party is performing duties as an officer of the designating party, such employee or officer shall be responsible and accountable directly to the designating party.

5.  FEES AND TAXES.

5.1  Management Fees.  Venture agrees to pay WFHM for its services rendered pursuant to this Agreement a Management Fee pursuant to the same formula used for WFHM’s Retail Offices, except as otherwise agreed in writing between WFHM and the Venture.  In the event WFHM adjusts the Management Fee formula for its Retail Offices, the Management Fee formula for the Venture shall be similarly adjusted, subject to any separate written agreements between WFHM and the Venture.

5.2  Taxes.  Where applicable, there shall be added to the Management Fee amounts equal to any applicable taxes, however designated, exclusive of taxes based on the net income of the Venture.

5.3  Payment.  All Management Fees shall be paid on the last day of the month during which the fees accrue.

5.4  Annual Fee.  The Venture shall pay an annual joint venture administration fee in addition to its Management Fee.  During the first year of operation, the joint venture administration

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fee shall be [Confidential Treatment Requested].  Subsequent to the first year, WFHM may not increase the amount of the joint venture administration fee by more than [Confidential Treatment Requested].

6.  LIABILITY.

Each party shall be liable to the other party for any loss or damage proximately caused by the gross negligence or willful misconduct of its officers, employees or agents. WFHM shall be granted the same level of discretion in providing the Services to the Venture as it exercises in regard to its Retail Offices.

7.  INSPECTION.

The documents and records relating to Services performed under this Agreement shall be made available from time to time to and at the reasonable request of (i) regulatory authorities having jurisdiction over either of the parties and (ii) officers, employees and agents of either party and (iii) WFHM & Company’s Auditors.

8.  NOTICES.

All notices and other communications in connection with this Agreement to a party hereto shall be in writing and shall be deemed to have been duly given when delivered by hand or when deposited in the United States mail with first class postage prepaid or when delivered to any nationally recognized overnight courier with delivery charges paid to such party at its address set forth below, or to such other person or address as such other party may specify by similar notice to the other party hereto:

If to WFHM:

Wells Fargo Home Mortgage, Inc.

1 Home Campus, X2401-06T

Des Moines, IA 50328-0001

Attn:  General Counsel

If to Venture: (Both Venturers)

Wells Fargo Home Mortgage, Inc.,                           Community First Home Mortgage, Inc.

1 Home Campus, X2401-06T                                      520 Main Avenue

Des Moines, IA 50328-0001                                       Fargo, ND 58124-0001

Attn:  General Counsel                                                Attn: ______________

9.   GENERAL.

9.1  Applicable Law.  This Agreement and performance hereunder shall be governed by the laws of the State of Delaware.

9.2  Amendment, Modification, or Waiver.  No amendment, modification, or waiver of any condition, provision, or term of this Agreement shall be valid or of any effect unless made in writing, signed by the party or parties to be bound or its duly authorized representative and specifying with particularity the extent and nature of such amendment, modification, or waiver.  No waiver of any term or condition set forth in this Agreement shall constitute a waiver of any other term or condition; nor shall it affect or impair any right arising from any subsequent default.

9.3  Assignment and Delegation.  No rights or interest in this Agreement may be assigned.  Nor, unless otherwise provided in this Agreement, may any obligations be delegated without the prior written consent of the other party, such consent not to be unreasonably withheld.

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9.4  Severability.  Any invalidity, in whole or in part, of any provision of this Agreement, shall not affect the validity of any other provision of this Agreement.

9.5  Paragraph Heading.  Paragraph headings are provided for convenience of reference and do not constitute a part of this Agreement.

9.6  Force Majeure.  The parties shall be excused for delays in performing and failures to perform their obligations under this Agreement to the extent that any such delay or failure results from any cause beyond their reasonable control, including, solely by way of example and without limitation, delays caused by the other party, acts of God, strikes, and other labor disputes, civil disorder, catastrophes of nature, fire, explosion, natural or man–made floods or any severe weather, war, failure of a communications or computer system, nuclear attack, embargoes, actions or inactions of governmental authorities.  Each party agrees to make reasonable efforts to prevent such occurrences from affecting the performance of this Agreement.

9.7  Arbitration.  The parties agree to submit to binding arbitration any and all claims, disputes and controversies between or among them which cannot be resolved without arbitration, whether in tort, contract or otherwise (and their respective employees, officers, directors, attorneys, and other agents) arising out of or relating in any way to this Agreement, and its negotiation, execution, administration, modification, extension, substitution, formation, inducement, enforcement, default or termination.  Arbitration under this Agreement shall be governed by the provisions regarding arbitration set forth in the Agreement of Limited Liability Company of Community First Mortgage, LLC as amended from time to time.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and do each hereby warrant and represent that their respective signatory, whose signature appears below, has been and is on the date of this Agreement duly authorized by all necessary and appropriate corporate action to execute this Agreement.

AGREED TO AND ACCEPTED BY                                  AGREED TO AND ACCEPTED BY

WELLS FARGO HOME MORTGAGE, INC.	COMMUNITY FIRST MORTGAGE, LLC
(WFHM)	(Venture)
By:	By:
Printed Name:	Printed Name:
Its:	Its:

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Exhibit 3

LOAN PURCHASE AGREEMENT

THIS AGREEMENT, entered into effective November 1, 2001 between Wells Fargo Home Mortgage, Inc. (hereinafter called “WFHM”) and Community First Mortgage, LLC (hereinafter called the “Venture”).

1.   Procedures

a)  The Venture will be provided with the same price blast that WFHM’s wholly owned retail branches (“Retail Offices”) receive, containing information with respect to the types and prices of mortgage loans WFHM will commit to buy and the Venture may register a loan for delivery to WFHM by following WFHM’s procedures as set forth below.  Any loan type information provided to the Venture shall be subject to change at any time prior to registration by the Venture.  Notwithstanding anything herein to the contrary, WFHM shall be under no obligation or commitment to approve or buy any Mortgage Loan which does not meet its underwriting criteria.

b)  Interest rates and prices currently offered by WFHM will be made available to the Venture by distribution of the price blast on a daily basis.  Interest rate and prices are subject to change at any time prior to “lock-in” (“lock-in” means to obtain a guaranteed rate and price for a specified period of time).  The Venture may “lock-in” a previously registered loan for an agreed length of time (the “lock-in period”) by following the procedure set forth in the WFHM procedures and guidelines for its Retail Offices as amended from time to time by WFHM (“Guidelines”).  The terms of the Guidelines are incorporated herein by reference.

c)  If a lock-in expires, the Venture may relock at a renegotiated price and rate as set forth in the Guidelines.

d)  WFHM may, in its sole discretion, reduce or waive any of the fees provided for herein under extraordinary circumstances.

e)  WFHM shall purchase loans at par and the Venture shall receive an interest income credit for the per diem interest which accrues between the date of loan closing and purchase by WFHM.

f)  WFHM will pay the Venture the same service release premiums for delivered loans as WFHM pays its Retail Offices as adjusted from time to time.

2.   General

a)  All loan applications submitted to WFHM will be prepared in accordance with the Guidelines and the Venture will use its best efforts to insure that any loan application registered with WFHM will be sold to WFHM as provided below.

b)  The Venture shall obtain all data necessary to insure the proper and accurate completion of the loan application including signed authorizations for written verification of employment, income, assets and other material information requiring verification.  Appraisals, credit reports and mortgage insurance must be done by WFHM approved vendors.

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c)  The Venture shall control closing and funding of each approved loan. WFHM will be paid at funding its required fees and discount as agreed when Venture locked in the loan with WFHM.  Any sums collected in excess of WFHM’s required fees and discount shall be retained by the Venture as income.  The Venture shall not be required to broker loans to WFHM which have not been “locked-in” with WFHM.

d)  WFHM portfolio products which are not deemed high risk products by WFHM may be made available to the Venture, but at different pricing from WFHM’s Retail Offices. WFHM portfolio products which are deemed high risk products by WFHM may be made available to the Venture if WFHM’s partner in the Venture agrees to share equally in any losses incurred by WFHM from high risk products originated by the Venture.

3.   Representations and Indemnities

a)  The Venture, WFHM and their respective officers, agents, employees and representatives will comply with all federal, state and local laws with regard to this Agreement and the duties and obligations imposed and the conduct and activities permitted, authorized or contemplated hereby and use their best efforts to obtain and retain all approvals and licenses required by the Venture, or WFHM by this Agreement.

b)      The Venture will indemnify and hold WFHM, and its affiliates, their officers, agents, representatives and employees harmless from any and all costs, claims, charges, actions, causes of action, losses or liability, including attorney’s fees, arising either directly or indirectly by reason of a breach of the terms of this Agreement by the Venture, its officers, agents, employees or representatives or in any way as a result of an inaccurate or incomplete loan application or other documentation prepared by or at the direction of the Venture and submitted to WFHM.  The provisions of this paragraph shall remain effective and inure to the benefit of WFHM, and its affiliates, their officers, agents, employees, affiliates or representatives notwithstanding the expiration, cancellation, termination or completion of this Agreement.

c)  WFHM will indemnify and hold the Venture, its officers, agents, employees and representatives harmless from any and all costs, claims, charges, actions, causes of action, losses or liability including attorneys fees, arising either directly or indirectly by reason of a breach of the terms of this Agreement by WFHM, its affiliates, officers, agents, employees or representatives.  The provisions of this paragraph shall remain effective and inure to the benefit of the Venture, its officers, agents, employees or representatives notwithstanding the expiration, cancellation, termination or completion of this Agreement.

d)  The Venture agrees that it will not participate in or receive any form of compensation from any other lender (including itself) closing a loan that has been “locked-in” with WFHM unless the loan was denied by WFHM or WFHM approved the sale to the other lender.

4.   Transfer and Termination

a)  No sale, transfer or assignment of this Agreement or of any interest herein shall be valid without the prior written consent of WFHM.

b)  This agreement will automatically terminate upon termination or expiration of any approval or license of the Venture or WFHM required by law to perform the services

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required of the Venture or WFHM by this Agreement.  Any such termination shall not affect applications, if any, which have been registered with WFHM prior to termination except to the extent required by termination or expiration of the approval or license.

c)  This Agreement shall be terminated upon termination of the Joint Venture Agreement.  Any such termination will not affect applications, if any, that have been locked-in with WFHM prior to termination.

5.   Governing Law

This Agreement will be governed by and construed in accordance with the laws of the State of Delaware.

6.   Arbitration

The parties agree to submit to binding arbitration any and all claims, disputes and controversies between or among them which cannot be resolved without arbitration, whether in tort, contract or otherwise (and their respective employees, officers, directors, attorneys, and other agents) arising out of or relating in any way to this Agreement, and its negotiation, execution, administration, modification, extension, substitution, formation, inducement, enforcement, default or termination.  Arbitration under this Agreement shall be governed by the provisions regarding arbitration set forth in the Agreement of Limited Liability Company of Community First Mortgage, LLC, as amended from time to time.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.

WELLS FARGO HOME MORTGAGE, INC.		COMMUNITY FIRST MORTGAGE, LLC
(WFHM)		(Venture)
By:			By:
Printed Name:		Printed Name:
Its:	Its:

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Exhibit 4

CREDIT AGREEMENT

THIS AGREEMENT, entered into effective November 1, 2001 by and between Community First Mortgage, LLC (the “Borrower”), and Wells Fargo Home Mortgage, Inc., a California Corporation (“WFHM”), provides as follows:

ARTICLE I

Definitions

Section 1.1  Definitions.  For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

“Advance” means an advance by WFHM to the Borrower pursuant to Article II.

“Agreement” means this Credit Agreement, as the same may from time to time be supplemented or amended.

“Business Day” means a day on which banks are generally open for business in the State of Delaware.

“Collateral” has the meaning given to that term in the Pledge and Security Agreement.

“Collateral Account” means the account of the Borrower with Wells Fargo Bank Minnesota, N.A.

“Collateral Account Agreement” means that certain Collateral Account Agreement of even date herewith pursuant to which the Borrower and WFHM establish the Collateral Account with Wells Fargo Bank Minnesota, N.A. attached hereto as Exhibit A.

“Commitment” means WFHM’s commitment to make advances under Article II.

“Commitment Amount” means [Confidential Treatment Requested] unless said amount is reduced pursuant to Section 2.5, in which event it means the amount to which said amount is reduced.

“Commitment Termination Date” means the date of termination in whole of the Commitment pursuant to Section 2.5 or 5.2.

“Default” means an event that, with the giving of notice, the passage of time or both, would constitute an Event of Default.

“Eligible Mortgage Loan” has the meaning specified in Section 2.10.

“Event of Default” has the meaning specified in Section 5.1.

“FHA” means the Federal Housing Administration and any successor thereto.

“GAAP” means generally accepted accounting principles.

“GNMA” means the Government National Mortgage Association and any successor thereto.

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“Interest Rate” means the interest rate specified in the Mortgage Note.

“Investor” means Wells Fargo Home Mortgage, Inc. and any other investor approved in writing from time to time by WFHM.  Approval of any investor can be withdrawn at any time by WFHM with 10 days written notice.

“Loan Documents” means this Agreement, the Note, the Pledge and Security Agreement and all other agreements, instruments, certificates and other documents executed and delivered pursuant to or in connection therewith, as the same may from time to time be supplemented or amended.

“Mortgage” means a mortgage or deed of trust on real property which has been improved by a completed single family (one to four family units) dwelling unit (i.e., a detached house, townhouse or condominium).

“Mortgage Loan” means a Mortgage Note and the related Mortgage.

“Mortgage Note” means a promissory note which has a term not exceeding 30 years evidencing a loan or advance which is secured by a Mortgage.

“Note” has the meaning specified in Section 2.2.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Pledge and Security Agreement” means the pledge and security agreement of the Borrower in the form of Exhibit B.

“System” means WFHM residential mortgage loan origination computer system used by Borrower.

“VA” means the Department of Veterans Affairs and any successor thereto.

ARTICLE II

Amount and Terms of the Loans

Section 2.1  Revolving Advances. WFHM agrees, upon the terms and subject to the conditions hereinafter set forth, to make Advances to the Borrower from time to time during the period from the date hereof to and including the Commitment Termination Date in an aggregate outstanding amount not to exceed at any time outstanding the Commitment Amount.  Within the limits of the Commitment Amount, the Borrower may borrow, prepay pursuant to Section 2.6 and reborrow under this Section 2.1.

Section 2.2  The Note.  The Advances made by WFHM shall be evidenced by and repayable with interest in accordance with a single demand note of the Borrower (the “Note”) payable to the order of WFHM, substantially in the form of Exhibit C hereto, dated the date hereof.  The Note shall bear interest on the unpaid principal amount thereof from the date thereof until paid as set forth in Section 2.4.

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Section 2.3  Making the Revolving Advances.  In order to obtain an Advance, Borrower shall electronically provide WFHM through the System with the following:

(a)              verified personal and credit information regarding the borrower(s);

(b)              loan registration information;

(c)              property and appraisal information;

(d)              underwriting approval information; and

(e)              a request for funding.

Upon fulfillment of the applicable conditions set forth in Article III hereof, WFHM shall disburse the amount of the requested Advance by crediting the same to the Collateral Account or in such other manner as WFHM and the Borrower may from time to time agree.  The Borrower shall be obligated to repay all Advances made based on Borrower’s submission of the above–referenced information.  Any request for an Advance, whether written or telephonic, shall be deemed to be a representation that the statements set forth in Section 3.2 are correct to the best of Borrower’s knowledge.

Section 2.4  Interest.  The Borrower shall pay interest on the unpaid principal balance of the Advances from time to time outstanding at the Interest Rate.  Interest accruing on the unpaid principal balance of the Advances during a month shall be payable on the fifteenth day of the month following the date of the Advance.

Section 2.5  Termination or Reduction of the Commitment. WFHM shall have the right at any time upon written notice to the Borrower to permanently terminate the Commitment for new registrations upon ten days written notice and demand payment in full of the outstanding principal balance of the Note and all accrued and unpaid interest thereon, for any reason or for no reason whatsoever, whether or not a Default or Event of Default has occurred.  Nothing contained in this Section 2.5 shall preclude or limit WFHM from terminating the Commitment and demanding payment of the Note upon the occurrence of an Event of Default as provided in Article V.

Section 2.6  Voluntary and Mandatory Prepayments.

(a)              The Borrower may prepay the principal balance of the Note then outstanding in whole or in part, without penalty or premium, at any time and from time to time; provided that any prepayment of the full amount of the Note shall include accrued interest thereon.

(b)              If the outstanding Advances shall on any date exceed the Commitment Amount, the Borrower shall immediately make a principal prepayment of the Note in an amount equal to the amount of such excess.

(c)              Any outstanding Advance must be repaid on the date the sale proceeds for the related Mortgage Loan are received from the Investor.

Section 2.7  Computation of Interest and Fees.  Interest under the Note and the fees hereunder shall be computed on the basis of actual number of days elapsed in a year of 360 days.

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Section 2.8  Payment.  All payment of principal and interest under the Note and of the fees hereunder shall be made to WFHM in immediately available funds.  The Borrower agrees that the amount shown on the books and records of WFHM as being the aggregate amount of Advances outstanding shall be prima facie evidence of the principal amount of the Note then outstanding.  Borrower agrees that the Investor will transmit the sale proceeds for each Eligible Mortgage Loan directly to WFHM.

Section 2.9  Payment on Nonbusiness Days.  Whenever any payment to be made hereunder or under the Note shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in each case be included in the computation of payment of interest on the Note or the fees hereunder, as the case may be.

Section 2.10  Use of Proceeds.  The proceeds of each Advance shall be used by the Borrower only to make, originate or acquire Mortgage Loans which have been registered for sale to any Investor (“Eligible Mortgage Loans”).

ARTICLE III

Conditions of Lending

Section 3.1  Initial Conditions Precedent.  The obligation of WFHM to make any Advance is subject to the condition precedent that WFHM shall have received on or before the day of the first Advance all of the following, each dated (unless otherwise indicated) as of the date hereof, in form and substance satisfactory to WFHM:

(a)The Note, properly executed on behalf of the Borrower.

(b)The Pledge and Security Agreement, properly executed on behalf of the Borrower.

(c)The Collateral Account Agreement, properly executed on behalf of the Borrower.

(d)A Certificate of a member of the Borrower, certifying as to (i) the resolutions of the Operating Committee of the Borrower authorizing the execution, delivery and performance of the Loan Documents, (ii) true and correct copies of the Borrower’s limited liability company or partnership agreement, and (iii) the signatures of the officers of the Borrowers authorized to execute and deliver such documents and other documents or certificates to be delivered pursuant to this Agreement on behalf of the Borrower, including requests for Advances. WFHM may conclusively rely on any such certificate until it shall receive a further certificate of the Secretary or member of the Borrower canceling or amending the prior certificate and submitting the signature of the officers named in such further certificate.

Section 3.2  Conditions Precedent to All Advances.  The obligation of WFHM to make any advance (including the initial Advance) shall be the subject to the further conditions precedent that on the date of such Advance:

(a)the representations and warranties contained in Article IV hereof are correct on and as of the date of such Advance as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date;

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(b)no event has occurred and is continuing, or would result from such Advance, which constitutes a Default or an Event of Default; and

(c)the aggregate outstanding Advances after such Advance is made would not exceed the Commitment Amount as of the date of such Advance.

ARTICLE IV

Representations and Warranties

The Borrower represents and warrants to WFHM as follows:

Section 4.1  Existence and Power.  The Borrower is a limited liability company validly organized, existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. The Borrower has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents.

Section 4.2  Authorization of Borrowing; No Conflict as to Law or Agreements.  The execution, delivery and performance by the Borrower of the Loan Documents and the borrowings from time to time hereunder have been duly authorized by all necessary company action and do and will not (i) require any consent or approval of the Borrower’s members or any authorization, consent or approval by any governmental authority or regulatory body, (ii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower, (iii) result in a breach of or constitute a default under any contract binding on or affecting the Borrower, or (iv) result in, or require, the creation, lien, security interest or other charge or encumbrance of any nature (other than the Pledge and Security Agreement) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower.

Section 4.3  Legal Agreements.  This Agreement constitutes, and the other Loan Documents, when executed and delivered by the Borrower hereunder, will constitute, the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except to the extent that enforcement thereof may be limited by any applicable bankruptcy, insolvency or similar laws now or hereafter in effect affecting creditor’s rights generally (other than fraudulent conveyance laws and preference laws) and by general principles of equity.

Section 4.4  Financial Condition.  The Borrower has heretofore furnished to WFHM its current financial statements. Those financial statements fairly present the financial condition of the Borrower on the dates thereof and the results of its operations for the periods then ended, and were prepared in accordance with GAAP except as otherwise contemplated by Borrower’s operating agreement.

Section 4.5  Adverse Change.  There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower since the date of the latest financial statement referred to in Section 4.4.

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Section 4.6  Litigation.  There are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the properties of the Borrower before any court, governmental agency or regulatory body or arbitrator, which may materially adversely affect the financial condition or operations of the Borrower.

Section 4.7  Licenses and Permits.  The Borrower has all federal, state and local licenses and permits required to be maintained in connection with the operation of its businesses, and all such licenses and permits are valid and fully effective. The Borrower is fully approved to originate FHA, VA and conventional  Mortgage Loans.

ARTICLE V

Events of Default, Rights and Remedies

Section 5.1  Events of Default.  “Event of Default”, wherever used herein, means any one of the following events:

(a)Default in the payment of any principal or interest on the Note when it becomes due and payable.

(b)Default in the payment of any fees required under this Agreement, when the same become due and payable.

(c)Default in the performance, or breach, of the covenant of the Borrower contained in Section 2.6(b) or (c).

(d)Default in the performance, or breach, of any material covenant or agreement of the Borrower in this Agreement or in any other Loan Document (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and the continuance of such default or breach for a period of 30 days after WFHM has given notice to the Borrower specifying such default or breach and requiring it to be remedied.

(e)Any representation or warranty made by the Borrower in any Loan Document or by the Borrower (or any of its officers) in any certificate, instrument, or statement contemplated by or made or delivered pursuant to or in connection with any Loan Document, shall prove to have been incorrect in any material respect when made.

(f)A default under any bond, debenture, note or other evidence of Debt of the Borrower (other than to WFHM) or under any indenture or other instrument under which any such evidence of debt has been issued or by which it is governed and the acceleration of payment of such Debt.

(g)Default in the payment of any amount owed by the Borrower to WFHM other than hereunder or under the Note.

(h)The Borrower shall be insolvent, or admit in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or the Borrower shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or for all or any substantial part of its property; or such receiver, trustee or similar officer shall be appointed without the application or consent of

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the Borrower and such appointment shall continue undischarged for a period of 30 days; or the Borrower shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against the Borrower; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Borrower and such judgment, writ, or similar process shall not be released, vacated or fully bonded within 30 days after its issue or levy.

(i)A petition shall be filed by or against the Borrower under the United States Bankruptcy Code naming the Borrower as debtor.

(j)The rendering against the Borrower of a final judgment, decree or order for the payment of money in excess of [Confidential Treatment Requested] and such judgment, decree or order shall remain unsatisfied and in effect for any period of 30 consecutive days without a stay of execution.

(k)A writ of attachment, garnishment, levy or similar process shall be issued against or served upon WFHM with respect to (i) any property of the Borrower in the possession of WFHM, or (ii) any indebtedness of WFHM to the Borrower.

Section 5.2  Rights and Remedies.  Upon the occurrence of an Event of Default or at any time thereafter until such Event of Default is cured to the written satisfaction of WFHM, WFHM may exercise any or all of the following rights and remedies:

(a)WFHM may declare the Commitment to be terminated, whereupon the same shall forthwith terminate.

(b)WFHM may, by notice to the Borrower, declare the entire unpaid principal amount of the Note then outstanding, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon such Note, all such accrued interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower.

(c)WFHM may exercise and enforce its rights and remedies under the Loan Documents.

Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Section 5.1(i) or 5.1(k) hereof, the entire unpaid principal amount of the Note then outstanding, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement shall be immediately due and payable without presentment, demand, protest or notice of any kind. NOTHING CONTAINED IN THIS ARTICLE V OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL PRECLUDE OR LIMIT WFHM FROM TERMINATING ITS COMMITMENT FOR NEW REGISTRATIONS UPON TEN DAYS WRITTEN NOTICE AND DEMANDING PAYMENT OF THE NOTE AT ANY TIME AND FOR ANY REASON OR FOR NO REASON AS PROVIDED IN SECTION 2.5.

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ARTICLE VI

Miscellaneous

Section 6.1  No Waiver; Cumulative Remedies.  No failure or delay on the part of WFHM in exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents.  The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law.

Section 6.2  Amendments, Etc.  No amendment, modification, termination or waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall be effective unless the same shall be in writing and signed by WFHM and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

Section 6.3  Notice.  Except as otherwise expressly provided herein, all notices and other communications hereunder shall be in writing and shall be (i) personally delivered, (ii) sent by certified mail, postage prepaid, (iii) delivery by overnight courier, or (iv) transmitted by telecopy if followed with a hard copy by regular mail, in each case addressed to the party to whom notice is being given at its address as set forth below and, if telecopied, transmitted to that party at its telecopier number set forth below:

If to WFHM:

Wells Fargo Home Mortgage, Inc.

1 Home Campus, X2401-06T

Des Moines, IA 50328-0001

Attn:  General Counsel

If to the Borrower (Both Members):

Wells Fargo Home Mortgage, Inc.,                           Community First Home Mortgage, Inc.

1 Home Campus, X2401-06T                                      520 Main Avenue

Des Moines, IA 50328-0001                                       Fargo, ND 58124-0001

Attn:  General Counsel                                                Attn:

or, as to each party, at such other address or telecopier number as may hereafter be designated in a notice by that party to the other party complying with the terms of this Section.  All such notices or other communications shall be deemed to have been given on (i) the date received if delivered personally, (ii) two Business Days after the date of posting if delivered by mail, (iii) one Business Day after deposit with an overnight courier for next Business Day Delivery, or (iv) the date of transmission if delivered by telecopy, except that notice or requests to WFHM pursuant to any of the provisions of Article II shall not be effective until received by WFHM.

Section 6.4  Costs and Expenses.  Each party agrees to pay to the other party all costs and expenses incurred (including the reasonable fees and out-of-pocket expenses of counsel) in connection with the enforcement during the term hereof or thereafter of any of the rights or remedies under any of the foregoing documents, instruments or agreements or under applicable law, whether or not arbitration is filed with respect, thereto.  All costs and expenses shall be payable on demand.

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Section 6.5  Execution in Counterparts.  This Agreement and the Pledge and Security Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts of this Agreement or the Pledge and Security Agreement, as the case may be, taken together, shall constitute but one and the same instrument.

Section 6.6  Binding Effect, Assignment.  This Agreement shall be binding upon and inure to the benefit of the Borrower and WFHM and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of WFHM.

Section 6.7  Governing Law.  The Loan Documents shall be governed by, and construed in accordance with, the substantive laws (other than conflict laws) of the State of Delaware.

Section 6.8  Arbitration. The parties agree to submit to binding arbitration any and all claims, disputes and controversies between or among them which cannot be resolved without arbitration, whether in tort, contract or otherwise (and their respective employees, officers, directors, attorneys, and other agents) arising out of or relating in any way to this Agreement or any exhibits hereto, and their negotiation, execution, administration, modification, extension, substitution, formation, inducement, enforcement, default or termination.  Arbitration under this Agreement and its exhibits shall be governed by the provisions regarding arbitration set forth in the Agreement of Limited Liability Company of Community First Mortgage, LLC, as amended from time to time.

Section 6.9  Severability of Provisions.  Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.

Section 6.10  Entire Agreement.  This Agreement and the other Loan Documents and related documents described herein embody the entire agreement and understanding between the Borrower and WFHM and supersede all prior agreements and understandings, oral or written, between WFHM and the Borrower.

Section 6.11  Acceptable to WFHM.  As used in this Agreement, the phrases “to the satisfaction of WFHM,” “acceptable to WFHM,” “acceptable to WFHM in WFHM’s sole discretion” or any similar phrase shall mean acceptable to WFHM in WFHM’s reasonable discretion.

Section 6.12  Headings.  Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

WELLS FARGO HOME MORTGAGE, INC.		COMMUNITY FIRST MORTGAGE, LLC
(WFHM)		(Borrower)
By:	By:
Printed Name:		Printed Name:
Its:		Its:

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Exhibit A

COLLATERAL ACCOUNT AGREEMENT

This Collateral Account Agreement, entered into effective November 1, 2001 is by and between Community First Mortgage, LLC (the “Borrower”), and Wells Fargo Bank Minnesota, National Association (the “Bank”) and Wells Fargo Home Mortgage, Inc. (“WFHM”).

WFHM and the Borrower have entered into a Credit Agreement dated contemporaneously herewith pursuant to which WFHM has agreed to make revolving advances to the Borrower in an aggregate principal amount not to exceed [Confidential Treatment Requested] (as the same may from time to time be amended, modified or supplemented, the “Credit Agreement”).  All terms used herein have the same meanings ascribed to such terms in the Credit Agreement.

The parties desire to establish the Collateral Account into which Advances will be deposited and payments and other proceeds of Collateral (as that term is defined in the Credit Agreement) will be received and held by the Bank.

Accordingly, the parties hereto agree as follows:

1.There shall be opened and maintained with the Bank a collateral bank account designated “ Community First Mortgage, LLC - Collateral Account” or similarly designated to WFHM’s and the Bank’s satisfaction (the “Collateral Account”).

2.The Collateral Account and all funds at any time on deposit therein shall constitute collateral security for any and all indebtedness now or hereafter at any time owing by the Borrower to WFHM under the Credit Agreement, whether or not then due. WFHM, through its agent the Bank, shall have full and exclusive dominion of and control over the Collateral Account and all funds at any time on deposit therein.

3.WFHM shall deposit all Advances made under the Credit Agreement into the Collateral Account, which Advances shall be used solely for the origination of Eligible Mortgage Loans by the Borrower.  The Borrower shall deposit into the Collateral Account, or shall direct the Bank to debit its operating account for, any additional funds necessary for the origination or acquisition of the Eligible Mortgage Loans to be funded with the deposited Advances.  Provided the Borrower is in compliance with the applicable conditions set forth in Article III of the Credit Agreement, the Bank shall payout all such Advances and other funds deposited into the Collateral Account pursuant to this paragraph according to the terms of the Credit Agreement.

4.The Borrower shall direct the Investor to make all payments with respect to Eligible Mortgage Loans, and shall promptly deposit all other proceeds of Collateral, by wire or other acceptable transfer, to the Bank for deposit in the Collateral Account.  To the extent the Borrower is in possession of any proceeds of Collateral, the Borrower will hold such proceeds separately in trust for WFHM until deposited in the Collateral Account.

5.WFHM may, from time to time, in its sole discretion, instruct the Bank to do any of the following or any combination thereof with respect to funds on deposit in the Collateral Account: (a) charge the Collateral Account and credit WFHM’s account to be applied as a payment of the unpaid principal amount of the outstanding Advances and accrued interest thereon; (b) retain the funds on deposit in the Collateral Account; or (c) release and transfer the funds to the Borrower’s operating account with the Bank for the Borrower’s general use.

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6.The Borrower shall have no right to withdraw any funds from the Collateral Account at any time and shall have no dominion or control over the funds at any time on deposit in the Collateral Account.

7.WFHM hereby acknowledges that it is responsible for the payment of all charges relating to the Collateral Account, including but not limited to account maintenance charges, fees for incoming and outgoing wire transfers and for any other credits or debits in accordance with Bank’s standard fee schedule.

WELLS FARGO HOME MORTGAGE, INC.	COMMUNITY FIRST MORTGAGE, LLC
	(Borrower)
By:	By:
Printed Name:	Printed Name:
Its:	Its:

WELLS FARGO BANK MINNESOTA,

NATIONAL ASSOCIATION

By:

Printed Name:

Its:

46

Exhibit B

PLEDGE AND SECURITY AGREEMENT

This Pledge and Security Agreement (the “Agreement”) entered into effective November 1, 2001 by and between Community First Mortgage, LLC, a limited liability company with its principal place of business in Fargo, North Dakota (the “Pledgor”), and Wells Fargo Home Mortgage, Inc. (“WFHM”).

RECITALS

The Pledgor and WFHM have entered into a Credit Agreement dated contemporaneously herewith (as amended or modified from time to time, the “Credit Agreement”), pursuant to which WFHM has agreed to extend a revolving credit facility to the Pledgor, on the condition, among others, that the Pledgor execute and deliver this Agreement to WFHM; and

The Pledgor finds it advantageous, desirable and in its best interest to comply with the condition that it execute and deliver this Agreement.

ACCORDINGLY, in consideration of the premises and of the mutual covenants herein contained and in order to induce WFHM to become a party to, and to extend credit under, the Credit Agreement, the parties hereto agree as follows:

Section 1.  DEFINITIONS

Each capitalized term used herein which is not otherwise defined herein shall have the meaning ascribed to such term in the Credit Agreement.  In addition, the following terms shall have the following respective meanings:

“Collateral” has the meaning specified in Section 2 hereof.

“Investor” means Wells Fargo Home Mortgage, Inc. and any other investor approved in writing from time to time by WFHM.  Approval of any investor can be withdrawn at any time by WFHM with 10 days written notice.

“Obligations” means all obligations of the Pledgor to WFHM now or hereafter existing under any Loan Document.

“Obligor” means a person or other entity who now or hereafter is or becomes liable to the Pledgor with respect to any of the Collateral.

“Pledged Mortgage Loans” means Mortgage Loans deemed to have been delivered to WFHM as provided in

Section 4.

Section 2.  PLEDGE

As collateral security for the due and punctual payment of the Obligations, and to secure performance of each obligation and the observance of each term and condition by the Pledgor to be performed or observed under the Credit Agreement, this Agreement and the other Loan Documents, the Pledgor does hereby pledge, hypothecate, assign, transfer and convey to WFHM, and assigns and grants to WFHM a security interest in and to the following described property now owned or hereafter acquired by the Pledgor (the “Collateral”):

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(a)all right, title and interest of the Pledgor in and to the Pledged Mortgage Loans and all promissory notes, or other instruments or agreements which evidence the Pledged Mortgage Loans;

(b)all right, title and interest of the Pledgor in and to all notes, real estate mortgages, deeds of trust, security agreements, chattel mortgages, assignments of rent and other security instruments whether now or hereafter owned, acquired or held by the Pledgor which secure (or constitute collateral for any note, instrument or agreement securing) any of the Pledged Mortgage Loans;

(c)all right, title and interest of the Pledgor in and to all financing statements perfecting the security interest of any of the Pledged Mortgage Loans or property securing any Pledged Mortgage Loans;

(d)all right, title and interest of the Pledgor in and to all guaranties and other instruments by which the persons or entities executing the same guarantee, among other things, the payment or performance of the Pledged Mortgage Loans;

(e)all right, title and interest of the Pledgor in and to all title insurance policies, title insurance binders, commitments or reports insuring or relating to any Pledged Mortgage Loan or property securing any Pledged Mortgage Loan;

(f)all right, title and interest of the Pledgor in and to all surveys, bonds, hazard and liability insurance, policies, and any other agreement, instrument or document pertaining to, affecting, obtained by the Pledgor in connection with, or arising out of, the Pledged Mortgage Loans;

(g)all right, title and interest of the Pledgor in and to all agreements to purchase any Pledged Mortgage Loans;

(h)all right, title and interest of the Pledgor in and to all collections on, and proceeds of or from, any and all of the foregoing (hereinafter collectively called “Collections”);

(i)all right, title and interest of the Pledgor in and to any other asset of the Pledgor which has been or hereafter at any time is delivered to WFHM hereunder;

(j)all files, surveys, certificates, correspondence, appraisals, tapes, discs, cards, accounting records, and other records, information, and data of the Pledgor relating to the Pledged Mortgage Loans (including all information, data, tapes, discs and cards necessary to administer and service such Pledged Mortgage Loans);

(k)all balances, credits and deposits of the Pledgor maintained in the Collateral Account; and

(l)any and all balances, credits, deposits, accounts or moneys of, or in the name of, the Pledgor representing or evidencing the foregoing.

Section 3.  REPORTS CONCERNING EXISTING COLLATERAL AND HEREAFTER ACQUIRED COLLATERAL

From time to time hereafter as reasonably requested by WFHM, the Pledgor will promptly give a written report to WFHM describing and listing each document, instrument or other paper which evidences, secures, guarantees, insures or pertains to any item of the Collateral whether now or hereafter owned, acquired or held by the Pledgor that the Pledgor has not theretofore delivered to an Investor.  Such written report shall contain sufficient information to enable WFHM to identify each such document, instrument or other paper.  The Pledgor (a) upon the request of WFHM,

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shall promptly provide additional information concerning, or a more complete description of, each such document, instrument or other paper and (b) at the request of WFHM, shall promptly deliver the same to WFHM.

Section 4.  DELIVERY OF COLLATERAL DOCUMENTS

(a)A Mortgage Loan closed and funded with the proceeds of an Advance shall be deemed to have been delivered under this Agreement when there shall have been electronically delivered to WFHM the information required by the Credit Agreement.  The Pledgor shall also comply with its obligation under this Pledge and Security Agreement to deliver to WFHM the instruments and documents described in the Transmittal Form.  The documents to be delivered pursuant to this Section 4(a) shall be delivered (including delivery by telecopy, as provided for above) to WFHM no later than 9:00 a.m. (Minneapolis time) on the Business Day on which the Advance is to be made for the purpose of funding such Mortgage Loan.

(b)Within five Business Days after receiving a written request from WFHM to deliver the same, the Pledgor shall deliver to WFHM the following:

(i)if any such exist, original guaranties, assignments of rents and other instruments and documents relating to security for and payment of such Mortgage Loan, together with duly executed assignments thereof;

(ii)a mortgagee’s title insurance policy (or commitment therefor) in the form of an American Land Title Association standard policy (revised coverage, most recent form) from a substantial and reputable title insurance company acceptable to FNMA and FHLMC in favor of the Pledgor insuring the lien of the mortgage securing such Mortgage Loan (subject only to such liens and encumbrances as are generally acceptable to reputable lending institutions, mortgage investors and securities dealers) or, if such a mortgagee’s title policy (or commitment therefor) is generally not available in the state in which the real property subject to such mortgage is located, an opinion of an attorney reasonably acceptable to WFHM to the effect that the mortgage securing such Mortgage Loan is a valid first lien free and clear of all other liens, encumbrances and restrictions, except such as are generally acceptable to reputable lending institutions, mortgage investors and securities dealers;

(iii)evidence satisfactory to WFHM that the premises covered by the Mortgage securing such Mortgage Loan is insured against fire and perils of extended coverage for an amount at least equal to the lesser of the full insurable value of such premises and the Collateral Value of such Mortgage Loan;

(iv)with respect to each Mortgage Loan secured by a Mortgage which is insured by FHA, insured by a private mortgage insurer or guaranteed by the VA, a certificate signed by an officer of the Pledgor that, as of the date of delivery thereof, the Pledgor either has possession of the applicable FHA insurance certificate, private mortgage insurance certificate or VA guarantee covering such Mortgage Loan, or has complied with all requirements and conditions for obtaining possession of such applicable FHA insurance certificate, private mortgage insurance certificate or VA guarantee;

(v)originals or photocopies, as WFHM may reasonably request, of surveys (or plat maps, if surveys are not available) and all other instruments, documents and other papers pertaining to each such Pledged Mortgage Loan; and

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(vi)the original of each Mortgage referred to in Section 2(b) hereof, together with satisfactory evidence of its recordation.

(c)All assignments executed and delivered by the Pledgor shall be in form and substance acceptable to and approved by WFHM.

(d)Any Transmittal Form delivered to WFHM hereunder, together with the documents accompanying any such Transmittal Form, shall conclusively be presumed to have been delivered to WFHM on behalf of the Pledgor notwithstanding that any such Transmittal Form shall not be signed or submitted by a person who has been authorized in writing to do so by the Pledgor through its Operating Committee or otherwise.

(e)The Pledgor will from time to time whenever an Event of Default exists, upon the request of WFHM, endorse and deliver to WFHM any draft, check, note, assignment or other writing which evidences a right to the payment of money which constitutes Collateral for deposit to the Collateral Account.

Section 5.  REPRESENTATIONS AND WARRANTIES

The Pledgor hereby represents and warrants that:

(a)All of the representations and warranties set forth in the Credit Agreement are true and correct;

(b)The Pledgor is the legal and equitable owner of the Collateral and its interests therein are free and clear of all liens, security interests, charges and encumbrances of every kind and nature (other than as created hereunder or under commitments to purchase by the Investor);

(c)No financing statement or other evidence of lien covering any of the Collateral is on file in any public office;

(d)The Pledgor has good right, power and lawful authority to pledge, assign and deliver the Collateral in the manner hereby done or contemplated;

(e)No consent or approval (other than any consents which may be incidental to any filing which may be necessary to perfect the security interests in the Collateral) of any governmental body, regulatory authority, person, trust, or entity is or will be (i) necessary to the validity of the rights created hereunder or (ii) required prior to the assignment, transfer and delivery of any of the Collateral to the Investor.

(f)To the Pledgor’s knowledge, no material dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Collateral;

(g)This Agreement constitutes the legal, valid and binding obligation of the Pledgor enforceable against the Pledgor and the Collateral in accordance with its terms (subject to limitations as to enforceability which might result from bankruptcy, reorganization, arrangement, insolvency or other similar laws affecting creditors’ rights generally) and by general principles of equity;

(h)In making and closing each Pledged Mortgage Loan, the Pledgor has fully complied with, and all collateral documents delivered with respect to such Pledged Mortgage Loans comply with, all applicable federal, state and local laws, regulations and rules, including, but not limited to, (i) usury laws, (ii) the Real Estate Settlement procedures Act of 1974, (iii) the Equal Credit Opportunity Act, (iv) the Federal Truth in Lending Act, (v) Regulation Z of the

50

Board of Governors of the Federal Reserve System; and (vi) all other consumer protection and truth-in-lending laws which may apply, and in each case with the regulations promulgated in connection therewith, as the same may be amended from time to time; and the Pledgor shall maintain sufficient documentary evidence in its files with respect to such Pledged Mortgage Loans to substantiate such compliance; and

(i)Immediately upon (A) the execution and delivery of the Credit Agreement, the Note and the other Loan Documents, (B) the delivery of the Collateral to the Investor as contemplated herein and (C) the filing of an appropriate financing statement in the appropriate filing office or offices, WFHM shall have a valid, first priority security interest and lien in the Collateral.

Section 6.  EVENTS OF DEFAULT; REMEDIES

If one or more Events of Default shall exist, then WFHM, in addition to any and all other rights and remedies which it may then have hereunder, under the Credit Agreement or any other Loan Document, under the Uniform Commercial Code of the State of Minnesota or of any other pertinent jurisdiction (the “Code”), or under any other instrument, or which WFHM may have at law, in equity or otherwise, may, at its option (a) in the name of the Pledgor, or otherwise, demand, collect, receive and receipt for, compound, compromise, settle and give acquittance for, and prosecute and discontinue any suits or proceedings in respect of any or all of the Collateral; (b) take any action which WFHM may deem necessary or desirable in order to realize on the Collateral, including without limitation, the power to perform any contract, endorse in the name of the Pledgor without recourse to the Pledgor any checks, drafts, notes or other instruments or documents received in payment of or on account of the Collateral; (c) enter upon the premises where any of the Collateral not in the possession of WFHM is located and take possession thereof and remove the same, with or without judicial process; (d) reduce the claims of WFHM to judgment or foreclosure or otherwise enforce the security interests herein granted and assigned, in whole or in part, by any available judicial procedure; (e) after notification, if any, provided for herein, sell, lease, or otherwise dispose of, at the office of WFHM, on the premises of the Pledgor, or elsewhere, all or any part of the Collateral, in its then condition or following any commercially reasonable preparation or processing, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one of more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust the power of sale granted hereby, but sales may be made from time to time, and at any time, until all the Collateral has been sold or until all Obligations have been fully paid and performed), and at any such sale it shall not be necessary to exhibit any of the Collateral; (f) at its discretion, retain the Collateral in satisfaction of the Obligations whenever the circumstances are such that WFHM is entitled to do so under the Code or otherwise; and (g) exercise any and all other rights, remedies and privileges which WFHM may have under this Agreement, or any of the other promissory notes, assignments, transfers of lien, and any other instruments, documents, and agreements executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement.  The Pledgor acknowledges and agrees that a sale of the Collateral to the Investor in accordance with its standard program shall be deemed commercially reasonable and preferable, and the Collateral is intended to be sold and that none of the Collateral is a type or kind intended by the Pledgor to be held for investment or any purpose other than for sale.

Section 7.  NOTICES

Reasonable notification of the time and place of any public sale of any Collateral, or reasonable notification of the time after which any private sale or other intended disposition of any of the Collateral is to be made shall be sent to the Pledgor and to any other person entitled under the Code to notice; provided, that if any of the Collateral threatens to decline speedily in value, or is of a type customarily sold on a recognized market, WFHM may sell or otherwise dispose of the Collateral without notification, advertisement, or other notice of any kind.  It is agreed that notice sent or given not less than fifteen (15) calendar days prior to the taking of the action to which the notice relates is reasonable notification and notice of the purposes of this Section 7 and that such

51

 notice is sufficient if it states only the number of Pledged Mortgage Loans to be sold and their aggregate outstanding principal balance, average interest rate, and average balance together with the time and place of sale.  All notices and other communications provided for in this Agreement shall be given to the parties at their respective addresses set forth in the Credit Agreement or, as to each such party, at such other address as shall be designated by such party in a written notice to the other parties.  All such notices and other communications shall be given by one or more of the means specified in Section 6.3 of the Credit Agreement, and upon being so given, shall be deemed to have been given as of the earliest time specified in said Section 6.3 for the means so used.

Section 8.  APPLICATION OF PROCEEDS

Until all Obligations owed to WFHM have been paid in full, any and all proceeds ever received by WFHM from any sale or other disposition of the Collateral, or any part thereof, or the exercise of any other remedy pursuant to Section 6 hereof, shall be applied by WFHM as follows:

First, to the payment of the out-of-pocket expenses of WFHM and the reasonable fees and out-of-pocket expenses of counsel employed in connection therewith, and to the payment of all costs and expenses reasonably incurred by WFHM in connection with the administration and enforcement of this Agreement (including, without limitation, the sale or other disposition of the Collateral) and to the payment of all advances made by WFHM for the account of the Pledgor hereunder to the extent that such costs and expense have not been reimbursed to WFHM, as the case may be;

Second, to the payment in full of the other Obligations; and

Third, the balance (if any) of such proceeds shall be paid to the Pledgor, its successors or assigns, or as a court of competent jurisdiction may direct, provided, that if such proceeds are not sufficient to satisfy the Obligations in full, the Pledgor shall remain liable to WFHM for any deficiency.

Section 9.  INDEMNIFICATION AND COSTS AND EXPENSES

The Pledgor will (a) pay all reasonable out-of-pocket expenses, including, without limitation, any recording or filing fees, fees of title insurance companies in connection with records or filings, costs of mortgage insurance policies and endorsements thereof and mortgage registration taxes (or any similar fees or taxes), incurred by WFHM in connection with the enforcement and administration of this Agreement (whether or not the transactions hereby contemplated shall be consummated), the Credit agreement and the other Loan Documents, and including, without limitation, the reasonable fees and disbursements of outside counsel for WFHM, (b) pay, and hold WFHM harmless from and against, any and all present and future stamp and other similar taxes with respect to the foregoing matters and save WFHM harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay by Borrower such taxes; and (c) indemnify, pay and hold harmless WFHM from and against any and all liabilities, obligations, losses, damages, penalties, judgments, suits, costs, expenses and disbursements of any kind whatsoever (the “Indemnified Liabilities”) which may be imposed on, incurred by or asserted against it in any way relating to or arising out of this Agreement, the Credit Agreement, the Loan Documents or any of the transactions contemplated hereby or thereby, unless the same are caused by the gross negligence or willful misconduct of WFHM.  The undertakings of the Pledgor set forth in this Section 9 shall survive the payment in full of the Note and the termination of this Agreement, the Credit Agreement and the other Loan Documents.

