U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB



                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR QUARTERLY PERIOD ENDED March 31, 2000

                        Commission File Number 000-25081


                                Vail Banks, Inc.
        (Exact name of small business issuer as specified in its charter)

    Colorado                                              84-1250561
--------------------------------------------------------------------------------
(State or other jurisdiction of                 (I.R.S. Employer Identification
incorporation or organization)                             Number)


               108 South Frontage Road West, Vail, Colorado 81657
               --------------------------------------------------
               (Address of principal executive offices) (Zip Code)


Issuer's telephone number, including area code: (970) 476-2002
                                                --------------

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 /X/ No / /

       State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:


As of April 30,  2000 there were  6,081,180  shares of common  stock  ($1.00 par
value per share) outstanding.




<PAGE>


                                Vail Banks, Inc.


                                      INDEX

<TABLE>

<S>           <S>                                                                            <C>
PART I        FINANCIAL INFORMATION

    Item 1.   Financial Statements

              Consolidated Balance Sheet at March 31, 2000 and December 31, 1999             3

              Consolidated Statements of Income for the Three Months Ended
              March 31, 2000 and 1999                                                        4

              Consolidated Statements of Cash Flows for the Three Months Ended
              March 31, 2000 and 1999                                                        5

              Notes to Unaudited Consolidated Financial Statements                           6

    Item 2.   Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                                          7

PART II       OTHER INFORMATION

    Item 6.   Exhibits and Reports on Form 8-K                                               13
</TABLE>


                                      -2-

<PAGE>



                          PART I FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                                VAIL BANKS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>
ASSETS                                                                   March 31,          December 31,
                                                                           2000                 1999
                                                                     ------------------    ----------------
                                                                        (unaudited)
<S>                                                               <C>                   <C>
Cash and due from banks                                           $             24,320  $           29,971
Investment securities, available for sale                                       29,639              31,446
Investment securities, held to maturity                                          5,329               5,345

Loans                                                                          352,390             336,735
Allowance for loan losses                                                       (2,984)             (2,739)
                                                                     ------------------    ----------------
         Net loans                                                             349,406             333,996
                                                                     ------------------    ----------------

Premises and equipment, net                                                     35,015              34,954
Interest receivable                                                              2,881               2,724
Intangible assets                                                               25,340              24,177
Other assets                                                                     2,378               2,349
                                                                     ------------------    ----------------
                                                                  $            474,308  $          464,962
                                                                     ==================    ================

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
    Deposits:
       Non-interest bearing                                       $             78,402  $           86,991
       Interest bearing                                                        302,075             285,751
                                                                     ------------------    ----------------
         Total deposits                                                        380,477             372,742

    Short-term borrowings:
       Federal funds purchased                                                   8,410              11,060
       FHLB advances                                                            21,000              19,000
                                                                     ------------------    ----------------
         Total short-term borrowings                                            29,410              30,060

Interest payable and other liabilities                                           3,933               2,778
                                                                     ------------------    ----------------
         Total liabilities                                                     413,820             405,580

Minority interest                                                                  667                 655
                                                                     ------------------    ----------------

Shareholders' equity
    Common stock                                                                 6,081               6,069
    Additional paid-in capital                                                  46,744              46,747
    Retained earnings                                                            7,560               6,378
    Accumulated other comprehensive (loss), net of taxes                         (564)               (467)
                                                                     ------------------    ----------------
         Total shareholders' equity                                             59,821              58,727
                                                                     ------------------    ----------------
                                                                  $            474,308  $          464,962
                                                                     ==================    ================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -3-
<PAGE>


                                VAIL BANKS, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                    Three months ended
                                                                                        March 31,
                                                                                --------------------------
                                                                                    2000           1999
                                                                                ------------  ------------
                                                                                (unaudited)    (unaudited)
<S>                                                                           <C>            <C>
Interest income
    Interest and fees on loans                                                $       9,028  $     6,897
    Interest on investment securities                                                   505          493
    Interest on federal funds sold and other short-term investments                       7          524
                                                                                ------------  -----------
         Total interest income                                                        9,540        7,914
                                                                                ------------  -----------
Interest expense
    Deposits                                                                          2,724        2,622
    Short-term borrowings                                                               474          ---
    Notes payable                                                                       ---           14
                                                                                ------------  -----------
         Total interest expense                                                       3,198        2,636
                                                                                ------------  -----------

