**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 PURSUANTTO 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 whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 ýNO o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  o

 

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

YES ýNO o

 

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

 

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

 

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(1)                                  The8.125% Cumulative Capital Securities (the “CFB Capital III Securities”) wereissued by CFB Capital III (“CFB Capital III”), a wholly owned Delaware businesstrust subsidiary of the Company.  TheCompany has also fully and unconditionally guaranteed all of CFB Capital III’sobligations under the CFB Capital III Securities.

 

(2)                                  The8.20% Cumulative Capital Securities (the “CFB Capital II Securities”) wereissued by CFB Capital II (“CFB Capital II”), a wholly owned Delaware businesstrust subsidiary of the Company.  TheCompany has also fully and unconditionally guaranteed all of CFB Capital II’sobligations under the CFB Capital II Securities.  On February 25, 2003, the Company gave notice of its intent toredeem these securities.  The redemptionis expected to occur on April 4, 2003.

 

(3)                                  The7.60% Cumulative Capital Securities (the “CFB Capital IV Securities”) wereissued by CFB Capital IV (“CFB Capital IV”), a wholly owned Delaware businesstrust subsidiary of the Company.  TheCompany has also fully and unconditionally guaranteed all of CFB Capital IV’sobligations under the CFB Capital IV Securities.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Portions of the Annual Reportto Stockholders for the fiscal year ended December 31, 2002 and the ProxyStatement 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 thisForm 10-K, to the extent described in such Parts.

 

 

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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 |

 

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**PART I**

 

**ITEM1.  BUSINESS**

 

**GENERAL**

 

CommunityFirst 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”) withbanking offices in 136 communities in Arizona, California, Colorado, Iowa,Minnesota, Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsinand Wyoming.  Total assets of theCompany were approximately $5.8 billion as of December 31, 2002.

 

The bankingoffices are community banks that provide a full range of commercial andconsumer banking services primarily to businesses and individuals in small andmedium-sized communities and the surrounding market areas.  The Company provides its banking officeswith the advantages of affiliation with a bank holding company, such as accessto its lines of financial services, including trust products andadministration, insurance and investment services, data processing services,credit policy formulation and review and administration, investment managementand specialized staff support.  TheCompany grants autonomy to managers of the banking offices with respect today-to-day operations, customer service decisions and marketing.  Credit and product offerings are beingcentralized to increase efficiency.  Thebanking offices are encouraged to participate in community activities, supportlocal charities and community development, and otherwise enhance their imagesin their communities.

 

The Companyhas built a network of banks and a solid customer base throughacquisitions.  The Company’s plan is toincrease the revenues and profit derived from that customer base by profitablyincreasing the number of products and services delivered per household and byexpanding the channels through which customers can access those products andservices.  An enhanced online bankingWeb site is supplementing channels of in-person, mail, ATM, and telephonebanking.

 

**RECENT STRATEGIES AND INITIATIVES**

 

During 2001,the Company implemented a series of strategic initiatives designed to improvecustomer service and strengthen its position as a provider of diversifiedfinancial services.  These initiativesinvolved: refining the Company’s model for delivery of services; centralizingcredit operations; consolidating its bank charters into one bank charter andinsurance operations into a single entity; contracting the asset base of theCompany to enhance utilization of shareholder capital; and establishing amortgage joint venture with Wells Fargo Home Mortgage.

 

*Refining the Company’s delivery model*

 

To bringproduct distribution focus to the Company’s extensive banking network, theCompany has designated certain of its banking offices as Regional FinancialCenters and others as Community Financial Centers.  Regional Financial Centers are located in markets that have shownstrong commercial banking potential and offer a full array of financialproducts and services for both the corporate and retail markets, includingbanking, trust and investment products. In some cases, Regional Financial Centers are typically aligned so thatone larger banking office directs and supports smaller banking offices in closegeographic proximity.  RegionalFinancial Centers are managed by bank presidents.  As of December 31, 2002, the Company had 51 Regional FinancialCenters.

 

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CommunityFinancial Centers are less geographically concentrated and, although they offera complete line of financial products and services, their emphasis is on retailbanking products, investments and insurance. Community Financial Centers areheaded by branch managers.  As of December31, 2002, the Company had 28 Community Financial Centers.

