10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K

(MARK ONE)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from        to
COMMISSION FILE NO.  000-19368

COMMUNITY FIRST BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	46-0391436
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
520 MAIN AVENUE FARGO, ND 58124-0001
(Address of principal executive offices and zip code)
(701) 298-5600
(Registrant’s Telephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:	COMMON STOCK, $.01 PAR VALUE
	PREFERRED STOCK PURCHASE RIGHTS
	8.125% CUMULATIVE CAPITAL SECURITIES,
	$25 LIQUIDATION AMOUNT(1)
	8.20% CUMULATIVE CAPITAL SECURITIES,
	$25 LIQUIDATION AMOUNT(2)
	7.60% CUMULATIVE CAPITAL SECURITIES,
	$25 LIQUIDATION AMOUNT(3)
	(Title of Class)

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

YES ý NO o

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YES ý NO o

As of March 14, 2003, assuming as market value the price of $25.20 per share, the average between the bid and asked sale prices on the Nasdaq National Market, the aggregate market value of shares held by nonaffiliates was approximately $909 million.

As of March 14, 2003, the Company had outstanding 38,540,919 shares of Common Stock, $.01 par value, net of treasury shares.

(1)The 8.125% Cumulative Capital Securities (the “CFB Capital III Securities”) were issued by CFB Capital III (“CFB Capital III”), a wholly owned Delaware business trust subsidiary of the Company.  The Company has also fully and unconditionally guaranteed all of CFB Capital III’s obligations under the CFB Capital III Securities.

(2)The 8.20% Cumulative Capital Securities (the “CFB Capital II Securities”) were issued by CFB Capital II (“CFB Capital II”), a wholly owned Delaware business trust subsidiary of the Company.  The Company has also fully and unconditionally guaranteed all of CFB Capital II’s obligations under the CFB Capital II Securities.  On February 25, 2003, the Company gave notice of its intent to redeem these securities.  The redemption is expected to occur on April 4, 2003.

(3)The 7.60% Cumulative Capital Securities (the “CFB Capital IV Securities”) were issued by CFB Capital IV (“CFB Capital IV”), a wholly owned Delaware business trust subsidiary of the Company.  The Company has also fully and unconditionally guaranteed all of CFB Capital IV’s obligations under the CFB Capital IV Securities.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2002 and the Proxy Statement for the Company’s Annual Meeting of Shareholders to be held April 22, 2003, are incorporated by reference into Parts II and III, respectively, of this Form 10-K, to the extent described in such Parts.

TABLE OF CONTENTS

PART I
	ITEM 1.	BUSINESS
	ITEM 2.	PROPERTIES
	ITEM 3.	LEGAL PROCEEDINGS
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6.	SELECTED FINANCIAL DATA
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11.	EXECUTIVE COMPENSATION
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14.	CONTROLS AND PROCEDURES
PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS

PART I

ITEM 1.  BUSINESS

GENERAL

Community First Bankshares, Inc., a Delaware corporation incorporated in 1987 (the “Company” or “we”), is a bank holding company that, as of December 31, 2002, operated through one bank subsidiary (the “banking subsidiary” or “bank”) with banking offices in 136 communities in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming.  Total assets of the Company were approximately $5.8 billion as of December 31, 2002.

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

The Company has built a network of banks and a solid customer base through acquisitions.  The Company’s plan is to increase the revenues and profit derived from that customer base by profitably increasing the number of products and services delivered per household and by expanding the channels through which customers can access those products and services.  An enhanced online banking Web site is supplementing channels of in-person, mail, ATM, and telephone banking.

RECENT STRATEGIES AND INITIATIVES

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

Refining the Company’s delivery model

To bring product distribution focus to the Company’s extensive banking network, the Company has designated certain of its banking offices as Regional Financial Centers and others as Community Financial Centers.  Regional Financial Centers are located in markets that have shown strong commercial banking potential and offer a full array of financial products and services for both the corporate and retail markets, including banking, trust and investment products.  In some cases, Regional Financial Centers are typically aligned so that one larger banking office directs and supports smaller banking offices in close geographic proximity.  Regional Financial Centers are managed by bank presidents.  As of December 31, 2002, the Company had 51 Regional Financial Centers.

1

Community Financial Centers are less geographically concentrated and, although they offer a complete line of financial products and services, their emphasis is on retail banking products, investments and insurance. Community Financial Centers are headed by branch managers.  As of December 31, 2002, the Company had 28 Community Financial Centers.

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

The Company believes this structure allows the Company to staff its banking offices with financial service professionals who are sensitive to the financial needs of customers and to better respond to those needs.  In addition to improving staffing, a key part of the Company’s strategy is to improve its product and service delivery channels through improved technology.  The Company is focusing on online banking, electronic bill paying and increased opportunities to sell investment products online.  In addition, the Company is also implementing an integrated customer relationship management system to improve customer-focused sales initiatives.  To provide more products and services to its customers, the Company’s employees are encouraged to be more sales-focused and to build a complete financial management relationship with customers.  As a part of this strategy, the Company expects to continue to increase its efforts in insurance product sales.  The Company acquired three insurance agencies in 2002, and expects to acquire additional insurance agencies to expand its local product offerings.

In conjunction with the restructuring of its banking network, during 2001, the Company sold 13 banking offices and closed eight additional banking offices.  Banking offices sold included nine Arizona banking offices, three Nebraska banking offices and one banking office in North Dakota.  In the 13 banking offices sold, total deposits were $132 million.  Four of the eight banking offices closed were located in communities where the Company maintains one or more additional banking offices; thus the Company continues to serve those customers from existing locations.

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

Centralizing credit operations

Under the redesigned delivery structure, the Company implemented a centralized consumer credit process.  When fully operational, the centralized structure will offer a complete range of decision, organization, documentation and collection services for consumer lending for all banking offices from a Fargo, North Dakota location.  As of December 31, 2002, decision-making, documentation and collection services for indirect consumer loans have been centralized.  The Company expects the centralization of support processes for direct consumer and commercial loans to be completed in late 2003.

2

Consolidation of bank charters and insurance agencies

In 2000, the Company consolidated 11 of its bank charters into one national bank charter, Community First National Bank. During the first quarter of 2001, the Company completed the consolidation of its South Dakota state chartered bank into its national chartered bank.  As a result, all banking operations are conducted under a single national charter. Additionally, Community First’s insurance sales and operations, which had previously been conducted by two separate entities, have been merged into one subsidiary of the national bank, Community First Insurance, Inc.

Enhanced use of shareholder capital

Beginning in 2000, in connection with the consolidation of the Company’s several bank charters into one charter, the Company focused on contracting its balance sheet to better utilize shareholder capital.  This strategy involved several elements, including reducing the Company’s reliance on wholesale funding sources, reducing Community First Financial Inc.’s purchased asset portfolio and redirecting capital towards repurchasing the Company’s Common Stock to reduce the number of shares of Common Stock outstanding, all in an effort to deploy capital more efficiently.

Joint venture mortgage company

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

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

REVIEW OF ACQUISITION OPPORTUNITIES

As opportunities present themselves, the Company seeks to acquire banks in communities which generally have populations between 3,000 and 50,000 and are located in the Company’s key target acquisition states of Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North

3

Dakota, South Dakota, Utah, Wisconsin and Wyoming.  The Company takes a disciplined approach to acquisitions, requiring a certain return on equity for potential targets.  The Company looked at several potential targets in 2002, and placed bids on a few opportunities.  In general, bank acquisitions have been, and can be expected to continue to be, difficult to conclude by the Company because of the Company’s parameters of valuation, insistence that any acquired bank be accretive to earnings per share within a short period of time and because larger acquirers with market expansion goals and greater resources have been and can be expected in the foreseeable future to be prepared to make significantly higher acquisition bids than the Company.  Therefore, the Company did not complete any bank acquisitions in 2002.  The Company routinely reviews acquisition opportunities and, at any given time, may have bids outstanding or may be involved in negotiations with the owners of financial institutions or other parties relative to a particular financial institution, its branches or its deposit accounts.  The Company currently has no agreements in place to acquire other banks, branches or deposit accounts.

The Company made a number of significant acquisitions in 1999 and 1998, as outlined below. On December 21, 1999, the Company acquired River Bancorp, Inc., the bank holding company for Northland Security Bank, located in Ramsey, Minnesota.  On October 7, 1999, the Company acquired Valley National Corporation, a publicly-held corporation and the bank holding company for Valle de Oro Bank, National Association, headquartered in El Cajon, California, with six bank locations in Spring Valley, El Cajon, La Mesa and Santee, California.  On August 7, 1998, the Company acquired Guardian Bancorp, the bank holding company for Guardian State Bank, headquartered in Salt Lake City, Utah, with banking offices in Salt Lake City and Sandy, Utah.  On July 1, 1998, the Company acquired Western Bancshares of Las Cruces, Inc., the bank holding company for Western Bank, headquartered in Las Cruces, New Mexico with offices in Anthony, Hatch and Las Cruces, New Mexico.  On May 7, 1998, the Company acquired FNB, Inc., a two-bank holding company headquartered in Greeley, Colorado with offices in Greeley and Fort Collins, Colorado.  On April 30, 1998, the Company acquired Pioneer Bank of Longmont, Longmont, Colorado, with five banking offices in four Colorado communities.  On April 3, 1998, the Company acquired Community Bancorp, Inc., the parent company of Community First National Bank, Thornton, Colorado.  On January 23, 1998, the Company acquired 37 banking offices located in Arizona, Colorado and Utah from three subsidiary banks of Banc One Corporation.

BANKING ACTIVITY

The banking offices operated by the Company provide a full range of commercial and consumer banking services primarily to individuals and businesses in small and medium-sized communities and the surrounding market areas.  The banking offices draw most of their deposits from, and make most of their loans within, their respective market areas.  The banking offices owned by the Company as of December 31, 2002, were located in Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming.

COMMUNITIES SERVED

As of December 31, 2002, the Company had banking offices in communities with populations ranging from approximately 200 to 50,000, except for the larger communities of Fargo, North Dakota; Denver, Englewood (a Denver suburb), and Boulder, Colorado; El Cajon (a San Diego suburb), California; Salt Lake City, Utah; Cheyenne, Wyoming and Ramsey, Minnesota (a Minneapolis-St. Paul suburb).  The Company has operated profitably in these communities and has continued to acquire institutions in larger markets, reducing the percentage of revenues derived from smaller markets.  Each of the banking offices seeks to expand its existing marketing area to serve greater population.  As with other small, non-metropolitan communities, many of the smaller communities in which the banking offices presently operate have experienced or are expected to experience no growth or a decline in population.

4

The economies of some of the smaller communities, especially those in Nebraska, North Dakota and South Dakota, depend primarily on farming, farm service and agricultural supply businesses.  If reductions in population or adverse economic trends in specific communities result in decreased profitability in the banking offices in those communities, the Company may consider selling bank assets and reducing the level of services provided in such communities.

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

ADMINISTRATION OF BANKING OFFICES

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

CREDIT.  The Company’s lending activities are guided by the general loan policy established by the Board of Directors.  The Board of Directors of the banking subsidiary has established loan approval limits for each banking office of the Company.  The limits established for each bank location range from $5,000 to $500,000 per borrower.  Renewals of any criticized or classified loans have a limit of $25,000.  Amounts in excess of the individual banking office’s lending authority are presented to the corporate credit officers.  The corporate credit officers have lending authority up to $1,000,000 per pass-rated borrower.  Loans above $1,000,000 per pass-rated borrower, $500,000 per watch-rated borrower, government-enhanced loans $500,000 and over, including additional advances and $250,000 per classified borrower are presented to the Senior Credit Committee of the Company for approval.

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

OPERATIONS.  Community First Technologies, Inc. (“CFT”), a subsidiary of the Company, provides data processing and operations support services to the Company by contract.  CFT’s system is designed to provide for all of the Company’s data processing needs and can be expanded to accommodate future growth and additional service applications.  In addition to its facilities in Fargo, North Dakota, CFT also has a data processing facility in Golden, Colorado. Additional expenditures for equipment, consistent with the increased data processing volumes, would likely be necessary if any significant acquisitions occur during 2003.

MARKETING.  The Company’s marketing function includes marketing communications, research and information, e-business and web development, product management, sales training and development, and  operation of a customer call center.  Its primary role is to provide marketing support to management and sales personnel across the Company’s banking, investment, insurance, mortgage and trust product lines.

5

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

INSURANCE AGENCIES

The Company currently owns and operates insurance agencies located in 47 communities served by the bank through its bank subsidiary, Community First Insurance, Inc.  These agencies are primarily engaged in the sale of property and casualty insurance and make some sales of other types of insurance, such as life, accident and crop hail insurance.  The Company had commission revenue of $13.8 million in 2002.

OTHER ACTIVITIES

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

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

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

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

COMPETITION

Commercial banking is highly competitive.  In the conduct of certain aspects of its business, the Company competes with other commercial banks, savings and loan institutions, issuers of fixed income investments, finance corporations, credit unions and money market funds, and securities and insurance firms, among other types of institutions. The Company competes with these institutions in such areas as obtaining new deposits, offering new types of services and setting loan rates and interest rates on various types of deposits, as well as other aspects of the banking business.  Management believes community residents and businesses prefer to deal with local banks and the Company has generally been able to compete successfully in its respective communities because of the Company’s emphasis on local management and the autonomy of management in community relations.  At the same time, the Company

6

provides its locations with the advantages of centralized sophisticated administration and the opportunity to make larger loans and diversify their lending activity through group participations.  Further, because most of the Company’s locations have a significant market share in the communities they serve, the Company believes the banking offices can, to a degree, influence deposit and loan pricing in their markets and are subject to less competition based on deposit and loan pricing than would be the case in larger metropolitan markets with more competitors.  However, the Company has experienced increased price competition from credit unions and brokerage firms in certain market areas in recent periods.

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLB Act”) permits affiliation among banks, securities firms and insurance companies by creating a new type of financial services company called a “financial holding company.” Financial holding companies may offer many kinds of financial services, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Under the GLB Act, securities firms and insurance companies that elect to become a financial holding company may acquire banks and other financial institutions. The GLB Act significantly changes the competitive environment in which the bank does business.  The GLB Act also imposes new restrictions on the bank’s use of customer financial information that could make it difficult or costly for the Company to cross-sell banking, insurance and investment products to its customers. See “Supervision and Regulation,” below.

EMPLOYEES

The Company had 2,360 employees at December 31, 2002, including 1,919 full-time employees and 441 part-time employees.  Of these individuals, 214 were employed at the holding company, 1,706 were employed at the bank, 292 were employed by CFT and 148 were employed by Community First Insurance, Inc.

SUPERVISION AND REGULATION

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

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

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

The GLB Act and its implementing regulations impose additional requirements on financial institutions with respect to customer privacy by generally prohibiting disclosure of customer information

7

to non-affiliated third parties unless the customer has been given the opportunity to object and has not objected to such disclosure.  Financial institutions are further required to disclose their privacy policies to customers annually.  Because the GLB Act does not preempt state privacy laws, there are risks that states will adopt additional, non-uniform requirements, and this has occurred in North Dakota and New Mexico.  Other states in the Company’s trade territory are also considering additional legislation.  Restrictions upon the Company’s use of customer information makes it more difficult for the Company to carry out its business plan to provide more products and services to customers throughout a sales-focused delivery system.

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

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

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

Federal and state banking laws and regulations govern, among other things, the scope of a bank’s business, the investments a bank may make, the reserves a bank must maintain, the loans a bank may make and the collateral it takes, the activities of banks with respect to mergers and consolidations and the establishment, and the closure of branches.  The OCC, in the case of national banks, is the primary federal

8

regulatory authority under the Financial Institutions Supervisory Act, and is authorized by that Act to impose penalties, initiate civil and administrative actions and take other steps intended to prevent a bank from engaging in an unsafe or an unsound practice in the conduct of its business.

With the adoption of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and the Interstate Banking and Branching Efficiency Act of 1994 (“IBBEA”), Congress made comprehensive revisions to the bank regulatory and funding provisions of the Federal Deposit Insurance Act.  Under FDICIA and the IBBEA, the primary regulatory authorities are required to take “prompt corrective action” with respect to depository institutions insured by the FDIC that do not meet the criteria for classification as either “well capitalized” or “adequately capitalized,” based upon the institution’s leverage ratio, risk-adjusted Tier 1 capital ratio and risk-adjusted total capital ratio.  As of December 31, 2002, the Company’s banking subsidiary was classified as “well capitalized.”  Under-capitalized depository institutions are subject to a wide range of limitations in operations and activities, including capital distributions, payment of management fees, and limitations upon institution growth.

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

FDIC INSURANCE.  The FDIC insures deposits of the national banking subsidiary up to the prescribed limit per depositor through the BIF, and the amount of FDIC assessments paid by each BIF member institution is based upon its relative risk of default as measured by regulatory capital ratios and other factors.  The BIF assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits.  Under current FDIC assessment guidelines, the Company expects that it will not incur any FDIC deposit insurance assessments during the next fiscal year, although the current system for assigning assessment risk classification to insured depository institutions is being reviewed by the FDIC and the deposit insurance assessments are subject to change.  The Company is subject to separate assessments to repay bonds (“FICO bonds”) issued in the late 1980’s to recapitalize the former Federal Savings and Loan Insurance Corporation.  The assessment for the payments on the FICO bonds for the quarter beginning January 1, 2003 is 1.68 basis points for BIF-assessable deposits.  As of December 31, 2002, each of the Company’s bank locations qualified for the lowest BIF assessment rate.

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

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

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

•Standards for verifying customer identification at account opening; and

9

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

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

AVAILABLE INFORMATION

The Company maintains a Website at www.CommunityFirst.com.  The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available via the Company’s website, as soon as reasonably practicable after these documents are filed with the SEC.  Currently, the reports provided on the website date from March 2002 to the present, though the Company plans to add earlier reports to the website in the future.  To obtain copies of these reports, go to http://www.CommunityFirst.com/investor-relations/financial-reports.asp.  A copy of a report filed by the Company with the SEC will also be furnished without charge to any shareholder who requests it in writing from Mark A. Anderson, President and Chief Executive Officer, Community First Bankshares, Inc., 520 Main Avenue, Fargo, North Dakota 58124-0001.

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K and other documents filed by the Company with the SEC contain forward-looking statements under the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings or results from those presently anticipated or projected.  The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.”

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

Our Earnings are Significantly Affected by General Business and Economic Conditions.  Our business and financial results are affected by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the condition of the U.S. economy, in general, and the local economies in which we operate.  Should economic conditions continue to worsen in the United States or abroad, demand for loans and other products and services we offer could decrease

10

and the number of borrowers who fail to repay their loans could increase. In addition, interest rates in the United States have been at their lowest levels in decades and if interest rates now rise, demand for loans could decrease.  Banks depend largely on the relationship between the cost of funds, primarily deposits, and the yield on earning assets.  This relationship, known as the interest rate spread, is subject to fluctuation and is affected by economic and competitive factors which influence interest rates, including the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets.  Our performance is subject to interest rate risk to the degree that our interest-bearing liabilities reprice or mature more slowly or more rapidly or on a different basis than our interest earning assets.  Although we have an asset liability management strategy designed to control our risk from changes in market interest rates, rapid and sustained changes in interest rates still could have an adverse effect on our profitability.  At December 31, 2002, based on the difference between repricing assets and repricing liabilities, we were liability sensitive which means that our liabilities would reprice more quickly than our assets as interest rates change.  This means that a rising interest rate environment would increase our interest expense faster than what we might earn our assets.