Section 10.  TERMINATION

This Agreement shall terminate when all the Obligations have been fully paid and performed and WFHM has no further Commitment under the Credit Agreement, at which time WFHM shall reassign and redeliver, without recourse upon, or representation or warranty by, WFHM and at the

52

expense of the Pledgor, to the Pledgor, or to such other person or persons as the Pledgor shall designate, against receipt, such of the Collateral (if any) as shall not have been sold or otherwise disposed of by WFHM pursuant to the terms hereof, of the Credit Agreement or of the other Loan Documents, and shall still be held by WFHM, together with the appropriate instruments of reassignment and release; provided, however, that this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time payment of any of the Obligations is rescinded or must otherwise be returned by WFHM or any other Person upon the insolvency, bankruptcy or reorganization of the Pledgor or otherwise, all as though such payment had not been made.

Section 11.  NON-ASSUMPTION OF LIABILITY; NO FIDUCIARY RESPONSIBILITY

Nothing herein contained shall relieve the Pledgor from performing any covenant, agreement or obligation on the part of the Pledgor to be performed under or in respect of any of the Collateral or from any liability to any party or parties having an interest therein or impose any liability on WFHM for the acts or omissions of the Pledgor in connection with any of the Collateral. WFHM shall not assume or become liable for, nor shall it be deemed or construed to have assumed or become liable for, any obligation of the Pledgor with respect to any of the Collateral, or otherwise, by reason of the grant to WFHM of a security interest in the Collateral.  While WFHM shall use reasonable care in the custody and preservation of the Collateral, WFHM shall not have any fiduciary responsibility to the Pledgor with respect to the holding, maintenance or transmittal of the Collateral delivered hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.

WELLS FARGO HOME MORTGAGE, INC.	COMMUNITY FIRST MORTGAGE, LLC
(WFHM)	(Venture)
By:	By:
Printed Name:	Printed Name:
Its:	Its:

53

Exhibit C

DEMAND NOTE

Bloomington, Minnesota

November 1, 2001

For value received the undersigned, Community First Mortgage, LLC, a limited liability company with its principal place of business in Fargo, North Dakota hereby promises to pay ON DEMAND to the order of Wells Fargo Home Mortgage, Inc. (“Lender”), at its office in Bloomington, Minnesota or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of [Confidential Treatment Requested] or, if less, the aggregate unpaid principal amount of all advances made by Lender to the undersigned hereunder, together with interest on the principal amount of all Advances hereunder remaining unpaid from time to time computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate or rates set forth in Section 2.4 of the Credit Agreement referred to below.  Interest accruing each month shall be payable on the first Business Day of the next succeeding month and at maturity or earlier if prepaid in full.  Interest accruing under this Note is subject to any restrictions contained in the Service Agreement between Lender and the undersigned.

This Note may be prepaid in whole at any time or from time to time in part, without penalty or premium, provided that any prepayment of the full amount of the Note shall include accrued interest thereon.

This Note is issued pursuant to, and is subject to, a Credit Agreement of even date herewith, by and between the undersigned and Lender, which, among other things, provides for acceleration of the maturity hereof upon the occurrence of an Event of Default (as defined in that Credit Agreement) and for mandatory prepayment hereof upon the occurrence of certain events.

All outstanding Advances under this Note are secured by a Pledge and Security Agreement of even date herewith from the undersigned to Lender, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments, or other instruments or agreements.

This Note shall be immediately due and payable (including unpaid interest accrued hereon) without demand or notice thereof upon filing of a petition by or against the undersigned under the United States Bankruptcy Code.

The undersigned hereby agrees to pay all costs of collection, including reasonable attorneys’ fees and legal expenses, in the event this Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

COMMUNITY FIRST MORTGAGE, LLC

By:

Printed Name:

Its:

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EX-10.21

Exhibit 10.21

COMMUNITY FIRST BANKSHARES, INC.

March 12, 2001

David Lee

Community First Bankshares, Inc.

Fargo, ND

RE: Severance Package and Notice of Termination of Change in Control Agreement

Dear David:

As a result of Community First Bankshares, Inc.’s (“CFB”) need to restructure its workforce and eliminate certain positions, we are offering you a severance package which recognizes your long term contributions to CFB.  By this reference, we also incorporate the terms of the Change in Control Agreement executed by you and CFB on December 1, 1998.  This letter (hereinafter “Agreement”) describes our agreement regarding the termination of your employment, no later than February 28, 2002 (the “Termination Date”).  This letter also serves as written notice terminating the Change in Control Agreement effective December 31, 2001, pursuant to Paragraph 2 thereof. If, after reading this letter, you feel there is any discrepancy between our conversations and the content of this letter, please contact me.

We are offering to provide you with the following benefits in connection with the termination of your employment with CFB:

(1)We will pay you a severance payment equal to two year’s base compensation at your most recent annual rate of pay, less all applicable federal and state tax and FICA withholdings.  You will have the option to receive this payment in either a lump-sum, or in bi-weekly installments beginning on CFB’s first bi-weekly payday, following expiration of the full rescission period for your release, or if later, the first bi-weekly payday following your Termination Date. If you should die before you receive all of your severance payments, any remaining severance payments will be paid to the personal representative of your estate.

(2)You will have the right, as of your Termination Date, to continue your group health, dental and/or vision coverage for up to 18 months, pursuant to applicable federal and state continuation coverage laws, including COBRA, provided you make the appropriate written elections to continue your group coverage.  CFB will pay the employer’s portion of such premium(s) for the duration of such continuation coverage, and you will be responsible for payment of the employee

share of such premium(s). Thereafter, you may also continue to participate in CFB’s then–current group insurance plan for an additional 24 months at your own expense, providing you are not eligible for coverage under another plan of group insurance. Information and election forms concerning continuation of your group health, dental and/or vision coverage will be mailed to you under separate cover.  All rights that you may have under CFB’s benefit plans are subject to the terms of the plans, applicable law and the continuation of said plans for active employees.

(3)We will pay you any accrued, unused PTO in your account as of your Termination Date.

(4)You will be entitled to receive 401(k) Plan contributions to your Plan accounts for Plan Year 2001, based upon your earnings.

(5)The Company will modify, in the form attached hereto as Exhibit B, the incentive stock options granted to you in 1998, 2000 and 2001 and the nonqualified stock options granted to you in 1998, 1999, 2000 and 2001 to permit such options to be exercisable for the original term of the option (i.e., ten years [five years with respect to options granted in 1998] from the option date, as defined in the option agreement) without regard to your termination of employment, and to permit options that are not vested as of your Termination Date to continue to vest and become exercisable in accordance with the terms of that option agreement without regard to your termination of employment. All other terms of each option agreement, including the installment exercise of options as set forth in Section 3 of the option agreement, shall remain in effect. Options granted in 1997 and incentive stock options granted in 1999 shall not be modified pursuant to this Agreement to further extend their vesting or exercise period, and shall be exercisable in accordance with their present terms (i.e., exercisable within 30 days of your termination of employment).

(6)You will be entitled to participate in CFB’s Annual Incentive Compensation Plan at the participation level established for you by CFB as of December 31, 2001.

Where applicable, benefits will also be available to you in connection with or following your Termination Date under the CFB Flexible Benefit Plan and other CFB benefit programs, as applicable.  These benefits will be handled in accordance with the terms and conditions of those plans.  You are not eligible to participate in any such plans following your Termination Date unless otherwise required or permitted pursuant to applicable law.

The premium payments in (2) will be made on a timely basis on your behalf contingent upon your payment on a timely basis of your share of employee premiums.  The payment in (3) will be made with your first bi-weekly payment or lump sum payment under (1).

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The Plan contributions described in (4) above shall be made at the same time as contributions for active CFB employees are made.

In consideration of CFB’s payment of the benefits as provided in this Agreement which CFB is not otherwise required to provide, you agree to the following:

1.Waiver and Release of Claims

You, for yourself, your heirs, successors, assigns, and anyone who has or obtains any legal rights or claims through you, hereby fully waive, release and discharge CFB and its subsidiaries and their past and present directors, officers, shareholders, agents, employees, attorneys, successors, insurers, indemnitors, and assigns (the “Releasees”) from any and all legal and equitable claims, actions, demands, damages, or liabilities of any nature, including, without limitation, breach of contract, wage or benefit claims, promissory estoppel, misrepresentation, wrongful discharge, defamation and discrimination of any kind or any other tort claims, under any federal, state or municipal law or ordinance, and specifically including rights or claims under the federal Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Americans With Disabilities Act, and applicable state human rights laws, whether known or unknown, arising out of or in any way connected with any matter, fact, or thing relating to your employment and separation from employment with CFB and existing prior to the date of your signature on this Agreement, except for claims to the benefits provided for in this Agreement.  You understand that you are not waiving any claims or rights which you may have which arise after you sign this waiver and release.  You certify that you have not filed any claims, complaints or other actions against any Releasee and to the full extent permitted by law will not cause or permit to be filed (to the extent you are able to control such filing) any claim, complaint, or action of any nature or type against any Releasee. You are advised by CFB to review your rights and responsibilities under this Agreement with your own lawyer. You understand that you have 21 days to consider signing this Agreement from the date it is first given to you.  If you sign this Agreement before 21 days has elapsed, you will be voluntarily waiving your right to the full 21-day review period.

You acknowledge that CFB specifically denies that it is responsible or legally obligated to you for any claims you may have, other than claims to enforce your rights to the benefits provided for under this Agreement.  This Agreement and the payment required under it fully resolve any and all differences CFB and you may have regarding your employment and separation from employment with CFB.  This Agreement supersedes all prior written and oral agreements between CFB and you, except for any written or legal obligations which you have to CFB under any agreement not to disclose any of CFB’s confidential information or trade secrets, not to compete with CFB, or not to solicit CFB customers, employees or other valuable business contacts.

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2.Right to Rescind

You understand that this Agreement is governed by United States and applicable state laws and that you may change your mind and rescind it within seven (7) days after signing it, by delivering a written notice to Mark Anderson, CEO, Community First Bankshares, Inc., 520 Main Avenue, Fargo ND 58124-0001, by hand or mail within the seven (7) day period.  You also understand that this Agreement will become effective and enforceable only after the rescission period has expired.  If you rescind this Agreement, CFB will owe you no benefits as provided under this Agreement following your termination.  You understand that if you violate any terms of this Agreement while you are receiving the benefits provided for above, that payments and provision of all remaining benefits to you will cease immediately and your obligations herein provided shall remain in effect, in consideration of all the benefits which you will have received prior to said violation by you.

3.Return of Property

You certify that upon your termination date you will return all CFB property in your possession and all copies thereof, including but not limited to all keys, equipment, proprietary technology, all CFB documents or computerized transcriptions thereof, including any CFB Confidential Information as defined in paragraph 4 below, and any other property in your possession belonging to CFB.

4.Confidential Information

Effective upon your signature below, you agree that you will not divulge, communicate or use for your benefit or the benefit of any person outside CFB any of CFB’s Confidential Information.  Confidential Information includes but is not limited to CFB’s trade secrets, records, data, customer and prospective customer lists and information, short term and long range plans, all financial information, including sales, specific customer account sales, gross margin information, operating expense and information, competitive strategies and pricing information, procurement resources, information concerning CFB’s business or its manner of operation, personnel information, sales and marketing strategies and information, and any other confidential or technical information which you have obtained during your employment with CFB.  Confidential Information shall mean information not generally known in the business community that has been disclosed to you and is known to you as a consequence of your employment by CFB.  You will not disclose any such information to any person, firm, corporation, association or other entity for any reason whatsoever.  Confidential Information also includes the terms and existence of this Agreement, which may be disclosed by you only to your immediate family, attorney or tax advisor, except as otherwise required by court order.

5.Non-disparagement

Effective upon your signature below, you agree not to (a) make, either directly or indirectly, any derogatory or negative comments of any kind, either oral or written, to any person or organization about CFB or any officer, director, shareholder, employee or any other person affiliated with CFB which would in any way interfere with any of CFB’s business relationships.

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6.Opportunity for Review

Your signature below acknowledges that you have read this Agreement carefully and understand all its terms; that you have had full opportunity to consult with an attorney before signing it; that you are signing it knowingly and voluntarily, and that you have not relied upon any representations by any CFB employee, agent or attorney.

You are hereby notified that CFB elects to terminate your Change in Control Severance Agreement upon its expiration effective December 31, 2001, pursuant to Paragraph 2 of that Agreement dated December 1, 1998.  In the event the Board of Directors extends that Agreement prior to its expiration on December 31, 2001, you will be eligible to participate in such extension until December 31, 2002.

This Agreement shall not in any way be construed as an admission of liability by CFB or an admission that CFB has acted wrongfully with respect to you.  CFB specifically denies and disclaims any such liability or wrongful acts.

In the event that any provision of this Agreement is found to be illegal or unenforceable, such provision will be severed or modified to the extent necessary to make it enforceable, and as so severed or modified, the remainder of this Agreement shall remain in full force and effect.

This Agreement shall be interpreted, construed, and enforced in accordance with the laws of the State of North Dakota, other than its law dealing with conflicts of law.

We ask you to declare that you have entered into this Agreement voluntarily, without coercion or duress, and with the opportunity to review its contents with legal counsel should you desire.

[Remainder of page intentionally left blank]

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If this letter accurately reflects our understanding and agreement, please sign the original and copy and return the original to me.  The copy is for your file.

Sincerely,

COMMUNITY FIRST BANKSHARES, INC.

By:	/s/ Mark A. Anderson
Its:		President

Read and agreed to, with declarations

confirmed, this 13th day of March 2001.

David Lee

/s/ David A. Lee	March 13, 2001
Signature	Date

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EXHIBIT A

TO

RELEASE AGREEMENT

                            , 2001

Community First Bankshares, Inc.

Attn: Mark Anderson

520 Main Avenue

Fargo, North Dakota 58124-0001

Dear Mark:

This letter, dated more than 7 days after I signed the agreement between Community First Bankshares, Inc. and me dated             , 2001 is to certify that I have taken no steps to exercise my 7 day right of rescission, as described on page 3 of the agreement.

Very truly yours,

________________________

David Lee

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EXHIBIT B

AMENDMENT TO STOCK OPTION AGREEMENTS

THIS AGREEMENT, made as of this         th day of March, 2001, amends the following Stock Option Agreements between COMMUNITY FIRST BANKSHARES, INC., a Delaware corporation (hereinafter called the “Company”), and DAVID LEE, an employee of the Company or one or more of its subsidiaries (hereinafter called the “Optionee”):

Grant Date of Options	Option Type	Original Number of Shares Subject to Option
1998	ISO	6,414
1998	NQSO	3,586
1999	NQSO	9,125
2000	ISO	7,299
2000	NQSO	27,701
2001	ISO	5,177
2001	NQSO	19,823

WHEREAS, the Company and Optionee have entered into a Separation Agreement of even date herewith, which, among other terms, requires that the exercise period of the above options be extended as set forth herein;

THEREFORE, in consideration for the mutual covenants in that Agreement, the parties hereto agree that the above described Stock Option Agreements be and hereby are amended as follows:

1.Section 5 of the Option Agreement be amended in its entirety to read as follows:

Termination of Employment.   In the event the employment of the Optionee shall terminate other than as a result of the Optionee’s deliberate, willful or gross misconduct, any portion of the Option that is not vested on the date of such termination shall continue to be exercisable in installments in accordance with paragraph 3 and this Option shall terminate and be deemed canceled if not exercised prior to the expiration of the term specified in paragraph 3 hereof. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the employ of the Company or any of its subsidiaries or interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time.

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2.Section 6 of the Option Agreement shall be amended in its entirety to read as follows:

Death of Optionee.   If the Optionee shall die, the Option shall be exercisable as to the may be exercised by the person to whom the Option is transferred by will or the applicable laws of descent and distribution at any time within six (6) months after the Optionee’s death, but in no event later than the expiration of the term specified in paragraph 3 hereof.

3.Section 7 of the Option Agreement shall be deleted in its entirety and replaced with the following:

[RESERVED]

4.Except as set forth above, the terms and conditions of each Stock Option Agreement be and hereby shall remain in full force and effect including, but not limited to, the exercise price per Share upon exercise and the date of expiration of the Option specified in paragraph 3 therein. Nothing herein is intended to, nor shall it be construed so as to cause the incentive stock option granted in 1998 to fail to so qualify under Section 421 of the Code if and to the extent such option is exercised within 90 days of the Optionee’s termination of employment or within six months of the date of death.

IN WITNESS WHEREOF, the Company and the Optionee have executed this Amendment to the above described Option Agreements as of the day and year first above written.

COMMUNITY FIRST BANKSHARES, INC.
By
	Its President & CEO
David Lee, Optionee

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EX-13

	Years ended December 31
	2001			2000			1999			1998			1997
	(In thousands, except per share date)
EARNINGS
Total intrest income	$	434,016		$	477,558		$	465,206		$	467,270		$	342,789
Total interest expense	162,220			210,281			185,818			194,787			140,488
Net interest income	271,796			267,277			279,388			272,483			202,301
Net income	65,059			71,634			74,913			45,463			60,865
PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings per share	$	1.59		$	1.55		$	1.5		$	0.90		$	1.31
Diluted earnings per share	1.57			1.54			1.48			0.89			1.27
Net book value	8.86			8.25			8.12			8.49			8.11
Dividends paid	0.68			0.60			0.56			0.44			0.35
AT YEAR - END
Total assets	$	5,772,326		$	6,089,729		$	6,302,235		$	6,239,772		$	5,660,218
Total loans	3,736,692			3,738,202			3,690,353			3,537,537			3,160,501
Allowance for loan losses	54,991			52,168			48,878			51,860			41,387
Total deposits	4,750,813			5,019,891			4,909,863			5,101,065			4,341,065
Common equity	356,705			345,431			407,269			424,656			405,039
KEY PERFORMANCE RATIOS
Return on average common equity	18.66		%	19.90		%	18.07		%	11.03		%	19.04		%
Return on average assets	1.11		%	1.16		%	1.20		%	0.75		%	1.42		%
Net interest margin	5.23		%	4.90		%	5.06		%	5.12		%	5.35		%
Dividend payout ratio	43.31		%	38.96		%	37.84		%	49.44		%	27.56		%
Average common equity to average assets	5.95		%	5.83		%	6.64		%	6.83		%	7.44		%
Nonperforming assets to period-end loans and OREO	0.64		%	0.70		%	0.88		%	0.78		%	0.65		%
Allowance for loan losses to period-end loans	1.47		%	1.40		%	1.32		%	1.47		%	1.31		%
Allowance for loan losses to nonperforming loans	261		%	221		%	188		%	228		%	271		%
Net charge-offs to average loans	0.39		%	0.34		%	0.66		%	0.43		%	0.24		%
Tier 1 capital	8.67		%	8.13		%	10.01		%	9.44		%	11.54		%
Total risk-based capital	11.11		%	10.73		%	12.45		%	12.09		%	14.89		%
Leverage ratio	6.51		%	5.94		%	7.16		%	6.47		%	7.53		%
Efficiency ratio	63.02		%	62.57		%	59.87		%	67.01		%	61.98		%
EARNINGS PER SHARE AND RATIOS EXCLUDING GOODWILL AND OTHER INTANGIBLE ASSETS AMORTIZATION AND BALANCES
Diluted earnings per share	$	1.74		$	1.70		$	1.62		$	1.06		$	1.37
Return on assets	1.25		%	1.30		%	1.35		%	0.92		%	1.54		%
Return on average common equity	20.67		%	21.94		%	19.84		%	13.20		%	20.45		%
Efficiency ratio	60.23		%	59.58		%	56.95		%	63.47		%	59.73		%

MANAGEMENT'S DISCUSSION AND ANALYSIS

Community First Bankshares, Inc.

BASIS OF PRESENTATION

The following represents management’s discussion and analysis of Community First Bankshares. Inc.’s (the “Company”) financial condition as of December 31, 2001 and 2000, and its results of operations for the years ended December 31, 2001, 2000 and 1999. This discussion should be read in conjunction with the consolidated financial statements and related footnotes and the five year summary of selected financial data. The information has been restated to reflect significant mergers accounted for as a pooling of interests as if they had occurred at the beginning of the first period presented.

MERGER AND ACQUISITION ACTIVITY

The Company made two bank acquisitions during the periods reported in the financial statements. Each of these acquisitions has had an effect upon the Company’s results of operations and financial condition.

In the following transactions during the periods presented, the Company accounted for the acquisition using the pooling of interests method.

POOLING OF INTERESTS TRANSACTIONS

Acquisition Month and Year	Location of Bank	Number of Locations at Date of Acquisition	Total Assets at Date of Acquisition
			(in Millions)
December 1999	Ramsey, Minnesota	1	$	35
October 1999	El Cajon, California	6	252

On December 21, 1999, the Company issued approximately 317,000 shares of common stock to acquire River Bancorp, Inc. (“River Bancorp”), a one-bank holding company headquartered in Ramsey, Minnesota. At acquisition, Ramsey had approximately $35 million in assets at one office in Ramsey, Minnesota. Because this acquisition was not material to the Company’s financial condition or operating results, the Company’s financial information has not been restated to reflect this merger.

On October 7, 1999, the Company issued approximately 3,022,000 shares of common stock to acquire Valley National Corporation (“Valley National”), a one-bank holding company headquartered in El Cajon, California. At acquisition, Valley National had approximately $252 million in assets at six banking offices located in California. The Company’s results of operations and financial condition have been restated for all historical periods.

CRITICAL ACCOUNTING POLICIES

The Company has established various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of the Company’s financial statements. The significant accounting policies of the Company are described in the footnotes to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. Refer to the section entitled Allowance for Loan Losses and Footnote 1, Significant Accounting Policies for a detailed description of the company's estimation process and methodology related to the allowance for loan losses.

OVERVIEW

GENERAL

For the year ended December 31, 2001, the Company reported net income of $65.1 million, a decrease of $6.5 million, or 9.1%, from the $71.6 million earned during 2000. Diluted earnings per share were $1.57, compared to $1.54 in 2000. Return on average assets was 1.11% for 2001, compared with 1.16% for 2000. Return on average common shareholders’ equity for 2001 and 2000 was 18.66% and 19.90%, respectively. The decrease in return on assets and return on equity is principally due to a reduction in net income, caused primarily by a one-time after-tax charge recorded in the first quarter of 2001 related to the impact of a $5.1 million restructuring charge and a $1.5 million special loan loss provision to maintain the current loan loss reserve level, after the Company charged off its largest non-performing asset.

For the year ended December 31, 2000, the Company reported net income of $71.6 million, a decrease of $3.3 million, or 4.4%, from the $74.9 million earned during 1999. Diluted earnings per share were $1.54, compared to $1.48 in 1999. Return on average assets was 1.16% for 2000, compared with 1.20% for 1999. Return on average common shareholders’ equity for 2000 and 1999 was 19.90% and 18.07%, respectively. The decrease in return on assets is principally due to a reduction in net income, while the increase in return on equity is principally due to a reduction in total stockholders’ equity as a result of the Company’s stock repurchase initiative.

Total assets were $5.8 billion and $6.1 billion at December 31, 2001 and 2000, respectively. The decrease of $317 million, or 5.2%, during 2001 was principally due to the Company’s planned balance sheet contraction.