 

To furtherenhance the Financial Center delivery model, the Company is integrating itsinsurance and investment sales forces into its retail sales deliverynetwork.  The Company believes thismoves it towards a one-stop financial services supermarket and strengthens itsopportunity to deepen customer relationships.

 

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

 

In conjunctionwith the restructuring of its banking network, during 2001, the Company sold 13banking offices and closed eight additional banking offices.  Banking offices sold included nine Arizonabanking offices, three Nebraska banking offices and one banking office in NorthDakota.  In the 13 banking offices sold,total deposits were $132 million.  Fourof the eight banking offices closed were located in communities where theCompany maintains one or more additional banking offices; thus the Companycontinues to serve those customers from existing locations.

 

Theinitiatives resulted in changes in staffing needs within the Company.  In conjunction with the restructuring of thebanking network, 21 eligible management staff took advantage of an earlyretirement program.  This restructuringresulted 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 theredesigned delivery structure, the Company implemented a centralized consumercredit process.  When fully operational,the centralized structure will offer a complete range of decision,organization, documentation and collection services for consumer lending forall banking offices from a Fargo, North Dakota location.  As of December 31, 2002, decision-making,documentation and collection services for indirect consumer loans have beencentralized.  The Company expects thecentralization of support processes for direct consumer and commercial loans tobe completed in late 2003.

 

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*Consolidation of bank charters and insuranceagencies*

 

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

 

*Enhanced use of shareholder capital*

 

Beginning in2000, in connection with the consolidation of the Company’s several bankcharters into one charter, the Company focused on contracting its balance sheetto better utilize shareholder capital. This strategy involved several elements, including reducing theCompany’s reliance on wholesale funding sources, reducing Community FirstFinancial Inc.’s purchased asset portfolio and redirecting capital towardsrepurchasing the Company’s Common Stock to reduce the number of shares ofCommon Stock outstanding, all in an effort to deploy capital more efficiently.

 

*Joint venture mortgage company*

 

On September5, 2001, the Company announced the formation of a joint venture mortgagecompany through its bank subsidiary, Community First Home Mortgage, Inc., withWells Fargo Home Mortgage called Community First Mortgage, LLC (“CFM”).  The joint venture is designed to offer theCompany’s customers a broader line of mortgage products and increase theefficiency of the Company’s back office support through improved access tocurrent and future technology and expertise provided by Wells Fargo.  The Company expects that access to WellsFargo’s products and technology will, over time, permit the Company to grow itsmortgage business.  CFM providesmortgage origination, documentation, processing and support for all of theCompany’s residential mortgage business. The joint venture became operationalin November 2001.

 

While it is amember of CFM, the terms of CFM’s limited liability company agreement do notpermit the Company to engage, directly or indirectly, in the residentialmortgage lending business other than through CFM, with limited exceptions.  The joint venture has a minimum term of tenyears; however, the venture may be terminated earlier upon the occurrence ofcertain events, including a change in control of Wells Fargo or the Company orthe failure of either party to perform its obligations under theagreement.  Under the terms of the jointventure agreement, in exchange for the payment of certain fees by CFM, WellsFargo (1) provides certain administrative services to CFM, includingaccounting, data processing and management information services, and leases toCFM the computer software and computer network used to conduct the business ofCFM; (2) funds the loans made by CFM through a warehouse line of credit itprovides to CFM; and (3) purchases the loans from CFM.  Wells Fargo and the Company each madeinitial capital contributions of $125,000 and now each own 50% of CFM.  Distributions of cash and allocations ofprofits and losses from CFM are to be made to each member in proportion to itsownership interest.  CFM is governed byan operating committee consisting of four individuals, with each member of thejoint venture appointing two individuals to the operating committee.

 

**REVIEW OF ACQUISITION OPPORTUNITIES**

 

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

 

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Dakota, South Dakota, Utah,Wisconsin and Wyoming.  The Companytakes a disciplined approach to acquisitions, requiring a certain return onequity for potential targets.  The Companylooked at several potential targets in 2002, and placed bids on a fewopportunities.  In general, bankacquisitions have been, and can be expected to continue to be, difficult toconclude by the Company because of the Company’s parameters of valuation,insistence that any acquired bank be accretive to earnings per share within ashort period of time and because larger acquirers with market expansion goalsand greater resources have been and can be expected in the foreseeable futureto be prepared to make significantly higher acquisition bids than theCompany.  Therefore, the Company did notcomplete any bank acquisitions in 2002. The Company routinely reviews acquisition opportunities and, at anygiven time, may have bids outstanding or may be involved in negotiations withthe owners of financial institutions or other parties relative to a particularfinancial institution, its branches or its deposit accounts.  The Company currently has no agreements inplace to acquire other banks, branches or deposit accounts.