         Net interest income                                                          6,342        5,278

Provision for loan losses                                                               300          ---
                                                                                ------------  -----------
         Net interest income after provision for loan losses                          6,042        5,278

Non-interest income
    Deposit related                                                                     659          539
     Mortgage banking                                                                   475          ---
    Other                                                                               597          388
                                                                                ------------  -----------
                                                                                      1,731          927
Non-interest expense
    Salaries and employee benefits                                                    3,038        2,613
    Occupancy                                                                           650          571
    Furniture and equipment                                                             670          439
    Amortization of intangible assets                                                   273          234
    Other                                                                             1,157        1,142
                                                                                ------------  -----------
                                                                                      5,788        4,999
                                                                                ------------  -----------

         Income before income taxes                                                   1,985        1,206

Income taxes                                                                            803          490
                                                                                ------------  -----------
         Net income                                                                   1,182          716
                                                                                       (97)            3
Unrealized gain (loss) on available for sale securities
                                                                                ------------  -----------
         Comprehensive income                                                 $       1,085  $       719
                                                                                ============  ===========

Earnings per share

   Basic                                                                      $        0.20  $      0.12
                                                                                ============  ===========

   Diluted                                                                    $        0.19  $      0.12
                                                                                ============  ===========

Average common shares

   Basic                                                                          6,041,806    6,040,608

   Diluted                                                                        6,107,869    6,129,502

See accompanying notes to consolidated financial statements.
</TABLE>


                                      -4-
<PAGE>


                                VAIL BANKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                     Three months ended
                                                                                         March 31,
                                                                               --------------------------------
                                                                                  2000               1999
                                                                               -------------    ---------------
                                                                               (unaudited)       (unaudited)
<S>                                                                           <C>               <C>
Cash flows from operating activities
    Net income                                                                $      1,182      $        716
    Adjustments to reconcile net income to net cash provided from
    Operating activities, net of effects of purchase business
combinations:
    Amortization of intangible assets                                                  273               234
    Depreciation and amortization of premises and equipment                            531               496
    Provision for loan losses                                                          300               ---
    Recognition of stock compensation on restricted stock                                9               ---
    Net amortization of premiums on investment securities                               16                33
    Deferred income tax expense                                                        ---               208
    Changes in operating assets and liabilities:
      Decrease (increase) in interest receivable                                      (157)              170
      Decrease in intangible and other assets                                           30               861
      Increase (decrease) in interest payable and other liabilities                    667            (2,050)
      Other, net                                                                        12                 7
                                                                               --------------------------------
                  Net cash provided by operating activities                          2,863               675
                                                                               --------------------------------

Cash flows from investing activities, net of effects of purchase business
combinations
    Net (increase) in federal funds sold                                               ---           (11,755)
    Purchase of investment securities available for sale                              (371)           (4,534)
    Proceeds from maturities of investment securities held to maturity                  19             2,128
    Proceeds from maturities of investment securities available for sale             2,012             7,071
    Net (increase) decrease in loans                                               (15,710)            3,142
    Purchase of  premises and equipment                                               (478)           (1,989)
    Net cash  (paid for) acquisitions                                               (1,071)              ---
                                                                               --------------------------------
                  Net cash provided (used) by investing activities                 (15,599)           (5,937)
                                                                               --------------------------------

Cash flows from financing activities, net of effects of purchase
business
 combinations
    Net increase (decrease) in deposits                                              7,735               (72)
    Net (decrease) in federal funds purchased                                       (2,650)              ---
    Net increase in FHLB advances                                                    2,000               ---
    Repayments of notes payable                                                        ---            (1,114)
                                                                               --------------------------------
                  Net cash provided (used) by financing activities                   7,085            (1,186)
                                                                               --------------------------------

                  Net (decrease) in cash and due from banks                         (5,651)           (6,448)

Cash and due from banks at beginning of period                                      29,971            28,469
                                                                               --------------------------------

Cash and due from banks at end of period                                      $     24,320            22,021
                                                                               ================================

Supplemental  disclosures of cash flow  information  Cash paid during the period
   for:
    Interest expense                                                          $      3,255      $      2,748
                                                                               ================================