Strategic Initiative and Related Restructuring Charge

During the first quarter of 2001, the Company announced a series of strategic initiatives designed to improve customer service and strengthen its position as a provider of diversified financial services. Initiatives included a redefinition of the Company’s delivery model and the sale or closure of banking offices.

In an effort to properly align resources with market opportunities and provide the delivery support structure to optimize individual market

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potential, each of the Company’s offices was redefined as either a Regional Financial Center or a Community Financial Center. Regional Financial 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 insurance and investment product sales.

In conjunction with the restructuring of the banking network, the Company sold 13 offices and closed eight additional offices. Offices sold included nine Arizona offices, three Nebraska offices and one office in North Dakota. Four of the eight offices closed were located in communities where the Company maintains one or more additional offices, thus the Company continues to serve those customers from existing locations.

The initiatives resulted in changes in staffing needs within the Company. To accommodate these staffing needs, the Company made available an early-out program that was accepted by 21 eligible management personnel.

As a result of these initiatives, the Company recorded a one-time after-tax restructuring charge totaling $5.1 million, or $0.12 per share, during the first quarter. The restructuring charge included approximately $3.1 million related to asset write-down, data processing, and legal and accounting fees. Additionally the Company recorded an after-tax expense of approximately $2.0 million to provide for severance-related costs associated with the early-out and reduction-in-force programs.

As of December 31, 2001, all expected expenditures associated with the restructuring have been recognized and recorded, including the identification of specific personnel affected by the reduction in work force. Certain severance-related payments to affected individuals will occur during 2002.

In preparation for the sale of the nine Arizona offices, the Company charged off its largest non-performing asset, a credit facility that originated in the Arizona bank prior to the Company’s acquisition of the Arizona operation in 1997. To maintain the current loan loss reserve level, the Company recorded a special loan loss provision equal to the amount of the charge-off. The special provision of $2.4 million, or approximately $0.04 per share after tax was recorded during the first quarter.

Under the redesigned delivery structure, the Company began implementation of a centralized consumer credit process. When fully operational, the centralized structure will offer a complete range of decision, origination, documentation and collection services to all Company offices through a Fargo, North Dakota, location. As of December 31, 2001, decision making, documentation and collection services for indirect consumer loans have been centralized.

During the first quarter, the Company completed the consolidation of its South Dakota state chartered bank into its national chartered bank. As a result of the consolidation, all banking operations are conducted under a single national charter.

Mortgage Loan Joint Venture

In June 2001, the Company, through its subsidiary bank, and Wells Fargo & Company formed a joint venture mortgage company named Community First Mortgage, LLC. This joint venture mortgage company provides mortgage origination, documentation, servicing process and support for all of the residential mortgage business of the Company. The joint venture provides the Company with access to competitive technology and the benefits of future technological developments, as well as expertise in the processing and loan servicing of mortgage products. The alliance allows the Company to expand its mortgage origination business through access to a broader range of mortgage products, while improving efficiency and reducing operating, credit and capital market risks. The Company has a 50% equity stake in the joint venture and recorded its initial investment of $125,000 and its continuing share of the income or loss of the joint venture under the equity method. As a result of the formation of the joint venture, mortgage originations will be effected through the joint venture rather than through the Company. Accordingly, related loan fees and net interest margin will decrease modestly in 2002. Because the Company has sold most loans of this type in the past, the Company does not anticipate any material change in loans recorded in its financial statements.

Stock Repurchase Plan

The Company adopted a sequence of three common stock repurchase programs providing for the systematic repurchase of the Company’s common stock in addition to shares available under existing programs. In August 2001, the Company adopted a common stock repurchase program providing for the systematic repurchase of up to 3 million shares of the Company’s common stock. In August 2000, the Company adopted a common stock repurchase program providing for the systematic repurchase of up to an additional 5 million shares of the Company’s common stock. In April 2000, the Company adopted a common stock repurchase program providing for the initial repurchase of up to 5 million shares. Under each program, the shares were to be purchased primarily on the open market, with timing depending upon market conditions. Adoption of the three programs provides the Company with an alternative opportunity for capital utilization. In addition, the shares acquired can be used for the issuance of common stock upon exercise of stock options, under the Company’s compensation plans and for other purposes, including business combinations. As of December 31, 2001, the Company had repurchased 10.8 million shares of common stock under these plans, at prices ranging from $15.25 to $25.00. The Company repurchased 2 million and 8.8 million shares of common stock under the programs during 2001 and 2000, respectively.

RESULTS OF OPERATIONS

Net Interest Income

The principal source of the Company’s earnings is net interest income, the difference between total interest income on earning assets such as loans and investments and interest paid on deposits and other interest-bearing liabilities. The net interest margin is net interest income, on a tax-equivalent basis, expressed as a percentage of average earning assets. The margin is affected by volume and mix of earning assets and interest-bearing liabilities, the level of interest- free funding sources, interest rate environment, and income tax rates. As discussed later, management actively monitors its interest rate sensitivity and seeks to balance assets and liabilities to minimize the impact of changes in the interest rate environment.

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The following table presents the Company’s average balance sheets, interest earned or paid and the related yields and rates on major categories of the Company’s earning assets and interest-bearing liabilities on a tax-equivalent basis for the periods indicated:

	Years Ended December 31
	2001						2000						1999
	Average Balance		Interest		Interest Yields and Rates		Average Balance		Interest		Interest Yields and Rates		Average Balance		Interest		Interest Yields and Rates
	(Dollars in thousands)
ASSETS
Loans (1) (2)	$	3,785,553	$	341,287	9.02	%	$	3,706,144	$	357,034	9.63	%	$	3,573,060	$	336,229	9.41	%
Investment securities (2)	1,561,896		100,602		6.44	%	1,909,479		128,490		6.73	%	2,104,661		136,775		6.50	%
Other earning assets	11,923		391		3.28	%	12,375		628		5.07	%	24,886		1,277		5.13	%
Total earning assets	5,359,372		442,280		8.25	%	5,627,998		486,152		8.64	%	5,702,607		474,281		8.32	%
Noninterest earning assets	500,240						551,194						542,687
Total assets	$	5,859,612					$	6,179,192					$	6,245,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing checking	872,642		9,943		1.14	%	845,079		13,437		1.59	%	920,521		13,345		1.45	%
Savings deposits	971,915		19,428		2.00	%	1,059,736		35,673		3.37	%	1,091,228		31,558		2.89	%
Time deposits	2,053,548		109,171		5.32	%	2,132,327		120,171		5.64	%	2,099,426		106,235		5.06	%
Short-term borrowings	361,563		15,001		4.15	%	568,540		34,303		6.03	%	557,920		28,052		5.03	%
Long-term borrowings	133,030		8,677		6.52	%	95,814		6,697		6.99	%	97,732		6,628		6.78	%
Total interest-bearing liabilities	4,392,698		162,220		3.69	%	4,701,496		210,281		4.47	%	4,766,827		185,818		3.90	%
Demand deposits	921,855						931,556						880,484
Noninterest-bearing liabilities	76,383						66,138						63,339
Trust owned preferred securities	120,000						120,000						120,000
Preferred shareholders’ equity	0						0						0
Common shareholders’ equity	348,676						360,002						414,644
	1,466,914						1,477,696						1,478,467
Total liabilities and shareholders’ equity	$	5,859,612					$	6,179,192					$	6,245,294
Net interest income			$	280,060					$	275,871					$	288,463
Net interest spread					4.56	%					4.17	%					4.42	%
Net interest margin					5.23	%					4.90	%					5.06	%

(1)           Includes nonaccrual loans and loan fees.

(2)           Interest yields on loans and investments are presented on a tax-equivalent basis to reflect the tax-exempt nature of certain assets. The incremental tax rate applied was 35%.

The following table presents the components of changes in net interest income by volume and rate on a tax-equivalent basis. The net change attributable to the combined impact of volume and rate has been allocated solely to the change in volume:

	2001 COMPARED TO 2000									2000 COMPARED TO 1999
	Volume			Rate			Total			Volume			Rate			Total
	(In thousands)
Interest income:
Loans (1)	$	7,650		$	(23,397	)	$	(15,747	)	$	12,523		$	8,282		$	20,805
Investment securities (1)	(23,389		)	(4,499		)	(27,888		)	(12,684		)	4,399			(8,285		)
Other earning assets	(23		)	(214		)	(237		)	(642		)	(7		)	(649		)
Total interest income	$	(15,762	)	$	(28,110	)	$	(43,872	)	$	(803	)	$	12,674		$	11,871
Interest expense:
Savings deposits and interest-bearing checking	(2,518		)	(17,221		)	(19,739		)	(2,004		)	6,211			4,207
Time deposits	(4,440		)	(6,560		)	(11,000		)	1,665			12,271			13,936
Short-term borrowings	(12,488		)	(6,814		)	(19,302		)	534			5,717			6,251
Long-term borrowings	2,601			(621		)	1,980			(130		)	199			69
Total interest expense	$	(16,845	)	$	(31,216	)	$	(48,061	)	$	65		$	24,398		$	24,463
Increase (decrease) in net interest income	$	1,083		$	3,106		$	4,189		$	(868	)	$	(11,724	)	$	(12,592	)

(1)           Fees on loans have been included in interest on loans. Interest income is reported on a tax-equivalent basis.

5

Net interest income on a tax-equivalent basis in 2001 was $280.1 million, a $4.2 million decrease from 2000. The decrease was primarily due to a 4.8% decrease in earning assets partially offset by a 33 basis point increase in the net interest margin. The decrease in earning assets is the result of the Company’s planned balance sheet contraction, principally in the reduction of average investment securities, offset by an increase in average loans. Average investment securities in 2001 were $348 million less than in 2000. Average loans in 2001 increased $79 million from the 2000 average. Net interest income on a tax-equivalent basis in 2000 was $275.9 million, a $12.6 million decrease from 1999. The decrease was primarily due to a 1.3% reduction in earning assets and a 16 basis point reduction in the net interest margin.

                The net interest margin was 5.23%, 4.90%, and 5.06% in 2001, 2000 and 1999, respectively. This increase in margin was due to a 39 basis point increase in the yield spread between 2000 and 2001, and a change in the mix of earning assets and liabilities to higher-yielding assets. Average loans to average earning assets was 70.6% in 2001 compared to 65.9% in 2000 and to 62.7% in 1999.

Provision for Loan Losses

Annual fluctuations in the provision for loan losses result from management’s regular assessment of the adequacy of the allowance for loan losses. The provision for loan losses for 2001 was $17.5 million, an increase of $1.7 million or 10.8%, from the $15.8 million provision during 2000. The increase in the loan loss provision was principally due to the Company’s credit experience as reflected in an increase in the level of net charge-offs and a $2.4 million charge-off of the Company’s largest non-performing asset, an Arizona-based credit facility that was in place when the Company acquired its initial Arizona operation in 1997. The amount of the loan loss provision to be recorded in future periods will depend on management’s assessment of the adequacy of the allowance for loan losses in relation to the entire loan portfolio. The provision for loan losses for 2000 was $15.8 million, a decrease of $4.4 million, or 21.8% from the 1999 provision of $20.2 million. The decrease was primarily due to the operation and disposal of the Company’s sub-prime lending affiliates in 1999.

Noninterest Income

The Company continues to expand noninterest income associated with the Company’s community banking operations. The primary sources of noninterest income consist of service charges on deposit accounts, insurance commissions, fees from the sale of investment products and fees for trust services. Management is working to increase the contribution of noninterest income to operating results by increasing the delivery of financial products and services, including trust services, insurance policy sales and security sales through a third party provider of standardized securities products.

                Noninterest income for 2001 was $76.7 million, an increase of $1.5 million, or 2.0%, from the $75.2 million earned in 2000. The increase was principally due to an increase of $1.9 million or 17.9% in insurance commissions to $12.5 million, from $10.6 million in 2000, and an increase of $739,000 in net gains on sales of investment securities, to $804,000 in 2001 from $65,000 in 2000. Service charges on deposit accounts decreased $580,000, or 1.5%, from $39.5 million in 2000 to $39.0 million in 2001. Commissions from the sale of investment securities decreased to $6.6 million in 2001 from $6.8 million in 2000, a decrease of $161,000 or 2.4%, due primarily to a softer market for investment products. Trust revenue decreased $150,000, or 2.6%, to $5.7 million in 2001 from $5.8 million in 2000.

                Noninterest income for 2000 was $75.2 million, an increase of $2.7 million, or 3.7%, from the $72.5 million earned in 1999. The increase was principally due to an increase in service charges on deposit accounts in 2000 to $39.5 million from the $37.0 million in 1999, an increase of $2.5 million, or 6.8%. Insurance commissions increased to $10.6 million in 2000, from $8.8 million in 1999, an increase of $1.8 million, or 20.4%. Commissions from the sale of investment securities increased to $6.8 million in 2000, from $5.3 million in 1999, an increase of $1.5 million, or 28.3%. Trust revenue increased to $5.8 million in 2000, from $5.1 million in 1999, an increase of $663,000 or 12.9%. Net gains on the sale of investment securities were $2.1 million less in 2000 than in 1999.

Noninterest Expense

Noninterest expenses consist of salaries and benefits, occupancy, equipment and other expenses such as legal and postage necessary for the operation of the Company. Management is committed to improving the quality of service while controlling such costs through improved efficiency and consolidation of certain activities to achieve economies of scale.

The following table presents the components of noninterest expense for the periods indicated:

	Years Ended December 31
	2001		2000		1999
	(in thousands)
Salaries and employee benefits	$	115,743	$	110,024	$	106,542
Net occupancy	31,593		31,941		32,726
FDIC insurance	915		1,039		625
Legal and accounting	3,764		3,874		3,651
Other professional services	4,634		4,415		5,168
Advertising	5,037		4,545		4,065
Telephone	5,633		5,203		4,807
Acqulaition, integration and conforming	—		—		3,053
Restructuring charge	7,656		—		—
Data processing	4,047		4,545		4,116
Company-obligated mandatorily redeemable preferred securities of CFB Capital I & II	10,273		10,245		10,245
Amortization of intangibles	9,928		10,481		10,500
Other	33,200		33,007		32,729
Total noninterest expense	$	232,423	$	219,319	$	218,227

Noninterest expense increased $13.1 million to $232.4 million in 2001. The increase was principally due to an increase in salary and employee benefits and the restructuring charge. Salaries and employee benefits increased to $115.7 million in 2001, from $110.0 million in 2000, an increase of $5.7 million, or 5.2%. The Company incurred a non-recurring charge of $7.7 million as a result of a series of strategic initiatives designed to improve customer service and strengthen the Company’s position as a provider of diversified financial services.

Noninterest expense increased $1.1 million to $219.3 million in 2000. The increase was principally due to an increase in salaries and employee benefits, offset in part by a reduction in acquisition and related expenses. Salaries and employee benefits increased to $110.0 million in 2000, from $106.5 million in 1999, an increase of $3.5 million, or 3.3%. The increase was attributed to annual merit increases, as the number of employees remained stable during 2000. FDIC insurance increased to $1.0 million in 2000, from $625,000 in 1999, an increase of $414,000, or 66.2%, as a result of an industry-wide increase in the 2000 premium rate assessed by regulatory authorities. The Company recorded $3.1 million in acquisition,

6

integration and conforming expenses in 1999, related to the acquisition through merger of Valley National and River Bancorp.

The Company will apply a new accounting principle in 2002, pursuant to which goodwill will no longer be amortized. This change is expected to result in an increase in net income of $5.0 million. Refer to Footnote 3, Accounting Changes. Additionally, this increase in net income will be partially offset by an increase in noninterest expense of approximately $5.0 million related to the centralized loan center.

Provision for Income Taxes

The Company records a provision for income taxes currently payable and for taxes payable in the future because of differences in the timing of recognition of certain items for financial statement and income tax purposes. The effective income tax rate differs from the statutory rate primarily due to tax-exempt income from loans and investments and state income taxes. The 2001 effective tax rate is similar to the Company’s anticipated effective tax rates in future periods. The effective tax rate was 34.0%, 33.3%, and 34.0% for 2001, 2000 and 1999, respectively.

FINANCIAL CONDITION

INVESTMENT OF FUNDS

Loans

At December 31, 2001, total loans were $3.7 billion. The Company experienced a $100 million increase in in-market loan growth in the Company’s existing markets, offset by the amortization of $102 million in purchased loans which were permitted to run off during 2001.

During 2000, the Company elected to discontinue active solicitation of purchased loans. Many of these assets have been originated by selected Midwestern regional banks and national leasing and finance companies, with which the Company has had ongoing relationships. The Company’s portfolio of purchased loan assets was $86 million at December 31, 2001, compared to $188 million at December 31, 2000. These assets are subject to the Company’s standard credit guidelines, as well as specific requirements for such assets, and bear the credit risks attendant to commercial loans. It is anticipated that the purchased loan asset volume will continue to decrease during 2002.

General.  The Company’s loan mix remained relatively constant from 2000 to 2001. Real estate loans continued to be the largest category of loans, representing 54.4% of the total loan portfolio.

Real Estate and Real Estate Construction Loans.  A significant portion of the Company’s real estate loan portfolio consists of residential real estate first mortgages that have been underwritten and documented to meet secondary mortgage requirements. Substantially all of the Company’s real estate loans are based in the Company’s primary market area. As of December 31, 2001, $766 million, or 37.7%, of the Company’s real estate loan portfolio consisted of residential real estate loans, including home equity loans, $155 million, or 7.6%, were secured by farmland, $594 million, or 29.2%, represented commercial and other real estate loans and $519 million, or 25.5%, represented construction loans.

Commercial Loans.  Loans in this category include loans to retail, wholesale, manufacturing and service businesses, including agricultural service businesses and the Company’s purchased loan asset portfolio. Commercial loans are underwritten based on the financial strength and repayment ability of the borrower, as well as the collateral securing the loans.

Consumer and Other Loans.  Loans classified as consumer and other loans include automobile, personal loans, consumer lines of credit and overdrafts. The consumer loan portfolio also includes dealer-generated installment contracts for consumer goods, including automobiles and major home appliances. The majority of these indirect loans are installment loans with fixed interest rates.

Agricultural Loans.  Agricultural loans are made principally to farmers and ranchers. The Company provides short-term credit for operating loans and intermediate-term loans for machinery purchases and other improvements.

The following table presents the Company’s balance of each major category of loans at the dates indicated:

	2001					2000					1999					1998					1997
	Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans
	(Dollars in thousands)
Loan category:
Real estate	$	1,515,118		40.5	%	$	1,458,494		39.0	%	$	1,319,678		35.8	%	$	1,291,287		36.5	%	$	1,213,272		38.4	%
Real estate construction	519,031			13.9	%	466,616			12.5	%	434,924			11.8	%	366,277			10.4	%	253,385			8.0	%
Commercial	824,318			22.1	%	872,824			23.4	%	994,624			26.9	%	966,404			27.3	%	834,653			26.4	%
Consumer and other	627,034			16.8	%	686,064			18.3	%	681,423			18.5	%	618,530			17.5	%	565,833			17.9	%
Agricultural	251,191			6.7	%	254,204			6.8	%	259,704			7.0	%	295,039			8.3	%	293,358			9.3	%
Total loans	$	3,736,692		100.0	%	$	3,738,202		100.0	%	$	3,690,353		100.0	%	$	3,537,537		100.0	%	$	3,160,501		100.0	%
Less allowance for loan losses	(54,991		)			(52,168		)			(48,878		)			(51,860		)			(41,387		)
Total	$	3,681,701				$	3,686,034				$	3,641,475				$	3,485,677				$	3,119,114

Investments

The Company supplements the quality of its loan portfolio by maintaining what it considers to be a high quality investment portfolio oriented toward U.S. Treasury, U.S. Government agency and government guaranteed mortgage-backed securities. The investment portfolio also provides the opportunity to structure maturities and repricing timetables in a flexible manner and to meet applicable requirements for pledging securities, which are principally adjustable rate and collateralized mortgage obligations, as tools in managing its interest rate exposure and enhancing its net interest margin.

7

                The following table sets forth the composition of the Company’s available-for-sale securities portfolio at estimated fair value as of the dates indicated:

	Book Value at December 31,
	2001		2000		1999
	(in thousands)
U.S. Treasury	$	69,297	$	77,951	$	114,798
U.S. Government agencies	231,380		435,255		438,608
Mortgage-backed securities	887,148		993,939		1,113,818
Collateralized mortgage obligations	4,377		9,635		25,978
State and political securities	97,603		115,400		148,502
Other	147,261		82,330		95,813
Total	$	1,437,066	$	1,714,510	$	1,937,517

The following table sets forth the composition of the Company’s held-to-maturity securities portfolio at amortized cost as of the dates indicated:

	Book Value at December 31,
	2001		2000		1999
	(in thousands)
Other	$	76,765	$	73,222	$	74,248
Total	$	76,765	$	73,222	$	74,248

The following tables set forth the composition by maturity of the Company’s available-for-sale and held-to-maturity securities portfolio:

	AVAILABLE-FOR-SALE SECURITIES
	At December 31, 2001, Maturing in
	One Year or Less				Over One Year Through 5 Years				Over 5 Years  Through 10 Years				Over 10 Years				Total
	Amount		Weighted Yield(1)		Amount		Weighted Yield(1)		Amount		Weighted Yield(1)		Amount		Weighted Yield(1)		Amount		Weighted Yield(1)
	(Dollars in thousands)
U.S. Treasury	$	28,661	6.07	%	$	39,644	5.85	%	$	992	5.03	%	$	—	—		$	69,297	5.93	%
U.S. Government agencies	56,298		6.07	%	146,414		5.28	%	28,668		5.93	%	—		—		231,380		5.55	%
Mortgage-backed securities	86		8.26	%	8,064		7.09	%	45,559		6.21	%	833,439		6.35	%	887,148		6.35	%
Collateralized mortgage obligations	—		—		—		—		3,434		3.52	%	943		3.65	%	4,377		3.55	%
State and political securities	6,829		7.16	%	11,530		7.15	%	19,695		7.39	%	59,549		7.23	%	97,603		7.25	%
Other	60,939		3.12	%	275		3.29	%	362		5.28	%	85,685		6.19	%	147,261		4.91	%
Total	$	152,813	4.94	%	$	205,927	5.56	%	$	98,710	6.25	%	$	979,616	6.39	%	$	1,437,066	6.11	%

(1)Interest yields on investments are presented on a tax-equivalent basis to reflect the tax-exempt nature of certain assets. Yields are based on a 35% incremental tax rate and a 2.08% cost of funds.

	HELD-TO-MATURITY SECURITIES
	At December 31, 2001, Maturing in
	One Year or Less		Over One Year Through 5 Years		Over 5 Years Through 10 Years		Over 10 Years				Total
	Amount	WeightedYield(1)	Amount	Weighted Yield(1)	Amount	Weighted Yield(1)	Amount		Weighted Yield(1)		Amount		Weighted Yield(1)
	(Dollars in thousands)
Other	—	—	—	—	—	—	$	76,765	7.08	%	$	76,765	7.08	%
Total	—	—	—	—	—	—	$	76,765	7.08	%	$	76,765	7.08	%

(1)Interest yields on investments are presented on a tax-equivalent basis to reflect the tax-exempt nature of certain assets. Yields are based on a 35% incremental tax rate.

The Company’s investments, including available-for-sale and held-to-maturity securities, decreased $274 million, or 15.3%, to $1.5 billion at December 31, 2001, from $1.8 billion at December 31, 2000, due primarily to the Company’s balance sheet contraction strategy. At December 31, 2001, the Company’s investments represented 26.2% of total assets, compared to 29.4% at December 31, 2000.

Credit Policy

The Company’s lending activities are guided by the general loan policy established by the Board of Directors. The Board of Directors of the bank subsidiary has established loan approval limits for each banking office of the Company. The limits established for each office range from $25,000 to $500,000 per borrower. Renewals of any criticized or classified loans have a limit of $25,000. Amounts in excess of the individual bank lending authority are presented to the regional credit officers. The regional credit officers have lending authority up to $750,000 per nonclassified borrower. With concurrence of a second regional credit officer or the respective division manager, the limit increases to $1.5 million. Loans above $1.5 million for pass-rated borrowers, $1 million for watch-rated borrowers and $250,000 for classified borrowers are presented to the Senior Credit Committee for approval.