 

The Companymade a number of significant acquisitions in 1999 and 1998, as outlined below.On December 21, 1999, the Company acquired River Bancorp, Inc., the bankholding company for Northland Security Bank, located in Ramsey, Minnesota.  On October 7, 1999, the Company acquiredValley National Corporation, a publicly-held corporation and the bank holdingcompany for Valle de Oro Bank, National Association, headquartered in El Cajon,California, with six bank locations in Spring Valley, El Cajon, La Mesa andSantee, California.  On August 7, 1998,the Company acquired Guardian Bancorp, the bank holding company for GuardianState Bank, headquartered in Salt Lake City, Utah, with banking offices in SaltLake City and Sandy, Utah.  On July 1,1998, the Company acquired Western Bancshares of Las Cruces, Inc., the bankholding company for Western Bank, headquartered in Las Cruces, New Mexico withoffices in Anthony, Hatch and Las Cruces, New Mexico.  On May 7, 1998, the Company acquired FNB, Inc., a two-bankholding company headquartered in Greeley, Colorado with offices in Greeley andFort Collins, Colorado.  On April 30,1998, the Company acquired Pioneer Bank of Longmont, Longmont, Colorado, withfive 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 37banking offices located in Arizona, Colorado and Utah from three subsidiary banksof Banc One Corporation.

 

**BANKING ACTIVITY**

 

The bankingoffices operated by the Company provide a full range of commercial and consumerbanking services primarily to individuals and businesses in small andmedium-sized communities and the surrounding market areas.  The banking offices draw most of theirdeposits from, and make most of their loans within, their respective marketareas.  The banking offices owned by theCompany 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 December31, 2002, the Company had banking offices in communities with populationsranging from approximately 200 to 50,000, except for the larger communities ofFargo, 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 thesecommunities 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 expandits existing marketing area to serve greater population.  As with other small, non-metropolitancommunities, many of the smaller communities in which the banking officespresently operate have experienced or are expected to experience no growth or adecline in population.

 

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The economies of some of thesmaller communities, especially those in Nebraska, North Dakota and SouthDakota, depend primarily on farming, farm service and agricultural supplybusinesses.  If reductions in populationor adverse economic trends in specific communities result in decreasedprofitability in the banking offices in those communities, the Company mayconsider selling bank assets and reducing the level of services provided insuch communities.

 

Managementbelieves that future growth in the business of the Company will largely dependon successful execution of the Company’s strategies.  By offering customers a full suite of financial products andservices through a broader range of channels, the Company will endeavor toincrease the number of products sold to each customer.  Sophisticated customer analysis tools willenable the Company to target the marketing of these products moreeffectively.  In addition, the Companywill undertake Company-wide marketing initiatives to increase noninterestincome through sales of investment products, trust services and insurance.

 

**ADMINISTRATION OF BANKING OFFICES**

 

The Companyprovides policy and management direction and specialized staff support whilerelying on bank managers for day-to-day operations, customer service decisionsand community relations.  The Company isresponsible for policy-related functions, such as supervisory credit review,audits, personnel policies and internal examination activities.  Resource allocations for administrativesupport by the Company are balanced to provide adequate support services foreach banking office’s operations.  Themajor areas of administration are as follows:

 

CREDIT.  The Company’s lending activities are guidedby the general loan policy established by the Board of Directors.  The Board of Directors of the bankingsubsidiary has established loan approval limits for each banking office of theCompany.  The limits established foreach bank location range from $5,000 to $500,000 per borrower.  Renewals of any criticized or classifiedloans have a limit of $25,000.  Amountsin excess of the individual banking office’s lending authority are presented tothe corporate credit officers.  Thecorporate credit officers have lending authority up to $1,000,000 perpass-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 Committeeof the Company for approval.