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

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

The Financial Services Industry is Highly Competitive. We operate in a competitive environment for our financial products and services. The competition among financial services companies to attract and retain customers is intense. Customer loyalty can be easily influenced by a competitor’s new products, especially offerings that provide cost savings to the customer.  Some of our competitors may be better able to provide a wider range of products and services. We expect these competitive pressures to increase due to legislative, regulatory and technological changes and the continued consolidation in the financial services industry. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks.  Also, investment banks and insurance companies are competing with banks in traditional banking businesses such as lending and consumer banking. Many of our competitors are larger and better capitalized than we are.  Many of our competitors may also have fewer regulatory constraints and lower cost structures.  We expect that the consolidation of the financial services industry will result in larger, better-capitalized companies offering a wide array of financial services and products.  The GLB Act permits affiliation among banks, securities firms and insurance companies by creating a new type of financial services company called a “financial holding company.” Financial holding companies may offer many kinds of financial services, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Under the GLB

11

Act, securities firms and insurance companies that elect to become a financial holding company may acquire banks and other financial institutions. The GLB Act significantly changes the competitive environment in which we do business.  The GLB Act also imposes new restrictions on our use of customer financial information that could make it difficult or costly for us to cross-sell banking, insurance and investment products to our customers.

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

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

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

We are dependent upon key executives who would be difficult to replace.  Our continued profitability is dependent on our senior management team.  We would likely have a difficult transition period if the services of any of our senior executives were lost for any reason.  Recruiting talent in the competitive financial services industry is difficult generally.  There is no assurance that we will be able to retain our current key executives or attract additional qualified key persons as needed.

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

12

EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

Name	Age	Position
Mark A. Anderson	45	President and Chief Executive Officer
Ronald K. Strand	56	Vice Chairman - Chief Operating Officer
Craig A. Weiss	41	Executive Vice President – Chief Financial Officer
Thomas R. Anderson	47	Executive Vice President – Treasury, Treasurer and Chief Investment Officer
Dan M. Fisher	48	Chief Information Officer, President and Chief Executive Officer of Community First Technologies, Inc.
Douglas G. Vang	44	Senior Vice President – Director of Human Resources
Bruce A. Heysse	51	Executive Vice President - Senior Credit Officer
Thomas A. Hilt	60	Senior Vice President - Chief Administrative Officer
Gary A. Knutson	55	Executive Vice President – Eastern/California Division President
Dean D. Kling	46	Senior Vice President – Financial Services Program Manager
Charles A. Mausbach	51	Executive Vice President - Western Region President
Bradley J. Rasmus	41	Executive Vice President – Division President
Patricia J. Staples	47	Senior Vice President – Director of Market Development

Mark A. Anderson was appointed President and Chief Executive Officer of the Company on March 1, 2000.  Prior to this time, he was Vice Chairman - Corporate Services of the Company from October 1998 to March 2000.  He also served as Chief Financial Officer, Secretary and Treasurer of the Company since the Company began operation in 1987 to March 2000, and he was Chief Information Officer fromFebruary 1998 to March 2000.  He was Vice President and Regional Controller for First Bank System, now known as U.S. Bancorp, from 1984 to 1987.  From 1979 to 1984, he held various

13

positions with U.S. Bancorp-affiliated banks in the finance and credit analysis areas.  Mr. Anderson is a Chartered Financial Analyst and a Certified Management Accountant.

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

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

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

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

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

Bruce A. Heysse was appointed Executive Vice President and Senior Credit Officer in February 2003.  He was Senior Vice President – Credit Administration from February 2001 to February 2003.  Prior to that time, he served as Senior Vice President – Acquisitions and Integration from July 1996 to January 2001. He was Senior Vice President and Integration Manager of the Company from November 1995 to June 1996.  He was Vice President and Senior Credit Officer of the Company from 1987 to November 1995.  He began his banking career at the Company’s affiliate bank in Wahpeton, North Dakota, and had a total of 11 years of banking experience prior to joining the Company.

Thomas A. Hilt has been Senior Vice President - Chief Administrative Officer of the Company since 1988 and served as President of Community First Service Corporation (now known as Community

14

First Technologies, Inc.), the Company’s data processing subsidiary, from 1988 to 1998.  He was Vice President and Manager – Operations Support for the Regional Division of First Bank System, now known as U.S. Bank, from 1984 to 1987.  Prior to 1984, he held various positions with U.S. Bank since 1967, including responsibility for systems development, programming, audit and examination functions.

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

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

Charles A. Mausbach has been Executive Vice President-Western Division President since August 2001.  From March 1998 to August 2001 he was Senior Vice President - Southwestern Region President.  He served as President of Community First National Bank, Worthington, Minnesota from October 1992 to February 1998 and President of Community First National Bank, Windom, Minnesota from March 1991 to October 1992.  He began his banking career at the Company’s affiliate bank in Wahpeton, North Dakota and had a total of 18 years of banking experience prior to joining the Company.

Bradley J. Rasmus was appointed Executive Vice President and Division President in February 2003.  He was Senior Vice President – Community Financial Center President from February 2001 to February 2003.  Prior to that time, he was Senior Vice President - Financial Services from February 1999 to January 2001.  He was previously Vice President & Financial Services Sales Manager from 1995 to 1999.  From 1992 until 1995, he was Regional Vice President of Account Development for Richard Leahy Corporation, a financial services company.

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

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

Donald R. Mengedoth served as Chairman of the Board and a director of the Company since its organization in 1987.  Until March 1, 2000, he also served as President and Chief Executive Officer of the Company.  Under an Employment Agreement entered into on March 1, 2000, Mr. Mengedoth served as Chairman of the Board of Directors from March 1, 2000 to December 31, 2002.

ITEM 2.  PROPERTIES

The Company maintains its offices at 520 Main Avenue, Fargo, North Dakota, consisting of approximately 51,000 square feet.  The Company believes these facilities will be adequate for the foreseeable future.  The Company also utilizes office space at the banking subsidiary’s offices located in Denver, Colorado and Cheyenne, Wyoming.  The banking subsidiary owns each of its offices and those of its branches, and these facilities range in size from approximately 1,200 to 36,000 square feet.  In 1997

15

the Company constructed, and now owns, a 47,000 square foot two-story building in Fargo, North Dakota which is leased to CFT.  The Company also leases a 15,000 square foot credit service center in Fargo, North Dakota at an annual rental rate of $304,000.

ITEM 3.  LEGAL PROCEEDINGS

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

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

None.

PART II

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

Information as to the principal market on which the Company’s Common Stock is traded, market price information for the Common Stock of the Company, the approximate number of holders of record as of the most recent practicable date, and the Company’s dividend policy is incorporated herein by reference to page 49 of the 2002 Annual Report to Shareholders (the “2002 Annual Report”) attached hereto as Exhibit 13.1.  Information regarding the Company’s equity compensation plans is incorporated herein by reference to the information in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on April 22, 2003 under the caption “Proposal Two: Amendments to the Community First Bankshares, Inc. 1996 Stock Option Plan.”

ITEM 6.  SELECTED FINANCIAL DATA

Selected financial data for the five years ended December 31, 2002, consisting of “Consolidated Statement of Condition—Five-Year Summary” on page 44 of the “Financial Review” section of the 2002 Annual Report and “Consolidated Statement of Income-Five Year Summary” on page 45 of the “Financial Review” section of the 2002 Annual Report are incorporated herein by reference to such information included in the 2002 Annual Report attached hereto as Exhibit 13.1.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 3 through 28 of the “Financial Review” section of the 2002 Annual Report is incorporated hereby by reference, and attached hereto as Exhibit 13.1.

16

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth on pages 16 through 28 of the “Financial Review” section of the 2002 Annual Report under the caption “Management’s Discussion and Analysis - Results of Operations, Financial Condition and Asset/Liability Management” is incorporated herein by reference, and attached hereto as Exhibit 13.1.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Statements of Financial Condition of the Company as of December 31, 2002 and 2001, and the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years ended December 31, 2002, 2001, and 2000, the Notes to the Consolidated Financial Statements and the Report of Ernst & Young LLP, independent auditors, contained in the Company’s 2002 Annual Report on pages 29 through 43 of the section entitled “Financial Review” are incorporated herein by reference, and attached hereto as Exhibit 13.1.

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

None.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth in the Company’s Proxy Statement as filed with the Securities and Exchange Commission under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” for the Annual Meeting of Stockholders to be held April 22, 2003, is incorporated herein by reference.  Information regarding the executive officers of the Company is included under a separate caption in Part I of this Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION

The information set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 2003, under the caption “Executive Compensation” is incorporated herein by reference, except that information under the captions “Compensation Committee Report on Executive Compensation” and “Comparative Stock Performance” is not so incorporated.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 2003, under the caption “Security Ownership of Principal Shareholders and Management” is incorporated herein by reference.

17

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth in the Proxy Statement for the Annual Meeting of Stockholders to be held April 22, 2003, under the caption “Certain Transactions” is incorporated herein by reference.

ITEM 14.  CONTROLS AND PROCEDURES

Annual evaluation of the Company’s Disclosure Controls and Internal Controls.  Within the 90 days prior to the date of this Annual Report on Form 10-K, the Company evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (the “Disclosure Controls”), and its “internal controls and procedures for financial reporting” (the “Internal Controls”).  This evaluation (the “Controls Evaluation”) was done under the supervisions and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Rules adopted by the Securities and Exchange Commission (the “SEC” or “Commission”) require that in this section of the Annual Report we present the conclusions of the CEO and the CFO about the effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation.

CEO and CFO Certifications.  Appearing in this Annual Report are two separate forms of “Certifications” of the CEO and the CFO.  The first form of Certification, immediately following the Signatures section, is required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certification”).  This section of the Annual Report which you are currently reading is the information concerning the Controls Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.  The second Certification is pursuant to Section 906 of Sarbanes-Oxley and concerns compliance and disclosure under the Securities Exchange Act of 1934.

Disclosure Controls and Internal Controls.  Disclosure Controls are procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.  Internal Controls are procedures designed to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all of which assists our preparation financial statements in conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls.  The Company’s management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control

18

may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation.  The CEO/CFO evaluation of our Disclosure Controls and our Internal Controls included a review of the controls’ objectives and design, the controls’ implementation by the Company and the effect of the controls on the information generated for use in this Annual Report.  In the course of the Controls Evaluation, we sought to identify data errors, controls problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken.  This type of evaluation will be done on a quarterly and annual basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and in our Annual Reports on Form 10-K.  Our Internal Controls are also evaluated on an ongoing basis by our Internal Audit Department, by other personnel in our organization and by our independent auditors in connection with their audit and review activities.  The overall goals of these various evaluation activities are to monitor our Disclosure Controls and our Internal Controls and to make modifications as necessary; our intent in this regard is that the Disclosure Controls and the Internal Controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were any “significant deficiencies” or “material weakness” in the Company’s Internal Controls, or whether the Company had identified any acts of fraud involving personnel who a have significant role in the Company’s Internal Controls.  This information was important both for the Controls Evaluation generally and because items 5 and 6 in the Section 302 Certifications of the CEO and CFO require that the CEO and CFO disclose such information to our Board’s Audit Committee and to our independent auditors and to report on related matters in this section of the Annual Report.  In the professional auditing literature, “significant deficiencies” are referred to as “reportable conditions”; these are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements.  A “material weakness” is defined as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions.  We also sought to deal with other controls matters in the Controls Evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accord with our on-going procedures.

In accord with SEC requirements, the CEO and CFO note that, since the date of the Controls Evaluation to the date of this Annual Report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Conclusions.  Based upon the Controls Evaluation, our CEO and CFO have concluded that, subject to the limitations noted above, our Disclosure Controls are effective to ensure that material information relating to the Company and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

19

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)DOCUMENTS FILED AS PART OF THIS FORM 10-K:

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

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

3.PRO FORMA FINANCIAL INFORMATION.  None.

(b)REPORTS ON FORM 8-K.

No Forms 8-K were file by the Registrant during the quarter ended December 31, 2002.

(c)EXHIBITS.

Exhibit Number	Description
3.1	Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996), as amended by a Certificate of Amendment to the Registrant’s Certificate of Incorporation as filed with the Delaware Secretary of State on May 7, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 1998 [the “1998 Form 10-K”]).
3.2	Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 [File No. 33-41246], as declared effective by the Commission on August 13, 1991 [the “1991 S-1”]).
4.1	Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit A to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A, filed with the Commission on January 9, 1995 and as amended on December 6, 2002 [the “Form 8-A”]).
4.2	Form of Rights Agreement dated as of January 5, 1995, between the Registrant and Norwest Bank Minnesota, National Association (“Norwest Bank”), which includes as Exhibit B thereto the form of Rights Certificate as amended and restated as of August 13, 2002 (incorporated by reference to Exhibit 1 to the Form 8-A.)
4.3	Indenture dated June 24, 1997 relating to the Registrant’s 7.30% Subordinated Notes Due 2004 (the “New Notes”) between the Registrant and Norwest Bank, as trustee  (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-4 [File No. 333-36091] as declared effective by the Commission on November 10, 1997 [the “1997 Subordinated Note Form S-4”]).

20

4.4	Subordinated Indenture dated December 10, 1997, between the Registrant and Wilmington Trust Company, as Indenture Trustee, including form of Junior Subordinated Indenture (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 [File No. 333-37521] as declared effective by the Commission on December 4, 1997 [the “1997 CFB Capital II Form S-3”]).
4.5	Amended and Restated Trust Agreement of CFB Capital II dated December 10, 1997, including Form of Capital Security Certificate of CFB Capital II (incorporated by reference to Exhibit 4.5 to the 1997 CFB Capital II Form S-3).
4.6	Capital Securities Guarantee Agreement dated as of December 10, 1997, between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.7 to the 1997 CFB Capital II Form S-3).
4.7	Subordinated Indenture dated March 27, 2002 between the Registrant and Wilmington Trust Company, as Indenture Trustee, including form of Junior Subordinated Debenture (incorporated by reference to Exhibit 4.15 to the Registrant’s Registration Statement on Form S-3 [File No. 333-83240] filed with the Commission on February 22, 2002 and delivered effective by the Commission on March 14, 2002 [the “2002 CFB Capital III S-3”]).
4.8	Amended and Restated Trust Agreement of CFB Capital III dated March 27, 2002, including Form of Capital Security Certificate of CFB Capital III (incorporated by reference to Exhibit 4.3 to the Registrant’s Form 8-K filed with the Commission on March 28, 2002 [the “2002 CFB Capital III 8-K”]).
4.9	Capital Securities Guarantee Agreement dated as of March 27, 2002, between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.5 to the 2002 CFB Capital III 8-K).
4.10	Subordinated Indenture dated March 4, 2003 between the Registrant and Wilmington Trust Company as Trustee including form of Junior Subordinated Debenture (incorporated by reference to Exhibit 4.15 to the 2002 CFB Capital III S-3).
4.11	Amended and Restated Trust Agreement of CFB Capital IV dated March 4, 2003 including form of Capital Security Certificate of CFB Capital IV (incorporated by reference to Exhibit 4.3 of the Registrant’s Form 8-K filed with the Commission on March 6, 2003 [the “2003 CFB Capital IV 8-K”]).
4.12	Capital Securities Guarantee Agreement dated as of March 4, 2003 between the Registrant and Wilmington Trust Company as Trustee (incorporated by reference to Exhibit 4.5 to the 2003 CFB Capital IV 8-K).
10.1	2002 Annual Incentive Plan for Holding Company Management.*
10.2	Restated 1987 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-8 [File No. 33-46744], as declared effective by the Commission on May 6, 1992).*

21

10.3	Form of Tax Sharing Agreement between the Registrant and each of its subsidiary Banks (incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 [the “1995 Form 10-K”]).
10.4	Form of Service Agreement for Data Processing between Community First Service Corporation and each of the subsidiary Banks of the Registrant (incorporated by reference to Exhibit 10.4 to the 1995 Form 10-K).
10.5	Form of Bank Services Agreement between the Registrant and each of its subsidiary Banks (incorporated by reference to Exhibit 10.5 to the 1995 Form 10-K).
10.6	Form of Agency Agreement between the Registrant and each of its subsidiary Banks, and Assignment of Agency Agreement and Second Assignment of Agency Agreement, which assign the Registrant’s interest in the Agency Agreement to Community First Financial, Inc. (relating to the Registrant’s subsidiary Banks) (incorporated by reference to Exhibit 10.6 to the 1995 Form 10-K).
10.7	Lease dated April 27, 1993, between Community First Properties, Inc. (formerly Fargo Tower Partners) and the Registrant (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994).
10.8	Promissory Note dated July 14, 1997 (Term Note) in the principal amount of $30,000,000, issued to Norwest Bank, as Agent, on behalf of Harris Trust and Savings Bank (“Harris”), Bank of America National Trust and Savings Association (“Bank of America”) and Norwest (incorporated by reference to Exhibit 10.8 to Registrant’s Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 21, 1997 [the “1997 Form 10-K”]).
10.9	Promissory Notes dated July 14, 1997 (Current Notes), each in the principal amount of $8,333,333.33, issued to each of Harris, Bank of America and Norwest Bank (incorporated by reference to Exhibit 10.9 to the 1997 Form 10-K).
10.10	Credit Agreement dated July 14, 1997 among the Company, Harris, Bank of America, Norwest Bank as a lender, and Norwest Bank as Agent (incorporated by reference to Exhibit 10.10  to the 1997 Form 10-K).
10.10.1	Amended and Restated Credit Agreement dated as of April 30, 1999 between the Company, Harris and Wells Fargo National Association (incorporated by reference to Exhibit 10.10.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000 [the “2000 Form 10-K”]).
10.10.2	First Amendment dated April 21, 2000 to Amended and Restated Credit Agreement dated April 30, 1999 between the Company and Harris and Wells Fargo National Association (incorporated by reference to Exhibit 10.10.2 to the 2000 Form 10-K).
10.10.3	Second Amendment dated December 22, 2000 to Amended and Restated Credit Agreement dated as of April 30, 1999 between the Company and Harris and Wells Fargo National Association (incorporated by reference to Exhibit 10.10.3 to the 2000 Form 10-K).

22

10.10.4	Current note dated December 22, 2000 in the principal amount of $35,000,000 issued to Wells Fargo Bank Minnesota, National Association (incorporated by reference to Exhibit 10.10.4 to the 2000 Form 10-K).
10.11	Form of Indemnification Agreement entered into by and between the Registrant and the Registrant’s officers and directors (incorporated by reference to Exhibit 10.33 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992 [the “1992 Form 10-K”]).
10.12	1996 Stock Option Plan, as approved by the Board of Directors on February 6, 1996 (incorporated by reference to Exhibit 10.15 to the 1995 Form 10-K),as amended by resolution of the Board of Directors on February 1, 1999, and amended by resolution of the Board of Directors on February 4, 2003 (incorporated by reference to Appendix B to the Company’s proxy statement for the 2003 Annual Meeting of Shareholders to be held on April 22, 2003 and filed with the Commission on or about March 13, 2003).
10.13	Supplemental Executive Retirement Plan, effective as of August 1, 1995 (incorporated by reference to Exhibit 10.13 to the 1997 Form 10-K.*
10.14	Registrant’s Deferred Compensation Plan for Members of the Board of Directors, effective August 1, 1993, including First Amendment to the Registrant’s Deferred Compensation Plan for Members of the Board of Directors, effective as of February 1, 1999 (incorporated by reference to Exhibit 10.14 to the 1998 Form 10-K).
10.15.5	Amended and Restated Employment Agreement dated July 1, 1999, among Valle de Oro Bank, N.A., Valley National Corporation and William V. Ehlen, assumed by the Registrant effective October 7, 1999 (incorporated by reference to Exhibit 10.15.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 [the “1999 Form 10-K”]).*
10.15.6	Salary Continuation Agreement dated January 10, 1996, by and between Valle de Oro Bank, N.A. and William V. Ehlen, assumed by the Registrant effective October 7, 1999. (incorporated by reference to Exhibit 10.15.6 to the 1999 Form 10-K).*
10.15.7	Employment Agreement made as of the 1st day of March, 2000, between the Registrant and Donald R. Mengedoth (Incorporated by reference to Exhibit 10.15.7 to the 1999 Form 10-K).*
10.16	Plan of Reorganization and Merger Agreement dated as of May 31, 2000 by and between Community First National Bank, Phoenix, Arizona, Community First National Bank, Spring Valley, California, Community First National Bank, Fort Morgan, Colorado, Community First National Bank, Decorah, Iowa, Community First National Bank, Fergus Falls, Minnesota, Community First National Bank, Alliance, Nebraska, Community First National Bank, Las Cruces, New Mexico, Community First National Bank, Salt Lake City, Utah, Community First National Bank, Spooner, Wisconsin, Community First National Bank, Cheyenne, Wyoming and Community First National Bank, Fargo, North Dakota (incorporated by reference to Exhibit 10.16 to the 2000 Form 10-K).
10.17	Credit Agreement dated as of December 22, 2000 between the Company and Harris (incorporated by reference to Exhibit 10.17 to the 2000 Form 10-K).