Although the Company has a diversified loan portfolio, the economic health of significant portions of the Company’s primary trade area and the ability of many of the Company’s borrowers to repay their loans (including real estate and commercial loans, as well as agricultural loans) is dependent to a large extent on the health of their local sector of the economy. The Company has identified and implemented strategies to deal with these factors, including an emphasis on quality 8local loan growth and the diversification and performance of its earning asset portfolios.

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Nonperforming Assets

The Company follows regulatory guidelines with respect to classifying loans on a nonaccrual basis. Loans are placed on nonaccrual when they become past due over 90 days or when the collection of interest or principal is considered unlikely. The Company does not return a loan to accrual status until it is brought current with respect to both principal and interest and future principal payments are no longer in doubt. When a loan is placed on nonaccrual status, any previously accrued and uncollected interest is reversed. Interest income of $2,722,000, $4,693,000 and $5,534,000, on nonaccrual loans would have been recorded during 2001, 2000 and 1999, respectively, if the loans had been current in accordance with their original terms. The Company recorded interest income of $1,113,000, $955,000 and $1,067,000 related to loans that were on nonaccrual status as of December 31, 2001, 2000, and 1999, respectively.

The Company considers nonperforming assets to include all nonaccrual loans, restructured loans defined as troubled debt restructurings under SFAS No. 15 and other real estate owned (“OREO”).

Nonperforming assets of the Company are summarized in the following table:

	December 31
	2001			2000			1999			1998			1997
	(Dollars in thousands)
Loans:
Nonaccrual loans	$	20,818		$	23,426		$	25,764		$	22,609		$	15,151
Restructured loans	252			224			284			162			140
Nonperforming loans	21,070			23,650			26,048			22,771			15,291
OREO	2,869			2,437			6,525			4,763			5,433
Nonperforming assets	$	23,939		$	26,087		$	32,573		$	27,534		$	20,724
Loans 90 days or more past due but still accruing	$	6,270		$	2,482		$	1,949		$	3,525		$	4,292
Nonperforming loans as a percentage of total loans	0.56		%	0.63		%	0.71		%	0.64		%	0.48		%
Nonperforming assets as a percentage of total assets	0.41		%	0.43		%	0.52		%	0.44		%	0.37		%
Nonperforming assets as a percentage of total loans and OREO	0.64		%	0.70		%	0.88		%	0.78		%	0.65		%
Total loans	$	3,736,692		$	3,738,202		$	3,690,353		$	3,537,537		$	3,160,501
Total assets	$	5,772,326		$	6,089,729		$	6,302,235		$	6,239,772		$	5,660,218

Nonperforming assets were $23.9 million at December 31, 2001, a decrease of $2.2 million, or 8.4%, from $26.1 million at December 31, 2000. Nonperforming loans decreased by $2.6 million during the same period. OREO increased $432,000, or 17.7%, from $2.4 million at December 31, 2000 to $2.9 million at December 31, 2001. The ratio of nonperforming assets to total assets at December 31, 2001, was .41%, compared to .43% at December 31, 2000.

Nonperforming assets were $26.1 million at December 31, 2000, a decrease of $6.5 million, or 19.9%, from $32.6 million at December 31, 1999. Nonperforming loans decreased by $2.4 million during the same period. OREO decreased $4.1 million, or 63.1%, from $6.5 million at December 31, 1999 to $2.4 million at December 31, 2000. The ratio of nonperforming assets to total assets at December 31, 2000, was .43%, compared to .52% at December 31, 1999.

Allowance for Loan Losses

The current level of the allowance for loan losses is a result of management’s assessment of the risks within the portfolio based on the information obtained through the credit evaluation processes. The Company utilizes a risk-rating system on non-homogenous loans, including purchased loans, and a monthly credit review and reporting process that results in the calculation of the reserves based on the risk within the portfolio. This assessment of risk takes into account the composition of the loan portfolio, previous loan experience, current economic conditions and other factors that, in management’s judgment, deserve recognition.

The allowance is allocated to individual loan categories based upon the relative risk characteristics of the loan portfolios and actual loss experience. Additional reserves are provided to recognize the Company’s exposure to inherent, but undetected losses within the overall loan portfolio. Risk is assessed and reserves are allocated to the individual loan portfolios through the periodic application of risk assessment processes including migration analysis, specific credit analysis and analysis of portfolio sectors possessing common traits.

For commercial and agricultural loans, including commercial real estate, real estate construction and purchased assets, portfolio risk is determined using migration analysis wherein the actual loan loss experience is tracked, on a loan-by-loan basis, over the previous 36 months to determine a weighted average loss rate inherent in the respective portfolios. In addition, individual loans, which have been identified in the periodic portfolio review as problem loans, are allocated reserves based on management’s assessment of loss probability. Also, on a quarterly basis, management identifies sectors of each loan portfolio, which in their judgment demonstrate more or less risk than that risk identified in the allocated reserve calculated in the portfolio migration analysis. The basis of these allocation adjustments includes historical and expected delinquency and charge-off statistics; changes in underwriting criteria; assessment of lender management and expertise and changes in loan volume. Portfolio sectors are identified based on a combination of common characteristics, which may include collateral type, term, purpose, geographic concentration of borrowers or other common characteristics encountered in management’s assessment of the portfolio .

Consumer and residential real estate loan portfolio risk is determined through the application of separate migration analysis designed to identify estimated inherent losses, wherein the actual portfolio losses are aggregated to determine the loss ratio applicable to that period. The resulting loss ratio calculated in the analysis is applied to the entire consumer and real estate portfolios respectively, based on the average term of all portfolio loans. Also, on a quarterly basis, management identifies sectors of the loan portfolio, which in their judgment demonstrate more or less risk than that risk identified in the portfolio migration analysis. The basis of these allocation adjustments includes historical delinquency and charge-off statistics; changes in underwriting criteria; assessment of lender management and expertise and changes in loan volume. Portfolio sectors are identified based on a combination of common characteristics, which may include collateral

9

type, term, purpose, geographic concentration of borrowers or other common characteristics encountered in management’s assessment of the portfolio.

The Company also records an additional allowance level to recognize its exposure to inherent, but undetected losses. This exposure is caused by inherent delays in obtaining information regarding an individual borrower’s financial condition or change in their specific business condition; the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends; the volatility of general economic or specific customer conditions affecting the identification and quantification of losses for large individual credits; and the sensitivity of assumptions used in establishing allocated allowances for general categories of loans.

During 2001, the Company modified the methodology utilized to allocate reserves within individual loan portfolios. The modification was due to the Company’s desire to more specifically identify credit risk within each individual loan portfolio. As a result, a greater portion of the reserve for loan loss has been allocated to specific loan portfolios, which results in a smaller percentage of additional allowance. While designed to more specifically identify risk inherent in a specific loan portfolio, the methodology did not result in a need for additional reserves, but rather permitted the Company to better assign its reserve balance to specific loan portfolios. The resulting increase in allocated reserve and decrease in additional allowance in 2001 is primarily a result of the modified methodology.

The allocated portion of the allowance increased to $41.3 million at December 31, 2001, an increase of $14.3 million, or 53.0% from $27.0 million at December 31, 2000. The increase was principally due to the methodology used in identifying specifically allocated reserves. The allocated allowance as a percentage of loans outstanding was 1.11% at December 31, 2001 and .72% at December 31, 2000. The additional allowance decreased to $13.7 million at December 31, 2001, a decrease of $11.4 million, or 45.4% from $25.1 million at December 31, 2000. The additional allowance as a percentage of loans outstanding was .36% at December 31, 2001 and .68% at December 31, 2000. The decrease was principally due to the modification of methodology used in identifying specifically allocated reserves. The accompanying table shows the allocated and additional allowance for the various loan classifications.

As a result of the analytical processes implemented during 2001, the allocated portion of the reserve increased in all portfolios, except the agricultural portfolio, which decreased modestly. The allowance allocated to real estate loans, including real estate construction, increased to $16.8 million at December 31, 2001, an increase of $4.1 million or 32.3% from $12.7 million at December 31, 2000. The increase was principally due to the methodology utilized in identifying specific portfolio risk, as evidenced by the $3.7 million increase in the real estate construction reserve. The allowance allocated to the commercial loan portfolio increased to $10.3 million at December 31, 2001, an increase of $3.2 million, or 45.1% from $7.1 million at December 31, 2000. The increase was principally due to the methodology utilized in identifying specific portfolio risk. The allowance allocated to the consumer loan portfolio increased to $11.3 million, or 175.6% from $4.1 million at December 31, 2000. The increase is principally due to the methodology utilized in identifying specific portfolio risk in addition to an increase in the level of past due and charge off statistics in the consumer portfolio during 2001 and management’s expectations of portfolio performance in the current economic environment. The allowance allocated to the agricultural loan portfolio was $3.0 million at December 31, 2001 and December 31, 2000.

The actual amount of losses incurred can vary significantly from the estimated amount. The Company’s methodology includes general factors intended to minimize the differences in estimate and actual losses. These factors allow the Company to adjust its estimates of losses based on the most recent information available. Although the Company determines the amount of each element of the allowance for loan losses separately, and this process is an important credit management tool, the entire allowance for loan losses is available for the entire loan portfolio.

The Company’s experience in the consumer loan and real estate loan portfolios of its sub-prime lending subsidiaries during 1999 and 1998 resulted in increased allowance levels in these loan classifications.

The following table sets forth the allocation of the allowance for loan losses to various loan categories, as well as the allocation as a percentage of loans outstanding in each category, as of the dates indicated:

	Allowance for Loan										Allowance as a Percent of Loans
	Losses at December 31,										Outstanding by Category at December 31,
	2001		2000		1999		1998		1997		2001		2000		1999		1998		1997
	(Dollars in thousands)
Real estate	$	12,519	$	12,234	$	10,329	$	9,844	$	7,457	0.83	%	0.84	%	0.78	%	0.76	%	0.61	%
Real estate construction	4,256		515		218		190		135		0.82	%	0.11	%	0.05	%	0.05	%	0.05	%
Commercial	10,293		7,117		8,673		7,705		6,582		1.25	%	0.82	%	0.87	%	0.80	%	0.79	%
Consumer and other	11,272		4,147		4,657		8,405		4,257		1.80	%	0.60	%	0.68	%	1.36	%	0.75	%
Agricultural	2,996		3,016		2,643		3,077		2,487		1.19	%	1.19	%	1.02	%	1.04	%	0.85	%
Total allocated allowance	41,336		27,029		26,520		29,221		20,918		1.11	%	0.72	%	0.72	%	0.83	%	0.66	%
Total additional allowance	13,655		25,139		22,358		22,639		20,469		0.36	%	0.68	%	0.60	%	0.64	%	0.65	%
Total allowance	$	54,991	$	52,168	$	48,878	$	51,860	$	41,387	1.47	%	1.40	%	1.32	%	1.47	%	1.31	%

At December 31, 2001, the allowance for loan losses was $55.0 million, an increase of $2.8 million from the December 31, 2000 level of $52.2 million. At December 31, 2001, the allowance for loan losses as a percentage of total loans was 1.47%, as compared to 1.40% at December 31, 2000. This increase was attributed to the Company’s analysis of the loan portfolio credit quality at the Company’s bank subsidiary.

At December 31, 2000, the allowance for loan losses was $52.2 million, an increase of $3.3 million from the December 31, 1999, level of $48.9 million. At December 31, 2000, the allowance for loan losses as a percentage of total loans was 1.40%, as compared to 1.32% at December 31, 1999. This increase was attributed to the Company’s analysis of the loan portfolio credit quality at the Company’s bank subsidiaries.

10

During 2001, net charge-offs were $14.7 million, an increase of $2.2 million from net charge-offs of the $12.5 million during 2000. The increase is principally attributed to a $2.4 million charge-off of the Company’s largest non-performing asset, an Arizona-based credit facility that was in place when the Company acquired its initial Arizona operation in 1997. The Company’s provision for loan losses increased from $15.8 million in 2000 to $17.5 million in 2001. The provision for loan losses is recorded to bring the allowance for loan losses to the level deemed appropriate by management.

During 2000, net charge-offs were $12.5 million, a decrease of $10.9 million from the $23.4 million during 1999. The decrease is principally attributed to losses recorded in the Company’s sub-prime specialty lending operation during 1999. The Company’s provision for loan losses decreased from $20.2 million in 1999 to $15.8 million in 2000. The provision for loan losses is recorded to bring the allowance for loan losses to the level deemed appropriate by management.

The following table sets forth the Company’s allowance for loan losses as of the dates indicated:

	December 31
	2001			2000			1999			1998			1997
	(Dollars in thousands)
Balance at beginning of year	$	52,168		$	48,878		$	51,860		$	41,387		$	31,354
Allowance of acquired companies and other	—			—			270			1,950			10,065
Charge-offs:
Real estate	1,588			1,176			2,181			2,340			802
Real estate construction	2,538			408			2,965			36			635
Commercial	5,374			6,644			8,349			2,771			1,863
Consumer and other	10,033			7,893			13,802			11,806			5,326
Agricultural	336			996			553			1,381			726
Total charge-offs	19,869			17,117			27,850			18,334			9,352
Recoveries:
Real estate	498			155			928			237			306
Real estate construction	70			4			—			—			—
Commercial	839			1,565			468			972			650
Consumer and other	3,438			2,648			2,537			2,113			1,113
Agricultural	327			254			481			399			647
Total recoveries	5,172			4,626			4,414			3,721			2,716
Net charge-offs	14,697			12,491			23,436			14,613			6,636
Provision charged to operations	17,520			15,781			20,184			23,136			6,604
Balance at end of year	$	54,991		$	52,168		$	48,878		$	51,860		$	41,387
Allowance as a percentage of total loans	1.47		%	1.40		%	1.32		%	1.47		%	1.31		%
Net charge-offs to average loans outstanding	0.39		%	0.34		%	0.66		%	0.43		%	0.24		%
Total loans	$	3,736,692		$	3,738,202		$	3,690,353		$	3,537,537		$	3,160,501
Average loans	$	3,785,553		$	3,706,144		$	3,573,060		$	3,383,724		$	2,747,123

SOURCE OF FUNDS

Deposits

The Company’s major source of funds is provided by core deposits from individuals, businesses and local government units. Core deposits consist of all in-market noninterest-bearing deposits, interest-bearing savings and checking accounts and time deposits of less than $100,000.

The following table sets forth a summary of the deposits of the Company at the dates indicated:

	December 31
	2001		2000		1999
	(in thousands)
Noninterest-bearing	$	487,864	$	500,834	$	616,861
Interest-bearing:
Savings and checking accounts	2,367,255		2,349,606		2,276,705
Time accounts less than $100,000	1,203,379		1,496,483		1,436,783
Time accounts greater than $100,000	692,315		672,968		579,514
Total deposits	$	4,750,813	$	5,019,891	$	4,909,863

Total deposits at December 31, 2001, were $4.8 billion, a decrease of $269 million, or 5.4%, from $5.0 billion at December 31, 2000. The decrease is principally due to a $123 million reduction in the level of certificates of deposits obtained through a brokered deposit relationship, a result of the Company’s effort to contract its balance sheet and $118 million of deposits held in the 13 offices sold during 2001. The Company’s core deposits as a percentage of total deposits were 85.3% and 84.0% as of December 31, 2001 and December 31, 2000, respectively.

At December 31, 2001, $692 million, or 14.6% of total deposits were in time accounts greater than $100,000, an increase of $19 million, or 2.8%, from $673 million at December 31, 2000. Management believes virtually all the deposits in excess of $100,000 are with persons or entities that hold other deposit relationships with the bank. Maturities of deposits in excess of $100,000 at December 31, 2001 were (in thousands):

Maturing in less than three months	$	253,164
Maturing in three to six months	85,728
Maturing in six to twelve months	211,092
Maturing in over twelve months	142,331
Total deposits in excess of $100,000	$	692,315

At December 31, 2001, the Company had $8 million in deposits obtained through a brokered deposit relationship. In addition to the availability of core deposits, management has determined it may continue to employ a brokered deposit program in an effort to attract lower cost sources of funds.

11

Short-Term Borrowings

Short-term borrowings include securities sold under agreements to repurchase, commercial paper, Federal Home Loan Bank advances and federal funds purchased. These funds are used to fund the growth in loans and securities and manage the Company’s rate sensitivity risk. They are subject to short-term interest rate changes as the Company’s needs change or the overall market rates for short-term investment funds change.

The Company’s subsidiary bank has an arrangement with the Federal Home Loan Bank that provides for borrowing up to $631 million. As of December 31, 2001, $4 million in advances were outstanding.  The Company also had a $20 million balance outstanding on its $35 million short-term commercial paper arrangement at December 31, 2001. The $67 million decrease in short-term borrowings from December 31, 2000 is due to the Company’s planned balance sheet contraction and its decision to rely less upon short term borrowings to fund asset growth. The Company has a $25 million short term line of credit with a nonafilliated commercial bank for purposes of funding operating expenses. As of December 31, 2001, there was no balance outstanding on this line.

The following table sets forth a summary of the short-term borrowings of the Company during 2001, 2000 and 1999, and as of the end of each such period:

	Outstanding at Year-End		Average Daily Amount Outstanding		Maximum Outstanding at any Month-End		Weighted Average Interest Rate		Average Interest Rate at Year-End
	(Dollars in thousands)
2001
Federal funds purchased and securities sold under agreements to repurchase	$	318,859	$	263,252	$	363,638	3.47	%	2.46	%
Commercial paper	19,780		22,285		34,051		4.98	%	2.78	%
FHLB advances	4,000		72,513		210,000		6.27	%	4.39	%
Other	—		3,513		5,000		6.40	%	—
Total	$	342,639	$	361,563	$	496,856	4.15	%	2.51	%
2000
Federal funds purchased and securities sold under agreements to repurchase	$	205,758	$	226,791	$	274,577	5.31	%	5.33	%
Commercial paper	28,952		25,488		32,078		6.74	%	7.31	%
FHLB advances	155,000		258,935		364,000		6.41	%	6.55	%
Other	20,000		57,326		88,000		6.80	%	7.37	%
Total	$	409,710	$	568,540	$	739,564	6.03	%	6.03	%
1999
Federal funds purchased and securities sold under agreements to repurchase	$	252,760	$	186,267	$	261,191	4.48	%	5.04	%
Commercial paper	19,412		18,403		22,546		5.60	%	6.03	%
FHLB advances	383,500		289,859		383,500		5.29	%	5.43	%
Other	68,753		63,391		119,806		5.30	%	5.77	%
Total	$	724,425	$	557,920	$	724,425	5.03	%	5.35	%

Long-Term Debt

Long-term debt of the Company was $137 million as of December 31, 2001, and $124 million as of December 31, 2000.

Company-Obligated Mandatorily Redeemable Preferred Securities

Company-obligated mandatorily redeemable preferred securities of the Company were $120 million as of December 31, 2001 and 2000, which consisted of $60 million of 8.20% Cumulative Capital Securities issued December 10, 1997 through CFB Capital II and $60 million of 8.875% Cumulative Capital Securities issued February 5, 1997 through CFB Capital I. The proceeds of both offerings were invested by CFB Capital II and CFB Capital I, respectively, in Junior Subordinated Debentures of the Company. The debentures bear interest at the same rate as the Cumulative Capital Securities and mature not earlier than February 1, 2002 and not later than December 15, 2027.

Shareholders’ Equity

Total shareholders’ equity increased $11.3 million, or 3.3%, to $356.7 million at December 31, 2001, from $345.4 million at December 31, 2000, due principally to the retention of a majority of earnings and a $13.3 million increase in unrealized gains on available-for-sale securities, net of tax. This was offset in part through an increase of $35.8 million in treasury stock as a result of the Company’s common stock repurchase program.

On April 10, 2000, the Company announced its intention to repurchase up to 5 million shares of the Company’s common stock. On August 9, 2000, the Company announced its intention to repurchase up to an additional 5 million shares of the Company’s common stock. On August 7, 2001, the Company announced its intention to repurchase up to 3 million shares of the Company’s common stock. As of December 31, 2001, the Company had repurchased 10,800,000 shares of common stock at prices ranging from $15.25 to $25.00. Two million shares were repurchased during 2001 and 8.8 million were repurchased during 2000.

In April 1998, in conjunction with the Company’s shareholder approval of a charter amendment that facilitated a two-for-one split of the Company’s common stock in the form of a 100 percent dividend paid to holders of record as of May 1, 1998, the Company increased the number of authorized common shares from 30,000,000 to 80,000,000. The number of authorized preferred shares remained at 2,000,000.

12

ASSET AND LIABILITY MANAGEMENT

Liquidity Management

Liquidity management is an effort of management to provide a continuing flow of funds to meet its financial commitments, customer borrowing needs and deposit withdrawal requirements. The liquidity position of the Company and its subsidiary bank is monitored by the Asset and Liability Management Committee of the Company. The largest category of assets representing a ready source of liquidity for the Company is its short-term financial instruments, which include federal funds sold, interest-bearing deposits at other financial institutions, U.S. Treasury securities and other securities maturing within one year. Liquidity is also provided through the regularly scheduled maturities of assets. The investment portfolio contains a number of high quality issues with varying maturities and regular principal payments. Maturities in the loan portfolio also provide a steady flow of funds, and strict adherence to the credit policies of the Company helps ensure the collectibility of these loans. The liquidity position of the Company is also greatly enhanced by its significant base of core deposits.

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk. Because many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent the Company’s future liquidity requirements. These instruments are further described in Footnote 9, Financial Instruments With Off-Balance-Sheet Risk and Concentrations of Credit Risk.

The liquidity ratio is one measure of a bank’s ability to meet its current obligations and is defined as the percentage of liquid assets to deposits. Liquid assets include cash and due from banks, unpledged investment securities with maturities of less than one year and federal funds sold. At year-end 2001, 2000 and 1999, the liquidity ratio was 6.72%, 5.21%, and 5.39%, respectively. The level of loans maturing within one year greatly added to the Company’s liquidity position in 2001. Including loans maturing within one year, the liquidity ratio was 29.86%, 24.98%, and 27.15%, respectively, for the same periods.

The Company has revolving lines of credit with its primary lenders, which provide for borrowing up to $60 million. These lines would be utilized to finance stock repurchase activity, underwrite commercial paper, and fund other operating expenses. At December 31, 2001, the Company had $20 million in commercial paper outstanding, underwritten by the Company’s revolving line of credit.

The Company also maintains available lines of federal funds borrowings, as well as seasonal borrowing privileges, at the Federal Reserve Bank of Minneapolis. The Company’s subsidiary bank has the ability to borrow an aggregate of $97 million in federal funds from four nonaffiliated financial institutions. There was no balance outstanding on these lines at December 31, 2001.

The Company’s subsidiary bank has the ability to borrow an aggregate of $55 million in Federal funds, on a funds available basis, with two nonaffiliated institutions. There was no balance outstanding on these lines at December 31, 2001.

Additionally, the Company’s subsidiary bank is a member of the Federal Home Loan Bank (“FHLB”) System. As part of membership, the Company’s subsidiary bank purchased a modest amount of stock of FHLB and obtained advance lines of credit which represent an aggregate of $631 million in additional funding capacity.

Interest Rate Sensitivity

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

The Company’s Asset and Liability Management Committee (“ALCO”) attempts to structure the Company’s balance sheet to provide for an approximately equal amount of rate sensitive assets and rate sensitive liabilities. In addition to facilitating liquidity needs, this strategy assists management in maintaining relative stability in net interest income despite unexpected fluctuations in interest rates. ALCO uses three methods for measuring and managing interest rate risk: Repricing Mismatch Analysis, Balance Sheet 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 and off-balance sheet instruments subject to repricing in specified time periods. However, management believes Gap Analysis alone does not accurately measure the magnitude of changes in net interest income since changes in interest rate do not impact all categories of assets, liabilities and off-balance sheet instruments equally or simultaneously. A summary of the Gap Analysis is presented at the end of this section.