    Income taxes                                                              $       ---       $         25
                                                                               ================================
Noncash investing and financing transactions
   Foreclosure of collateralized loans, net of reserve                        $        659      $         40
                                                                               ================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -5-
<PAGE>

                        Vail Banks, Inc. and Subsidiaries
              Notes to Unaudited Consolidated Financial Statements
                              As of March 31, 2000
                        (in thousands, except share data)


(1)      Organization and Basis of Presentation

         The accompanying  unaudited  consolidated  financial statements include
the  accounts of Vail Banks,  Inc.  (VBI or the  Company)  and its wholly  owned
subsidiary,  WestStar Bank (WestStar). WestStar and VBI own a 54.04% interest in
Avon  56  Limited  which  is  also  included  in the  accompanying  consolidated
financial statements. All entities are collectively referred to as "Vail Banks."
All significant  intercompany  accounts and transactions have been eliminated in
consolidation.

         The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the consolidated
financial  statements  as of  December  31,  1999.  These  interim  consolidated
financial  statements and the notes thereto  should be read in conjunction  with
VBI's  Annual  Report on Form 10-KSB as of and for the year ended  December  31,
1999.

         In the opinion of management all adjustments  necessary,  consisting of
only normal recurring items,  have been included for a fair  presentation of the
accompanying consolidated financial statements.  Operating results for the three
months ended March 31, 2000 are not  necessarily  indicative of the results that
may be expected for the full year.

(2)      Provision and Allowance for Loan Losses

         Vail  Banks'  lending  personnel  are  responsible  for the  continuous
monitoring  of the  quality  of its  loan  portfolio.  In  connection  with  the
determination of the allowance for loan losses,  management obtains  independent
appraisals for significant  properties and assesses  estimated future cash flows
from borrowers' operations and the liquidation of loan collateral. The allowance
for loan losses is based  primarily on  management's  estimate of possible  loan
losses from these procedures and historical experiences. These estimates involve
judgements and a certain level of subjectivity;  changes in economic  conditions
may necessitate revisions in future years.

         Various regulatory  agencies,  as an integral part of their examination
process,  periodically  review  Vail  Banks'  allowance  for loan  losses.  Such
agencies may require Vail Banks to record  additional  provisions  for potential
losses based upon their evaluation of information available at the time of their
examination.

         Vail  Banks  provides  for loan  losses by a charge to  current  year's
income based on the character of the loan portfolio, current economic conditions
and such factors as, in management's best judgment,  deserve current recognition
in estimating loan losses. In addition,  recoveries realized on loans previously
charged off are credited to the allowance for loan losses.

(3)      Earnings Per Share

         The Company computes basic and diluted earnings per share in accordance
with SFAS No. 128,  Earnings per Share (Statement 128). Basic earnings per share
is computed by  dividing  net income  available  to common  shareholders  by the
weighted-average  number of common shares outstanding during the period. Diluted
earnings per share is computed similar to basic earnings per share,  except that
the  denominator is increased to include the number of additional  common shares
that would have been  outstanding if dilutive  potential  common shares had been
issued.  In  addition,  the  numerator is adjusted for any changes in net income
that would have  resulted from the assumed  conversion  of the potential  common
shares.

(4)      Accounting for Derivative Instruments and Hedging Activities

         In June 1998,  the FASB issued SFAS No. 133,  Accounting for Derivative
Instruments and Hedging Activities, which is effective for years beginning after
June 15, 2000. Vail Banks has not engaged in the use of derivatives and does not
conduct  hedging  activities;  thus  management  does  not  anticipate  that the
adoption of the new statement will have a significant  effect on earnings or the
financial position of Vail Banks.


                                      - 6 -


<PAGE>

(5)      Investment Securities

         Debt securities that the Company has the positive intent and ability to
hold to  maturity  are  classified  as  held-to-maturity  and  reported at cost,
adjusted  for  amortization  or  accretion  of  premiums  or  discounts.   Other
investment securities are classified as available-for-sale  and reported at fair
value.  Unrealized  gains  and  losses,  net  of  the  related  tax  effect,  on
available-for-sale   securities   are  reported  as  a  separate   component  of
shareholders'  equity,  and the change of such gains and losses are  reported as
other  comprehensive  income.  Transfer  of  securities  between  categories  is
recorded at fair value on the date of transfer.