23

10.18	Subordinated Term Note dated December 22, 2000 in the principal amount of $25,000,000 issued to Harris (incorporated by reference to Exhibit 10.18 to the 2000 Form 10-K).
10.19	Plan of Reorganization and Merger Agreement dated as of December 31, 2000, by and between Community First State Bank, a South Dakota banking corporation and Community First National Bank, a national banking association (incorporated by reference to Exhibit 10.19 to the 2000 Form 10-K).
10.20	Agreement of Limited Liability Company of Community First Mortgage, LLC dated June 15, 2001 between Wells Fargo Ventures, LLC and Community First Home Mortgage, Inc. (incorporated by reference to Exhibit 10.20 to the 2001 Form 10-K) (pursuant to Rule 24b-2, certain information has been deleted from this Exhibit and filed separately with the Commission.)
10.21	Separation Agreement dated as of March 12, 2001, by and between the Company and David A. Lee (incorporated by reference to Exhibit 10.21 to the 2001 Form 10-K).*
13.1	2002 Annual Report to Shareholders.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Ernst & Young LLP.
99.1	Certification pursuant to 18 U.S.C. § 1350.

* Executive compensation plans and arrangements.

24

SIGNATURES

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

	COMMUNITY FIRST BANKSHARES, INC.
	(“Registrant”)
Dated: March 18, 2003	By	/s/  Mark A. Anderson
		Mark A. Anderson
		President and Chief Executive Officer

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

Signature and Title	Date
/s/   Mark A. Anderson	March 18, 2003
Mark A. Anderson
President and Chief Executive Officer
(Principal Executive Officer)
/s/   Craig A. Weiss	March 18, 2003
Craig A. Weiss
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/   Patrick Delaney	March 18, 2003
Patrick Delaney, Director
/s/   John H. Flittie	March 18, 2003
John H. Flittie, Non-Executive Chair of the Board
/s/   Darrel G. Knudson	March 18, 2003
Darrell G. Knudson, Director
/s/   Dennis M Mathisen	March 18, 2003
Dennis M. Mathisen, Director
/s/   Marilyn R. Seymann	March 18, 2003
Marilyn R. Seymann, Director
/s/   Harvey L. Wollman	March 18, 2003
Harvey L. Wollman, Non-Executive Vice Chair
/s/   Thomas Gallagher	March 18, 2003
Thomas Gallagher, Director
/s/   Rahn K. Porter	March 18, 2003
Rahn K. Porter, Director
/s/   Lauris N. Molbert	March 18, 2003
Lauris N. Molbert, Director

25

CERTIFICATIONS

I, Mark A. Anderson, certify that:

1.I have reviewed this annual report on Form 10-K of Community First Bankshares, Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 18, 2003

/s/   Mark A. Anderson

Mark A. Anderson

President, Chief Executive Officer

26

I, Craig A. Weiss, certify that:

1.I have reviewed this annual report on Form 10-K of Community First Bankshares, Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

d)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

e)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

March 18, 2003

/s/   Craig A. Weiss

Craig A. Weiss

Executive Vice President,
Chief Financial Officer

27

EX-10.1

Exhibit 10.1

Community First

2002 Annual Incentive Plan (AIP)

EXECUTIVE SUMMARY

I.Participants

		Incentive - % of Salary
A.	Group	Target		Maximum
	CEO	50	%	100	%
	COO	40	%	80	%
	EVP	30	%	60	%
	SVP	25	%	50	%
	VP	15	%	30	%
B.	Other

II.Measures / Weighting

A.	Internal (Earnings Per Share (EPS))	37.5	%(1)
B.	External (Return on Equity (ROE)) (Total Shareholder Return (TSR))	37.5	%(1)
C.	Balanced Scorecard	25	%(2)
	Total	100	%

(1)  Division / CFC Presidents = 25%

(2)  Division / CFC Presidents = 50%

III.Internal Measure – Earnings Per Share (EPS)

Based on performance versus 2002 profit plan

No award is less than 91% of plan

Rounded up a .5 (plan) and down at <.5

IV.External Measure – Return on Equity (ROE) / Total Shareholder Return (TSR)

Compares CFB performance in 2002 on Return on Equity (ROE) and Total Shareholder Return (TSR) to SNL peer group (30 banks).

Percentile ROE

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

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

V.Balanced Scorecard Measure

A.The Balanced Scorecard measures three (3) factors in the AIP:

1)Sales

2)Financial

3)Credit

B.Sales Measures include three key indicators:

1)Number of sales per FTE per week – see attached list of qualifying products

2)New customer cross-sell ratio

3)Campaign Performance

C.Financial Measures include four key indicators:

1)Net Controllable Revenue per FTE

2)Controllable Non-Interest Income per FTE

3)Loan fees as percent of profit plan

4)Investment product sales as percent of profit plan

D.Credit Quality Measures include:

1)Credit Goal Scoring

E.Balanced Scorecard Target Incentive:

1)	Group	%
	CEO	100	%
	COO	100	%
	EVP	75	%
	SVP	60	%
	VP	40	%

2

VI.Plan Administration

1.Eligibility Requirements - All Community First designated Vice Presidents, Senior Vice Presidents, Executive Vice Presidents, COO & CEO are eligible for the Corporate AIP.

2.Award Potential - There is no cap on the amount of AIP you are eligible to earn.  AIP is determined as a % of your year-end annual salary.  This award is based on achievement of all designated measures.

3.  Incentive Payment Schedule - The AIP will be calculated and paid annually at the end of the plan year, and is typically paid with the first full pay period in March of the year following the incentive period.  The AIP plan year is defined as CFB’s fiscal year, which is also the calendar year.  To consider any incentive earned and payable, the employee must be an active employee of CFB at the time incentive payment is paid.

4.Communication - The AIP actual vs. measure results are anticipated to be communicated quarterly.  You are encouraged to track the measures on an on-going basis.

5. New Hires - - Employees hired into eligible positions between January 1 and June 30 of the plan year are eligible for the plan and may receive a pro-rata award.  For example:  someone hired in May will be paid for seven months of earned incentive.  Employees hired after June 30 may be eligible to participate in the plan and receive a pro-rata award at the discretion of President/CEO and Director of Human Resources.

6.Promotions - Employees promoted into AIP eligible positions would be covered under the same provisions as a new hire.

7.Voluntary Resignation, Involuntary Resignation or Termination prior to the end of the plan year – Potential incentive payment is forfeited.  Voluntary Demotion – Payment may be made at the discretion and approval of the President/CEO and Director of Human Resources.

8.Transfers – If the employee transfers out of an eligible position, an award may be pro-rated.  If an employee transfers to a different size location, the AIP calculation will be pro-rated to reflect the appropriate time worked in each location during the plan year.

9.Medical or Unpaid Medical Leave of Absence – Will be reviewed on a case by case basis.

10.Overall Performance Requirements – To emphasize that achievement of the incentive plan goals must not come at the expense of other responsibilities, no incentive awards will be made to participants whose overall performance for the year receives a rating of less than “Meets Expectations”.

11.Periodic Review – Periodically the effectiveness of the plan will be reviewed to assure the plan supports CFB’s strategic direction.  Each year the plan will be reviewed to determine participant eligibility and whether it will be continued for the next fiscal year.

12.Reserved Right - Community First reserves the right to change any and all terms of the Balanced Scorecard Annual Incentive Plan, up to and including termination of the plan, at any time.

3

2002

Community First

Balanced Scorecard

Regional Financial Centers

Community Financial Centers

Annual Incentive Plan

Presidents/Managers

4

Regional Financial Centers
Community Financial Centers

Presidents/Managers

Table of Contents

5

A Message from Mark Anderson

Great News!!!!

The Balanced Scorecard has been very effective in impacting our performance and actions in 2001.  Excellent progress in virtually all components of the scorecard has been made.  And, additional insights have been learned during the year.  This added knowledge we have gained, along with some additional analysis, is leading to some important improvements for 2002.

As you work through the material we have attached, you will see these enhancements.  Several of the important changes are:

1.The Sales/FTE/Week measure has been changed from an annual measurement to a quarterly measurement and scorecard impact.  This will not only recognize the sales level reached, but also the progress during the year.

2.The New Customer Cross-Sell measure has also been moved to a quarterly evaluation time frame and we believe this will help all of us benefit from our efforts during the year.

3.The Credit Score ranges have been modified to better match our performance expectations. Earlier communication of our retroactive treatment impact should have been seen with your October results.

4.“Bonus points” for outperforming the performance levels that correspond with the 100% payout level has also been added.  This opens up the “upside” tremendously.

5.Finally, another significant positive.  In addition to a 90% actual to profit plan “Knockout”, we have added an ROE “Knock In” that will reward the highest ROE performers who may have missed 90% of an aggressive profit plan.

We are excited about the scorecard performance we have seen so far in 2001 and the tremendous progress.  With these changes, there is greater opportunity for superior performance.

6

In fact, special 2001 retroactive treatment not only for the credit scorecard, but also Sales/FTE/Week and New Customer Cross-Sell of your scorecard will be given.  And going one step better, for 2001 only, your scorecard will benefit from the better of the yearly level or the quarterly results for Sales/FTE/Week and New Customer Cross/Sell.

Thank you for all of the attention and support you have put into the scorecard.  Every one of these enhancements will better evaluate your growth and performance and provides a reward for your success.

Best wishes.

7

2002 Balanced Scorecard

Regional Financial Centers/Community Financial Centers

Annual Incentive Plan for President/Manager - Overview

Introduction

As we approach 2002 with new challenges and opportunities by offering our customers quality financial service, it is important that our compensation package rewards outstanding performance in meeting our sales, financial and credit quality goals.

Plan Objectives

The President/Manager Balanced Scorecard Annual Incentive Plan (AIP), whether Regional Financial Center (RFC) or Community Financial Center (CFC), has been designed to motivate superior performance and create additional shareholder value.  The goals stated for each president/branch manager are intended to emphasize behaviors over which they have control and will lead to increased profitability in the future.

Eligibility Requirements

All RFC Bank Presidents and CFC Branch Managers are eligible for the AIP.

Award Potential

There is no cap on the amount of AIP you are eligible to earn.  AIP is determined as a % of your year-end annual salary.  This award is based on achievement of all balanced scorecard performance measures and profit plan goals.

Incentive Payment Schedule

The AIP will be calculated and paid annually at the end of the plan year, and is typically paid during with the first full pay period in March of the year following the incentive period. The AIP plan year is defined as the CFB’s fiscal year, which is also the calendar year. To consider any incentive earned and payable, the employee must be an active employee of CFB at the time incentive payment is paid.

Performance Measures

There are three measurement factors included in the AIP.

1.Sales

2.Financial

3.Credit

Sales Measures include three key indicators:

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

•New client cross-sell ratio

•Campaign Performance

Financial Measures include four key indicators:

•Net Controllable Revenue per FTE

•Controllable Non-interest Income per FTE

•Loan fees as percent of profit plan

•Investment product sales as percent of profit plan

8

Credit Quality Measure includes:

•Credit Goal Scoring

9

In addition to these measures, the bank's performance against profit plan is an important indicator of success and is included in the AIP.  The Profit plan is based on historical performance but is designed to drive higher level performance.

If the RFC/CFC’s actual performance is less than 90% of profit plan, unless a ROE of 30% is achieved, no AIP will be awarded.  Where actual performance exceeds the profit plan, a higher AIP will be paid to reward bank presidents/managers (see page 11, item B).

Those employees who establish aggressive profit plans, with higher levels of performance over the previous year, and exceed those plans, will receive a bonus incentive (see page 11, item F).

Calculating the AIP Award

•The Sales, Financial and Credit scores are assigned based on actual performance and multiplied by the weight assigned to each set of measurements.  These weighted scores are added to obtain the Balanced Scorecard Points.  Bonus points have been added to the Sales and Financial measures.  This will allow rewards for performance above and beyond expectations.  Also, a special bonus is included on sales/FTE/Week measure.  Locations that have a 20% increase over their 2001 average will move into the next higher level.  This will reward substantial growth performance.

•The Bank’s actual Performance vs. Profit Plan is then computed.  If it is less than 90%, unless the specified ROE is achieved, no AIP will be awarded.

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

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

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

•A Bonus Incentive is added to the AIP if the bank’s Balanced Scorecard Points (A) are greater than 50 and the bank’s performance vs. Profit Plan exceeds 100%.  The bonus incentive is based on a schedule reflecting the percentage increase in the 2002 Profit Plan over the 2001 actual performance.  This is intended to provide higher rewards for Presidents/Managers who set aggressive plans and exceed them.

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

Plan Administration

1.New Hires – Employees hired into eligible positions after January 1 but before June 30 of the plan year may receive a pro-rata award.  For example: someone hired in May, may be paid for seven

10

months of earned incentive.  Employees hired after June 30 may be eligible to participate in that plan year and receive a pro-rata award.  Eligibility for those individuals would be made at the discretion and approval of the Division President and Human Resources.

2.Promotions – Employees promoted into AIP eligible positions would be covered under the same provisions as a new hire.

3.Voluntary Resignation, Involuntary Resignation or Termination prior to the end of the plan year – Potential incentive payment is forfeited.  Voluntary Demotion – Payment may be made at the discretion and approval of the Division President and Human Resources.

4.Transfers – If the employee transfers out of an eligible position, an award may be pro-rated.  If an employee transfers to a different size location, the AIP calculation will be pro-rated to reflect the appropriate time worked in each location during the plan year.

5.Medical or Unpaid Medical Leave of Absence – Will be reviewed on a case by case basis.

6.Overall Performance Requirements – To emphasize that achievement of the incentive plan goals must not come at the expense of other responsibilities, no incentive awards will be made to participants whose overall performance for the year receives a rating of less than “Meets Expectations”.

7.Periodic Review – Periodically the effectiveness of the plan will be reviewed to assure the plan supports CFB’s strategic direction.  Each year the plan will be reviewed to determine participation eligibility and whether it will be continued for the next fiscal year.

8.Reserved Right - Community First Bankshares, Inc. reserves the right to change any and all terms of the Balanced Scorecard Annual Incentive Plan, up to and including termination of the plan, at any time.

The achievement of the Sales, Financial and Credit goals as stated in the Balanced Scorecard will contribute not only to higher profitability for the bank but also to greater financial rewards for Presidents/Managers.

The following pages illustrate how the AIP scoring and calculations are determined:

1.Performance Measure Definitions

2.2002 Qualifying Products

3.Performance Measure Schedule that shows the assigned goal and scoring tiers

4.Examples

•RFC Performance Measurement Score & Incentive Calculation Format

•CFC Performance Measurement Score & Incentive Calculation Format

11

2002 CFB Balanced Scorecard -

Regional Financial Centers/Community Financial Centers

Performance Measurement Definitions - President/Manager

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue)

Sales Measurements

1. Number of Sales/FTE/Week*

Sales   = # of qualifying products sold.  A list of qualifying products is attached and is available in the Public Folders.

FTE    = Full-time equivalents, on an actual hours worked basis, as reported on the Ceridian Payroll System.

The calculation for incentive purposes will use the monthly FTE.  Bank, Trust, ..30 Insurance and Investment Sales FTE will be included in the calculation.

Week  = # of weeks in the period being reported.

The calculation for incentive purposes will be based on Quarterly performance divided by four quarters for the year.

* Special Credit:  a 20% increase over 2001 average will allow a move to the next higher payout level

2. New Customer Cross-Sell Ratio

Sales    = # of qualifying products sold to new customers.  A listing of qualifying products is available on the Intranet.

New Customers    = # of new customers for the period being reported.

The calculation for incentive purposes will be based on Quarterly performance divided by four quarters for the year.

3. Campaign Performance

The bank will receive a score  (per the Performance Measurement Schedule) for each campaign based on % of goal attainment.  The calculation for incentive purposes will add the scores for each of the campaigns and divided by the # of campaigns.

Financial Measurements

1. Net Controllable Revenue/FTE

Net Controllable Revenue     = (Net Interest Income + Total Non-Interest Income(incl. loan fees+JV Soft Dollar fees) - Security Gains - - BOLI Benefit - Undistributed Income from subsidiaries).

FTE    = Full-time equivalents, on an actual hours worked basis, as reported on the Ceridian Payroll System.

The calculation for incentive purposes will use the monthly FTE.  Bank, Trust, ..30 Insurance and Investment Sales FTE will be included in the calculation

The calculation will be based on year-to-date annualized performance.

2. Controllable NII/FTE

NII      = (Total Non-Interest Income (incl. loan fees+JV Soft Dollar fees) - Security Gain - BOLI Benefit - Undistributed Income)

FTE    = Full-time equivalents, on an actual hours worked basis, as reported on the Ceridian Payroll System.

The calculation for incentive purposes will use the monthly FTE.  Bank, Trust, ..30 Insurance and Investment Sales FTE will be included in the calculation

The calculation will be based on year-to-date annualized performance.

3. Loan Fees as % Plan

Loan Fees   = Total loan fees line from Variance Reports + JV Soft Dollar fees

The calculation is based on actual year-to-date loan fees as a % of year-to-date planned loan fees.

4. Investment Sales as % Plan

Investment Sales   = Security Sales Income line as reported on Variance Reports

The calculation is based on actual year-to-date sales of investment products as a % of year-to-date planned sales of investment products.

Credit Measurements

1. Credit Goal Scoring

This is the Credit Goal Score as reported in the Credit Goal Report prepared by Loan Accounting.

Other Definitions

Pretax Adjusted Earnings = income b/4 tax + corp directed training + corp directed advertising + CFSC data processing + goodwill + intangibles + mgmt fee - undistributed income from subsidiaries - securities gains

12

2002 CFB Balanced Scorecard

Regional Financial Centers/Community Financial Centers

2002 Qualifying Products for Sales Measurements

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue.)

Sales Measurements

Number of Sales/FTE/Week	New Customer X-Sell Ratio
Qualifying Products	Qualifying Products
•Checking (Retail and Business)	•Checking (Retail and Business)
•Savings (Retail and Business)	•Savings (Retail and Business)
•Certificate of Deposit (Retail and Business)	•Certificate of Deposit (Retail and Business)
•Retirement Accounts (Savings and Certificates)	•Retirement Accounts (Savings and Certificates)
•Loans/Lines	•Loans/Lines
•Consumer	•Consumer (direct loans only)
•Ready Credit	•Ready Credit
•Mortgage (non-JV)	•Mortgage (non-JV)
•Home Equity Loans & Lines	•Home Equity Loans & Lines
•Agricultural	•Agricultural
•Commercial	•Commercial
•Tax Exempt Loans	•Tax Exempt Loans
•Commercial Revolving Credit	•Commercial Revolving Credit
•Letters of Credit	•Letters of Credit
•Direct Leases	•Direct Leases
•ATM/Debit Cards	•ATM/Debit Cards
•Elan Credit Cards	•Elan Credit Cards
•Investments	•Investments
•Credit Life and Disability (CGLI)	•Credit Life and Disability (CGLI)
•Single Life	•Single Life
•Joint Life	•Joint Life
•Disability	•Disability
•Single Life/Disability	•Single Life/Disability
•Joint Life/Disability	•Joint Life/Disability
•Online Banking	•Online Banking
•Online Bill Pay	•Online Bill Pay
•Online Business Banking*	•Online Business Banking*
•Safe Deposit Box	•Safe deposit Box*
•Insurance Policies*
•Trust Accounts*
•Mortgage JV Sales*
Products NOT Qualifying:	Products NOT Qualifying:
•	•Indirect loans
Additional NON-Qualifying Components:	Additional NON-Qualifying Components:
•Accounts opened and closed in the same month	•Accounts opened and closed in the same month
•Checking and savings account upgrades	•Checking and savings account upgrades
•Back-dated accounts not put on the books prior to month end	•Back-dated accounts not put on the books prior to month end
•Loan and certificates automatically renewed	•Loan and certificates automatically renewed

* In development

13

2002 CFB Balanced Scorecard

Regional Financial Centers/Community Financial Centers

Performance Measurement Schedule – President/Manager

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue.)