 

FINANCE.  The Board of Directors of the Company hasestablished policies in the areas of asset/liability management, investments,capital expenditures, accounting procedures and capital and dividendmanagement.  Policies are implementedand monitored for compliance by the Chief Financial Officer and theAsset/Liability Committee of the Company.

 

OPERATIONS.  Community First Technologies, Inc. (“CFT”),a subsidiary of the Company, provides data processing and operations supportservices to the Company by contract. CFT’s system is designed to provide for all of the Company’s dataprocessing needs and can be expanded to accommodate future growth andadditional service applications.  Inaddition to its facilities in Fargo, North Dakota, CFT also has a dataprocessing facility in Golden, Colorado. Additional expenditures for equipment,consistent with the increased data processing volumes, would likely benecessary 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 salespersonnel across the Company’s banking, investment, insurance, mortgage andtrust product lines.

 

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OTHER SERVICES.  The Company provides other services for thebenefit of the banking offices, such as outside professional services, centralhuman resources services, benefits administration, marketing guidance andcentralized purchasing of supplies.

 

**INSURANCE AGENCIES**

 

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

 

**OTHER ACTIVITIES**

 

Although theCompany intends to maintain its focus on the banking business in its targetedmarket areas, the Company will consider other permitted business activities asopportunities arise.  The noninterestincome activities of the Company in insurance, trust and securities sales areexpected to collectively continue to be a material source of revenue for theCompany in the future.

 

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

 

In February2001, the Company entered into an agreement with PrimeVest Financial Services,Inc. under which PrimeVest would provide securities brokerage, insurance andinvestment advisory services to the Company’s customers through PrimeVestcenters located within the Company’s banking offices.  The agreement provides for shared sales commissions with theCompany pursuant to an agreed upon commission schedule and requires PrimeVestto perform various compliance and administrative functions related to itssecurities and insurance activities. In addition to full service brokerage,insurance and investment advisory services, the PrimeVest agreement alsoprovides the Company’s customers with online financial services to complementthe Company’s focus on technology enhancements to improve product and servicedelivery.  The PrimeVest agreement is athree-year agreement.

 

Federal bankregulation permits bank holding companies to engage in other limitedactivities, such as the distribution of certain types of securities, and futurechanges in such regulation are expected to further expand the types ofactivities in which the Company may engage.

 

**COMPETITION**

 

Commercial bankingis highly competitive.  In the conductof certain aspects of its business, the Company competes with other commercialbanks, savings and loan institutions, issuers of fixed income investments,finance corporations, credit unions and money market funds, and securities andinsurance firms, among other types of institutions. The Company competes withthese institutions in such areas as obtaining new deposits, offering new typesof 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 todeal with local banks and the Company has generally been able to competesuccessfully in its respective communities because of the Company’s emphasis onlocal management and the autonomy of management in community relations.  At the same time, the Company 

 

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provides its locations with theadvantages of centralized sophisticated administration and the opportunity tomake larger loans and diversify their lending activity through groupparticipations.  Further, because mostof the Company’s locations have a significant market share in the communitiesthey serve, the Company believes the banking offices can, to a degree,influence deposit and loan pricing in their markets and are subject to lesscompetition based on deposit and loan pricing than would be the case in largermetropolitan markets with more competitors. However, the Company has experienced increased price competition fromcredit unions and brokerage firms in certain market areas in recent periods.

 

TheGramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “GLB Act”)permits affiliation among banks, securities firms and insurance companies bycreating a new type of financial services company called a “financial holdingcompany.” Financial holding companies may offer many kinds of financialservices, including banking, securities underwriting, insurance (both agency andunderwriting) and merchant banking. Under the GLB Act, securities firms andinsurance companies that elect to become a financial holding company mayacquire banks and other financial institutions. The GLB Act significantlychanges the competitive environment in which the bank does business.  The GLB Act also imposes new restrictions onthe bank’s use of customer financial information that could make it difficultor costly for the Company to cross-sell banking, insurance and investmentproducts to its customers. See “Supervision and Regulation,” below.

 

**EMPLOYEES**

 

The Companyhad 2,360 employees at December 31, 2002, including 1,919 full-time employeesand 441 part-time employees.  Of theseindividuals, 214 were employed at the holding company, 1,706 were employed atthe bank, 292 were employed by CFT and 148 were employed by Community FirstInsurance, Inc.