Realized  gains and losses on the sale of investment  securities  are determined
using the specific  identification  method at the time of sale or  redemption at
maturity.  Discounts or premiums are accreted or amortized using the level-yield
method to the earlier of call date or  maturity of the related  held-to-maturity
security.

(6)      Income Taxes

         Income taxes are accounted  for under the asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences  attributable to differences  between the book values and tax bases
of existing  assets and  liabilities.  Deferred tax assets and  liabilities  are
measured  using  enacted tax rates  expected  to apply to taxable  income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.

(7)      Acquisitions

         On  January 1, 2000  WestStar  Bank  acquired  First  Western  Mortgage
Services,  Inc., ("First Western"),  a Colorado  corporation,  for consideration
that included cash, and installment  notes  whichtogether  totaled  $1,488.  The
excess of the purchase price over the fair value of net assets acquired has been
recorded  as  goodwill  and is being  amortized  over 25 years.  In  addition to
handling  mortgages  through its mortgage  offices in  Eagle-Vail  and Steamboat
Springs,  First Western now has  representatives  in several other WestStar Bank
offices.

         The Boards of Directors of Estes Bank Corporation and Vail Banks,  Inc.
have  agreed on a merger  transaction  that will  result in United  Valley  Bank
becoming  part of WestStar  Bank.  Subject to certain  regulatory  approvals and
customary  conditions  to  closing,  the sale is  expected to close in the third
quarter of 2000 or shortly thereafter.  United Valley is expected to have assets
of approximately $90,000 when the merger is completed in mid 2000. If the merger
is approved, Estes Bank shareholders will receive in total approximately $21,500
in cash and shares of Vail Banks common stock.  The merger will be accounted for
as a purchase.



ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

BASIS OF PRESENTATION

       The following discussion and analysis provides information regarding Vail
Banks'  financial  condition as of March 31, 2000 and its results of  operations
for the three  months  ended March 31, 2000 in  comparison  to the three  months
ended March 31, 1999.  The following  discussion  should be read in  conjunction
with the consolidated  financial statements and related notes included elsewhere
in this Quarterly  Report on Form 10-QSB,  and in  conjunction  with Vail Banks'
Annual Report on Form 10-KSB for the year ended December 31, 1999.

OVERVIEW

       Net income was $1.2  million for the three months ended March 31, 2000 up
from $716,000 for the three months ended March 31, 1999, an increase of 68%. The
current  quarter's  net income  decreased  $225,000  from $1.4  million  for the
quarter ended December 31, 1999. Traditionally, first quarter earnings are lower
than subsequent quarters and the 16% decrease from the December 31, 1999 quarter
was anticipated.

       Diluted earnings per share for the quarter ended March 31, 2000 was $0.19
compared to $0.12 for the quarter  ended March 31, 1999, an increase of 58%, and
$0.23 for the quarter ended December 31, 1999, a 17% decrease.

       As the result of  acquisitions  since  1995,  Vail Banks had  goodwill of
$25.3  million  and $24.2  million  at March 31,  2000 and  December  31,  1999,


                                      - 7 -

<PAGE>

respectively.  Since the  amortization  of  goodwill  does not  result in a cash
expense,  Vail Banks  believes  that  supplemental  reporting  of its  operating
results  on a "cash"  (or  "tangible")  basis  (which  excludes  the  effect  of
amortization   of  goodwill)   represents   a  relevant   measure  of  financial
performance.  The supplemental cash basis data presented herein does not exclude
the effect of other non-cash operating expenses such as depreciation,  provision
for loan  losses,  or  deferred  income  taxes  associated  with the  results of
operations.

         On an  operating  basis,  cash  earnings  (defined  as net income  plus
amortization)  for the quarter ended March 31, 2000 was $1.5 million  ($0.24 per
share,  diluted)  compared with $1.7 million for the quarter ended  December 31,
1999 ($0.27 per share,  diluted) and $950,000 ($0.15 per share, diluted) for the
quarter ended March 31, 1999. This quarter's cash operating income decreased 12%
from fourth quarter of 1999 but improved by 58% from first quarter of 1999.

       Operating income (cash earnings) to average tangible assets was 1.31% for
the  quarter  ended  March 31,  2000  compared  to 1.51% for the  quarter  ended
December 31, 1999 and 0.94% for the quarter ended March 31, 1999.