2002 Measurements	Regional Financial Center (Weight)		Community Financial Center (Weight)
A.  Sales	40	%	45	%
B.  Financial	40	%	45	%
C.  Credit	20	%	10	%

A.  SALES	Payout Scale		Score	Bonus
1.  Number of Sales/FTE/Week (40%)	<3.00		0.0	Add one point for each .05 increase in performance above 5.50
	3.00-3.64		25.0
	3.65-4.34		50.0
	4.35-4.99		75.0
	5.00-5.50		100.0
2.  New Customer Cross-sell Ratio (30%)	<1.50		0.0	Add one point for each .02 increase in performance above 2.80
	1.50-1.84		25.0
	1.85-2.19		50.0
	2.20-2.49		75.0
	2.50-2.80		100.0
3.  Campaign Performance (30%)	<90.0	%	0.0	Add one point for each 5% increase in performance above 150%
	90.0-99.9	%	25.0
	100.0-109.9	%	50.0
	110.0-119.9	%	75.0
	120-150	%	100.0

B.  FINANCIAL			Score	Bonus
1.  Net Controllable Revenue/FTE (30%)	<$200,000		0.0	Add one point for each $1,000 increment over $280,000
	$200,000-221,999		25.0
	$222,000-243,999		50.0
	$244,000-264,999		75.0
	$265,000-280,000		100.0
2.  Controllable NII/FTE (20%)	<$45,000		0.0	Add one point for each $1,000 increment over $70,000
	$45,000-49,999		25.0
	$50,000-54,999		50.0
	$55,000-59,999		75.0
	$60,000-70,000		100.0
3.  Loan Fees as % Plan (20%)	<90.0	%	0.0	Add one point for each 1% increment over 130%
	90.0-99.9	%	25.0
	100.0-109.9	%	50.0
	110.0-119.9	%	75.0
	120-130.00	%	100.0
4.  Investment Sales as % of Plan (30%)	<90.0	%	0.0	Add one point for each 1% increment over 150% Extra Bonus:  Add one point for each .1% increment above +5% of deposits& repos
	90.0-99.9	%	25.0
	100.0-109.9	%	50.0
	110.0-119.9	%	75.0
	120-150	%	100.0

C.  CREDIT			Score	Bonus- N/A
1.  Credit Goal Scoring	>3.50	%	0.0
RFC (20%)	3.01 - 3.50	%	25.0
CFC (10%)	2.51 - 3.00	%	50.0
	2.01 - 2.50	%	75.0
	<=2.00	%	100.0

14

2002 CFB Balanced Scorecard
Regional Financial Centers/Community Financial Centers

Performance Measurement Score - President/Manager

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue.)

RFC President/Manager Example

Sales Measurements (Weight 40%):	Score	Weight		Weighted Score
1.  Number of Sales/FTE/Week	57.3	40	%	22.9
Quarter 1 avg score was 2.95 = 0 points
Quarter 2 avg score was 3.65 = 50 points
Quarter 3 avg score was 4.50 = 75 points
Quarter 4 avg score was 5.70 = 100 points + 4 Bonus Points
Annual Performance = [(0+50+75+104)/4 = 57.25]
2.  New Customer Cross-Sell Ratio	57.0	30	%	17.1
Quarter 1 avg score was 1.50 = 25 points
Quarter 2 avg score was 1.65 = 25 points
Quarter 3 avg score was 2.86 = 100 points + 3 Bonus Points
Quarter 4 avg score was 2.20 = 75 points
Annual Performance = [(25+25+103+75)/4 = 57]
3.  Campaign Performance	77.0	30	%	23.1
Campaign # 1 was 95% of goal = 25 points
Campaign # 2 was 130% of goal = 100 points
Campaign # 3 was 180% of goal = 100 points + 6 Bonus Points
Campaign Performance = [(25+100+106)/3=77]
TOTAL SALES MEASUREMENT SCORE		100	%	63.1

Financial Measurements (Weight 40%):	Actual			Score	Weight		Weighted Score
1.  Net Controllable Revenue/FTE	$	290,000		110.0	30	%	33.0
= 100 points + 10 Bonus Points
2.  Controllable NII/FTE	$	51,000		50.0	20	%	10.0
3.  Loan Fee as % Plan	135.0		%	105.0	20	%	21.0
= 100 points + 5 Bonus Points
4.  Investment Product Sales as % Plan	85.0		%	0.0	30	%	0.0
TOTAL FINANCIAL MEAUREMENT SCORE					100	%	64.0
Credit Measurements (Weight 20%):	Actual			Score	Weight		Weighted Score
1.  CFB Credit Goal	1.35			100.0	100	%	100.0
TOTAL CREDIT MEASUREMENT SCORE					100	%	100.0

15

2002 CFB Balanced Scorecard
Regional Financial Centers/Community Financial Centers
AIP Calculation - President/Manager

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue.)

RFC President/Manager Example

	Score	Weight		Points
A. Balanced Scorecard Points
Sales Measurement Score	63.1	40	%	25.2
Financial Measurement Score	64.0	40	%	25.6
Credit Measurement Score	100.0	20	%	20.0
TOTAL PERFORMANCE POINTS			=	70.8
B. Performance vs. Profit Plan [Pretax Adjusted Earnings]
% Actual  to Plan			=	105.0		%
Knockout < 90% Unless ROE of "X"
(To be determined after budgets are final)
C. Balanced Performance Points
Index (A x B)			=	74.4
D. Target Incentive [40%-70%]
Target Incentive			=	60.0		%
Target Incentive is bank specific and is determined based on a combination of Pretax Adjusted Earnings and Net Controllable Revenue/FTE.
E. Base Balanced Incentive
(D x C) / 100			=	44.6		%
F. Bonus Incentive (if A >= 50 and B>= 100%)
% increase in 2001 plan vs 2000 actual Pretax Adjusted Earnings			=	10.0		%
0.0-2.9% growth =  0%
3.0-5.9% growth =  5%
6.0-8.9% growth =10%
> 9% growth =15%
G. Total Balanced Incentive Percentage			=	54.6		%
TOTAL INCENTIVE PAYOUT
Base Salary				$	100,000
Total Balances Incentive Percentage				54.6		%
Total Payout				$	54,629

16

2002 CFB Balanced Scorecard

Regional Financial Centers/Community Financial Centers

Performance Measurement Score - President/Manager

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue.)

CFC President/Manager Example

Sales Measurements (Weight 45%):	Score	Weight		Weighted Score
1. Number of Sales/FTE/Week	57.3	40	%	22.9
Quarter 1 avg score was 2.95 = 0 points
Quarter 2 avg score was 3.65 = 50 points
Quarter 3 avg score was 4.50 = 75 points
Quarter 4 avg score was 5.70 = 100 points + 4 Bonus Points
Annual Performance = [(0+50+75+104)/4 = 57.25]
2. New Customer Cross-Sell Ratio	57.0	30	%	17.1
Quarter 1 avg score was 1.50 = 25 points
Quarter 2 avg score was 1.65 = 25 points
Quarter 3 avg score was 2.86 = 100 points + 3 Bonus Points
Quarter 4 avg score was 2.20 = 75 points
Annual Performance = [(25+25+103+75)/4 = 57]
3. Campaign Performance	77.0	30	%	23.1
Campaign # 1 was 95% of goal = 25 points
Campaign # 2 was 130% of goal = 100 points
Campaign # 3 was 180% of goal = 100 points + 6 Bonus Points
Campaign Performance = [(25+100+106)/3=77]
TOTAL SALES MEASUREMENT SCORE		100	%	63.1

Financial Measurements (Weight 45%):	Actual			Score	Weight		Weighted Score
1. Net Controllable Revenue/FTE = 100 points + 10 Bonus Points	$	290,000		110.0	30	%	33.0
2. Controllable NII/FTE	$	51,000		50.0	20	%	10.0
3. Loan Fee as % Plan = 100 points + 5 Bonus Points	135.0		%	105.0	20	%	21.0
4. Investment Product Sales as % Plan	85.0		%	0.0	30	%	0.0
TOTAL FINANCIAL MEAUREMENT SCORE					100	%	64.0

Credit Measurements (Weight 10%):	Actual	Score	Weight		Weighted Score
8. CFB Credit Goal	1.35	100.0	100	%	100.0
TOTAL CREDIT MEASUREMENT SCORE			100	%	100.0

17

2002 CFB Balanced Scorecard

Regional Financial Centers/Community Financial Centers

AIP Calculation -  President/Manager

(Changes made from the 2001 scorecard to the 2002 scorecard are highlighted in blue.)

CFC President/Manager Example

	Score	Weight		Points
A.  Balanced Scorecard Points
Sales Measurement Score	63.1	45	%	28.4
Financial Measurement Score	64.0	45	%	28.8
Credit Measurement Score	100.0	10	%	10.0
TOTAL PERFORMANCE POINTS			=	67.2
B.  Performance vs. Profit Plan [Pretax Adjusted Earnings
% Actual  to Plan			=	105.0		%
Knockout < 90% Unless ROE of "X"
(To be determined after budgets are final)
C.  Balanced Performance Points
Index (A x B)			=	70.6
D.  Target Incentive [40%-70%]
Target Incentive			=	60.0		%
Target Incentive is bank specific and is determined based on a combination of Pretax Adjusted Earnings and Net Controllable Revenue/FTE.
E.  Base Balanced Incentive
(D x C) / 100			=	42.3		%
F.  Bonus Incentive (if A >= 50 and B>= 100%)
% increase in 2001 plan vs 2000 actual Pretax Adjusted Earnings			=	10.0		%
0.0-2.9% growth =0%
3.0-5.9% growth =5%
6.0-8.9% growth =10%
> 9% growth =15%
G.  Total Balanced Incentive Percentage			=	52.3		%
TOTAL INCENTIVE PAYOUT
Base Salary				$	100,000
Total Balances Incentive Percentage				52.3		%
Total Payout				$	52,333

18

2002 Balanced Scorecard

Regional Financial Centers/Community Financial Centers

Designated Participants

Location Name Title

19

EX-13.1

Exhibit 13

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, 2002 and 2001, and its results of operations for the years ended December 31, 2002, 2001 and 2000. 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.

The Company is a bank holding company which at the end of 2002, conducted banking operations in 136 communities located throughout the Midwest, Inter-mountain and Southwest regions. The Company’s community banks provide a full range of banking services through 51 Regional Financial Centers and 28 Community Financial Centers. In addition to its primary emphasis on commercial and consumer banking services, the Company offers trust, mortgage, insurance and non-deposit investment products and services. The Company’s principal source of income is interest income from loans and investment securities, including held-to-maturity and available-for-sale securities. Additional sources of income include fees on deposit accounts and other non-interest income including commissions from the sale of insurance and non-deposit investment products and services. Among the key drivers of the Company’s profitability has been the interest rate environment, from both a deposit pricing and a loan pricing perspective. Profitability is impacted by the Company’s ability to find risk appropriate investment opportunities; the Company’s ability to maintain and grow its deposit base in the face of historically low interest rates; increasing competition from other providers of financial services and the Company’s ability to control its noninterest expense, while at the same time keeping pace with necessary technological improvements. Other key factors affecting the Company include national, regional and local economic conditions that affect demand for loans and impact the rate of loan defaults.

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 that its critical accounting policies include the allowance for loan losses, goodwill impairment and income taxes.

The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgment and estimates used in preparation of its consolidated financial statements. Refer to the section entitled Allowance for Loan Losses, Note 1, Significant Accounting Polices and Note 9, Financial Instruments with Off-Balance Sheet Risk and Concentration of Credit Risk for a detailed description of the Company’s estimation process and methodology related to the allowance for loan losses and for the Company’s exposure to concentrations of credit. The Company’s recorded allowance for loan losses and related provisions for loan losses could be materially different than the amounts recorded under different conditions or using different assumptions.

The Company believes the annual testing for impairment of goodwill is a critical accounting policy that requires significant
judgment and estimates. The Company performed its initial impairment test during the first quarter of 2002 and its annual impairment test during the fourth quarter of 2002. Both tests indicated no impairment existed, thus no adjustment to the carrying cost of goodwill was recorded. The Company uses a multi-period discounted earnings model to determine if the equity fair value of the underlying reporting unit is equal to or greater than the current book value. The model is based on management’s estimate of the Company’s projected earnings stream over the following five years. The 2002 impairment tests indicated the equity fair value exceeded the current book value, thus eliminating the need to perform the second step, measuring impairment, as no impairment was noted. The valuation model includes various management estimates and assumptions and thus, to the extent these estimates and assumptions vary from actual future results, are subject to error and may not be indicative of future impairment tests.

The Company also believes the estimation of its income tax liability is a critical accounting policy that requires significant judgment and estimates on the part of management. The Company estimates its income tax liability based on an estimate of its current and deferred taxes based on its estimates of taxable income. The Company makes its estimate based on its interpretations of the existing income tax laws as they relate to the Company’s activities. Such interpretations could differ from those of the taxing authorities. Periodically, the Company is examined by various federal and state tax authorities. In the event management’s estimates and assumptions vary from the views of the taxing authorities, adjustments to the periodic tax accruals may be necessary.

OVERVIEW

GENERAL

For the year ended December 31, 2002, the Company reported net income of $79.2 million, an increase of $14.1 million, or 21.7%, from the $65.1 million earned during 2001. Diluted earnings per share were $1.97, compared to $1.57 in 2001. Return on average assets was 1.40% for 2002, compared with 1.11% for 2001. Return on average common shareholders’ equity for 2002 and 2001 was 21.76% and 18.66%, respectively. The increase in return on assets is principally due to the combination of an increase in net income and a $219 million decrease in average assets, while the increase in return on equity is principally due to an increase in net income. Earnings per share for 2002 included a positive full-year cumulative impact of 12 cents per share, due to the accounting standards change ending the amortization of goodwill.

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 nonperforming asset.

Total assets were $5.8 billion at December 31, 2002 and 2001, respectively. This stability was principally due to the Company’s balance sheet management strategy in the current economic environment. Management was reluctant to pursue asset growth at the risk of compromising asset quality, but rather, chose to focus on improving profitability through the pursuit of increased non-interest income, including commissions on the sale of insurance and non-deposit investment products.

STRATEGIC INITIATIVES 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 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 during 2001, 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 of 2001. 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, 2002, all expected expenditures associated with the restructuring have been recognized and recorded.

In preparation for the sale of 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 of 2001. During 2002, $1.2 million of this charge-off was recovered.

Under the redesigned delivery structure, the Company implemented 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, 2002, all indirect consumer underwriting, administration, documentation and collection has been centralized. Centralization of the underwriting, administration, documentation and collection of direct consumer loans, as well as documentation of commercial and agricultural loans, continues on schedule. Completion of the loan processing centralization process is planned for the fourth quarter of 2003.

During 2001, 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 substantially all of the residential mortgage business of the Company. The joint venture provides the Company 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 50% ownership and 50% voting rights over the affairs of the joint venture and records its investment 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 are effected through the joint venture rather than through the Company.

STOCK REPURCHASE PLAN

Since April 2000, the Company has conducted common stock repurchase programs providing for the systematic repurchase of the Company’s common stock. Under these programs, the shares are purchased primarily on the open market, with timing depending upon market conditions. The program 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, 2002, the Company had repurchased 12.7 million shares of common stock under these plans, at prices ranging from $15.25 to $27.90. The Company repurchased 1.9 million and 2.0 million shares of common stock during 2002 and 2001, respectively. As of December 31, 2002, 1.1 million shares remain available for repurchase.

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

2

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 an approximately equal amount of rate sensitive assets and rate sensitive liabilities to minimize the impact of changes in the interest rate environment.

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	2002						2001						2000
(Dollars in thousands)	Average Balance		Interest		Interest Yields and Rates		Average Balance		Interest		Interest Yields and Rates		Average Balance		Interest		Interest Yields and Rates
ASSETS
Loans(1)(2)	$	3,689,015	$	281,768	7.64	%	$	3,785,553	$	341,287	9.02	%	$	3,706,144	$	357,034	9.63	%
Investment securities(2)	1,481,634		84,315		5.69	%	1,561,896		100,602		6.44	%	1,909,479		128,490		6.73	%
Other earning assets	12,424		201		1.62	%	11,923		391		3.28	%	12,375		628		5.07	%
Total earning assets	5,183,073		366,284		7.07	%	5,359,372		442,280		8.25	%	5,627,998		486,152		8.64	%
Noninterest-earning assets	457,868						500,240						551,194
Total assets	$	5,640,941					$	5,859,612					$	6,179,192
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing checking	924,102		5,869		0.64	%	872,642		9,943		1.14	%	845,079		13,437		1.59	%
Savings deposits	923,098		8,331		0.90	%	971,915		19,428		2.00	%	1,059,736		35,673		3.37	%
Time deposits	1,818,771		61,372		3.37	%	2,053,548		109,171		5.32	%	2,132,327		120,171		5.64	%
Short-term borrowings	339,193		6,340		1.87	%	361,563		15,001		4.15	%	568,540		34,303		6.03	%
Long-term borrowings	134,991		8,016		5.94	%	133,030		8,677		6.52	%	95,814		6,697		6.99	%
Total interest-bearing liabilities	4,140,155		89,928		2.17	%	4,392,698		162,220		3.69	%	4,701,496		210,281		4.47	%
Demand deposits	948,353						921,855						931,556
Noninterest-bearing liabilities	62,594						76,383						66,138
Trust preferred securities	125,753						120,000						120,000
Common shareholders’ equity	364,086						348,676						360,002
	1,500,786						1,466,914						1,477,696
Total liabilities and shareholders’ equity	$	5,640,941					$	5,859,612					$	6,179,192
Net interest income			$	276,356					$	280,060					$	275,871
Net interest spread					4.90	%					4.56	%					4.17	%
Net interest margin					5.33	%					5.23	%					4.90	%

(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:

(In thousands)	2002 COMPARED TO 2001									2001 COMPARED TO 2000
	Volume			Rate			Total			Volume			Rate			Total
Interest income:
Loans(1)	$	(8,703	)	$	(50,816	)	$	(59,519	)	$	7,650		$	(23,397	)	$	(15,747	)
Investment securities(1)	(5,170		)	(11,117		)	(16,287		)	(23,389		)	(4,499		)	(27,888		)
Other earning assets	16			(206		)	(190		)	(23		)	(214		)	(237		)
Total interest income	$	(13,857	)	$	(62,139	)	$	(75,996	)	$	(15,762	)	$	(28,110	)	$	(43,872	)
Interest expense:
Savings deposits and interest-bearing checking	$	(389	)	$	(14,782	)	$	(15,171	)	$	(2,518	)	$	(17,221	)	$	(19,739	)
Time deposits	(12,481		)	(35,318		)	(47,799		)	(4,440		)	(6,560		)	(11,000		)
Short-term borrowings	(928		)	(7,733		)	(8,661		)	(12,488		)	(6,814		)	(19,302		)
Long-term borrowings	127			(788		)	(661		)	2,601			(621		)	1,980
Total interest expense	$	(13,671	)	$	(58,621	)	$	(72,292	)	$	(16,845	)	$	(31,216	)	$	(48,061	)
Increase (decrease) in net interest income	$	(186	)	$	(3,518	)	$	(3,704	)	$	1,083		$	3,106		$	4,189

(1)Fees on loans have been included in interest on loans. Interest income is reported on a tax-equivalent basis. The incremental tax rate applied was 35%.

Net interest income on a tax-equivalent basis in 2002 was $276.4 million, a $3.7 million decrease from 2001. The decrease was primarily due to a 3.3% decrease in earning assets partially offset by a 10 basis point increase in the net interest margin. The decrease in earning assets reflect management’s reluctance to compromise its loan quality standards in the current economic environment which presents fewer quality loan growth opportunities. The Company was able to acquire core deposits at lower rates due to the relatively

3

unattractive investment alternatives for depositors. Average investment securities in 2002 were $80 million less than in 2001. Average loans in 2002 decreased $97 million from the 2001 average. Net interest income on a tax-equivalent basis in 2001 was $280.1 million, a $4.2 million increase from 2000. The increase was primarily due to a 4.8% reduction in earning assets partially offset by a 33 basis point increase in the net interest margin.