 

**SUPERVISION AND REGULATION**

 

GENERAL.  As a bank holding company, the Company issubject to supervision and examination by the Board of Governors of the FederalReserve System under the Bank Holding Company Act of 1956, as amended (the “BHCAct”).  The Company’s national bankingsubsidiary is regulated by the Office of the Comptroller of the Currency(“OCC”).  The deposits of the Company’sbanking subsidiary are insured by the Bank Insurance Fund (“BIF”), whichsubjects the subsidiary to regulation by the Federal Deposit InsuranceCorporation (“FDIC”).  In addition tothe impact of direct regulation, commercial banks are affected significantly byactions taken by the Federal Reserve Board with respect to the money supply andcredit availability.

 

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

 

FINANCIALMODERNIZATION.  On November 12, 1999,the GLB Act became law.  The GLB Actrepealed provisions of the Glass-Steagall Act of 1933 and extensively revisedthe BHC Act by significantly expanding the range of permissible activities bybanks 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 itsbusiness activities.

 

The GLB Actand its implementing regulations impose additional requirements on financialinstitutions with respect to customer privacy by generally prohibitingdisclosure of customer information 

 

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to non-affiliated third partiesunless the customer has been given the opportunity to object and has notobjected to such disclosure.  Financialinstitutions are further required to disclose their privacy policies tocustomers annually.  Because the GLB Actdoes not preempt state privacy laws, there are risks that states will adoptadditional, non-uniform requirements, and this has occurred in North Dakota andNew Mexico.  Other states in theCompany’s trade territory are also considering additional legislation.  Restrictions upon the Company’s use ofcustomer information makes it more difficult for the Company to carry out itsbusiness plan to provide more products and services to customers throughout asales-focused delivery system.

 

HOLDINGCOMPANY REGULATION.  The Company is abank holding company within the meaning of the BHC Act.  As a result, the Company’s activities aresubject to limitations under the BHC Act, and certain transactions between theCompany and its affiliates are subject to restrictions.  Further, the Company is required to fileperiodic reports with the Federal Reserve Board and is subject to examination.The Federal Reserve Board has the enforcement authority over the Company andits subsidiaries to prevent and remedy actions that it determines are unsafe,unsound or violate the law, including the authority to issue cease and desistorders.  The Federal Reserve hasexpressed its view that a bank holding company experiencing earnings weaknessesshould not pay cash dividends exceeding its net income or which could be fundedonly in ways that weakened the bank holding company’s financial health, such asborrowing.  Under a longstanding policyof the Federal Reserve, the Company is expected to serve as a source offinancial strength to its banking subsidiary and to commit resources to supportit.

 

Under the BHCAct, the Company must obtain prior Federal Reserve Board approval before theCompany acquires direct or indirect ownership or control of 5% or more of thevoting stock of any bank or bank holding company, or the Company merges orconsolidates with another bank holding company.  Further, a bank holding company is generally prohibited fromacquiring direct or indirect ownership or control of a company that is not abank or bank holding company, unless (i) the Federal Reserve Board has, byorder or regulation, determined that the proposed non-banking activity is soclosely related to banking or managing or controlling banks as to be a properincident thereto, or (ii) the Company elects to become a “financial holdingcompany” 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 FederalReserve Board and the Secretary of the Treasury.  In reviewing any application or proposal by a bank holdingcompany, the Federal Reserve Board is required to consider the financial andmanagerial resources and future prospects of the bank holding company and thebanks concerned, the convenience and needs of the community to be served, aswell as the probable effect of the transaction upon competition.

 

BANKREGULATION.  The banking subsidiary issubject to detailed federal and state laws and regulation.  The national banking subsidiary of theCompany is primarily supervised by the OCC, a bureau of the United StatesDepartment of the Treasury.  The OCCregularly examines national banks in such areas as reserves, loans,investments, trust services, management practices, compliance with theCommunity Reinvestment Act and other aspects of bank operations andpolicies.  These examinations aredesigned for the protection of the deposit insurance system and the enforcementof federal and state laws and regulations and not for the shareholders of theCompany.  In addition to undergoingthese regular examinations, national banks must furnish quarterly reports tothe OCC containing detailed and accurate financial statements and schedules.