       The return on average  equity was 7.98% for the  quarter  ended March 31,
2000,  versus  9.61% for the quarter  ended  December 31, 1999 and 5.30% for the
quarter ended March 31, 1999.


CONSOLIDATED CONDENSED BALANCE SHEETS

       The Company's assets increased by $9.3 million,  or 2%, to $474.3 million
as of March 31, 2000,  from $465.0  million as of December 31, 1999 and by $37.7
million, or 9%, from $436.6 million as of March 31, 1999.

         Cash and due balances  decreased by $5.7 million from $30.0  million at
December  31,  1999 to $24.3  million at March 31,  2000.  Cash was higher  than
average at December  31,  1999 due to the  seasonal  fluctuations  of our resort
communities  and the excess cash  maintained for  compliance  with our Year 2000
contingency  plan.  In  addition,  management  has made a  concerted  effort  to
decrease balances maintained in correspondent banks.

         The loan portfolio  growth,  particularly in its Western Slope markets,
is the result of a healthy Colorado economy. During the three months ended March
31,  2000,  the loan  portfolio  increased  by $15.7  million or 5%, from $336.7
million as of December 31, 1999 to $352.4 million, and by $86.5 million, or 33%,
from $265.9 million as of March 31, 1999. Future increases in the loan portfolio
are not expected to keep pace with first  quarter's  performance due to the high
loan to deposit ratio.

       Investment securities were $35.0 million as of March 31, 2000 compared to
$36.8 million as of December 31, 1999 (a decrease of 5%) and $36.0 million as of
March 31, 1999 (a decrease of 3%).

       The increase in intangible  assets from $24.2 million at December 31,1999
to $25.3  million at March 31,  2000 is the result of the  acquisition  of First
Western.

       Deposits increased by $7.8 million,  or 2%, to $380.5 million as of March
31,  2000,  from $372.7  million as of December  31, 1999 and  increased by $3.0
million,  or .8%,  from $377.5  million as of March 31,  1999.  The  increase in
deposits  experienced in the first quarter of 2000 was largely  attributable  to
seasonal factors.

       During the first quarter of 2000,  noninterest-bearing deposits decreased
by $8.6 million,  or 10%,  while  interest-bearing  deposits  increased by $16.3
million,  or 6%, as compared to December  31, 1999.  Noninterest-bearing  demand
deposits  comprised  21% of total  deposits  as of  March  31,  2000,  23% as of
December  31, 1999 and 22% as of March 31,  1999.  This  stability in the mix of
non-interest deposits to total deposits was maintained throughout 1999.

       There were no federal funds sold at either March 31, 2000 or December 31,
1999.  Federal funds purchased and Federal Home Loan Bank  borrowings  decreased
$650,000,  or 2% from  December to March.  The absence of federal funds sold and
the presence of short- term  borrowings is a result of funding the growth in the
loan portfolio.


                                      - 8 -

<PAGE>

RESULTS OF OPERATIONS

         Net Interest Income. Net interest income was $6.3 million for the three
months  ended  March  31,  2000,  unchanged  from  the  previous  quarter.  This
represents an increase of $1.1  million,  or 20%,  from the  three-month  period
ended March 31, 1999.

         The net interest  margin of 6.70% for the quarter  ended March 31, 2000
remained  unchanged  from the quarter ended December 31, 1999. The first quarter
2000 net interest  margin was up from the 6.13% for the quarter  ended March 31,
1999.  This  increase  was due  primarily  to the  yield on an  increasing  loan
portfolio   coupled  with   decreases  in  the  level  of  high  cost  deposits.
Additionally,  growth of the Company's average earning assets also supported the
margin  increase.  Average  earning assets  increased 9%, or $31.3  million,  to
$383.2 million as of March 31, 2000, from $351.9 million as of March 31, 1999.

         Provision  and  Allowance  for Loan Losses.  Provision  expense for the
three months ended March 31, 2000 totaled $300,000  compared to none recorded in
the three months ended March 31, 1999.  This  provision for loan losses was over
five  time's net charge off  during the  quarter.  Up 11% from the $2.7  million
level as of December 31, 1999,  the allowance for loan losses of $3.0 million as
of March 31,  2000  represents  .85% of total  loans and 241% of  non-performing
loans. The increase of $540,000 from $2.4 million at March 31, 1999 was intended
to support the normal potential loss content in the growth of the Company's loan
portfolio.  Key  indicators of asset quality have remained  positive,  while the
average  level of  outstanding  loans have  increased to $347.0  million for the
quarter ended March 31, 2000 from $337.5  million for the quarter ended December
31, 1999, and $268.0 million for the quarter ended March 31, 1999.