The net interest margin was 5.33%, 5.23%, and 4.90% in 2002, 2001 and 2000, respectively. This increase in margin was due to a change in the mix of earning assets, including a 118 basis point decrease in rates on earning assets and a 152 basis point decrease in interest bearing liabilities. However, average earning assets decreased $176 million, from 2001 to 2002. Average loans to average earning assets was 71.2% in 2002 compared to 70.6% in 2001 and to 65.9% in 2000. Management anticipates continued downward pressure on the Company’s net interest margin as a result of the current unprecedented interest rate environment. The sluggish economy makes growth of the loan portfolio challenging. Record low interest rates, mortgage-backed security prepayments and fewer high yielding reinvestment opportunities will contribute to margin pressure.

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 2002 was $13.3 million, a decrease of $4.2 million or 24.0%, from $17.5 million during 2001. The decrease in the loan loss provision was principally due to the Company’s credit experience as reflected in a decrease in net charge-offs. Charge-offs in 2001 included a $2.4 million charge-off of the Company’s largest non-performing asset, an Arizona-based credit facility of which $1.2 million was recovered in 2002. 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 2001 was $17.5 million, an increase of $1.7 million, or 10.8% from the 2000 provision of $15.8 million. The increase was primarily due to the $2.4 million charge-off on the Arizona-based credit facility in 2001.

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 2002 was $81.3 million, an increase of $1.7 million, or 2.1%, from the $79.6 million earned in 2001. The increase was principally due to an increase in commissions from the sale of investment securities in 2002 to $9.5 million from $6.6 million in 2001, an increase of $2.9 million, or 43.9%, and resulted in part from the Company’s sales campaigns during 2002, which focused on providing non-deposit investment alternatives to meet customer needs. Insurance commissions increased to $13.8 million in 2002, from $12.5 million in 2001, an increase of $1.3 million, or 10.4%. Service charges on deposit accounts decreased to $40.1 million in 2002, from $41.9 million in 2001, a decrease of $1.8 million, or 4.3%. Trust revenue decreased to $5.4 million in 2002, from $5.7 million in 2001, a decrease of $256,000 or 4.5%. Net gains on the sale of investment securities were $431,000 less in 2002 than in 2001.

Noninterest income for 2001 was $79.6 million, an increase of $1.7 million, or 2.2%, from the $77.9 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 $342,000, or 0.8%, from $42.2 million in 2000 to $41.9 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 EXPENSE

Noninterest expense consists 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 (In thousands)	2002		2001		2000
Salaries and employee benefits	$	113,994	$	115,743	$	110,024
Net occupancy	32,832		31,593		31,941
FDIC insurance	800		915		1,039
Legal and accounting	3,138		3,764		3,874
Other professional services	4,340		4,634		4,415
Advertising	3,983		5,037		4,545
Telephone	5,575		5,633		5,203
Restructuring charge	—		7,656		—
Data processing	7,210		6,940		7,200
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts	10,405		10,273		10,245
Amortization of intangibles	3,318		9,928		10,481
Other	31,960		33,200		33,007
Total noninterest expense	$	217,555	$	235,316	$	221,974

Noninterest expense decreased $17.7 million to $217.6 million in 2002. The decrease was principally due to a $6.6 million, or 66.7% decrease in the amortization of intangibles from $9.9 million in 2001 to $3.3 million in 2002, due to the accounting standards change ending the amortization of goodwill. During 2001, a $7.7 million restructuring charge was recorded as a result of strategic initiatives implemented in 2001. Salary and employee benefits decreased to $114.0 million in 2002, from $115.7 million in 2001, a decrease of $1.7 million or 1.5%. The decrease was attributed to a reduction in the number of employees during 2002, in response partially to the strategic initiatives announced in 2001.

Noninterest expense increased $13.3 million to $235.3 million in 2001, compared to 2000. 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%. Additionally, 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.

4

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 2002 effective tax rate is similar to the Company’s anticipated effective tax rates in future periods. The effective tax rate was 33.3%, 34.0%, and 33.3% for 2002, 2001 and 2000, respectively.

FINANCIAL CONDITION

INVESTMENT OF FUNDS

Loans

At December 31, 2002, total loans were $3.6 billion as compared to $3.7 billion at December 31, 2001. The Company experienced a $108 million decrease in loans in the Company’s existing markets, and the planned amortization of $51 million in purchased loans which continued to be repaid in accordance with the original loan agreements during 2002.

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 $35 million at December 31, 2002, compared to $86 million at December 31, 2001. It is anticipated that the purchased loan asset volume will continue to decrease during 2003.

General. The Company’s loan mix remained relatively constant from 2001 to 2002. Real estate loans continued to be the largest category of loans, representing 56.1% 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, 2002, $680 million, or 33.9%, of the Company’s real estate loan portfolio consisted of residential real estate loans, including home equity loans, $154 million, or 7.7%, were secured by farmland, $734 million, or 36.5%, represented commercial and other real estate loans and $440 million, or 21.9%, represented construction loans. Residential real estate loans decreased $86 million from 2001 to 2002, due partially to the impact of the Company’s strategic initiative wherein residential mortgages are now originated principally through Community First Mortgage, LLC.

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, which, as a result of the Company’s strategic initiative to implement a centralized consumer credit process, were originated and processed through a centralized process.

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:

	2002					2001					2000					1999					1998
(Dollars in thousands)	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
Loan category:
Real estate	$	1,568,710		43.8	%	$	1,515,118		40.5	%	$	1,458,494		39.0	%	$	1,319,678		35.8	%	$	1,291,287		36.5	%
Real estate construction	439,536			12.3	%	519,031			13.9	%	466,616			12.5	%	434,924			11.8	%	366,277			10.4	%
Commercial	723,530			20.2	%	824,318			22.1	%	872,824			23.4	%	994,624			26.9	%	966,404			27.3	%
Consumer and other	625,429			17.5	%	627,034			16.8	%	686,064			18.3	%	681,423			18.5	%	618,530			17.5	%
Agricultural	220,688			6.2	%	251,191			6.7	%	254,204			6.8	%	259,704			7.0	%	295,039			8.3	%
Total loans	$	3,577,893		100.0	%	$	3,736,692		100.0	%	$	3,738,202		100.0	%	$	3,690,353		100.0	%	$	3,537,537		100.0	%
Less allowance for loan losses	(56,156		)			(54,991		)			(52,168		)			(48,878		)			(51,860		)
Total	$	3,521,737				$	3,681,701				$	3,686,034				$	3,641,475				$	3,485,677

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. Mortgage-backed securities, which are principally fixed and adjustable rate pools, are used as tools in managing the Company’s interest rate exposure and enhancing its net interest margin.

5

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:

	Estimated Fair Value at December 31,
(In thousands)	2002		2001		2000
U.S. Treasury	$	53,468	$	69,297	$	77,951
U.S. Government agencies	293,227		231,380		435,255
Mortgage-backed securities	1,038,044		887,148		993,939
Collateralized mortgage obligations	3,512		4,377		9,635
State and political securities	71,095		97,603		115,400
Other	213,099		147,261		82,330
Total	$	1,672,445	$	1,437,066	$	1,714,510

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,
(In thousands)	2002		2001		2000
Other	$	80,165	$	76,765	$	73,222
Total	$	80,165	$	76,765	$	73,222

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

AVAILABLE-FOR-SALE SECURITIES

	At December 31, 2002, Maturing in
	One Year or Less					Over One Year Through 5 Years					Over 5 Years Through 10 Years					Over 10 Years					Total
(Dollars in thousands)	Amount			Weighted Yield(1)		Amount			Weighted Yield(1)		Amount			Weighted Yield(1)		Amount			Weighted Yield(1)		Amount			Weighted Yield(1)
U.S. Treasury	$		35,466	5.67	%	$		18,002	3.37	%	$	—		—		$		—	—		$	53,468		4.90	%
U.S. Government agencies	59,424			5.59	%	213,196			3.42	%	20,607			4.07	%	—			—		293,227			3.91	%
Mortgage-backed securities	1,030			5.53	%	2,779			7.46	%	63,794			5.94	%	970,441			5.11	%	1,038,044			5.16	%
Collateralized mortgage obligations	—			—		—			—		2,987			2.81	%	525			2.70	%	3,512			2.79	%
State and political securities	2,067			6.44	%	7,151			7.50	%	19,514			7.57	%	42,363			7.78	%	71,095			7.65	%
Other	135,052			1.96	%	275			1.83	%	522			2.72	%	77,250			5.64	%	213,099			3.30	%
Total	$	233,039		3.51	%	$	241,403		3.58	%	$		107,424	5.78	%	$	1,090,579		5.25	%	$		1,672,445	4.80	%

(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 1.38% cost of funds.

HELD-TO-MATURITY SECURITIES

	At December 31, 2002, Maturing in
	One Year or Less			Over One Year Through 5 Years			Over 5 Years Through 10 Years			Over 10 Years				Total
(Dollars in thousands)	Amount		Weighted Yield(1)	Amount		Weighted Yield(1)	Amount		Weighted Yield(1)	Amount		Weighted Yield(1)		Amount		Weighted Yield(1)
Other	$	—	—	$	—	—	$	—	—	$	80,165	6.81	%	$	80,165	6.81	%
Total	$	—	—	$	—	—	$	—	—	$	80,165	6.81	%	$	80,165	6.81	%

(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, increased $239 million, or 15.8%, to $1.8 billion at December 31, 2002, from $1.5 billion at December 31, 2001, due primarily to the Company’s strategy of reinvesting cash flows derived from loan repayments and deposit generation in additional investment securities, as an alternative to funding loan growth, which as a result of the current sluggish economy, presents fewer opportunities that meet the Company’s stringent credit quality criteria. At December 31, 2002, the Company’s investments represented 30.1% of total assets, compared to 26.2% at December 31, 2001.

The majority of the investment portfolio is comprised of government and government sponsored enterprise securities (“GSE”). The credit risk associated with these issuers is within tolerances set by management. A significant portion of the GSE debt includes mortgaged-backed securities. Because of their embedded prepayment options, these securities are subject to prepayment and extension risk in volatile rate environments.

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 $5,000 to $500,000 per borrower, which is reduced to not more than $25,000 for any criticized or classified borrower. Amounts in excess of the individual bank lending authority are presented to corporate credit officers. The corporate credit officers have lending authority up to $1,000,000 per pass-rated borrower. Loans above $1,000,000 for pass-rated borrowers, $500,000 for watch-rated borrowers and $250,000 for classified borrowers are presented to the Senior Credit Committee wherein approval must be unanimous. The Senior Credit Committee is comprised of the Company’s chief operating officer, two executive vice president—division presidents, the senior credit administrative officer, and the senior regional credit officer.

An integral part of the Company’s initiative to redesign its delivery structure is the implementation of a centralized loan processing function. Begun in 2001, the Company continued its credit centralization process during 2002, with the expectation that it will be fully implemented by year-end 2003. This process centralizes the underwriting, documentation, administration and collection of all consumer loans and document preparation for commercial and agricultural credit. As of December 31, 2002, consumer loan collections and indirect consumer underwriting, administration and documentation have been centralized. The centralization of direct consumer loans, as well as documentation of commercial and agricultural loans is progressing on schedule. The Company has augmented its servicing and collection of commercial and agricultural distressed credits through

6

implementation of a special assets group, which was organized to provide greater support for the Company’s larger, more complex credit facilities. The centralization process and special assets group will afford the Company additional control and oversight of the entire credit process.

Although the Company has a diversified loan portfolio, the economic health of significant portions of the Company’s primary trade areas 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 sector of the local economy. The Company has identified and implemented strategies to deal with these factors, including an emphasis on quality local loan growth and the diversification and performance of its earning asset portfolios.

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, unless well secured and in the process of collection, 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 and interest 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 $3,615,000, $2,722,000, and $4,693,000, on nonaccrual loans would have been recorded during 2002, 2001, and 2000, respectively, if the loans had been current in accordance with their original terms. The Company recorded interest income of $679,000, $1,113,000, and $955,000 related to loans that were on nonaccrual status as of December 31, 2002, 2001, and 2000, 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 (Dollars in thousands)	2002			2001			2000			1999			1998
Loans:
Nonaccrual loans	$	22,728		$	20,818		$	23,426		$	25,764		$	22,609
Restructured loans	220			252			224			284			162
Nonperforming loans	22,948			21,070			23,650			26,048			22,771
OREO	5,990			2,869			2,437			6,525			4,763
Nonperforming assets	$	28,938		$	23,939		$	26,087		$	32,573		$	27,534
Loans 90 days or more past due but still accruing	$	4,258		$	6,270		$	2,482		$	1,949		$	3,525
Nonperforming loans as a percentage of total loans	0.64		%	0.56		%	0.63		%	0.71		%	0.64		%
Nonperforming assets as a percentage of total assets	0.50		%	0.41		%	0.43		%	0.52		%	0.44		%
Nonperforming assets as a percentage of total loans and OREO	0.81		%	0.64		%	0.70		%	0.88		%	0.78		%
Total loans	$	3,577,893		$	3,736,692		$	3,738,202		$	3,690,353		$	3,537,537
Total assets	$	5,827,170		$	5,772,326		$	6,089,729		$	6,302,235		$	6,239,772

Nonperforming assets were $28.9 million at December 31, 2002, an increase of $5.0 million, or 20.9%, from $23.9 million at December 31, 2001. Nonperforming loans increased by $1.9 million during the same period. OREO increased $3.1 million, or 106.9%, from $2.9 million at December 31, 2001 to $6.0 million at December 31, 2002. The increase in OREO was principally due to the addition of two properties, one in Colorado and one in Arizona, which previously had been classified as nonaccrual loans. The ratio of nonperforming assets to total assets at December 31, 2002, was .50%, compared to .41% at December 31, 2001.

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.

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 and agricultural 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 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.

7

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 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.

The Company also maintains an additional allowance amount 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.

The 2002 and 2001 allocation reflects the Company’s methodology utilized to allocate the allowance within individual loan portfolios. The methodology was modified in 2001 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 allowance for loan losses 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 allowance, but rather permitted the Company to better assign its allowance balance to the risk associated with specific loan portfolios. The resulting increase in allocated allowance and decrease in additional allowance in 2002 and 2001 is primarily a result of the modified methodology.

The allocated portion of the allowance increased to $42.8 million at December 31, 2002, an increase of $1.5 million, or 3.6% from $41.3 million at December 31, 2001. The increase was principally due to changes in the Company’s assessment of the underlying loan portfolios. The allocated allowance as a percentage of loans outstanding was 1.20% at December 31, 2002 and 1.11% at December 31, 2001. The additional allowance decreased to $13.3 million at December 31, 2002, a decrease of $324,000, or 2.4% from $13.7 million at December 31, 2001. The additional allowance as a percentage of loans outstanding was .37% at December 31, 2002 and .36% at December 31, 2001. The level of the additional allowance was relatively unchanged from year to year based on the Company’s assessment of inherent, but undetected losses. The accompanying table shows the allocated and additional allowance for the various loan classifications.

The allocated portion of the allowance at December 31, 2002 increased to $15.1 million in the consumer and other portfolio, from $11.3 million at December 31, 2001, a $3.8 million, or 33.6%, increase. The increase is principally due to the increase in the level of delinquencies and charge-offs in the portfolio and reflects management’s expectation of portfolio performance in the current economic environment. As a percentage of the portfolio, the allowance allocated to consumer and other loans increased from 1.80% of the 2001 portfolio to 2.41% of the 2002 portfolio. The December 31, 2002 allowance allocated to the agricultural portfolio increased slightly to $3.0 million, a 1.1% increase from December 31, 2001. As a percentage of the portfolio, the allowance allocated to agricultural loans increased from 1.19% of the 2001 portfolio to 1.37% of the 2002 portfolio. The commercial portfolio allowance decreased $1.1 million, or 10.7% to $9.2 million at December 31, 2002, from $10.3 million at December 31, 2001. As a percentage of the portfolio, the allowance allocated to commercial loans increased slightly from 1.25% of the 2001 portfolio to 1.27% of the 2002 portfolio. The allowance allocated for the real estate construction portfolio decreased slightly to $4.1 million at December 31, 2002, from $4.3 million at December 31, 2001. As a percentage of the portfolio, the allowance allocated to real estate construction loans increased from 0.82% of the 2001 portfolio to 0.94% of the 2002 portfolio. The real estate portfolio allowance allocation of $11.4 million at December 31, 2002, decreased $1.1 million or 8.8% from $12.5 million at December 31, 2001. As a percentage of the portfolio, the allowance allocated to real estate loans decreased from 0.83% of the portfolio in 2001 to 0.73% of the portfolio in 2002. For all portfolios, the change in the allocated allowance was principally due to the Company’s delinquency and charge-off experience within the respective portfolios and reflects management’s estimate of probable losses in the portfolio at period-end.

As a result of the analytical processes implemented during 2001, the allocated portion of the 2001 allowance 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 allowance allocated to real estate construction loans. 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 future 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. To the extent that actual losses might exceed the estimated provision, additional provision expense may be required in future periods. Conversely, if actual losses are substantially less than estimated, future periods may reflect a lower provision expense. The Company’s methodology includes general factors intended to minimize the differences in estimated 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.

8

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 Losses at December 31,										Allowance as a Percent of Loans Outstanding by Category at December 31,
(Dollars in thousands)	2002		2001		2000		1999		1998		2002		2001		2000		1999		1998
Real estate	$	11,413	$	12,519	$	12,234	$	10,329	$	9,844	0.73	%	0.83	%	0.84	%	0.78	%	0.76	%
Real estate construction	4,116		4,256		515		218		190		0.94	%	0.82	%	0.11	%	0.05	%	0.05	%
Commercial	9,198		10,293		7,117		8,673		7,705		1.27	%	1.25	%	0.82	%	0.87	%	0.80	%
Consumer and other	15,069		11,272		4,147		4,657		8,405		2.41	%	1.80	%	0.60	%	0.68	%	1.36	%
Agricultural	3,029		2,996		3,016		2,643		3,077		1.37	%	1.19	%	1.19	%	1.02	%	1.04	%
Total allocated allowance	42,825		41,336		27,029		26,520		29,221		1.20	%	1.11	%	0.72	%	0.72	%	0.83	%
Total additional allowance	13,331		13,655		25,139		22,358		22,639		0.37	%	0.36	%	0.68	%	0.60	%	0.64	%
Total allowance	$	56,156	$	54,991	$	52,168	$	48,878	$	51,860	1.57	%	1.47	%	1.40	%	1.32	%	1.47	%

At December 31, 2002, the allowance for loan losses was $56.2 million, an increase of $1.2 million from the December 31, 2001, level of $55.0 million. At December 31, 2002, the allowance for loan losses as a percentage of total loans was 1.57%, as compared to 1.47% at December 31, 2001. This increase is due to the combined effect of the Company’s analysis of the loan portfolio credit quality at the Company’s bank subsidiary and a decrease in the volume of loans outstanding.

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.

During 2002, net charge-offs were $12.1 million, a decrease of $2.6 million from the $14.7 million during 2001. The decrease is principally due to the 2001 charge-off of an Arizona-based credit facility and the $1.2 million recovery recorded on the loan in 2002. The Company’s provision for loan losses decreased from $17.5 million in 2001 to $13.3 million in 2002. The provision for loan losses is recorded to bring the allowance for loan losses to the level deemed appropriate by management. The provision is the result of estimates based on management’s analysis, and as such, future earnings could be adversely affected if the provision is not sufficient to cover future losses.