Balance Sheet Simulation Modeling

Balance Sheet Simulation Modeling allows management to analyze the impact of short-term (12 months or less) interest rate fluctuations using projected balance sheet information. The balance sheet changes are based on forecasted repayments of loans and securities, growth in loans and deposits, and historical pricing spreads.

Management uses the model to simulate the impact of shifts in the yield curve. The results of these models are reviewed by ALCO and used to develop the Company’s strategies. Guidelines established by ALCO limit the impact on net interest income to 1.4% in 2001 and 5.0% in 2000 and 1999, given a 100 basis point change in interest rates. As of December 31, 2001, 2000, and 1999, the impact of such a change in interest rates would be approximately .44%, 3.02%, and 2.46%, respectively, of net interest income.

Equity Fair Value Modeling

Because Balance Sheet Simulation Modeling is dependent on accurate forecasts, its usefulness is limited to periods of one year or less. As a result, the Company uses the Equity Fair Value Modeling to measure long-term interest rate exposure. The method estimates the impact of interest rate changes on the estimated discounted future cash flows of the Company’s current assets, liabilities and off-balance sheet instruments. Guidelines established by ALCO limit the change in fair value to 10% given a 100 basis point change in interest rates. As of December 31, 2001, 2000, and 1999, the impact of such a

13

change in interest rates would be approximately .10%, 6.37%, and 8.75%, respectively, of equity fair value.

Based on each of these methods of measuring interest rate risk, management believes the Company was liability sensitive as of December 31, 2001.

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

The following table sets forth the Company’s interest rate sensitivity analysis by contractual repricing or maturity at December 31, 2001:

	Repricing or Maturing in
	1 Year or Less			Over 1 to 5 Years			Over 5 Years		Total
	(In thousands)
Rate sensitive assets:
Loans	$	1,571,649		$	1,670,913		$	494,130	$	3,736,692
Held-to-maturity securities	—			—			76,765		76,765
Available-for-sale securities	294,343			287,695			855,028		1,437,066
Other interest-bearing assets	341			—			—		341
Total rate sensitive assets	$	1,866,333		$	1,958,608		$	1,425,923	$	5,250,864
Rate sensitive liabilities:
Savings deposits and interest-bearing checking	$	2,367,255		$	—		$	—	$	2,367,255
Time deposits	1,608,387			286,819			488		1,895,694
Short-term borrowings	342,639			—			—		342,639
Long-term borrowings	—			108,781			28,060		136,841
Total rate sensitive liabilities	$	4,318,281		$	395,600		$	28,548	$	4,742,429
Rate sensitive gap	$	(2,451,948	)	$	1,563,008		$	1,397,375	$	508,435
Cumulative rate sensitive gap	(2,451,948		)	(888,940		)	508,435		508,435

The following sets forth the Company’s interest rate sensitivity analysis at December 31, 2001, with respect to the individual categories of loans and provides separate analyses with respect to fixed interest rate loans and floating interest rate loans:

	Repricing or Maturing in
	1 Year or Less		Over 1 to 5 Years		Over 5 Years		Total
	(In thousands)
Loan category:
Real estate	$	392,290	$	856,351	$	266,477	$	1,515,118
Real estate construction	519,031		—		—		519,031
Agriculture	187,459		55,145		8,587		251,191
Commercial	406,457		306,322		111,539		824,318
Consumer and other	66,412		453,095		107,527		627,034
Total loans	$	1,571,649	$	1,670,913	$	494,130	$	3,736,692
Floating interest rate loans	$	380,275	$	1,268,318	$	415,619	$	2,064,212
Fixed interest rate loans	1,191,374		402,595		78,511		1,672,480
Total loans	$	1,571,649	$	1,670,913	$	494,130	$	3,736,692

Capital Management

Risk-based guidelines established by regulatory agencies require the Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets.

As of December 31, 2001, the Company is considered well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table.

	Regulatory Capital Requirements:
	Tier 1 Capital		Total Risk BasedCapital		Leverage		Total Risk Based Assets
	(Dollars in thousands)
Minimum	4.00	%	8.00	%	3.00	%	N/A
Well Capitalized	6.00	%	10.00	%	5.00	%	N/A
Community First Bankshares, Inc.
December 31, 2001	8.67	%	11.11	%	6.51	%	$	4,304,531
December 31, 2000	8.13	%	10.73	%	5.94	%	$	4,408,524

Due to the Company’s level of Tier 1 capital and substantial level of earning assets invested in low risk government agency and mortgage-backed securities, the Company’s risk-based capital ratios significantly exceed the regulatory minimums. The Company conducts an ongoing assessment of its capital needs in order to maintain an adequate level of capital to support business growth, to ensure depositor protection and to facilitate corporate expansion. Portions of the subordinated debt financing referred to under “Borrowings,” above, are treated as Tier 2 capital.

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: risks of loans and investments, including dependence on local economic conditions; competition for the Company’s customers from other providers of financial services; possible adverse effects of changes in interest rates; balance sheet and critical ratio risks related to the share repurchase program; risks related to the Company’s acquisition strategy, including risks of adversely changing results of operations and possible factors affecting the Company’s ability to consummate further acquisitions; and other risks detailed in the Company’s filings with the Securities and Exchange Commission, all of which are difficult to predict and many of which are beyond the control of the Company.

14

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Community First Bankshares, Inc.

	December 31
	2001			2000
	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	248,260		$	256,136
Interest-bearing deposits	341			1,110
Available-for-sale securities	1,437,066			1,714,510
Held-to-maturity securities (Fair Value: 2001 – $76,765; 2000 – $73,222)	76,765			73,222
Loans	3,736,692			3,738,202
Less: Allowance for loan losses	(54,991		)	(52,168		)
Net loans	3,681,701			3,686,034
Bank premises and equipment, net	125,947			121,675
Accrued interest receivable	39,491			52,494
Intangibles	97,457			114,971
Other assets	65,298			69,577
Total assets	$	5,772,326		$	6,089,729
Liabilities and shareholders’ equity
Deposits:
Noninterest-bearing	$	487,864		$	500,834
Interest-bearing:
Savings and NOW accounts	2,367,255			2,349,606
Time accounts over $100,000	692,315			672,968
Other time accounts	1,203,379			1,496,483
Total deposits	4,750,813			5,019,891
Federal funds purchased and securities sold under agreements to repurchase	318,859			205,758
Other short-term borrowings	23,780			203,952
Long-term debt	136,841			123,957
Accrued interest payable	29,966			45,489
Other liabilities	35,362			25,251
Total liabilities	5,295,621			5,624,298
Company-obligated mandatorily redeemable preferred securities of CFB Capital I and II	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	193,103			192,368
Retained earnings	348,101			315,091
Unrealized gain (loss) on available-for-sale securities, net of tax	3,847			(9,486		)
Less cost of common stock in treasury – 2001 – 10,775,857 shares; 2000 – 9,155,144 shares	(188,856		)	(153,052		)
Total shareholders’ equity	356,705			345,431
Total liabilities and shareholders’ equity	$	5,772,326		$	6,089,729

See accompanying notes.

15

CONSOLIDATED STATEMENTS OF INCOME
Community First Bankshares, Inc.

	Years ended December 31
	2001		2000			1999
	(Dollars in thousands, except per share data)
INTEREST INCOME:
Loans	$	336,937	$	353,405		$	332,974
Investment securities	96,688		123,525			130,955
Interest-bearing deposits	192		184			463
Federal funds sold and resale agreements	199		444		`	814
Total interest income	434,016		477,558			465,206
Interest expense:
Deposits	138,542		169,281			151,138
Short-term and other borrowings	15,001		34,303			28,052
Long-term debt	8,677		6,697			6,628
Total interest expense	162,220		210,281			185,818
Net interest income	271,796		267,277			279,388
Provision for loan losses	17,520		15,781			20,184
Net interest income after provision for loan losses	254,276		251,496			259,204
Noninterest income:
Service charges on deposit accounts	38,957		39,537			37,013
Insurance commissions	12,535		10,550			8,791
Security sales commissions	6,644		6,805			5,258
Fees from fiduciary activities	5,661		5,811			5,148
Net gains on sales of securities	804		65			2,175
Other	12,081		12,437			14,124
Total noninterest income	76,682		75,205			72,509
Noninterest expense:
Salaries and employee benefits	115,743		110,024			106,542
Net occupancy	31,593		31,941			32,726
FDIC insurance	915		1,039			625
Legal and accounting	3,764		3,874			3,651
Other professional services	4,634		4,415			5,168
Advertising	5,037		4,545			4,065
Telephone	5,633		5,203			4,807
Acquisition, integration and conforming	—		—			3,053
Restructuring charge	7,656		—			—
Data processing	4,047		4,545			4,116
Company-obligated mandatorily redeemable preferred securities of CFB Capital I & II	10,273		10,245			10,245
Amortization of intangibles	9,928		10,481			10,500
Other	33,200		33,007			32,729
Total noninterest expense	232,423		219,319			218,227
Income before income taxes	98,535		107,382			113,486
Provision for income taxes	33,476		35,748			38,573
Net income	$	65,059	$	71,634		$	74,913	`
Earnings per common and common equivalent share:
Basic net income	$	1.59	$	1.55		$	1.50
Diluted net income	$	1.57	$	1.54		$	1.48
Average common and common equivalent shares outstanding:
Basic	40,905,545		46,219,120			50,061,972
Diluted	41,471,404		46,578,750			50,670,559

See accompanying notes.

16

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Community First Bankshares, Inc.

	Years ended December 31
	2001			2000			1999
	(Dollars in thousands, except per share data)
Net income	$	65,059		$	71,634		$	74,913
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	13,815			35,449			(56,879		)
Less: Reclassification adjustment for gains included in net income	(482		)	(39		)	(1,305		)
Other comprehensive income	13,333			35,410			(58,184		)
Comprehensive income	$	78,392		$	107,044		$	16,729

See accompanying notes.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Community First Bankshares, Inc.

	Years ended December 31, 2001, 2000, 1999
	Common Stock													Treasury Stock
	Shares		Amount			Capital Surplus		Retained Earnings			Unrealized Gain(Loss)			Shares		Amount			Total
	(Dollars in thousands, except per share data)
Balance at December 31, 1998	50,557,537		$	506		$	186,888	$	236,083		$	13,288		564,588		$	(12,109	)	$	424,656
Net income	—		—			—		74,913			—			—		—			74,913
Common stock dividends ($0.56 per share)	—		—			—		(27,041		)	—			—		—			(27,041		)
Common stock dividends	143,566		1			2,217		(2,218		)	—			—		—			—
Cash in lieu of stock dividend	—		—			—		(34		)	—			—		—			(34		)
Issuance of common stock	3,198,079		32			2,645		(414		)	—			—		—			2,263
Retirement of common stock	(2,877,286	)	(29		)	—		—			—			—		—			(29		)
Purchases of common stock for treasury, at cost	—		—			—		—			—			625,457		(11,844		)	(11,844		)
Exercise of options, net of stock tendered in payment	—		—			321		(4,787		)	—			(304,081	)	7,035			2,569
Change in unrealized loss on available-for-sale securities, net of income taxes of $35,508	—		—			—		—			(58,184		)	—		—			(58,184		)
Balance at December 31, 1999	51,021,896		$	510		$	192,071	$	276,502		$	(44,896	)	885,964		$	(16,918	)	$	407,269
Net income	—		—			—		71,634			—			—		—			71,634
Common stock dividends ($0.60 per share)	—		—			—		(27,601		)	—			—		—			(27,601		)
Purchases of common stock for treasury, at cost	—		—			—		—			—			8,760,278		(145,725		)	(145,725		)
Sales of treasury stock to employee benefit plans	—		—			—		(793		)	—			(127,136	)	2,573			1,780
Exercise of options, net of stock tendered in payment	—		—			297		(4,651		)	—			(363,962	)	7,018			2,664
Change in unrealized loss on available-for-sale securities, net of income taxes of $21,576	—		—			—		—			35,410			—		—			35,410
Balance at December 31, 2000	51,021,896		$	510		$	192,368	$	315,091		$	(9,486	)	9,155,144		$	(153,052	)	$	345,431
Net income	—		—			—		65,059			—			—		—			65,059
Common stock dividends ($0.68 per share)	—		—			—		(27,793		)	—			—		—			(27,793		)
Purchases of common stock for treasury, at cost	—		—			—		—			—			2,010,172		(43,020		)	(43,020		)
Exercise of options, net of stock tendered in payment	—		—			735		(4,256		)	—			(389,459	)	7,216			3,695
Change in unrealized gain on available-for-sale securities, net of income taxes of $8,748	—		—			—		—			13,333			—		—			13,333
Balance at December 31, 2001	51,021,896		$	510		$	193,103	$	348,101		$	3,847		10,775,857		$	(188,856	)	$	356,705

See accompanying notes.

17

CONSOLIDATED STATEMENTS OF CASH FLOWS
Community First Bankshares, Inc.

	Years ended December 31
	2001			2000			1999
	(In thousands)
Cash flows from operating activities
Net income	$	65,059		$	71,634		$	74,913
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	17,520			15,781			20,184
Depreciation	13,553			14,307			15,186
Amortization of intangibles	9,928			10,481			10,500
Net (accretion) amortization of premiums and discounts on securities	(582		)	188			1,067
Deferred income tax benefit	(2,223		)	(2,077		)	(1,088		)
Decrease (increase) in interest receivable	13,003			(1,464		)	2,230
(Decrease) increase in interest payable	(15,523		)	13,540			4,876
Other, net	15,451			(6,350		)	(5,501		)
Net cash provided by operating activities	116,186			116,040			122,367
Cash flows from investing activities
Acquisitions, net of cash paid	—			—			(1,956		)
Net decrease in interest bearing deposits	769			3,538			6,815
Purchases of available-for-sale securities	(724,534		)	(129,097		)	(649,177		)
Maturities of available-for-sale securities	985,009			258,584			497,314
Sales of available-for-sale securities, net of gains	39,632			150,318			151,635
Purchases of held-to-maturity securities	(3,543		)	(3,431		)	(4,710		)
Maturities of held-to-maturity securities	—			4,457			291
Net increase in loans	(13,187		)	(60,340		)	(147,967		)
Net increase in bank premises and equipment	(17,825		)	(10,525		)	(11,205		)
Net cash provided by (used in) investing activities	266,321			213,504			(158,960		)
Cash flows from financing activities
Net increase (decrease) in demand deposits, NOW accounts and savings accounts	4,679			(43,126		)	(83,965		)
Net (decrease) increase in time accounts	(273,757		)	153,154			(137,804		)
Net (decrease) increase in short-term and other borrowings	(67,071		)	(314,715		)	287,549
Net increase (decrease) in long-term debt	12,884			48,335			(17,902		)
Net proceeds from issuance of common stock	—			—			2,234
Purchase of common stock held in treasury	(43,020		)	(145,725		)	(11,844		)
Net sale of common stock held in treasury	3,695			4,444			2,569
Cash dividends	(27,793		)	(27,601		)	(27,075		)
Net cash (used in) provided by financing activities	(390,383		)	(325,234		)	13,762
Net (decrease) increase in cash and cash equivalents	(7,876		)	4,310			(22,831		)
Cash and cash equivalents at beginning of year	256,136			251,826			274,657
Cash and cash equivalents at end of year	$	248,260		$	256,136		$	251,826

See accompanying notes.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Community First Bankshares, Inc.

1. Significant Accounting Policies

Community First Bankshares, Inc. (the “Company”) is a bank holding company which, at the end of 2001, served 138 communities in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming. The Company’s community banks provide a full range of banking services through its 52 Regional Financial Centers and 28 Community Financial Centers, primarily in small and medium-sized communities and the surrounding areas. In addition to its primary emphasis on commercial and consumer banking services, the Company offers trust, mortgage, insurance and nondeposit investment products and services.

Basis of Presentation

The consolidated financial statements include the accounts of Community First Bankshares, Inc., its wholly-owned data processing, credit origination and insurance agency subsidiaries and its wholly-owned subsidiary bank. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform to the current presentation.

As discussed in Note 2, the Company acquired Valley National Corporation (“Valley National”) on October 7, 1999. The acquisition was accounted for using the pooling of interests method. Accordingly, the consolidated financial information has been restated to reflect the results of operations of Valley National on a combined basis for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Held-to-Maturity and Available-for-Sale Securities

Management determines the classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost.

Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported within comprehensive income in shareholders’ equity.

The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is included as an adjustment to interest income from investments. Realized gains and losses and declines in value judged to be other than temporary are included in net securities gains (losses). The cost of securities sold is based on the specific identification method.

Loans

Loans are stated at their principal balance outstanding, less the allowance for loan losses. Interest on loans is recognized on an accrual basis. Loans are placed on nonaccrual when they become past due over 90 days, or earlier, if the collection of interest or principal is considered unlikely. Thereafter, no interest income is recognized unless received in cash and until such time as the borrower demonstrates the ability to pay interest and principal.

Loan Fee Income

The Company recognizes loan fees and certain direct origination costs, utilizing a method that approximates a constant rate of return over the estimated life of the loan.

Allowance for Loan Losses

The allowance for loan losses is maintained through charges to expense at an amount that will provide for estimated loan losses. The current level of the allowance for loan losses is a result of management’s assessment of the risks within the portfolio based on the information revealed in credit evaluation processes. This assessment of risk takes into account the composition of the loan portfolio, previous loan experience, current economic conditions and other factors that, in management’s judgment, deserve recognition. An allowance is recorded for individual loan categories based on the relative risk characteristics of the loan portfolios. Commercial, commercial real estate, construction and agricultural amounts are based on a quarterly review of the individual loans outstanding, including outstanding commitments to lend. Residential real estate and consumer amounts are based on a quarterly analysis of the performance of the respective portfolios, including historical and expected delinquency and charge-off statistics.

During 2001, the Company modified the methodology utilized to allocate reserves within individual loan portfolios. The modification was due to the Company’s desire to more specifically identify credit risk within each individual loan portfolio.

Ultimate losses may vary from current estimates, and as adjustments become necessary, the allowance for loan losses is adjusted in the periods in which such losses become known or fail to occur. Actual loan charge-offs and subsequent recoveries are deducted from and added to the allowance, respectively.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is provided on the straight-line method over the estimated lives of the assets and includes amortization of assets recorded under capital leases. Estimated lives range from three to twenty and fifteen to thirty-five years for equipment and premises, respectively. Accelerated depreciation methods are used for income tax reporting purposes.

19

Intangible Assets

Goodwill, the excess cost over net assets acquired, of subsidiaries is amortized over a period of fifteen years. At December 31, 2001, goodwill totaled $62,903,000, net of accumulated amortization of $36,292,000. Other intangible assets, principally deposit based intangibles, unexpired premium lists and noncompetition agreements, totaled $34,554,000, net of accumulated amortization of $13,599,000, and are amortized over their estimated useful lives ranging from three to twenty-five years. The Company assesses the recoverability of goodwill and other intangibles on an annual basis to determine whether any impairment exists. This ongoing assessment includes understanding and evaluating qualitative factors that would indicate the potential for impairment. If the Company believes a potential impairment exists, the Company estimates the relative market value of the corresponding business activity to determine whether a permanent impairment exists.

Income Taxes

The Company provides for income taxes based on income reported for financial statement purposes, rather than amounts currently payable under statutory tax laws. Deferred taxes are recorded to reflect the tax consequences on future years’ differences between the tax bases of assets and liabilities and the financial reporting of amounts at each year-end.

Earnings Per Share

Basic earnings per common share is calculated by dividing net income applicable to common equity by the weighted-average number of shares of common stock outstanding.

Diluted earnings per common share is calculated by adjusting the weighted-average number of shares of common stock outstanding for shares that would be issued assuming the exercise of stock options during each period. Such adjustments to the weighted-average number of shares of common stock outstanding are made only when such adjustments dilute earnings per share.

Cash and Cash Equivalents

Cash and cash equivalents is defined as cash and due from banks, federal funds sold and securities purchased under agreements to resell.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and, accordingly, recognizes no compensation expense for the stock option grants. See Footnote 15.2.

2. Business Combinations And Divestitures

On November 5, 2001, the Company announced an agreement to sell its Phoenix, Arizona, branch to Community Bank of Arizona. The branch has assets of approximately $16 million. The transaction is subject to regulatory approval and is expected to close in the first quarter of 2002.

On June 15, 2001, the Company, through its subsidiary bank and Wells Fargo & Company formed a joint venture mortgage company called Community First Mortgage, LLC. This joint venture mortgage company provides mortgage origination, documentation, servicing process and support for all of the residential mortgage business of Community First Bankshares. The Company records its interest in the joint venture using the equity method of accounting. Accordingly, the assets and liabilities of the joint venture are not consolidated in the Company’s financial statements, but rather, are reflected as a single line item in the income statement. The new mortgage company began operations in late 2001 and expects to be fully operational in 2002.

During 2001, the Company sold nine offices in Arizona, three offices in Nebraska, and one office in North Dakota. The transactions included the disposition of $118 million in deposits.

During 2001, the Company completed the closure of eight offices, including three offices in Colorado, two offices in each of North Dakota and Wyoming and one in Minnesota. Four of the offices closed are in communities where the Company maintains other offices. Thus, the Company will continue to serve those communities. The closures are part of the Company’s strategic initiative announced during the first quarter of 2001.

During 2000, the Company sold one office in Colorado and two offices in Utah. The transactions included the disposition of $45 million in deposits.

On December 21, 1999, the Company issued approximately 317,000 shares of common stock to acquire River Bancorp, Inc. (“River Bancorp”), the holding company for Northland Security Bank, Ramsey, Minnesota. At acquisition, River Bancorp had approximately $35 million in assets and $31 million in deposits. The Company used the pooling of interests method to account for the transaction. This merger was not material to the Company’s consolidated financial information or operating results. Accordingly, the Company’s consolidated financial information has not been restated to reflect this merger. The operating results are included in the Company’s consolidated statements from the date of the merger.

On October 7, 1999, the Company issued approximately 3,022,000 shares of common stock to acquire Valley National Corporation (“Valley National”), the holding company for Valle de Oro Bank, El Cajon, California. At acquisition, Valley National had approximately $252 million in assets and $237 million in deposits. The Company used the pooling of interests method to account for the transaction. The Company’s consolidated financial information has been restated to reflect this merger. The operating results are included in the Company’s consolidated statements for all periods presented.

20

3. Accounting Changes

SFAS No. 133 – Accounting for Derivative Instruments and Hedging Activities – In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement No. 133, which was amended by SFAS Nos. 137 and 138. The statement, as amended, was adopted by the Company on January 1, 2001. Because of the Company’s minimal use of derivatives, the adoption of the new Statement did not have a significant effect on earnings or the financial position of the Company.

SFAS No. 140 – Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – In September 2000, the FASB issued Statement No. 140, that replaced, in its entirety, SFAS No. 125. Although Statement 140 changed many of the rules regarding securitizations, it continues to require an entity to recognize the financial and servicing assets it controls and the liabilities it has incurred and to derecognize financial assets when control has been surrendered in accordance with the criteria provided in the Statement. The Statement was applicable prospectively to transactions beginning in the second quarter of 2001. Because the Company does not currently use securitizations or other transfers of financial assets as a form of financing, the adoption of the new Statement did not have a significant effect on earnings or the financial position of the Company.

SFAS Nos. 141 and 142 – Business Combinations and Goodwill and Other Intangible Assets – In June 2001, the FASB issued SFAS Nos. 141 and 142. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives.

