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

3

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.

4

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.

8

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.

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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.

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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.

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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.

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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.

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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

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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.

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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