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

December 31 (Dollars in thousands)	2002			2001			2000			1999			1998
Balance at beginning of year	$	54,991		$	52,168		$	48,878		$	51,860		$	41,387
Allowance of acquired companies and other	—			—			—			270			1,950
Charge-offs:
Real estate	2,468			1,588			1,176			2,181			2,340
Real estate construction	50			2,538			408			2,965			36
Commercial	6,191			5,374			6,644			8,349			2,771
Consumer and other	11,040			10,033			7,893			13,802			11,806
Agricultural	300			336			996			553			1,381
Total charge-offs	20,049			19,869			17,117			27,850			18,334
Recoveries:
Real estate	243			498			155			928			237
Real estate construction	1,309			70			4			—			—
Commercial	893			839			1,565			468			972
Consumer and other	5,332			3,438			2,648			2,537			2,113
Agricultural	175			327			254			481			399
Total recoveries	7,952			5,172			4,626			4,414			3,721
Net charge-offs	12,097			14,697			12,491			23,436			14,613
Provision charged to operations	13,262			17,520			15,781			20,184			23,136
Balance at end of year	$	56,156		$	54,991		$	52,168		$	48,878		$	51,860
Allowance as a percentage of total loans	1.57		%	1.47		%	1.40		%	1.32		%	1.47		%
Net charge-offs to average loans outstanding	0.33		%	0.39		%	0.34		%	0.66		%	0.43		%
Total loans	$	3,577,893		$	3,736,692		$	3,738,202		$	3,690,353		$	3,537,537
Average loans	$	3,689,015		$	3,785,553		$	3,706,144		$	3,573,060		$	3,383,724

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.

9

The following table sets forth a summary of the deposits of the Company at the dates indicated, (in thousands):

December 31	2002		2001		2000
Noninterest-bearing	$	470,900	$	487,864	$	500,834
Interest-bearing:
Savings and checking accounts	2,424,943		2,367,255		2,349,606
Time accounts less than $100,000	1,103,716		1,203,379		1,496,483
Time accounts greater than $100,000	670,187		692,315		672,968
Total deposits	$	4,669,746	$	4,750,813	$	5,019,891

Total deposits at December 31, 2002, were $4.7 billion, a decrease of $81 million, or 1.7%, from $4.8 billion at December 31, 2001. The decrease is principally the result of the Company’s strategy to manage the rate of interest paid on deposit accounts. The Company’s core deposits as a percentage of total deposits were 85.6% and 85.4% as of December 31, 2002 and December 31, 2001, respectively.

At December 31, 2002, $670 million, or 14.4% of total deposits were in time accounts greater than $100,000, a decrease of $22 million, or 3.2%, from $692 million at December 31, 2001. 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, 2002 were (in thousands):

Maturing in less than three months	$	165,415
Maturing in three to six months	154,725
Maturing in six to twelve months	187,646
Maturing in over twelve months	162,401
Total deposits in excess of $100,000	$	670,187

At December 31, 2002, the Company had $21 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.

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 $458 million. As of December 31, 2002, $44 million in advances were outstanding. The Company also had $32 million outstanding on its $50 million short-term commercial paper arrangement at December 31, 2002. The $110 million increase in short-term borrowings from December 31, 2001 is due to the Company’s ability to obtain short-term borrowings at favorable short-term rates and position itself favorably relative to matching its short-term funding needs. The Company has a $25 million short-term line of credit with a nonaffiliated commercial bank for purposes of funding operating expenses. As of December 31, 2002, there was no balance outstanding on this line.

The following table sets forth a summary of the short-term borrowings of the Company during 2002, 2001 and 2000, and as of the end of each such period:

(Dollars in thousands)	Outstanding at Year-End		Average Daily Amount Outstanding		Maximum Outstanding at any Month-End		Weighted Average Interest Rate		Average Interest Rate at Year-End
2002
Federal funds purchased and securities sold under agreements to repurchase	$	377,230	$	296,791	$	387,810	1.76	%	1.34	%
Commercial paper	32,260		31,567		45,558		2.30	%	1.93	%
FHLB advances	44,000		10,835		58,000		3.69	%	1.70	%
Other	—		—		—		—		—
Total	$	453,490	$	339,193	$	462,881	1.87	%	1.42	%
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	%

LONG-TERM DEBT

Long-term debt of the Company was $127 million as of December 31, 2002, and $137 million as of December 31, 2001.

COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES

Company-obligated mandatorily redeemable preferred securities of the Company were $120 million as of December 31, 2002 and 2001. At December 31, 2002, the total consisted of $60 million of 8.125% Cumulative Capital Securities issued March 27, 2002 through CFB Capital III and $60 million of 8.20% Cumulative Capital Securities issued December 10, 1997 through CFB Capital II. The proceeds of both offerings were invested by CFB Capital III and CFB Capital II, respectively, in Junior Subordinated Debentures of the Company. The debentures bear interest at the same rate as the Cumulative Capital Securities and mature not later than April 15,

10

2032. The Company has unconditionally guaranteed the obligation of CFB Capital III under the 8.125% Cumulative Capital Securities and the obligation of CFB Capital II under the 8.20% Cumulative Capital Securities. At December 31, 2001, the Company had outstanding the 8.20% Cumulative Capital Securities issued December 10, 1997 and $60 million of 8.875% Cumulative Capital Securities issued February 5, 1997. The 8.875% Cumulative Capital Securities were redeemed on May 1, 2002.

SHAREHOLDERS’ EQUITY

Total shareholders’ equity increased $21.7 million, or 6.1%, to $378.4 million at December 31, 2002, from $356.7 million at December 31, 2001, due principally to the retention of a majority of earnings and a $20.0 million increase in unrealized gains on available-for-sale securities, net of tax. This was offset in part through an increase of $44.5 million in treasury stock as a result of the Company’s common stock repurchase program.

On February 22, 2002, the Company filed a shelf registration statement with the Securities and Exchange Commission for the purpose of issuing $180 million of various debt and equity securities. On March 27, 2002, the Company issued $60 million of 8.125% Cumulative Capital Securities through CFB Capital III, a Delaware business trust subsidiary. At December 31, 2002, $120 million remain available for issuance of debt and equity securities. In February 2003, the Company determined to issue $60 million of cumulative capital securities through CFB Capital IV, a Delaware business trust subsidiary. The timing and terms of the offering are subject to market conditions, but the securities are expected to be similar to those of CFB Capital III except for the interest rate. If consummated, the transaction is expected to close in late February or March 2003. If consummated, terms of the capital securities, including the interest rate and other material documents, will be described in a prospectus supplement and included in a Form 8-K that the Company will file with the Securities and Exchange Commission shortly after the offering is closed.

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, 2002, the Company had repurchased 12,700,000 shares of common stock at prices ranging from $15.25 to $27.90. The Company repurchased 1.9 million shares during 2002, 2.0 million shares during 2001, and 8.8 million shares 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.

ASSET AND LIABILITY MANAGEMENT

LIQUIDITY MANAGEMENT

Liquidity management is an effort of the Company 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 (“ALCO”) 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 Note 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 2002, 2001 and 2000, the liquidity ratio was 8.32%, 6.72%, and 5.21%, respectively. The level of loans maturing within one year greatly add to the Company’s liquidity position. Including loans maturing within one year, the liquidity ratio was 27.94%, 29.86%, and 24.98%, respectively, for the same periods.

The Company has revolving lines of credit with its primary lenders, which provide for borrowing up to $75 million. These lines would be utilized to finance stock repurchase activity, underwrite commercial paper, and fund other operating expenses. At December 31, 2002, the Company had $32 million in commercial paper outstanding, underwritten by the Company’s revolving line of credit.

The Company 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 $185 million in federal funds from eight nonaffiliated financial institutions. At December 31, 2002, the Company had $87 million outstanding on these lines. At December 31, 2001, the Company had no outstanding balance on an aggregate of $55 million in Federal Funds on a funds available basis with two non-affiliated institutions.

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 $458 million in additional funding capacity. At December 31, 2002, the Company had $44 million outstanding on this line. At December 31, 2001, the Company had no balance outstanding on an aggregate of $631 million of additional funding capacity with the FHLB.

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.

11

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. Gap Analysis is performed quarterly. 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 short-term (12 months or less) impact of interest rate fluctuations on projected earnings. Using financial simulation computer software, management has built a model that projects a number of interest rate scenarios. Each scenario captures the impact of contractual obligations embedded in the Company’s assets and liabilities. These contractual obligations include maturities, loan and security payments, repricing dates, interest rate caps, and interest rate floors. The projection results also measure the impact of various management assumptions including loan and deposit volume targets, security and loan prepayments, pricing spreads and implied repricing caps and floors on variable rate non-maturity deposits. Management completes an earnings simulation quarterly. The simulation process is the Company’s primary interest rate risk management tool.

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

Based on the results of the simulation model as of December 31, 2002, management would expect net interest income to decline 0.85%, assuming a 100 basis point rate increase in market rates. This expected result is within the ALCO established guidelines of 1.40%. Assuming rates dropped 100 basis points, management would expect net interest income to decline 2.41%. This decline exceeds the ALCO guidelines of 1.40%.  At December 31, 2001 and 2000, the impact of a 100 basis point drop would be approximately .44% and 3.02%, respectively, of net income.

Several factors mitigate the Company’s projected exposure to declining rates. First, management-established risk guidelines are measured against instantaneous rate shocks. Gradual rate shifts over several months reduce the level of projected risk. Also, the current model assumes that there is no room to downprice non-maturity transaction deposits. Management has effectively floored these liability accounts at current levels in its model. Out of an abundance of caution, management believes this is an appropriate assumption for risk management purposes, but management believes there would be the potential for some downpricing on this sizeable volume of accounts.

In addition to earnings at risk, the simulation process is also used as a tool in liquidity and capital management. Management models the impact of interest rate fluctuation on the anticipated cash flows from various financial instruments. Management also reviews the implications of strategies that impact asset mix and capital levels from an interest rate risk and capital management perspective in one integrated model.

EQUITY FAIR VALUE MODELING

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

Similar to the simulation process, fair value results are heavily driven by management assumptions. While management strives to use the best assumptions possible, due to numerous market factors, actual results may deviate from model projections.

Based on the model results from December 31, 2002, management would expect equity fair value to decline 0.70% assuming a 100 basis point increase in rates. This exposure is within the ALCO established guidelines of 10.00%. Assuming rates declined 100 basis points, the model projects a decline in equity fair value of 1.42%. This exposure is also within the ALCO established policy guidelines of 10.00%.  At December 31, 2001 and 2000, the impact of a 100 basis point drop would have been approximately .10% and 6.37%, respectively, of equity fair value.

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

Based on traditional GAP methods of measuring interest rate risk, management believes the Company was liability sensitive as of December 31, 2002. The following table sets forth the Company’s interest rate sensitivity analysis by contractual repricing or maturity at December 31, 2002:

	Repricing or Maturing in
(In thousands)	1 Year or Less			Over 1 to 5 Years			Over 5 Years		Total
Rate sensitive assets:
Loans	$	1,923,800		$	1,469,421		$	184,672	$	3,577,893
Held-to-maturity securities	—			—			80,165		80,165
Available-for-sale securities	233,039			241,403			1,198,003		1,672,445
Other interest-bearing assets	4,613			—			—		4,613
Total rate sensitive assets	$	2,161,452		$	1,710,824		$	1,462,840	$	5,335,116
Rate sensitive liabilities:
Savings deposits and interest-bearing checking	$	2,424,943		$	—		$	—	$	2,424,943
Time deposits	1,316,265			456,491			1,147		1,773,903
Short-term borrowings	453,490			—			—		453,490
Long-term borrowings	—			125,000			2,500		127,500
Total rate sensitive liabilities	$	4,194,698		$	581,491		$	3,647	$	4,779,836
Rate sensitive gap	$	(2,033,246	)	$	1,129,333		$	1,459,193	$	555,280
Cumulative rate sensitive gap	(2,033,246		)	(903,913		)	555,280		555,280

12

The following sets forth the Company’s interest rate sensitivity analysis at December 31, 2002, 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
(In thousands)	1 Year or Less		Over 1 to 5 Years		Over 5 Years		Total
Loan category:
Real estate	$	580,820	$	861,709	$	126,181	$	1,568,710
Real estate construction	439,536		—		—		439,536
Agriculture	175,127		44,234		1,327		220,688
Commercial	414,811		262,802		45,917		723,530
Consumer and other	313,506		300,676		11,247		625,429
Total loans	$	1,923,800	$	1,469,421	$	184,672	$	3,577,893
Floating interest rate loans	$	508,040	$	234,829	$	5,210	$	748,079
Fixed interest rate loans	1,415,760		1,234,592		179,462		2,829,814
Total loans	$	1,923,800	$	1,469,421	$	184,672	$	3,577,893

CAPITAL MANAGEMENT

Risk-based capital guidelines established by regulatory agencies require the Company to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.

As of December 31, 2002, 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 1 risk-based and Tier 1 leverage ratios as set forth in the table.

	Regulatory Capital Requirements
(Dollars in thousands)	Tier 1 Capital		Total Risk- BasedCapital		Leverage		Total Risk- Based Assets
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, 2002	8.98	%	11.04	%	6.52	%	$	4,202,131
December 31, 2001	8.67	%	11.11	%	6.51	%	$	4,304,531

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 in Note 12, Long-Term Debt, are treated as Tier 2 capital.

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

Off-Balance Sheet Arrangements:

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

Mortgage Loan Joint Venture: The Company, through its subsidiary bank, and Wells Fargo & Company formed a joint venture mortgage company for the purpose of providing mortgage origination, documentation, servicing process and support for substantially all the residential mortgage business of the Company. The Company has 50% ownership and 50% voting rights over the affairs of the joint venture and accordingly records its investment and its continuing share of the income or loss of the joint venture under the equity method of accounting. As a 50% holder of the joint venture, the Company may be required to increase its investment in the joint venture in the event additional investment capital were required. As of December 31, 2002, the Company’s investment in the joint venture totaled $310,000.

Federal Reserve Stock: The Company’s affiliate bank is required by Federal banking regulations to be a member of the Federal Reserve System. As a member of the Federal Reserve System, the Company must maintain stock ownership in the Federal Reserve System in an amount equal to six percent of the affiliate bank’s paid-in capital and surplus. The affiliate bank is required and currently has purchased an amount of common stock equal to three percent, or one-half the bank’s subscription amount. At the discretion of the Federal Reserve System, the bank may be required to increase its investment to an amount equal to the full six percent of its total paid-in capital and surplus. At December 31, 2002, the Company’s investment in the Federal Reserve System totaled $9.6 million.

Contractual Obligations and Other Commercial Commitments:

In the normal course of business, the Company arranges financing through entering into debt arrangements with various creditors for the purpose of financing specific assets or providing a funding source.  The contract or notional amounts of these financing arrangements at December 31, 2002, as well as the maturity of these commitments are (in thousands):

	Payment Due by Period
CONTRACTUAL OBLIGATIONS	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long Term Debt	$	127,500	$	—	$	94,000	$	31,000	$	2,500
Capital Lease Obligations	7,259		1,145		2,958		2,958		198
Operating Leases	7,967		2,603		1,887		1,067		2,410
Total Contractual Obligations	$	142,726	$	3,748	$	98,845	$	35,025	$	5,108

Long Term Debt: At December 31, 2002, the Company had long term debt outstanding of $127.5 million.  Long-term debt includes $60 million of unsecured subordinated notes payable, bearing interest at a rate of 7.30%, payable semi-annually, that mature June 30, 2004. The subordinated notes, whose terms include certain covenants pertaining to regulatory compliance, financial performance timely reporting, failure to pay principal at maturity, failure to make scheduled payments, and bankruptcy, insolvency or reorganization of the Company, may not be paid early. Management is currently evaluating the available funding alternatives with regard to the June 20, 2004 maturity of the 7.3% subordinated notes, including the impact of various alternatives on the Company’s risk-based capital ratios. The subsidiary bank had Federal Home Loan Bank advances totaling $42.5 million outstanding at December 31, 2002, bearing interest rates ranging from 3.64% to 6.55%, interest is payable monthly, with maturities ranging from May 20, 2004 to October 2, 2008. Also at December 31, 2002, the subsidiary bank had a $25 million unsecured subordinated term note payable to a non-affiliated

13

bank, at an interest rate of LIBOR plus 140 basis points, payable quarterly, with a maturity date of December 22, 2007. The subsidiary bank note payable is subject to covenants including, remaining in compliance with all regulatory agency requirements, providing timely financial information and providing access to certain Company records. The debt facilities are described in Note 12, Long-term Debt.

Capital Lease Obligations: The Company frequently acquires the rights to equipment used in the operation of the Company by entering into long-term capital leases. At December 31, 2002, the Company was liable for the payment of lease schedules associated with the acquisition of equipment and premises totaling $5,461,000, exclusive of finance charges. In addition, at December 31, 2002, the Company had entered into a commitment to lease additional computer equipment that was to be delivered and installed during the first quarter of 2003. The effect of capital leases recorded at December 31, 2002 and the additional capital lease entered into in the first quarter of 2003 are summarized in the table above. Capital lease obligations are also discussed in Note 18, Commitments and Contingent Liabilities.

Operating Leases: In the normal course of business the Company enters into operating lease arrangements for the use of premises and equipment. Operating leases include rental agreements with tenants providing facilities through which the Company delivers its products and services. Operating leases are also discussed in Note 18, Commitments and Contingent Liabilities.

Company-Obligated Mandatorily Redeemable Preferred Securities: The Company has unconditionally guaranteed the obligation of CFB Capital III, under the $60 million, 8.125% Cumulative Capital Securities issued March 27, 2002 and the obligation of CFB Capital II, under the $60 million 8.20% Cumulative Capital Securities issued December 10, 1997. The $60 million Capital III securities, which mature April 15, 2032 may be redeemed any time on or after April 15, 2007. The $60 million Capital II securities, which mature December 15, 2027, may be redeemed at any time.  See Note 13, Company-Obligated Mandatorily Redeemable Preferred Securities for additional information.

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. Other commercial commitments are further discussed in Note 9, Financial Instruments with Off-Balance-Sheet Risk and Concentrations of Credit. The contract or notional amounts of these financial instruments at December 31, 2002, as well as the maturity of these commitment are (in thousands):

	Amount of commitment expiring per period
OTHER COMMERCIAL COMMITMENTS	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Commitments to Extend Credit	$	659,609	$	458,769	$	49,424	$	16,750	$	134,666
Standby Letters of Credit	19,716		15,116		3,644		114		842
Commercial Letters of Credit	10,662		9,783		789		—		90
Total Commercial Commitments	$	689,987	$	483,668	$	53,857	$	16,864	$	135,598

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.

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 (Dollars in thousands, except share data)	2002			2001
ASSETS
Cash and due from banks	$	242,887		$	248,260
Interest-bearing deposits	4,613			341
Available-for-sale securities	1,672,445			1,437,066
Held-to-maturity securities (Fair Value: 2002 – $80,165; 2001 – $76,765)	80,165			76,765
Loans	3,577,893			3,736,692
Less: Allowance for loan losses	(56,156		)	(54,991		)
Net loans	3,521,737			3,681,701
Bank premises and equipment, net	132,122			125,947
Accrued interest receivable	34,863			39,491
Goodwill	62,903			62,903
Other intangibles	32,577			34,554
Other assets	42,858			65,298
Total assets	$	5,827,170		$	5,772,326
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	470,900		$	487,864
Interest-bearing:
Savings and NOW accounts	2,424,943			2,367,255
Time accounts over $100,000	670,187			692,315
Other time accounts	1,103,716			1,203,379
Total deposits	4,669,746			4,750,813
Federal funds purchased and securities sold under agreements to repurchase	377,230			318,859
Other short-term borrowings	76,260			23,780
Long-term debt	127,500			136,841
Accrued interest payable	18,987			29,966
Other liabilities	58,998			35,362
Total liabilities	5,328,721			5,295,621
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts	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	193,887			193,103
Retained earnings	393,550			348,101
Unrealized gain on available-for-sale securities, net of tax	23,826			3,847
Less cost of common stock in treasury – 2002 – 12,343,096 shares; 2001 – 10,775,857 shares	(233,324		)	(188,856		)
Total shareholders’ equity	378,449			356,705
Total liabilities and shareholders’ equity	$	5,827,170		$	5,772,326

See accompanying notes.