The Company will apply Statement 142 beginning in the first quarter of 2002. Application of the nonamortization provisions of Statement 142 is expected to result in an increase in net income of $5.0 million (approximately $0.12 per share) in 2002. The Company will test goodwill for impairment using the two-step process described in Statement 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The Company expects to perform the first of the required impairment steps of goodwill as of January 1, 2002 in the first quarter of 2002. Any impairment charge resulting from these transitional impairment tests will be reflected in the statement of income as the cumulative effect of a change in accounting principle in the first quarter of 2002. The Company has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.

4. Restructuring Charge

During the first quarter of 2001, the Company recorded a $5.1 million after-tax, non-recurring charge as a result of a series of strategic initiatives designed to improve customer service and strengthen the Company’s position as a provider of diversified financial services. As part of this strategy, the Company designated each of its offices as either a Regional Financial Center or a Community Financial Center. Regional Financial Centers are those locations exhibiting strong commercial banking potential, while Community Financial Centers offer greater retail opportunities. As a consequence of the new delivery structure, the Company sold 13 offices and closed eight additional offices. A further consequence was to achieve a reduction in work force through implementation of an early-out program, which was accepted by 21 eligible management personnel. The restructuring charge included approximately $3.1 million related to asset write-down, data processing, and legal and accounting fees. Additionally the Company recorded an after-tax expense of approximately $2.0 million to provide for severance-related costs associated with the early-out and reduction-in-force programs.

21

5. Securities

The following is a summary of available-for-sale securities and held-to-maturity securities at December 31, 2001 (in thousands):

	Available-for-Sale Securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealised Gains		Estimated Fair Value
United States Treasury	$	66,953	$	2,349	$	5	$	69,297
United States Government agencies	227,848		4,624		1,092		231,380
Mortgage-backed securities	877,670		11,343		1,865		887,148
Collateralized mortgage obligations	4,337		50		10		4,377
State and political securities	97,829		1,029		1,255		97,603
Other securities	156,059		691		9,489		147,261
Total	$	1,430,696	$	20,086	$	13,716	$	1,437,066

	Held-to-Maturity Securities
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Gains	Estimated Fair Value
Other securities	$	76,765	—	—	$	76,765
Total	$	76,765	—	—	$	76,765

The following is a summary of available-for-sale securities and held-to-maturity securities at December 31, 2000 (in thousands):

	Available-for-Sale Securities
	Amortized Cost		Gross Unrealized  Gains		Gross Unrealized Cost		Estimated Fair Value
United States Treasury	$	76,939	$	1,040	$	28	$	77,951
United States Government agencies	436,975		1,351		3,071		435,255
Mortgage-backed securities	998,147		2,524		6,732		993,939
Collateralized mortgage obligations	9,649		38		52		9,635
State and political securities	115,177		974		751		115,400
Other securities	93,334		1,215		12,219		82,330
Total	$	1,730,221	$	7,142	$	22,853	$	1,714,510

	Held-to-Maturity Securities
	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Other securities	$	73,222	—	—	$	73,222
Total	$	73,222	—	—	$	73,222

Proceeds from the sale of available-for-sale securities during the years ended December 31, 2001, 2000 and 1999, were $40,436,000, $150,383,000, and $153,810,000, respectively. Gross gains of $1,088,000, $880,000, and $2,175,000 and gross losses of $284,000, $815,000, and $0 were realized on those sales during 2001, 2000 and 1999, respectively. The tax effect on the net gains during 2001, 2000 and 1999 was approximately $281,000, $23,000, and $761,000, respectively. There were no sales of held-to-maturity securities during 2001, 2000 or 1999.

The amortized cost and estimated fair value of debt securities at December 31, 2001, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale
	Amortized Cost		Estimated Fair Value
	(In thousands)
Due in one year or less	$	150,947	$	152,726
Due after one year through five years	193,114		197,864
Due after five years through ten years	49,667		49,718
Due after ten years	154,961		145,233
	548,689		545,541
Mortgage-backed securities	877,670		887,148
Collateralized mortgage obligations	4,337		4,377
Total	$	1,430,696	$	1,437,066

	Held-to-Maturity
	Amortized Cost	Estimated Fair Value
	(In thousands)
Due after ten years	$76,765	$76,765
Total	$76,765	$76,765

At December 31, 2001, available-for-sale securities included no commitments to purchase specific investment securities at a future date.

Available-for-sale and held-to-maturity securities carried at $1,213,234,000 and $1,301,674,000 at December 31, 2001 and 2000, respectively, were pledged to secure borrowings, public and trust deposits and for other purposes required by law. Securities sold under agreement to repurchase were collateralized by available-for-sale and held-to-maturity securities with an aggregate carrying value of $246,759,000 and $205,758,000 at December 31, 2001 and 2000, respectively.

22

6. Loans

The composition of the loan portfolio at December 31 was as follows (in thousands):

	2001			2000
Real estate	$	1,515,118		$	1,458,494
Real estate construction	519,031			466,616
Commercial	824,318			872,824
Consumer and other	627,034			686,064
Agriculture	251,191			254,204
	3,736,692			3,738,202
Less: Allowance for loan losses	(54,991		)	(52,168		)
Net loans	$	3,681,701		$	3,686,034

At December 31, 2001, real estate loans totaling $1,136,828,000 were pledged to secure borrowings

7. Allowance For Loan Losses

Activity in the allowance was as follows (in thousands):

	2001			2000			1999
Balance at beginning of year	$	52,168		$	48,878		$	51,860
Allowance of acquired companies/other	—			—			270
Provision charged to operating expense	17,520			15,781			20,184
Loans charged off	(19,869		)	(17,117		)	(27,850		)
Recoveries of loans charged off	5,172			4,626			4,414
Balance at end of year	$	54,991		$	52,168		$	48,878

Nonaccrual loans totaled $20,818,000, $23,426,000, and $25,764,000 at December 31, 2001, 2000 and 1999, respectively. The Company includes all loans considered impaired under SFAS No. 114 in nonaccrual loans. Interest income of $2,722,000, $4,693,000 and $5,534,000 on nonaccrual loans would have been recorded during 2001, 2000 and 1999, respectively, if the loans had been current in accordance with their original terms. The Company recorded interest income of $1,113,000, $955,000 and $1,067,000 related to loans that were on nonaccrual status as of December 31, 2001, 2000 and 1999, respectively.

8. Fair Value Of Financial Instruments

Due to the nature of its business and the financing needs of its customers, the Company has a financial interest in a large number of financial instruments, the majority for which an active market does not exist. Accordingly, the Company has used various valuation techniques to estimate the fair value of its financial instruments. These techniques are significantly affected by the assumptions used, including the discount rate, the estimated timing and amount of cash flows and the aggregation methods used to value similar instruments. In this regard, the resulting fair value estimates cannot be substantiated by comparison to independent markets and, in a majority of cases, could not be realized by the immediate sale or settlement of the instrument. Also, the estimates reflect a point-in-time valuation that could change significantly based on changes in outside economic factors, such as the general level of interest rates. The required disclosures exclude the estimated values of nonfinancial instrument cash flows and are not intended to provide or estimate a market value of the Company. The following assumptions were used by the Company in estimating the fair value of the specific financial instruments.

Cash and Due from Banks

The carrying amounts reported in the statements of financial condition approximate fair values for these items that have no interest rate or credit risk.

Interest-Bearing Deposits

The fair value of interest-bearing deposits is estimated using a discounted cash flow analysis using current market rates of interest-bearing deposits with similar maturities to discount the future cash flows.

Available-for-Sale and Held-to-Maturity Securities

Fair values for these items are based on available market quotes. If market quotes are not available, fair values are based on market quotes of comparable securities.

Loans

The loan portfolio consists of both variable and fixed rate loans. The fair value of variable rate loans, a majority of which reprice within the next three months and for which there has been no significant change in credit risk, are assumed to approximate their carrying amounts. The fair values for fixed rate loans are estimated using discounted cash flow analyses. The discount rates applied are based on the current interest rates for loans with similar terms to borrowers of similar credit quality.

23

Deposit Liabilities

The fair value of demand deposits, savings accounts and certain money market deposits is defined by SFAS No. 107 to be equal to the amount payable on demand at the date of the financial statements. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow analysis that uses the interest rates currently being offered on certificates of deposit to discount the aggregated expected monthly maturities.

Short-Term Borrowings

Federal funds purchased, borrowings under repurchase agreements and other short-term borrowings are at variable rates or have short-term maturities, and their fair value is assumed to approximate their carrying value.

Long-Term Debt

The fair value of long-term debt is estimated using a discounted cash flow analysis using current market rates of debt with similar maturities to discount the future cash flows.

Loan Commitments and Letters of Credit

The majority of the Company’s commitments have variable rates and do not expose the Company to interest rate risk. The Company’s commitments for fixed rate loans are evaluated, and it is estimated the probability of additional loans being issued under these commitments is not significant and there is not a fair value liability.

The estimated fair values of the Company’s financial instruments at December 31 are shown in the table below (in thousands):

	2001						2000
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets:
Cash and due from banks	$	248,260		$	248,260		$	256,136		$	256,136
Interest-bearing deposits	341			341			1,110			1,110
Available-for-sale securities	1,437,066			1,437,066			1,714,510			1,714,510
Held-to-maturity securities	76,765			76,765			73,222			73,222
Loans	3,736,692			3,798,123			3,738,202			3,734,251
Allowance for loan losses	(54,991		)	(54,991		)	(52,168		)	(52,168		)
Net loans	3,681,701			3,743,132			3,686,034			3,682,083
Financial liabilities:
Deposits:
Noninterest-bearing	$	487,864		$	487,864		$	500,834		$	500,834
Interest-bearing:
Savings and NOW	2,367,255			2,367,255			2,349,606			2,349,606
Time accounts over $100,000	692,315			696,810			672,968			674,343
Other time accounts	1,203,379			1,211,193			1,496,483			1,496,266
Total deposits	4,750,813			4,763,122			5,019,891			5,021,049
Federal funds purchased and repurchase agreements	318,859			318,859			205,758			205,758
Other short-term borrowings	23,780			23,780			203,952			203,952
Long-term debt	136,841			140,570			123,957			117,293

9. Financial Instruments With Off-Balance-Sheet Risk And Concentrations Of Credit Risk

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk. These transactions enable customers to meet their financing needs and enable the Company to manage its interest rate risk. These financial instruments include commitments to extend credit and letters of credit. The contract or notional amounts of these financial instruments at December 31, 2001 and 2000, were as follows (in thousands):

	2001		2000
Commitments to extend credit	$	671,500	$	678,401
Standby letters of credit	21,042		19,108
Commercial letters of credit	9,165		5,602

Commitments to extend credit are legally binding and have fixed expiration dates or other termination clauses. The Company’s exposure to credit loss on commitments to extend credit, in the event of nonperformance by the counterparty, is represented by the contractual amounts of the commitments. The Company monitors its credit risk for commitments to extend credit by applying the same credit policies in making commitments as it does for loans and by obtaining collateral to secure commitments based on management’s credit assessment of the counterparty. Collateral held by the Company may include marketable securities, receivables, inventory, agricultural commodities, equipment and real estate. Because many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent the Company’s future liquidity requirements. In addition, the Company also offers various consumer credit line products to its customers that are cancelable upon notification by the Company, which are included above in commitments to extend credit.

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements.

Commercial letters of credit are issued by the Company on behalf of customers to ensure payments of amounts owed or collection of amounts receivable in connection with trade transactions. The Company’s exposure to credit loss in the event of nonperformance by the counterparty is the contractual amount of the letter of credit and represents the same exposure as that involved in extending loans.

The amount of collateral obtained to support letters of credit is based on a credit assessment of the counterparty. Collateral held may include marketable securities, receivables, inventory, agricultural commodities, equipment and real estate. Because the conditions under which the Company is required to fund letters of credit may not materialize, the liquidity requirements of letters of credit are expected to be less than the total outstanding commitments.

The Company’s bank subsidiary grants real estate, agricultural, commercial, consumer and other loans and commitments and letters of credit to customers throughout Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming. Although the Company has

24

a diversified loan portfolio, the ability of a significant portion of its debtors to honor their contracts is dependent upon their local economic sector. The maximum exposure to accounting loss that could occur, if the borrowers fail to perform according to the loan agreements and the underlying collateral proved to be of no value, is the total loan portfolio balances and commitments and letters of credit.

10. Bank Premises And Equipment

Bank premises and equipment at December 31 consisted of the following (in thousands):

	2001		2000
Land	$	22,265	$	22,271
Buildings	133,701		130,137
Furniture, fixtures and equipment	89,911		84,966
Leased property under capital lease obligations	7,747		10,177
	253,624		247,551
Less accumulated depreciation	127,677		125,876
	$	125,947	$	121,675

11. Short-Term Borrowings

As of December 31, 2001, the Company’s subsidiary bank had $4 million in Federal Home Loan Bank (“FHLB”) borrowings, which are collateralized by various investment securities and real estate loans. The interest rates on FHLB borrowings are variable rates based on short-term market conditions and the term of the advance, ranging from 4.32% to 4.45% at December 31, 2001. The Company’s subsidiaries had no additional short-term borrowings outstanding at December 31, 2001.

The Company has a short-term line of credit bearing interest at a variable rate of LIBOR plus .75% that provides for borrowing up to $25 million through October 26, 2002, with a commitment fee of .25% of the revolving commitment amount. As of December 31, 2001, the Company had no balance outstanding under this line of credit. The Company has a short term line of credit bearing interest at a variable rate of LIBOR plus 1.25% that provides for borrowing up to $35 million, with a commitment fee of .25% of the revolving commitment amount. This line may be accessed to fund the repurchase of the Company’s common stock, fund operating expenses and underwrite the Company’s outstanding commercial paper obligations. As of December 31, 2001, the Company had no balance outstanding under this line of credit. The Company has entered into an agreement that allows for its designated agent to underwrite up to $35 million of commercial paper and has obtained lines of credit to support these borrowings. As of December 31, 2001, there was a $20 million commercial paper balance outstanding with a blended rate of 2.78%. The terms of the lines of credit include certain covenants with which the Company must comply. At December 31, 2001, the Company was in compliance with all covenants pertaining to the lines of credit.

12. Long-Term Debt

Long-term debt consisted of the following at December 31 (dollars in thousands):

	2001		2000
Parent Company:
Subordinated notes payable, interest at 7.30%, payable semi-annually, maturing June 30, 2004, unsecured	$	60,000	$	60,000
Term note payable to bank, interest at 6.19% until February 1, 2008, then at .50% over One Year, Three Year, or Five Year U.S. Treasury rate, payable semi-annually, maturing February 1, 2013, secured by real property	2,560		2,773
Subsidiaries:
Federal Home Loan Bank advances, interest rates ranging from 3.45% to 6.55%, payable monthly, with maturities ranging from January 21, 2003 to October 2, 2008	48,500		34,834
Subordinated term note payable to bank, interest of LIBOR plus 140 basis points, payable quarterly, maturing December 22, 2007, unsecured	25,000		25,000
Term note payable to bank, interest at 3.50% payable monthly, principal payments ranging from $50 to $55, per schedule due monthly through March 31, 2003	781		1,350
	$	136,841	$	123,957

The 7.30% subordinated notes payable are not redeemable, in whole or in part, by the Company. These notes, of which 40% of the balance qualifies as Tier II capital as of December 31, 2001, under the Federal Reserve Board guidelines, are direct obligations of the Company and are subordinated to all other indebtedness of the Company. The terms of the subordinated notes payable include certain covenants with which the Company must comply. At December 31, 2001, the Company was in compliance with all covenants pertaining to the subordinated notes payable.

25

Maturities of long-term debt outstanding, at December 31, 2001, were (in thousands):

2002	$	831
2003	18,376
2004	65,213
2005	25,213
2006	213
Thereafter	26,995
	$	136,841

13. Company-Obligated Mandatorily Redeemable Preferred Securities

On December 10, 1997, the Company issued $60 million of 8.20% Cumulative Capital Securities, through CFB Capital II, a business trust subsidiary organized in December 1997. The proceeds of the offering were invested by CFB Capital II in Junior Subordinated Debentures of the Company. the debentures will mature not earlier than December 15, 2002, and not later than December 15, 2027.

On February 5, 1997, the Company issued $60 million of 8.875% Cumulative Capital Securities, through CFB Capital I, a business trust subsidiary organized in January 1997. The proceeds of the offering were invested by CFB Capital I in Junior Subordinated Debentures of the Company. The debentures will mature not earlier than February 1, 2002 and not later than February 1, 2027.

At December 31, 2001, $118 million in Capital Securities qualified as Tier I capital under capital guidelines of the Federal Reserve Board.

14. Shareholders’ Equity

COMMON STOCK

In August 2001, the Company adopted a common stock repurchase program providing for the systematic repurchase of up to 3 million shares of the Company’s common stock. The shares were to be purchased primarily on the open market with timing depending upon market conditions. Adoption of the program provided the Company with an alternative opportunity for capital utilization. In addition, the shares acquired can be used for the issuance of common stock upon exercise of stock options under the Company’s compensation plans and for other purposes, including business combinations. As of December 31, 2001, all 3 million shares were available for repurchase.

In April 2000, the Company adopted a common stock repurchase program providing for the systematic repurchase of up to 5 million shares of the Company’s common stock. In addition, during August 2000, the Company adopted an additional common stock repurchase program providing for the repurchase of up to an additional 5 million shares. Under each program, the shares were to be purchased primarily on the open market, with timing depending upon market conditions. Adoption of the two programs provided the Company with an alternative opportunity for capital utilization. In addition, the shares acquired can be used for the issuance of common stock upon exercise of stock options, under the Company’s compensation plans and for other purposes, including business combinations. As of December 31, 2001, the Company had repurchased all 10.8 million shares of common stock under these programs, at prices ranging from $15.25 to $25.00. During 2001, the Company repurchased 2 million shares of common stock, all under the August 2000 program.

In 1995, the Company extended the common stock repurchase program established in 1992, which provided for the systematic acquisition of up to 1,200,000 shares of the Company’s common stock. In addition, it adopted a new common stock repurchase program that provided for the acquisition of an additional 1,200,000 shares of common stock. During 2000, the repurchase of 385,000 shares under the 1992 program and its 1995 extensions completed these programs, thus, as of December 31, 2001, no shares are available under the 1992 and 1995 programs.

On April 3, 1998, the Company filed a shelf registration statement with the Securities and Exchange Commission for the purpose of issuing up to 3,500,000 shares of its common stock. The shares may be offered in acquisition transactions in exchange for shares of capital stock, partnership interests or other assets representing an interest, direct or indirect, in other companies or entities, or in exchange for assets used in or related to the business of such entities. Amendment No. 1, effective June 11, 1998, increased the shares under this registration statement to 7,000,000 shares, to reflect the effect of the shares remaining as of May 15, 1998, when the shareholders approved a charter amendment to facilitate a two-for-one split of the Company’s common stock, in the form of a 100 percent stock dividend. Subsequently, two additional acquisitions, totaling 1,843,447 shares, were completed under this registration statement. At December 31, 2001, there remain 5,156,553 shares to be issued under the registration statement.

On December 31, 1997, the Company filed a shelf registration statement with the Securities and Exchange Commission for the purpose of issuing up to 3,000,000 shares of its common stock. The shares may be offered in acquisition transactions in exchange for shares of capital stock, partnership interests or other assets representing an interest, direct or indirect, in other companies or entities, or in exchange for assets used in or related to the business of such entities. Amendment No. 2, effective June 22, 1998 increased the shares under this registration statement to 4,438,207 shares, to reflect the effect of the shares remaining as of May 15, 1998, when the shareholders approved a charter amendment to facilitate a two-for-one split of the Company’s common stock, in the form of a 100 percent stock dividend. As of June 22, 1998, two acquisitions were completed under the registration statement, totaling 1,561,793 shares, resulting in a pre-split remaining authorized shares of 1,438,207. Subsequently, two additional acquisitions, totaling 2,016,218 shares, were completed under the December 31, 1997 registration statement. At December 31, 2001, there remain 860,196 shares to be issued under the registration statement.

On April 1, 1999, prior to being acquired by the Company, Valley National was formed as a one-bank holding company through a reorganization of its affiliate bank, Valle de Oro Bank. In the reorganization, former Valle de Oro Bank shareholders received two shares of Valley National common stock for each share of bank stock owned. Equity records of Valley National and subsequently, the Company, have been restated to reflect the reorganization.

The former Valley National Corporation and its predecessor, Valle de Oro Bank, declared and paid a common stock dividend equal to 5% of its common stock outstanding as of May 3, 1999, April 24, 1998 and April 25, 1997.

26

PREFERRED STOCK SHAREHOLDERS’ RIGHTS PLAN

The Company adopted a shareholders’ rights plan in January 1995 that attached one right to each share of common stock outstanding on January 19, 1995. Each right entitles the holder to purchase one one-hundredth of a share of a new series of junior participating preferred stock of the Company, which has an initial exercise price of $31.50. The rights become exercisable only upon the acquisition of 15 percent or more of the Company’s voting stock, or an announcement of a tender offer or exchange offer to acquire an interest of 15 percent or more by a person or group, without the prior consent of the Company. If exercised, or if the Company is acquired, the rights entitle the holders (not including the person or persons acquiring or proposing to acquire an amount of common stock equal to 15 percent or more of the Company) to purchase, at the exercise price, common stock with a market value equal to two times the exercise price. The rights, which may be redeemed by the Company in certain circumstances, expire January 5, 2005.

CAPITAL REQUIREMENTS

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets.

As of December 31, 2001, the Company is considered well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table.

	At DECEMBER 31, 2001
Regulatory Capital Requirements:	Tier 1 Capital		Total Risk-Based Capital		Leverage		Total Risk-Based Assets
	(Dollars in thousands)
Minimum	4.00	%	8.00	%	3.00	%	N/A
Well Capitalized	6.00	%	10.00	%	5.00	%	N/A
Bank Subsidiary:
Community First National Bank, Fargo	9.43	%	11.13	%	7.16	%	$	4,254,919
Community First Bankshares, Inc.	8.67	%	11.11	%	6.51	%	$	4,304,531

	At DECEMBER 31, 2000
Regulatory Capital Requirements:	Tier 1 Capital		Total Risk-Based Capital		Leverage		Total Risk Based Assets
	(Dollars in thousands)
Minimum	4.00	%	8.00	%	3.00	%	N/A
Well Capitalized	6.00	%	10.00	%	5.00	%	N/A
Bank Subsidiaries:
Community First National Bank, Fargo	9.74	%	11.53	%	7.17	%	$	4,162,469
Community First State Bank, Vermillion (1)	10.19	%	11.44	%	8.02	%	205,071
Community First Bankshares, Inc.	8.13	%	10.73	%	5.94	%	$	4,408,524

(1) Merged into Community First National Bank, Fargo in March 2001.

27

15. Employee Benefit Plans

STOCK OPTION PLAN

During 1996, the Company approved the 1996 Stock Option Plan under which an additional 4,000,000 shares of the Company’s common stock were reserved for granting of future stock options. Similar to the 1987 Stock Option Plan, the Company may grant key employees incentive or nonqualified options to purchase common stock of the Company. Incentive stock options must have an exercise price of at least fair market value on the date of the grant, as determined by the Company. The options generally vest ratably over a three-year period and are exercisable over five- or ten-year terms.

Stock options outstanding under the plans are as follows:

	2001				2000
	Options Outstanding		Weighted Average Price Per Share		Options Outstanding		Weighted Average Price Per Share
Beginning of Year	2,441,862		$	16.32	2,220,344		$	15.53
Options Granted	682,800		19.45		759,800		14.08
Options Exercised	(507,061	)	20.27		(385,317	)	14.41
Options Forfeited	(180,367	)	13.47		(152,965	)	15.68
End of Year	2,437,234		$	17.98	2,441,862		$	16.32
Exercisable at end of year	1,212,469		$	18.55	1,223,586		$	16.06

	2001		2000
Weighted average fair value of options granted	$	6.34	$	5.04

The range of exercise prices and the weighted-average remaining contractual life of the options outstanding at December 31, 2001 were as follows:

Range of Exercise Prices Per Share	Options Outstanding at December 31, 2001	Weighted Average Exercise Price Per Share		Weighted Average Remaining ContractualLife
$24.6875 to $24.8750	353,000	$	24.86	1.10 Years
$17.2500 to $21.5000	1,140,793	$	19.48	8.31 Years
$12.8200 to $15.8750	889,608	$	14.05	6.49 Years
$  5.8700 to $  6.1600	53,833	$	6.04	4.75 Years

At December 31, 2001, a total of 3,435,891 shares of authorized common stock was reserved for exercise of options granted under the 1996 and 1987 Stock Option Plans.