         The allowance for loan losses  represents  management's  recognition of
the risks of extending  credit and its  evaluation of the potential loss content
of the loan portfolio.  The Company maintains an allowance for loan losses based
upon, among other things,  such factors as the amount of problem loans,  general
economic  conditions,  historical  loss  experience,  and the  evaluation of the
underlying  collateral including holding and disposal costs. Specific allowances
are  provided  for  individual  loans when  ultimate  collection  is  considered
questionable  by management.  Management  actively  monitors the Company's asset
quality and will charge off loans  against  the  allowance  for loan losses when
appropriate and will provide  specific loss allowances when necessary.  Although
management   believes   it  uses  the  best   information   available   to  make
determinations with respect to the allowance for loan losses, future adjustments
may be  necessary if economic  conditions  differ from the  assumptions  used in
making the initial determinations.  The following table presents, for the period
indicated,  an analysis  of the  allowance  for loan and lease  losses and other
related data.

<TABLE>
<CAPTION>
      ALLOWANCE FOR LOAN LOSSES ANALYSIS (in thousands)                     Three months ended
                                                                                March 31,
                                                                      --------------------------------
                                                                         2000               1999
                                                                      -------------     --------------
                                                                      (unaudited)        (unaudited)
<S>                                                                  <C>                 <C>
      Average total loans                                            $     346,992       $    268,010
                                                                      =============       ============

      Total loans at end of period                                   $     352,390       $    265,903
                                                                      =============       ============

      Allowance at beginning of period                               $       2,739       $      2,590
          Charge-offs                                                         (67)               (166)
          Recoveries                                                            12                 20
          Provision for loan losses                                            300                ---
                                                                      -------------       ------------
      Allowance at end of period                                     $       2,984       $      2,444
                                                                      =============       ============

      Annualized net charge-offs to average total loans                       0.06%              0.22%

      Allowance to total loans at end of period                               0.85%              0.92%
</TABLE>

         NONINTEREST INCOME. Total noninterest income increased by $704,000,  or
69%,  to $1.7  million for the three  months  ended  March 31,  2000,  from $1.0
million for the three  months ended  December 31, 1999 and by $804,000,  or 87%,
from $927,000 for the three months ended March 31, 1999.  These  increases  were
primarily attributable to mortgage banking fees at First Western.

         Noninterest Expenses. Noninterest expense, before amortization expense,
increased by $931,000, or 20%, to $5.85 million for the three months ended March
31,  2000,  from $4.6  million for the three  months  ended  December  31, 1999.
Non-interest  expenses  increased by $750,000 or 16%,  from $4.8 million for the
three months  ended March 31, 1999.  This  increase is largely  attributable  to
operating  expenses of First Western and to a lesser degree the increasing costs
of employee related and occupancy expenses generated by internal growth.

         The efficiency  ratio,  before  amortization  expense,  was 68% for the
quarter ended March 31, 2000,  compared to 76% for the first quarter of 1999 and
62% for the fourth quarter of 1999.  The  improvements  in the efficiency  ratio
throughout  1999  were  achieved  through   management's   concerted  effort  to
consolidate  operating  activities of branches and recently  acquired banks. The
decrease  from  the  fourth  quarter  of 1999 to the  first  quarter  of 2000 is
generally attributable to the acquisition of First Western.

          INCOME TAXES.  For six years,  Vail Banks has utilized a net operating
loss ("NOL") carryforward  obtained from a 1993 merger. Under GAAP requirements,
net  income  includes  an  equivalent  expense  that  would  have  been paid for
taxation.  A federal  taxation  rate of 34% was used  during  1999 and a federal
taxation  rate of 36.5% is being used  during 2000 for this  purpose.  The taxes
saved by use of the NOL carryforward  before 1999 have been recorded directly to
additional paid-in capital, resulting in a reduction in reported earnings, which
is offset by an increase to additional paid-in capital.