15

CONSOLIDATED STATEMENTS OF INCOME COMMUNITY FIRST BANKSHARES, INC.

Years ended December 31 (Dollars in thousands, except share and per share data)	2002		2001		2000
INTEREST INCOME:
Loans	$	276,846	$	336,937	$	353,405
Investment securities	81,136		96,688		123,525
Interest-bearing deposits	41		192		184
Federal funds sold and resale agreements	160		199		444
Total interest income	358,183		434,016		477,558
INTEREST EXPENSE:
Deposits	75,572		138,542		169,281
Short-term and other borrowings	6,340		15,001		34,303
Long-term debt	8,016		8,677		6,697
Total interest expense	89,928		162,220		210,281
Net interest income	268,255		271,796		267,277
Provision for loan losses	13,262		17,520		15,781
Net interest income after provision for loan losses	254,993		254,276		251,496
NONINTEREST INCOME:
Service charges on deposit accounts	40,121		41,850		42,192
Insurance commissions	13,822		12,535		10,550
Security sales commissions	9,526		6,644		6,805
Fees from fiduciary activities	5,405		5,661		5,811
Net gains on sales of securities	373		804		65
Other	12,072		12,081		12,437
Total noninterest income	81,319		79,575		77,860
NONINTEREST EXPENSE:
Salaries and employee benefits	113,994		115,743		110,024
Net occupancy	32,832		31,593		31,941
FDIC insurance	800		915		1,039
Legal and accounting	3,138		3,764		3,874
Other professional services	4,340		4,634		4,415
Advertising	3,983		5,037		4,545
Telephone	5,575		5,633		5,203
Restructuring charge	—		7,656		—
Data processing	7,210		6,940		7,200
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts	10,405		10,273		10,245
Amortization of intangibles	3,318		9,928		10,481
Other	31,960		33,200		33,007
Total noninterest expense	217,555		235,316		221,974
Income before income taxes	118,757		98,535		107,382
Provision for income taxes	39,549		33,476		35,748
Net income	$	79,208	$	65,059	$	71,634
Earnings per common and common equivalent share:
Basic net income	$	2.00	$	1.59	$	1.55
Diluted net income	$	1.97	$	1.57	$	1.54
Average common and common equivalent shares outstanding:
Basic	39,564,912		40,905,545		46,219,120
Diluted	40,243,135		41,471,404		46,578,750

See accompanying notes.

16

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME COMMUNITY FIRST BANKSHARES, INC.

Years ended December 31 (Dollars in thousands)	2002			2001			2000
Net income	$	79,208		$	65,059		$	71,634
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during period	20,203			13,815			35,449
Less: Reclassification adjustment for gains included in net income	(224		)	(482		)	(39		)
Other comprehensive income	19,979			13,333			35,410
Comprehensive income	$	99,187		$	78,392		$	107,044

See accompanying notes.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY COMMUNITY FIRST BANKSHARES, INC.

Years ended December 31, 2002, 2001, 2000 (Dollars in thousands, except share data)	Common Stock			Capital Surplus			Retained Earnings			Unrealized Gain(Loss)			Treasury Stock					Total
	Shares	Amount											Shares		Amount
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
Net income	—			—			79,208			—			—		—			79,208
Common stock dividends ($0.80 per share)	—	—		—			(31,664		)	—			—		—			(31,664				)
Common stock dividends
Purchases of common stock for treasury, at cost	—	—		—			—			—			1,958,641		(50,187		)	(50,187				)
Exercise of options, net of stock tendered in payment	—	—		1,902			(2,073		)	—			(425,929	)	6,489			6,318
Purchase of treasury stock for employee benefit plans		—		—			(22		)	—			34,527		(770		)	(792				)
Net cost of redemption of company-obligated mandatorily redeemable preferred securities	—	—		(1,118		)	—			—			—		—			(1,118				)
Change in unrealized gain on available-for-sale securities, net of income taxes of $13,098	—	—		—			—			19,979			—		—			19,979
Balance at December 31, 2002	51,021,896	$	510	$	193,887		$	393,550		$	23,826		12,343,096		$	(233,324	)	$	378,449

See accompanying notes.

17

CONSOLIDATED STATEMENTS OF CASH FLOWS COMMUNITY FIRST BANKSHARES, INC.

Years ended December 31 (In thousands)	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	79,208		$	65,059		$	71,634
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	13,262			17,520			15,781
Depreciation	14,841			13,553			14,307
Amortization of intangibles	3,318			9,928			10,481
Net amortization (accretion) of premiums and discounts on securities	1,740			(582		)	188
Deferred income tax benefit	5,237			(2,223		)	(2,077		)
Decrease (increase) in interest receivable	4,628			13,003			(1,464		)
(Decrease) increase in interest payable	(10,979		)	(15,523		)	13,540
Other, net	26,400			15,451			(6,350		)
Net cash provided by operating activities	137,655			116,186			116,040
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits	(4,272		)	769			3,538
Purchases of available-for-sale securities	(1,487,117		)	(724,534		)	(129,097		)
Maturities of available-for-sale securities	1,210,824			985,009			258,584
Sales of available-for-sale securities, net of gains	72,251			39,632			150,318
Purchases of held-to-maturity securities	(3,400		)	(3,543		)	(3,431		)
Maturities of held-to-maturity securities	—			—			4,457
Net decrease (increase) in loans	146,702			(13,187		)	(60,340		)
Net increase in bank premises and equipment	(21,016		)	(17,825		)	(10,525		)
Net cash (used in) provided by investing activities	(86,028		)	266,321			213,504
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts and savings accounts	40,724			4,679			(43,126		)
Net (decrease) increase in time accounts	(121,791		)	(273,757		)	153,154
Net increase (decrease) in short-term and other borrowings	110,851			(67,071		)	(314,715		)
Net (decrease) increase in long-term debt	(9,341		)	12,884			48,335
Net proceeds from issuance of Company-obligated mandatorily redeemable preferred securities	61,856			—			—
Repayment of Company-obligated mandatorily redeemable preferred securities	(62,974		)	—			—
Net purchase of common stock held in treasury	(50,979		)	(43,020		)	(145,725		)
Net sale of common stock held in treasury	6,318			3,695			4,444
Cash dividends	(31,664		)	(27,793		)	(27,601		)
Net cash used in financing activities	(57,000		)	(390,383		)	(325,234		)
Net (decrease) increase in cash and cash equivalents	(5,373		)	(7,876		)	4,310
Cash and cash equivalents at beginning of year	248,260			256,136			251,826
Cash and cash equivalents at end of year	$	242,887		$	248,260		$	256,136

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 2002, served 136 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 51 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.

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 and equity securities 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, unless well secured and in the process of collection, 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. Consumer loans are generally charged off when they become 90 days contractually past due. All other loans are charged off when considered uncollectible based on both quantitative and qualitative factors determined on an individual loan basis.

Loans held for sale are carried at the lower of cost or fair value.

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-nine years for equipment and premises, respectively. Accelerated depreciation methods are used for income tax reporting purposes.

INTANGIBLE ASSETS

Goodwill, the excess cost over net assets acquired, of subsidiaries was amortized over a period of fifteen years, until December 31, 2001. As described in Note 3, Accounting Changes, goodwill is no longer amortized. At December 31, 2002, 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 $32,577,000, net of accumulated amortization of $17,087,000, 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

19

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

At December 31, 2002, the company had two stock-based employee compensation plans, which are described more fully in Note 15, Employee Benefit Plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and Related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:

	Year Ended December 31
(Dollars in thousands, except per share data)	2002			2001			2000
Net income, as reported	$	79,208		$	65,059		$	71,634
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.	(2,782		)	(2,289		)	(1,923		)
Pro forma net income	$	76,426		$	62,770		$	69,711
Earnings per share:
Basic—as reported	$	2.00		$	1.59		$	1.55
Basic—pro forma	$	1.93		$	1.53		$	1.51
Diluted—as reported	$	1.97		$	1.57		$	1.54
Diluted—pro forma	$	1.90		$	1.51		$	1.50

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 3.61 percent and 4.88 percent in 2002 and 2001, respectively; dividend yield of 3.17 percent and 2.65 percent in 2002 and 2001, respectively; stock price volatility factors of .265 and .329 in 2002 and 2001, respectively; and expected life of options of 7.5 years.

2. BUSINESS COMBINATIONS ANDDIVESTITURES

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 has 50% ownership and voting rights over the affairs of the joint venture and 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 statements of financial condition. The new mortgage company began operations in late 2001 and was 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 initiatives announced during the first quarter of 2001.

3. ACCOUNTING CHANGES

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.

Effective January 1, 2002, the Company adopted Statement 142. During the first quarter of 2002, the Company performed the first of the required impairment tests of goodwill as of January 1, 2002. The Company tested for impairment using the two-step process described in Statement 142. The first step was a review for potential impairment, while the second step measures the amount of the impairment, if any. The Company found no impairment of goodwill;

20

therefore, the Company did not record any transitional impairment as a cumulative effect of a change in accounting principle.

The following table sets forth the computation of net income and basic and diluted earnings per share as though goodwill amortization had not been recorded as an expense during 2002 and 2001:

	For the Years Ended
(Dollars in thousands, except per share data)	2002		2001
Reported net income	$	79,208	$	65,059
Effect of SFAS 142
After-tax goodwill amortization included in net income	—		4,984
Adjusted net income	$	79,208	$	70,043
Adjusted basic earnings per share	$	2.00	$	1.71
Adjusted diluted earnings per share	$	1.97	$	1.69

The aggregate amortization expense of intangible assets other than goodwill for the years ended December 31, 2002 and 2001 were $3,318,000 and $3,375,000, respectively. The following table sets forth estimated amortization expense for intangible assets other than goodwill for each of the five years subsequent to December 31, 2002 (in thousands):

2003	$	3,322
2004	3,306
2005	3,261
2006	3,189
2007	3,160

All of the Company’s intangible assets other than goodwill are subject to amortization. The following table sets forth the gross carrying amount and accumulated amortization, in total and by major class of intangible assets as of December 31, 2002 (in thousands):

	Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Deposit-based intangibles	$	39,620	$	14,225
Insurance list premiums	9,260		2,393
Non-compete agreements	784		469
Total	$	49,664	$	17,087

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, Guarantor’s Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value and applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying condition that is related to an asset, liability or equity security of the guaranteed party. Examples of contracts meeting these characteristics include standby and performance letters of credit. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified subsequent to December 31, 2002. FIN 45 also expands the disclosures to be made by guarantors, effective as of December 31, 2002, to include the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor’s obligation under the guarantee. Significant guarantees that have been entered into by the Company are disclosed in Note 9, Financial Instruments with Off-Balance-Sheet Risk and Concentration of Credit Risk. The Company does not expect the requirements of FIN 45 to have a material impact on its results of operations, financial position or liquidity.

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.

5. SECURITIES

The following is a summary of available-for-sale securities and held-to-maturity securities at December 31, 2002 (in thousands):

	AVAILABLE-FOR-SALE SECURITIES
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
United States Treasury	$	52,474	$	994	$	—	$	53,468
United States Government agencies	286,706		6,521		—		293,227
Mortgage-backed securities	1,007,049		31,071		76		1,038,044
Collateralized mortgage obligations	3,476		36		—		3,512
State and political securities	68,665		2,463		33		71,095
Other securities	214,629		684		2,214		213,099
Total	$	1,632,999	$	41,769	$	2,323	$	1,672,445

	HELD-TO-MATURITY SECURITIES
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Other securities	$	80,165	$	—	$	—	$	80,165
Total	$	80,165	$	—	$	—	$	80,165

21

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 Unrealized Losses		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 Losses		Estimated Fair Value
Other securities	$	76,765	$	—	$	—	$	76,765
Total	$	76,765	$	—	$	—	$	76,765

Proceeds from the sale of available-for-sale securities during the years ended December 31, 2002, 2001 and 2000, were $72,624,000, $40,436,000, and $150,383,000, respectively. Gross gains of $2,606,000, $1,088,000, and $880,000 and gross losses of $2,233,000, $284,000, and $815,000 were realized on those sales during 2002, 2001 and 2000, respectively. The tax effect on the net gains during 2002, 2001 and 2000 was approximately $131,000, $281,000, and $23,000, respectively. There were no sales of held-to-maturity securities during 2002, 2001 or 2000.

The amortized cost and estimated fair value of debt securities at December 31, 2002, 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 (In thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	230,460	$	232,009
Due after one year through five years	232,762		238,624
Due after five years through ten years	39,338		40,643
Due after ten years	119,914		119,613
	622,474		630,889
Mortgage-backed securities	1,007,049		1,038,044
Collateralized mortgage obligations	3,176		3,512
Total	$	1,632,999	$	1,672,445

Held-to-Maturity (In thousands)	Amortized Cost		Estimated Fair Value
Due after ten years	$	80,165	$	80,165
Total	$	80,165	$	80,16537

Available-for-sale and held-to-maturity securities carried at $1,262,239,000 and $1,213,234,000 at December 31, 2002 and 2001, 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 $260,730,000 and $246,759,000 at December 31, 2002 and 2001, respectively.

6. LOANS

The composition of the loan portfolio at December 31 was as follows (in thousands):

	2002			2001
Real estate	$	1,568,710		$	1,515,118
Real estate construction	439,536			519,031
Commercial	723,530			824,318
Consumer and other	625,429			627,034
Agriculture	220,688			251,191
	3,577,893			3,736,692
Less: Allowance for loan losses	(56,156		)	(54,991		)
Net loans	$	3,521,737		$	3,681,701

Real estate loans totaling $261,627,000 and $1,136,828,000 at December 31, 2002 and 2001, respectively, were pledged to secure borrowings. Loans held for sale totaled $2,669,000 and $0 at December 31, 2002 and 2001, respectively, and consisted of real estate loans at the Company’s affiliate bank.

7. ALLOWANCE FOR LOAN LOSSES

Activity in the allowance was as follows (in thousands):

	2002			2001			2000
Balance at beginning of year	$	54,991		$	52,168		$	48,878
Allowance of acquired companies/other	—			—			—
Provision charged to operating expense	13,262			17,520			15,781
Loans charged off	(20,049		)	(19,869		)	(17,117		)
Recoveries of loans charged off	7,952			5,172			4,626
Balance at end of year	$	56,156		$	54,991		$	52,168

Other real estate owned totaled $5,990,000, $2,869,000, and $2,437,000 at December 31, 2002, 2001, and 2000, respectively.

Nonaccrual loans totaled $22,728,000, $20,818,000, and $23,426,000 at December 31, 2002, 2001 and 2000, respectively. The Company includes all loans considered impaired under SFAS No. 114 in nonaccrual loans. Interest income of $3,615,000, $2,722,000, and $4,693,000 on nonaccrual loans would have been recorded during 2002, 2001 and 2000, respectively, if the loans had been current in accordance with their original terms. The Company recorded interest income of $679,000, $1,113,000 and $955,000 related to loans that were on nonaccrual status as of December 31, 2002, 2001 and 2000, respectively.

22

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.

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):

	2002						2001
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets:
Cash and due from banks	$	242,887		$	242,887		$	248,260		$	248,260
Interest-bearing deposits	4,613			4,613			341			341
Available-for-sale securities	1,672,445			1,672,445			1,437,066			1,437,066
Held-to-maturity securities	80,165			80,165			76,765			76,765
Loans	3,577,893			3,629,191			3,736,692			3,798,123
Allowance for loan losses	(56,156		)	(56,156		)	(54,991		)	(54,991		)
Net loans	3,521,737			3,573,035			3,681,701			3,743,132
Financial liabilities:
Deposits:
Noninterest-bearing	$	470,900		$	470,900		$	487,864		$	487,864
Interest-bearing:
Savings and NOW	2,424,943			2,424,943			2,367,255			2,367,255
Time accounts over $ 100,000	670,187			680,086			692,315			696,810
Other time accounts	1,103,716			1,121,184			1,203,379			1,211,193
Total deposits	4,669,746			4,697,113			4,750,813			4,763,122
Federal funds purchased and repurchase agreements	377,230			377,230			318,859			318,859
Other short-term borrowings	76,260			76,260			23,780			23,780
Long-term debt	127,500			131,303			136,841			140,570

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, 2002 and 2001, were as follows (in thousands):

	2002		2001
Commitments to extend credit	$	659,609	$	671,500
Standby letters of credit	19,716		21,042
Commercial letters of credit	10,662		9,165

23

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 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 contractual amounts of commitments and letters of credit.

10. BANK PREMISES AND EQUIPMENT

Bank premises and equipment at December 31 consisted of the  following (in thousands):

	2002		2001
Land	$	22,100	$	22,265
Buildings	134,675		133,701
Furniture, fixtures and equipment	95,018		89,911
Leased property under capital lease obligations	12,561		7,747
	264,354		253,624
Less accumulated depreciation	132,232		127,677
	$	132,122	$	125,947

11.SHORT-TERM BORROWINGS

As of December 31, 2002, the Company’s subsidiary bank had $44 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 1.46% to 4.68% at December 31, 2002. The Company’s subsidiaries had no additional short-term borrowings outstanding at December 31, 2002.

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, 2003, with a commitment fee of .25% of the revolving commitment amount. As of December 31, 2002, 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 1.25% above the Federal Funds rate that provides for borrowing up to $50 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, 2002, there was a $32 million commercial paper balance outstanding with a blended rate of 1.93%. The terms of the lines of credit include certain covenants with which the Company must comply. At December 31, 2002, 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 (in  thousands):

	2002		2001
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
Subsidiaries:
Federal Home Loan Bank advances, interest rates ranging from 3.64% to 6.55%, payable monthly, with maturities ranging from May 20, 2004 to October 2, 2008	42,500		48,500
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 $49,600 to $54,700, per schedule due monthly through March 31, 2003	—		781
	$	127,500	$	136,841

24

The 7.30% subordinated notes payable are not redeemable, in whole or in part, by the Company. These notes, of which 20% of the balance qualifies as Tier II capital as of December 31, 2002, 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, 2002, the Company was in compliance with all covenants pertaining to the subordinated notes payable.

Maturities of long-term debt outstanding, at December 31, 2002, were (in thousands):

2003	$	0
2004	66,000
2005	28,000
2006	4,000
2007	27,000
Thereafter	2,500
	$	127,500

13. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES

On March 27, 2002, the Company issued $60 million of 8.125% Cumulative Capital Securities, through CFB Capital III, a Delaware business trust subsidiary organized in February 2002. The proceeds of the offering were invested by CFB Capital III in Junior Subordinated Debentures of the Company. The debentures can be redeemed no earlier than April 15, 2007, and mature April 15, 2032. The capital securities qualified as Tier 1 capital under capital guidelines of the Federal Reserve. On May 1, 2002, the Company used the net proceeds to redeem all of the 8.875% Junior Subordinated Debentures that it issued in 1997, thereby triggering the redemption of all 2,400,000 of the 8.875% Cumulative Capital Securities issued by CFB Capital I, a Delaware business trust.

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.

At December 31, 2002, $118 million in Capital Securities qualified as Tier 1 capital under capital guidelines of the Federal Reserve Board.

14.SHAREHOLDERS’ EQUITY

On February 22, 2002, the Company filed a shelf registration statement with the Securities and Exchange Commission for the purpose of issuing $180 million of various debt and equity securities. At December 31, 2002, $120 million remain available for issuance of debt and equity securities.

COMMON STOCK

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, 2002, 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, 2002, there remain 860,196 shares to be issued under the registration statement.

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

25

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 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.

As of December 31, 2002, 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 1 risk-based, and Tier 1 leverage ratios as set forth in the following table.