As described in Note 1, the Company has elected to measure compensation costs as prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees” and, accordingly, does not recognize compensation expense. SFAS No. 123 requires the Company to disclose pro forma information reflecting net income and earnings per share had the Company elected to record compensation expense based on the fair market value method described in SFAS 123. The fair value of the options was estimated at the grant date using a Black-Scholes option pricing model. Option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

The following weighted-average assumptions were used in the valuation model: risk-free interest rates of 4.88 percent and 6.67 percent in 2001 and 2000, respectively; dividend yield of 2.65 percent and 3.18 percent in 2001 and 2000, respectively; stock price volatility factors of .329 and .362 in 2001 and 2000, respectively; and expected life of options of 7.5 years.

The pro forma disclosures include options granted in 2001 and 2000 and are not likely to be representative of the pro forma disclosures for future years. The estimated fair value of the options is amortized to expense over the options’ vesting period.

	2001		2000
	(Dollars in thousands, except per share data)
Pro forma net income	$	62,770	$	69,711
Pro forma net income (diluted)	62,770		69,711
Pro forma earnings per share:
Basic	$	1.53	$	1.51
Diluted	1.51		1.50

EMPLOYEE STOCK OWNERSHIP PLAN

The Company had an employee stock ownership plan (“ESOP”) that was a defined contribution plan covering all employees who are 21 years of age with more than one year of service. Contributions were calculated using a formula based on the Company’s return on average assets on a yearly basis. The contribution expense was $0, $0, and $1,335,000 in 2001, 2000 and 1999, respectively. In 2001, the Company approved a plan which merged the ESOP into the Company’s Profit Sharing Plan, thus, the Company anticipates no contribution expense during 2002, and anticipates no future contribution expenses.

PROFIT-SHARING PLAN

The Company offers a contributory profit-sharing and thrift plan that qualifies under section 401(k) of the Internal Revenue Code. The plan covers all employees who are 21 years of age with more than one year of service. The plan provides for an employer-matching contribution of 100% of the first 3% and 50% of the next 3% of each participant’s eligible contribution, subject to a limitation of the lesser of the participant’s contribution or the maximum amount prescribed by the Internal Revenue Code. The Company’s contribution was $2,743,000, $1,456,000, and $1,639,000 in 2001, 2000 and 1999, respectively. In 2001, the Company adopted a plan which merged the Company’s ESOP into the Profit Sharing Plan and increased the employer-matching contribution. Prior to 2001, the employer-matching contribution was 50% based on each participant’s eligible contribution for each plan year, subject to a limitation of the lesser of 6% of the participant’s annual compensation or the maximum amount prescribed by the Internal Revenue Code.

28

16. Restrictions On Cash And Due From Banks

Bank subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. Balances of $22,597,000 and $42,659,000 at December 31, 2001 and 2000, respectively, exceeded required amounts.

17. Income Taxes

The components of the provision for income taxes were (in thousands):

	2001			2000			1999
Federal:
Current	$	32,587		$	34,443		$	36,509
Deferred	(1,961		)	(1,741		)	(742		)
	30,626			32,702			35,767
State:
Current	3,112			3,382			3,152
Deferred	(262		)	(336		)	(346		)
	2,850			3,046			2,806
Provision for income taxes	$	33,476		$	35,748		$	38,573

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

	2001			2000			1999
Tax at statutory rate (35%)	$	34,487		$	37,584		$	39,720
State income tax, net of federal tax benefit	1,853			1,980			1,830
Tax-exempt interest	(4,094		)	(3,726		)	(3,756		)
Amortization of goodwill	919			918			919
Other	311			(1,008		)	(140		)
Provision for income taxes	$	33,476		$	35,748		$	38,573

Deferred income tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2001 and 2000, are as follows (in thousands):

	2001		2000
Deferred tax assets:
Loan loss reserves	$	20,695	$	19,209
Other reserves	376		718
Deferred compensation	916		868
Deferred loan fees	8		54
Other	3,250		2,987
	25,245		23,836
Deferred tax liabilities:
Unrealized net gains (losses)	2,522		(6,225		)
Depreciation	644		(329		)
Purchase accounting	126		188
Other	228		2,716
	3,520		(3,650		)
Net deferred tax assets	$	21,725	$	27,486

The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized.

18. COMMITMENTS AND CONTINGENT LIABILITIES

Total rent expense was $5,273,000, $5,704,000,and $5,507,000 in 2001, 2000 and 1999, respectively.

Future minimum payments, by year and in the aggregate, under noncancelable leases with initial or remaining terms of one year or more, consisted of the following at December 31, 2001: (In thousands) 

	Operating		Capital
	(In Thousands)
2002	$	2,962	$	394
2003	2,422		117
2004	1,128		108
2005	488		108
2006	385		108
Thereafter	2,489		299
	$	9,874	$	1,134
Executory costs (taxes)			0
Net minimum lease payments			$	1,134
Less:
Amount representing interest			(180		)
Present value of net minimum lease payments			$	954

In the normal course of business, there are various outstanding legal proceedings, claims, commitments and contingent liabilities. In the opinion of management, the Company and its subsidiaries will not be materially affected by the outcome of such matters.

29

19. Community First Bankshares, Inc.

(Parent Company Only)

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31
	2001		2000
	(In thousands)
Assets
Cash and due from subsidiary bank	$	4,698	$	2,994
Interest-bearing deposits	31		2
Available-for-sale securities	13,040		10,628
Investment in subsidiaries	521,938		538,437
Furniture and equipment	7,884		6,697
Receivable from subsidiaries	13,009		12,919
Other assets	13,595		17,027
Total assets	$	574,195	$	588,704
Liabilities and shareholders’ equity
Short-term borrowings	$	19,780	$	48,952
Long-term debt	186,272		186,485
Other liabilities	11,438		7,836
Shareholders’ equity	356,705		345,431
Total liabilities and shareholders’ equity	$	574,195	$	588,704

CONDENSED STATEMENTS OF INCOME

	Years ended December 31
	2001			2000		1999
	(in thousands)
Income:
Dividends from subsidiaries	$	126,117		$	58,067	$	73,242
Service fees from subsidiaries	329			411		5,022
Interest income	614			971		991
Other	1,552			1,559		1,357
Total income	128,612			61,008		80,612
Expense:
Interest expense	16,471			18,462		16,895
Other expense	29,839			22,186		20,596
Total expense	46,310			40,648		37,491
Income before income tax benefit, equity in undistributed income of subsidiaries	82,302			20,360		43,121
Income tax benefit	14,849			13,120		9,955
Income before undistributed income of subsidiaries	97,151			33,480		53,076
Equity in(overdistributed) undistributed income of subsidiaries	(32,092		)	38,154		21,837
Net income	$	65,059		$	71,634	$	74,913

CONDENSED STATEMENTS OF CASH FLOWS

		Years ended December 31
		2001			2000			1999
		(in thousands)
Cash flows from operating activities:
Net income	$		65,059		$	71,634		$	74,913
Adjustments to reconcile net income to net cash used in operating activities:
Equity in overdistributed (undistributed) income of subsidiaries	32,092				(38,154		)	(21,837		)
Depreciation	730				867			992
(Decrease) increase in interest payable	(2,450			)	2,176			(13		)
Other, net	9,485				(417		)	5,120
Net cash provided by operating activities	104,916				36,106			59,175
Cash flows from investing activities:
Purchases of stock in subsidiaries	—				—			(4,878		)
Equity distribution (to) from subsidiaries	(1,763			)	110,021			—
Net loans to subsidiaries	(90			)	8,945			(10,808		)
Purchases of available-for-sale securities	(355,456			)	(32,473		)	(27,877		)
Sales of available-for-sale securities, net of gains	3,767				1,630			1,573
Maturities of investment securities	348,779				23,009			25,038
Net increase in furniture and equipment	(1,917			)	(932		)	(580		)
Net (increase) decrease in interest-bearing deposits	(29			)	14			94
Net cash provided by (used in) investing activities	(6,709			)	110,214			(17,438		)
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings	(29,172			)	23,345			(9,928		)
Common stock dividends paid	(27,793			)	(27,601		)	(27,075		)
Repayment of long-term debt	(213			)	(214		)	(212		)
Sale of common stock held in treasury	3,695				4,444			2,569
Purchase of common stock held in treasury	(43,020			)	(145,725		)	(11,844		)
Net proceeds from issuance of common stock	—				—			2,234
Net cash used in financing activities	(96,503			)	(145,751		)	(44,256		)
Net increase (decrease) in cash and cash equivalents	1,704				569			(2,519		)
Cash and cash equivalents at beginning of year	2,994				2,425			4,944
Cash and cash equivalents at end of year	$		4,698		$	2,994		$	2,425

Certain restrictions exist regarding the extent to which the bank subsidiary may transfer funds to the Company in the form of dividends, loans or advances. Federal law prevents the Company from borrowing from its bank subsidiary unless the loans are secured by specified U.S. obligations. Secured loans to the Company or any individual affiliate are generally limited in amount to 10% of the banks’ equity. Further, loans to the Company and all affiliates in total are limited to 20% of the bank’s equity. As of December 31, 2001 and 2000, $50,861,000 and $52,633,000, respectively, of individual subsidiary banks’ capital was available for credit extension to the parent company. At December 31, 2001 and 2000, the bank subsidiary had no credit extended to the Company.

Payment of dividends to the Company by its subsidiary bank is subject to various limitations by bank regulatory agencies. Undistributed earnings of the bank subsidiary available for distribution as dividends under these limitations were $25,898,000 and $45,687,000 as of December 31, 2001 and 2000, respectively.

30

20. Related Party Transactions

Certain directors and executive officers of the Company and its subsidiaries, including their immediate families, companies in which they are principal owners and trusts in which they are involved, are loan customers of the bank subsidiary. The aggregate dollar amounts of these loans did not exceed five percent of stockholders equity at December 31, 2001, 2000 and 1999.

21. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share data):

	Years ended December 31
	2001		2000		1999
Numerator:
Income from continuing operations	$	65,059	$	71,634	$	74,913
Numerator for basic earnings per share income available to common stockholders	65,059		71,634		74,913
Denominator:
Denominator for basic earnings per share weighted-average shares outstanding	40,905,545		46,219,120		50,061,972
Effect of dilutive securities:
Employee stock options	565,859		359,630		608,587
Dilutive potential common shares	565,859		359,630		608,587
Denominator for diluted earnings per share adjusted weighted-average shares and assumed conversions	41,471,404		46,578,750		50,670,559
Basic earnings per share	$	1.59	$	1.55	$	1.50
Diluted earnings per share	$	1.57	$	1.54	$	1.48

22. Supplemental Disclosures To Consolidated Statements Of Cash Flows

	Years ended December 31
	2001		2000		1999
	(in thousands)
Noncash transfers of held-to-maturity securities to available-for-sale securities	$	—	$	—	$	22,974
Unrealized gain (loss) on available-for-sale securities	22,081		56,986		(93,922		)
Income taxes paid	36,514		35,149		40,378
Interest paid	177,743		196,741		177,692
Commitments to purchase investment securities	—		—		386

Report of Independent Auditors

The Board of Directors and Shareholders Community First Bankshares, Inc.

We have audited the accompanying consolidated statements of financial condition of Community First Bankshares, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Community First Bankshares, Inc., and subsidiaries at December 31, 2001 and 2000 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Minneapolis, Minnesota

January 16, 2002

31

CONSOLIDATED STATEMENT OF CONDITION — FIVE YEAR SUMMARY
Community First Bankshares, Inc.

	December 31
	2001		2000		1999		1998		1997
	(In thousands)
ASSETS
Cash and due from banks	$	248,260	$	256,136	$	247,051	$	262,667	$	265,238
Federal funds sold and securities purchased under agreement to resell	–		–		4,775		11,990		85,186
Interest-bearing deposits	341		1,110		4,648		11,463		16,630
Available-for-sale securities	1,437,066		1,714,510		1,937,517		2,004,584		1,561,515
Held-to-maturity securities	76,765		73,222		74,248		92,859		238,046
Total securities	1,513,831		1,787,732		2,011,765		2,097,443		1,799,561
Loans	3,736,692		3,738,202		3,690,353		3,537,537		3,160,501
Less: Allowance for loan losses	54,991		52,168		48,878		51,860		41,387
Net loans	3,681,701		3,686,034		3,641,475		3,485,677		3,119,114
Other assets	328,193		358,717		392,521		370,532		374,489
Total assets	$	5,772,326	$	6,089,729	$	6,302,235	$	6,239,772	$	5,660,218
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	487,864	$	500,834	$	616,861	$	591,718	$	740,425
Interest-bearing	4,262,949		4,519,057		4,293,002		4,509,347		3,600,640
Total deposits	4,750,813		5,019,891		4,909,863		5,101,065		4,341,065
Short-term borrowings	342,639		409,710		724,425		435,726		275,239
Long-term debt	136,841		123,957		75,622		93,524		124,612
Other liabilities	65,328		70,740		65,056		64,801		394,263
Total liabilities	5,295,621		5,624,298		5,774,966		5,695,116		5,135,179
Company-obligated mandatorily redeemable preferred securities of CFB Capital I and II	120,000		120,000		120,000		120,000		120,000
Shareholders’ equity	356,705		345,431		407,269		424,656		405,039
Total liabilities and shareholders’ equity	$	5,772,326	$	6,089,729	$	6,302,235	$	6,239,772	$	5,660,218

32

CONSOLIDATED STATEMENT OF INCOME — FIVE YEAR SUMMARY
Community First Bankshares, Inc.

	Years Ended December 31
	2001		2000		1999		1998			1997
	(In thousands)
INTEREST INCOME:
Loans	$	336,937	$	353,405	$	332,974	$	337,771		$	271,912
Investment securities	96,688		123,525		130,955		124,306			66,316
Other	391		628		1,277		5,193			4,561
Total interest income	434,016		477,558		465,206		467,270			342,789
INTEREST EXPENSE:
Deposits	138,542		169,281		151,138		166,873			124,964
Short-term and other borrowings	15,001		34,303		28,052		19,576			9,465
Long-term debt	8,677		6,697		6,628		8,338			6,059
Total interest expense	162,220		210,281		185,818		194,787			140,488
Net interest income	271,796		267,277		279,388		272,483			202,301
Provision for loan losses	17,520		15,781		20,184		23,136			6,604
Net interest income after provision for loan losses	254,276		251,496		259,204		249,347			195,697
NONINTEREST INCOME:
Service charges on deposit accounts	38,957		39,537		37,013		31,880			22,701
Insurance commissions	12,535		10,550		8,791		7,197			5,375
Securities sales commissions	6,644		6,805		5,258		4,249			2,576
Fees from fiduciary activities	5,661		5,811		5,148		4,944			3,805
Net gains on sales of securities	804		65		2,175		1,801			466
Other	12,081		12,437		14,124		13,196			15,024
Total noninterest income	76,682		75,205		72,509		63,267			49,947
NONINTEREST EXPENSE:
Salaries and employee benefits	115,743		110,024		106,542		119,250			83,331
Net occupancy	31,593		31,941		32,726		33,929			25,000
FDIC insurance	915		1,039		625		771			458
Professional service fees	8,398		8,289		8,819		10,251			5,702
Advertising	5,037		4,545		4,065		4,281			2,778
Telephone	5,633		5,203		4,807		5,727			4,263
Amortization of intangibles	9,928		10,481		10,500		10,366			5,550
Acquisition, integration and conforming	–		–		3,053		3,721			398
Restructuring charge	7,656		–		–		–			–
Data processing	4,047		4,545		4,116		5,209			2,262
Company-obligated mandatorily redeemable preferred securities of CFB Capital I & II	10,273		10,245		10,245		10,218			5,108
Other	33,200		33,007		32,729		36,925			24,783
Total noninterest expense	232,423		219,319		218,227		240,648			159,633
Income from continuing operations before income taxes and extraordinary item	98,535		107,382		113,486		71,966			86,011
Provision for income taxes	33,476		35,748		38,573		22,595			25,848
Income from continuing operations before extraordinary item	65,059		71,634		74,913		49,371			60,163
Discontinued operations	–		–		–		(2,232		)	967
Disposal of discontinued operations	–		–		–		(1,676		)	–
Extraordinary item	–		–		–		–			(265		)
Net income	$	65,059	$	71,634	$	74,913	$	45,463		$	60,865
Earnings per common and common equivalent share:
Basic	$	1.59	$	1.55	$	1.50	$	0.90		$	1.31
Diluted	$	1.57	$	1.54	$	1.48	$	0.89		$	1.27
Average common shares outstanding:
Basic	40,905,545		46,219,120		50,061,972		50,272,551			46,416,814
Diluted	41,471,404		46,578,750		50,670,559		51,114,703			47,831,402

33

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Community First Bankshares, Inc.

The following is a summary of the quarterly results of operations for the years ended December 31, 2001 and 2000 (in thousands, except per share data):

	Year ended December 31, 2001
	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Interest income	$	115,175	$	111,875		$	107,371	$	99,595
Interest expense	50,088		43,585			37,964		30,583
Net interest income	65,087		68,290			69,407		69,012
Provision for loan losses	5,617		3,303			5,301		3,299
Net interest income after provision for loan losses	59,470		64,987			64,106		65,713
Net gains (losses) on sales of securities	484		(252		)	19		553
Noninterest income	18,808		19,049			19,535		18,486
Noninterest expense	63,015		57,012			55,715		56,681
Income before income taxes	15,747		26,772			27,945		28,071
Provision for income taxes	5,519		9,039			9,505		9,413
Net income	$	10,228	$	17,733		$	18,440	$	18,658
Earnings per common and common equivalent shares:
Basic net income	$	0.25	$	0.43		$	0.45	$	0.46
Diluted net income	$	0.24	$	0.43		$	0.45	$	0.46
Average common and common equivalent shares:
Basic	41,590,689		41,126,894			40,697,521		40,224,374
Diluted	41,997,381		41,633,795			41,359,956		40,911,780

	Year ended December 31, 2000
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Interest income	$	117,430	$	120,192	$	120,955		$	118,981
Interest expense	48,935		52,871		54,842			53,633
Net interest income	68,495		67,321		66,113			65,348
Provision for loan losses	4,990		3,811		2,976			4,004
Net interest income after provision for loan losses	63,505		63,510		63,137			61,344
Net gains (losses) on sales of securities	4		144		(87		)	4
Noninterest income	18,481		18,826		19,247			18,586
Noninterest expense	54,147		55,069		55,431			54,672
Income before income taxes	27,843		27,411		26,866			25,262
Provision for income taxes	9,180		9,150		9,115			8,303
Net income	$	18,663	$	18,261	$	17,751		$	16,959
Earnings per common and common equivalent shares:
Basic net income	$	0.37	$	0.38	$	0.40		$	0.40
Diluted net income	$	0.37	$	0.38	$	0.40		$	0.40
Average common and common equivalent shares:
Basic	50,312,866		48,060,322		44,399,867			42,167,936
Diluted	50,613,345		48,437,386		44,810,942			42,517,836

34

CORPORATE INFORMATION

CORPORATE HEADQUARTERS

520 Main Avenue

Fargo, North Dakota 58124-0001

(701) 298-5600

INTERNET HOME PAGE

www.CommunityFirst.com

STOCK TRANSFER AGENT

Wells Fargo Bank Minnesota, N.A.

161 N. Concord Exchange

South St. Paul, Minnesota 55075-1139

For change of name, address, or to replace lost stock certificates, write to: Wells Fargo Bank Minnesota, N.A. at the above address, or phone (651) 450-4064 or (800) 468-9716

SEC FORM 10-K

Shareholders may receive a copy of the Company’s Form 10-K without charge by writing to:

Mark A. Anderson, CFA

President & CEO

Community First Bankshares, Inc.

520 Main Avenue

Fargo, North Dakota 58124-0001

IPR@CommunityFirst.com

ANNUAL MEETING

The Annual Meeting of Shareholders will be held on Tuesday, April 23, 2002, at 10 a.m. at the Holiday Inn, I-29 and 13th Ave. S., Fargo, North Dakota 58103

INDEPENDENT AUDITORS

Ernst & Young LLP

Minneapolis, Minnesota

GENERAL COUNSEL

Lindquist & Vennum P.L.L.P.

Minneapolis, Minnesota

INVESTOR RELATIONS COUNSEL

Weber Shandwick

Minneapolis, Minnesota

(952) 832 5000

COMMUNITY FIRST SHAREHOLDER RELATIONS

(701) 298-5601 or toll-free (888) CFB-BEST

IPR@CommunityFirst.com

SHAREHOLDERS

As of February 13, 2002, the Company had 2,215 shareholders of record and an estimated 9,000 additional beneficial holders whose stock was held in street name.

DIVIDEND POLICY

The Board of Directors has adopted a policy of declaring regular quarterly dividends. A dividend of 14 cents per share was paid for each quarter of 1999. A dividend of 15 cents per share was paid for each quarter of 2000. A dividend of 16 cents was paid for the first and second quarters of 2001. A dividend of 18 cents per share was paid for the third and fourth quarters of 2001.

MARKET PRICE RANGE OF COMMON SHARES

Community First Bankshares, Inc. common stock trades on The Nasdaq Stock Market® under the symbol CFBX. The following table sets forth the high, low and closing sales prices for the Company’s common stock during the periods indicated:

	2001			2000
	High	Low	Close	High	Low	Close
First Quarter	20.44	18.06	20.19	16.00	12.41	16.00
Second Quarter	23.25	18.88	23.00	17.56	15.19	16.31
Third Quarter	26.25	22.15	24.02	18.00	16.19	17.56
Fourth Quarter	26.97	22.84	25.69	19.13	14.94	18.88

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

Name	State of Incorporation
Community First National Bank	Delaware
Community First Insurance, Inc.	North Dakota
Community First Insurance, Inc. Wyoming	Wyoming
Community First Holdings, Inc.	Nevada
CFIRE, Inc.	Minnesota
CFB Community Development Corporation	North Dakota
Equity Lending, Inc.	Minnesota
Community First Mortgage, Inc.	North Dakota
Community First Mortgage, LLC (50%)	Delaware
Community First Financial, Inc.	North Dakota
Community First Technologies, Inc.	Delaware
Community First Properties, Inc.	North Dakota
CFB Capital I	Delaware
CFB Capital II	Delaware

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Community First Bankshares, Inc. of our report dated January 16, 2002, included in the 2001 Annual Report to Shareholders of Community First Bankshares, Inc.

We also consent to the incorporation by reference in the following Registration Statements and related Prospectuses of Community First Bankshares, Inc. of our report dated January 16, 2002, with respect to the consolidated financial statements of Community First Bankshares, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2001.

Form	Registration Statement No.	Purpose
S-8	33-44921	1987 Stock Option Plan
S-8	33-48160	401(k) Retirement Plan
S-8	333-52071	1996 Stock Option Plan and 401(k) Plan
S-8	333-74909	Board of Directors Deferred Compensation Plan and Supplemental Executive Retirement Plan
S-3	333-37527	Registration of $150,000,000 of Common Stock, Preferred Stock and Debt Securities
S-3	333-83240	Shelf registration of $180,000,000 of Common Stock, Preferred Stock and Debt Securities
S-4	333-40071	Shelf registration of 4,438,207 shares of Common Stock
S-4	333-49367	Shelf registration of 7,000,000 shares of Common Stock

Minneapolis, Minnesota                                                                            /s/ ERNST & YOUNG LLP

March 15, 2002