         NON-PERFORMING  ASSETS. The Company's  non-performing assets consist of
nonaccrual   loans,   restructured   loans,   and  other  real   estate   owned.
Non-performing  assets were $1.6 million as of March 31,  2000,  (0.34% of total
assets)  compared  with $2.1 million as of December  31,  1999,  (0.46% of total
assets) and $581,000 as of March 31, 1999 (0.13% of total assets). The following
table  presents  information  regarding  non-performing  assets  as of the dates
indicated:

<TABLE>
<CAPTION>
      NON-PERFORMING ASSETS  (in thousands)                                               March 31,
                                                                                -------------------------------
                                                                                    2000             1999
                                                                                -------------    --------------
                                                                                (unaudited)       (unaudited)

<S>                                                                            <C>                <C>
      Nonaccrual loans                                                         $       1,236      $        132
      Restructured loans                                                                 ---               ---
                                                                                -------------      ------------
                      Total non-performing loans                                       1,236               132
      Foreclosed properties                                                              386               449
                                                                                -------------      ------------
                      Total non-performing assets                                      1,622               581
      Loans 90 days or more past due and accruing                                        ---                57
                                                                                -------------      ------------
           Total risk assets                                                   $       1,622      $        638
                                                                                =============      ============

      Non-performing loans to total loans                                              0.35%             0.05%

      Non-performing assets to total loans plus foreclosed properties                  0.46%             0.22%

      Non-performing assets to total assets                                            0.34%             0.13%

      Risk assets to total loans plus foreclosed properties                            0.46%             0.24%
</TABLE>

         The increase in non-performing assets since March 31, 1999 is comprised
primarily of two loans, both of which were in a previously  acquired bank's loan
portfolio.  Management  believes  Vail  Banks is  adequately  collateralized  to
recover the majority of the balance of these  nonaccrual  loans.  Vail Banks has
reviewed  and analyzed  each of these loans and has  implemented  strategies  to
resolve  the  issues  with the few loans that  caused  these  measures  to rise.
Management generally obtains and maintains appraisals on real estate collateral.
Management  is not aware of any  adverse  trends  relating  to Vail  Banks' loan
portfolio.


                                      - 10 -

<PAGE>

CAPITAL RESOURCES

       Vail Banks currently maintains risk-weighted capital and leverage (Tier 1
capital to average  total  assets)  ratios in excess of the  minimum for a "well
capitalized"  designation.  The company's Tier 1 leverage ratio was 10.37% as of
March 31, 2000, down from 10.76% as of December 31, 1999, and 11.43% as of March
31, 1999. The total risk-based capital ratio decreased to 11.24% as of March 31,
2000 from 11.59% as of December  31, 1999 and 12.28% as of March 31,  1999.  The
decrease in the total risk-based  capital ratio  experienced in 1999 and for the
first  quarter of 2000 was largely  attributable  to a shift from federal  funds
sold to loans, which are assigned a higher risk weighting.

LIQUIDITY

         The Company's liquidity  management  objective is to ensure its ability
to satisfy the cash  requirements  of  depositors  and  borrowers  and allow the
Company to meet its own cash needs.  Historically,  the Company's primary source
of funds has been customer deposits.  Scheduled loan repayments are a relatively
stable source of funds.  Deposit inflows and unscheduled loan repayments,  which
are influenced by fluctuations  in the general level of interest rates,  returns
available  on other  investments,  competition,  economic  conditions  and other
factors, are relatively unstable.  Company borrowing may be used on a short-term
basis to  compensate  for  reductions in other sources of funds (such as deposit
inflows at less than projected levels).  Company borrowing may also be used on a
longer-term  basis to  support  expanded  lending  activities  and to match  the
maturity or repricing intervals of assets.


YEAR 2000 COMPLIANCE

      Vail  Banks  did not  experience  any  disruptions  in its  operations  or
activities as a result of the so-called "Year 2000" problem.  In addition,  Vail
Banks did not incur material expenses in correcting  perceived or suspected Year
2000 problems. Furthermore, Vail Banks is not aware that any of its suppliers or
customers  have  experienced  any material  disruptions  in their  operations or
activities  due to Year 2000  problems.  Vail Banks does not expect to encounter
any such problems in the  foreseeable  future,  although it continues to monitor
its computer operations for signs or indications of such problems.