Regulatory Capital Requirements: At December 31, 2002

(Dollars in thousands)	Tier 1 Capital		Total Risk- Based Capital		Leverage		Total Risk- Weighted Assets
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	10.35	%	12.08	%	7.72	%	$	4,159,134
Community First Bankshares, Inc.	8.98	%	11.04	%	6.52	%	$	4,202,131

Regulatory Capital Requirements: At December 31, 2001

(Dollars in thousands)	Tier 1 Capital		Total Risk- Based Capital		Leverage		Total Risk- Weighted Assets
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

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:

	2002				2001
	Options Outstanding		Weighted Average Price Per Share		Options Outstanding		Weighted Average Price Per Share
Beginning of year	2,437,234		$	17.98	2,441,862		$	16.32
Options granted	835,453		24.60		682,800		19.45
Options exercised	(666,319	)	17.44		(507,061	)	11.16
Options forfeited	(142,071	)	19.93		(180,367	)	20.25
End of year	2,464,297		$	20.26	2,437,234		$	17.98
Exercisable at end of year	1,300,277		$	19.34	1,212,469		$	18.55

	2002		2001
Weighted-average fair value of options granted	$	5.64	$	6.34

The range of exercise prices and the weighted-average remaining contractual life of the options outstanding at December 31, 2002 were as follows:

Range of Exercise Prices Per Share	Options Outstanding at December 31, 2002	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life
$ 24.25 – $26.55	1,021,839	$	24.67	6.95 Years
$ 19.3125 – $21.49	868,836	$	19.52	7.55 Years
$ 12.82 – $15.875	536,137	$	14.02	7.14 Years
$ 5.87 – $6.16	37,485	$	6.04	3.77 Years

At December 31, 2002, a total of 2,769,572 shares of authorized common stock was reserved for exercise of options granted under the 1996 and 1987 Stock Option Plans.

EMPLOYEE STOCK OWNERSHIP PLAN

Prior to 2001, 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. In 2001, the Company approved a plan which merged the ESOP into the Company’s Profit Sharing Plan, thus, the Company made no contributions in 2002, 2001 and 2000, and anticipates no future contribution expenses.

26

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 $2,172,000, $2,743,000, and $1,456,000 in 2002, 2001 and 2000, 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.

16. RESTRICTIONS ON CASH AND DUE FROM BANKS

Bank subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. Balances of $46,845,000 and $22,597,000 at December 31, 2002 and 2001, respectively, exceeded required amounts.

17.INCOME TAXES

The components of the provision for income taxes were (in  thousands):

	2002		2001			2000
Federal:
Current	$	31,592	$	32,587		$	34,443
Deferred	5,141		(1,961		)	(1,741		)
	36,733		30,626			32,702
State:
Current	2,720		3,112			3,382
Deferred	96		(262		)	(336		)
	2,816		2,850			3,046
Provision for income taxes	$	39,549	$	33,476		$	35,748

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):

	2002			2001			2000
Tax at statutory rate (35%)	$	41,565		$	34,487		$	37,584
State income tax, net of federal tax benefit	1,830			1,853			1,980
Tax-exempt interest	(3,944		)	(4,094		)	(3,726		)
Amortization of goodwill	—			919			918
Other	98			311			(1,008		)
Provision for income taxes	$	39,549		$	33,476		$	35,748

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, 2002 and 2001, are as follows (in thousands):

	2002		2001
Deferred tax assets:
Loan loss reserves	$	21,480	$	20,695
Other reserves	478		376
Deferred compensation	1,857		916
Deferred loan fees	—		8
Other	2,175		3,250
	25,990		25,245
Deferred tax liabilities:
Unrealized net gains	15,693		2,522
Depreciation	3,739		644
Deductible goodwill	1,502		—
Purchase accounting	135		126
Other	121		228
	21,190		3,520
Net deferred tax asset	$	4,800	$	21,725

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 $4,852,000, $5,273,000, and $5,704,000 in 2002, 2001 and 2000, 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, 2002 (in thousands):

	Operating		Capital
2003	$	2,603	$	1,053
2004	1,229		1,356
2005	658		1,356
2006	546		1,356
2007	521		1,356
Thereafter	2,410		198
	$	7,967	$	6,675
Executory costs (taxes)			—
Net minimum lease payments			6,675
Less:
Amount representing interest			(1,214		)
Present value of net minimum lease payments			$	5,461

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.

24

19. COMMUNITY FIRST BANKSHARES, INC.

(Parent Company Only)

CONDENSED STATEMENTS OF FINANCIAL CONDITION

December 31 (In thousands)	2002		2001
assets
Cash and due from subsidiary bank	$	681	$	4,698
Interest-bearing deposits	4,150		31
Available-for-sale securities	114		13,040
Investment in subsidiaries	560,319		521,938
Furniture and equipment	11,951		7,884
Receivable from subsidiaries	7,188		13,009
Other assets	13,333		13,595
Total assets	$	597,736	$	574,195
liabilities and shareholders’ equity
Short-term borrowings	$	24,720	$	19,780
Long-term debt	183,711		186,272
Other liabilities	10,856		11,438
Shareholders’ equity	378,449		356,705
Total liabilities and shareholders’ equity	$	597,736	$	574,195

CONDENSED STATEMENTS OF INCOME

Years ended December 31(In thousands)	2002			2001			2000
Income:
Dividends from subsidiaries	$	87,125		$	126,117		$	58,067
Service fees from subsidiaries	—			329			411
Interest income	739			614			971
Other	(801		)	1,552			1,559
Total income	87,063			128,612			61,008
Expense:
Interest expense	15,806			16,471			18,462
Other expense	28,023			29,839			22,186
Total expense	43,829			46,310			40,648
Income before income tax benefit, equity in undistributed income of subsidiaries	43,234			82,302			20,360
Income tax benefit	14,587			14,849			13,120
Income before undistributed (overdistributed) income of subsidiaries	57,821			97,151			33,480
Equity in undistributed (overdistributed) income of subsidiaries	21,387			(32,092		)	38,154
Net income	$	79,208		$	65,059		$	71,634

CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31(In thousands)	2002			2001			2000
Cash flows from operating activities:
Net income	$	79,208		$	65,059		$	71,634
Adjustments to reconcile net income to net cash used in operating activities:
Equity in (undistributed) overdistributed income of subsidiaries	(21,387		)	32,092			(38,154		)
Depreciation	1,029			730			867
(Decrease) increase in interest payable	(161		)	(2,450		)	2,176
Other, net	591			9,485			(417		)
Net cash provided by operating activities	59,280			104,916			36,106
Cash flows from investing activities:
Equity distribution from (to) subsidiaries	2,819			(1,763		)	110,021
Net loans to subsidiaries	5,821			(90		)	8,945
Purchases of available-for-sale securities	(255,903		)	(355,456		)	(32,473		)
Sales of available-for-sale securities, net of gains	21,132			3,767			1,630
Maturities of investment securities	247,112			348,779			23,009
Net increase in furniture and equipment	(5,096		)	(1,917		)	(932		)
Net (increase) decrease in interest-bearing deposits	(4,119		)	(29		)	14
Net cash provided by (used in) investing activities	11,766			(6,709		)	110,214
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings	4,940			(29,172		)	23,345
Common stock dividends paid	(31,664		)	(27,793		)	(27,601		)
Repayment of long-term debt	(2,560		)	(213		)	(214		)
Net proceeds from issuance of Company-obligated mandatorily redeemable preferred securities	61,856			—			—
Repayment of Company-obligated mandatorily redeemable preferred securities	(62,974		)	—			—
Net sales of common stock held in treasury	6,318			3,695			4,444
Net purchases of common stock held in treasury	(50,979		)	(43,020		)	(145,725		)
Net cash used in financing activities	(75,063		)	(96,503		)	(145,751		)
Net (decrease) increase in cash and cash equivalents	(4,017		)	1,704			569
Cash and cash equivalents at beginning of year	4,698			2,994			2,425
Cash and cash equivalents at end of year	$	681		$	4,698		$	2,994

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 bank’s equity. Further, loans to the Company and all affiliates in total are limited to 20% of the bank’s equity. As of December 31, 2002 and 2001, $54,960,000 and $50,861,000, respectively, of individual subsidiary bank’s capital was available for

28

credit extension to the parent company. At December 31, 2002 and 2001, 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 $0 and $25,898,000 as of December 31, 2002 and 2001, respectively.

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, which were made in the normal course of business, did not exceed five percent of  shareholders’ equity at December 31, 2002, 2001 and 2000.

21.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except share and per share data):

Years ended December 31	2002		2001		2000
Numerator:
Income from continuing operations	$	79,208	$	65,059	$	71,634
Numerator for basic earnings per share income available to common stockholders	79,208		65,059		71,634
Denominator:
Denominator for basic earnings per share weighted-average shares outstanding	39,564,912		40,905,545		46,219,120
Effect of dilutive securities:
Employee stock options	640,937		565,859		359,630
Employee benefit plan shares	37,286		—		—
Dilutive potential common shares	678,223		565,859		359,630
Denominator for diluted earnings per share adjusted weighted-average shares and assumed conversions	40,243,135		41,471,404		46,578,750
Basic earnings per share	$	2.00	$	1.59	$	1.55
Diluted earnings per share	$	1.97	$	1.57	$	1.54

22.  SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31(In thousands)	2002		2001		2000
Unrealized gain (loss) on available-for-sale securities	$	33,076	$	22,081	$	56,986
Income taxes paid	35,058		36,514		35,149
Interest paid	100,907		177,743		196,741

23.  SUBSEQUENT EVENT

In February 2003, the Company determined to issue $60 million of cumulative capital securities through CFB Capital IV, a Delaware business trust subsidiary. The timing and terms of the offering are subject to market conditions, but the securities are expected to be similar to those of CFB Capital III except for the interest rate. If consummated, the transaction is expected to close in late February or March 2003.

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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 3, in 2002 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, and changed its method of accounting for goodwill.

/s/ Ernst & Young LLP

Minneapolis, Minnesota

January 14, 2003

Except for Note 23, as to which the date is February 7, 2003.

29

CONSOLIDATED STATEMENT OF CONDITION—FIVE YEAR SUMMARY COMMUNITY FIRST BANKSHARE INC.

December 31 (In thousands)	2002		2001		2000		1999		1998
ASSETS
Cash and due from banks	$	242,887	$	248,260	$	256,136	$	247,051	$	262,667
Federal funds sold and securities purchased under agreement to resell	—		—		—		4,775		11,990
Interest-bearing deposits	4,613		341		1,110		4,648		11,463
Available-for-sale securities	1,672,445		1,437,066		1,714,510		1,937,517		2,004,584
Held-to-maturity securities	80,165		76,765		73,222		74,248		92,859
Total securities	1,752,610		1,513,831		1,787,732		2,011,765		2,097,443
Loans	3,577,893		3,736,692		3,738,202		3,690,353		3,537,537
Less: Allowance for loan losses	56,156		54,991		52,168		48,878		51,860
Net loans	3,521,737		3,681,701		3,686,034		3,641,475		3,485,677
Other assets	305,323		328,193		358,717		392,521		370,532
Total assets	$	5,827,170	$	5,772,326	$	6,089,729	$	6,302,235	$	6,239,772
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	470,900	$	487,864	$	500,834	$	616,861	$	591,718
Interest-bearing	4,198,846		4,262,949		4,519,057		4,293,002		4,509,347
Total deposits	4,669,746		4,750,813		5,019,891		4,909,863		5,101,065
Short-term borrowings	453,490		342,639		409,710		724,425		435,726
Long-term debt	127,500		136,841		123,957		75,622		93,524
Other liabilities	77,985		65,328		70,740		65,056		64,801
Total liabilities	5,328,721		5,295,621		5,624,298		5,774,966		5,695,116
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts	120,000		120,000		120,000		120,000		120,000
Shareholders’ equity	378,449		356,705		345,431		407,269		424,656
Total liabilities and shareholders’ equity	$	5,827,170	$	5,772,326	$	6,089,729	$	6,302,235	$	6,239,772

30

CONSOLIDATED STATEMENT OF INCOME—FIVE YEAR SUMMARY COMMUNITY FIRST BANKSHARE INC.

Years Ended December 31 (In thousands, except share and per share data)	2002		2001		2000		1999		1998
INTEREST INCOME:
Loans	$	276,846	$	336,937	$	353,405	$	332,974	$	337,771
Investment securities	81,136		96,688		123,525		130,955		124,306
Other	201		391		628		1,277		5,193
Total interest income	358,183		434,016		477,558		465,206		467,270
INTEREST EXPENSE:
Deposits	75,572		138,542		169,281		151,138		166,873
Short-term and other borrowings	6,340		15,001		34,303		28,052		19,576
Long-term debt	8,016		8,677		6,697		6,628		8,338
Total interest expense	89,928		162,220		210,281		185,818		194,787
Net interest income	268,255		271,796		267,277		279,388		272,483
Provision for loan losses	13,262		17,520		15,781		20,184		23,136
Net interest income after provision for loan losses	254,993		254,276		251,496		259,204		249,347
NONINTEREST INCOME:
Service charges on deposit accounts	40,121		41,850		42,192		39,246		33,480
Insurance commissions	13,822		12,535		10,550		8,791		7,197
Securities sales commissions	9,526		6,644		6,805		5,258		4,249
Fees from fiduciary activities	5,405		5,661		5,811		5,148		4,944
Net gains on sales of securities	373		804		65		2,175		1,801
Other	12,072		12,081		12,437		14,124		13,196
Total noninterest income	81,319		79,575		77,860		74,742		64,867
NONINTEREST EXPENSE:
Salaries and employee benefits	113,994		115,743		110,024		106,542		119,250
Net occupancy	32,832		31,593		31,941		32,726		33,929
FDIC insurance	800		915		1,039		625		771
Professional service fees	7,478		8,398		8,289		8,819		10,251
Advertising	3,983		5,037		4,545		4,065		4,281
Telephone	5,575		5,633		5,203		4,807		5,727
Amortization of intangibles	3,318		9,928		10,481		10,500		10,366
Acquisition, integration and conforming	—		—		—		3,053		3,721
Restructuring charge	—		7,656		—		—		—
Data processing	7,210		6,940		7,200		6,349		6,809
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts	10,405		10,273		10,245		10,245		10,218
Other	31,960		33,200		33,007		32,729		36,925
Total noninterest expense	217,555		235,316		221,974		220,460		242,248
Income from continuing operations	118,757		98,535		107,382		113,486		71,966
Provision for income taxes	39,549		33,476		35,748		38,573		22,595
Income from continuing operations	79,208		65,059		71,634		74,913		49,371
Discontinued operations	—		—		—		—		(2,232		)
Disposal of discontinued operations	—		—		—		—		(1,676		)
Net income	$	79,208	$	65,059	$	71,634	$	74,913	$	45,463
Earnings per common and common equivalent share:
Basic	$	2.00	$	1.59	$	1.55	$	1.50	$	0.90
Diluted	$	1.97	$	1.57	$	1.54	$	1.48	$	0.89
Average common and common equivalent shares outstanding:
Basic	39,564,912		40,905,545		46,219,120		50,061,972		50,272,551
Diluted	40,243,135		41,471,404		46,578,750		50,670,559		51,114,703

31

Quarterly results of opeartions (unaudited) community first bankshares, inc.

The following is a summary of the quarterly results of operations for the years ended December 31, 2002 and 2001 (in thousands, except share and per share data):

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Year ended December 31, 2002
Interest income	$	91,740	$	90,684		$	89,109	$	86,650
Interest expense	25,154		22,388			21,681		20,705
Net interest income	66,586		68,296			67,428		65,945
Provision for loan losses	3,315		3,297			3,352		3,298
Net interest income after provision for loan losses	63,271		64,999			64,076		62,647
Net gains (losses) on sales of securities	17		(188		)	56		488
Noninterest income	18,983		20,819			20,829		20,315
Noninterest expense	53,109		55,701			54,371		54,374
Income before income taxes	29,162		29,929			30,590		29,076
Provision for income taxes	9,901		10,072			10,221		9,355
Net income	19,261		19,857			20,369		19,721
Earnings per common and common equivalent shares:
Basic net income	$	0.48	$	0.50		$	0.52	$	0.50
Diluted net income	$	0.47	$	0.49		$	0.51	$	0.50
Average common and common equivalent shares:
Basic	39,984,092		39,772,344			39,424,624		39,080,638
Diluted	40,644,637		40,515,906			40,073,077		39,740,426
	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Year ended December 31, 2001
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	19,494		19,743			20,292		19,242
Noninterest expense	63,701		57,706			56,472		57,437
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

32

SHAREHOLDERS

As of Febuary 18, 2003, the Company had 2,105 shareholders of record and an estimated 9,000 additional beneficial holders whose stock was held in street name by brokerage houses.

DIVIDEND POLICY

The Board of Directors has adopted a policy of declaring regular quarterly dividends. 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. A dividend of 19 cents per share was paid for the first and second quarters of 2002. A dividend of 21 cents per share was paid for the third and fourth quarters of 2002.

MARKET PRICE RANGE OF COMMON SHARES

The Company's common stock trades on the Nasdaq Stock Marketä 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:

	2002			2001
	HIGH	LOW	CLOSE	HIGH	LOW	CLOSE
First Quarter	26.37	24.14	25.86	20.44	18.06	20.19
Second Quarter	28.45	24.99	26.09	23.25	18.88	23.00
Third Quarter	28.15	22.36	27.88	26.25	22.15	24.02
Fourth Quarter	28.13	24.41	26.46	26.97	22.84	25.69

EX-21.1

EXHIBIT 21.1

COMMUNITY FIRST BANKSHARES, INC.

SUBSIDIARIES

Subsidiary Bank:	Location	Ownership Percentage
Community First National Bank	Fargo, ND	100.00%
Nonbank Subsidiaries:
Community First Financial, Inc.	Fargo, ND	100.00%
Community First Technologies, Inc.	Fargo, ND	100.00%
Community First Properties, Inc.	Fargo, ND	100.00%
CFB Capital III	Fargo, ND	100.00%
CFB Capital IV	Fargo, ND	100.00%
HBC Aviation, LLP	Fargo, ND	37.50%
Subsidiaries of Subsidiaries (100% Owned):
Community First Insurance, Inc.	Fargo, ND	Subsidiary of Community First National Bank
CFB Community Development Corporation	Fargo, ND	Subsidiary of Community First National Bank
Equity Lending, Inc.	Fargo, ND	Subsidiary of Community First National Bank
Community First Holdings, Inc.	Georgetown, British Cayman Islands	Subsidiary of Community First National Bank
Community First Home Mortgage, Inc.	Fargo, ND	Subsidiary of Community First National Bank
Subsidiaries of Subsidiaries of Subsidiaries
Community First Insurance, Inc. Wyoming	Cheyenne, WY	100% Subsidiary of Community First Insurance, Inc.
CFIRE, Inc.	Fargo, ND	100% Subsidiary of Community First Holdings, Inc.
Community First Mortgage, LLC	Fargo, ND	50% Subsidiary of Community First Home Mortgage, Inc.

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Community First Bankshares, Inc. of our report dated January 14, 2003 (except for Note 23, as to which the date is February 7, 2003), included in the 2002 Annual Report to Shareholders of Community First Bankshares, Inc.

We also consent to the incorporation by reference in the following Registration Statements and related Prospectuses of Community First Bankshares, Inc. of our report dated January 14, 2003 (except for Note 23, as to which the date is February 7, 2003), with respect to the consolidated financial statements of Community First Bankshares, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2002.

	Registration
Form	Statement No.	Purpose
S-8	33-44921	1987 Stock Option Plan
S-8	33-48160	401(k) Retirement Plan
S-8	333-52071	1996 Stock Option Plan and 401(k) Plan
S-8	333-74909	Board of Directors Deferred Compensation Plan and Supplemental Executive Retirement Plan
S-3	333-37527	Registration of $150,000,000 of Common Stock, Preferred Stock and Debt Securities
S-3	333-83240	Shelf registration of $180,000,000 of Common Stock, Preferred Stock and Debt Securities
S-4	333-40071	Shelf registration of 4,438,207 shares of Common Stock
S-4	333-49367	Shelf registration of 7,000,000 shares of Common Stock

Ernst & Young LLP        

Minneapolis, Minnesota

March 19, 2003

EX-99.1

Exhibit 99.1

CERTIFICATION

The undersigned certifies pursuant to 18 U.S.C. § 1350, that:

(1) The accompanying Annual Report on Form 10-K for the period ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 18, 2003

/s/   Mark A. Anderson

Mark A. Anderson

President, Chief Executive Officer

/s/   Craig A. Weiss

Craig A. Weiss

Executive Vice President,
Chief Financial Officer