         It is possible,  however,  that Year 2000 problems  could still disrupt
Vail  Banks'  operations  and the  systems of other  companies  upon which their
systems rely. If Vail Banks'  systems or the systems of its  customers,  product
vendors, utility vendors, and suppliers experience unforeseen Year 2000 problems
in the future,  it may  negatively  impact Vail Banks'  systems,  operations and
financial performance.


SUBSEQUENT EVENTS

Dividend Declaration

         On April 24, 2000 Vail Banks declared a cash dividend of $.04 per share
payable on May 18, 2000 to  shareholders  of record on May 4, 2000.  This is the
first  dividend the Company has paid since becoming a public company in December
1998. The Company declared this dividend to enhance shareholder value.

De Novo Branch Application

         A Notice of Intent to  Establish  a Branch  Banking  Facility  has been
filed by the Company to establish a de novo branch in Aspen, Colorado.  Aspen, a
popular resort  community on the Western Slope of Colorado,  is located adjacent
to the Company's Garfield County market. It is anticipated this branch will open
during the second quarter of 2000.

Estes Bank Merger Announced

         The boards of directors of Estes Bank Corporation and Vail Banks,  Inc.
have  agreed on a merger  transaction  that will  result in United  Valley  Bank
becoming part of WestStar  Bank.  United Valley Bank operates  branches in Estes
Park, Granby and Grand Lake, Colorado.  United Valley is expected to have assets
of  approximately  $90 million when the merger is completed in mid 2000.  If the


                                      - 11 -

<PAGE>

Merger is approved,  Estes Bank shareholders will receive in total approximately
$21.5  million in cash and shares of Vail Banks  common stock in  proportion  to
their  respective   holdings  of  Estes  Bank  stock.  The  combined  entity  is
anticipated  to have assets in excess of $575 million.  It is  anticipated  that
marketable  investment  securities will be sold to fund the cash portion of this
purchase.

FORWARD LOOKING STATEMENTS

         The  discussion  in this  report  contains  forward-looking  statements
including,  without  limitation,  statements relating to the Company's Year 2000
compliance,  which are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in the forward-looking  statements are reasonable, it can
give no  assurance  that such  expectations  will be  correct or  realized.  The
forward-looking  statements  involve  risks and  uncertainties  that  affect the
Company's  operations,  financial performance and other factors and discussed in
the Company's filings with the Securities and Exchange  Commission.  These risks
include the impact of economic conditions and interest rates, loan losses, risks
related to the execution of the Company's growth strategy,  the possible loss of
key  personnel,  factors that could affect the Company's  ability to complete in
its trade  areas,  changes in  regulations  and  government  policies  and other
factors  discussed  in the  Company's  filing with the  Securities  and Exchange
Commission.  In particular,  risks related to the Company's year 2000 compliance
include those discussed under the heading "Year 2000 Compliance" in this report.



                                      - 12 -


<PAGE>

                            PART II OTHER INFORMATION


Item 6.  EXHIBITS, LIST AND REPORTS ON FORM 8-K.

                  (a)      EXHIBITS
                           --------

         The  following  exhibits  are  required to be filed with this Report on
10-QSB by Item 601 of Regulation S-B.

         EXHIBIT
           NO.             DESCRIPTION OF EXHIBIT
         -------           ----------------------

             2.1           Agreement and Plan of Reorganization, dated March 21,
                           2000, by and between Estes Bank  Corporation, Jack G.
                           Haselbush, Bradley D. Sishc and Vail Banks, Inc.

            27.1           Financial Data Schedule (for SEC use only)

                  (b)      REPORTS ON FORM 8-K.
                           -------------------

            There were no 8-K filings.



                                      - 13 -


<PAGE>


                                   SIGNATURES


     In accordance with the requirements of the Securities Exchange Act of 1934,
the  Registrant  has duly  caused this Report on Form 10-QSB to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                           VAIL BANKS, INC.
                                           (REGISTRANT)


    Date:  May 12, 2000                     /s/ Lisa M. Dillon
                                           -------------------------------------
                                           Lisa M. Dillon,
                                  Title:   President and Chief Executive Officer



    Date:  May 12, 2000                     /s/ Peg A. Brown
                                           -------------------------------------
                                           Peg A. Brown
                                  Title:   Executive Vice President and
                                             Controller of WestStar Bank
                                           (principal financial officer)