 

Federal andstate banking laws and regulations govern, among other things, the scope of abank’s business, the investments a bank may make, the reserves a bank mustmaintain, the loans a bank may make and the collateral it takes, the activitiesof banks with respect to mergers and consolidations and the establishment, andthe closure of branches.  The OCC, inthe case of national banks, is the primary federal

 

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regulatory authority under theFinancial Institutions Supervisory Act, and is authorized by that Act to imposepenalties, initiate civil and administrative actions and take other stepsintended to prevent a bank from engaging in an unsafe or an unsound practice inthe conduct of its business.

 

With theadoption of the Financial Institutions Reform, Recovery and Enforcement Act of1989, 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 andfunding provisions of the Federal Deposit Insurance Act.  Under FDICIA and the IBBEA, the primaryregulatory authorities are required to take “prompt corrective action” withrespect to depository institutions insured by the FDIC that do not meet thecriteria for classification as either “well capitalized” or “adequatelycapitalized,” based upon the institution’s leverage ratio, risk-adjustedTier 1 capital ratio and risk-adjusted total capital ratio.  As of December 31, 2002, the Company’sbanking subsidiary was classified as “well capitalized.”  Under-capitalized depository institutionsare subject to a wide range of limitations in operations and activities,including capital distributions, payment of management fees, and limitationsupon institution growth.

 

FDICIA, asamended by IBBEA, directs each primary federal regulatory agency to establishregulations or guidelines relating to operational and managerialstandards.  The federal banking agencieshave published final rules implementing the safety and soundness standardsrequired 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 thesestandards has not been material.

 

FDICINSURANCE.  The FDIC insures deposits ofthe national banking subsidiary up to the prescribed limit per depositorthrough the BIF, and the amount of FDIC assessments paid by each BIF memberinstitution is based upon its relative risk of default as measured byregulatory capital ratios and other factors. The BIF assessment rate currently ranges from zero to 27 cents per $100of domestic deposits.  Under currentFDIC assessment guidelines, the Company expects that it will not incur any FDICdeposit insurance assessments during the next fiscal year, although the currentsystem for assigning assessment risk classification to insured depositoryinstitutions is being reviewed by the FDIC and the deposit insuranceassessments are subject to change.  TheCompany is subject to separate assessments to repay bonds (“FICO bonds”) issuedin the late 1980’s to recapitalize the former Federal Savings and LoanInsurance Corporation.  The assessmentfor the payments on the FICO bonds for the quarter beginning January 1, 2003 is1.68 basis points for BIF-assessable deposits. As of December 31, 2002, each of the Company’s bank locations qualifiedfor the lowest BIF assessment rate.

 

FDIC insuranceon deposits may be terminated by the FDIC, after notice and hearing, upon afinding by the FDIC that the insured bank has engaged or is engaging in unsafeor unsound practices, or is in an unsafe or unsound condition to continueoperations as an insured bank, or has violated any applicable law, regulation,rule or order of or condition imposed by or written agreement entered into withthe FDIC.

 

USA PATRIOTACT.  On October 26, 2001, the Presidentsigned the USA Patriot Act of 2001 (the “Patriot Act”) into law.  The Patriot Act contains sweeping anti-moneylaundering and financial transparency provisions, including:

 

•                       Duediligence requirements for financial institutions that administer, maintain, ormanage private bank accounts or correspondent accounts for non-US persons;

 

•                       Standardsfor verifying customer identification at account opening; and

 

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•                       Rules topromote cooperation among financial institutions, regulators, and lawenforcement entities in identifying parties that may be involved in terrorismor money laundering.

 

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

 

**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 tothose reports filed or furnished pursuant to Section 13(a) or 15(d) of theSecurities Exchange Act of 1934, are available via the Company’s website, assoon as reasonably practicable after these documents are filed with theSEC.  Currently, the reports provided onthe website date from March 2002 to the present, though the Company plans toadd earlier reports to the website in the future.  To obtain copies of these reports, go tohttp://www.CommunityFirst.com/investor-relations/financial-reports.asp.  A copy of a report filed by the Company withthe SEC will also be furnished without charge to any shareholder who requestsit in writing from Mark A. Anderson, President and Chief Executive Officer,Community First Bankshares, Inc., 520 Main Avenue, Fargo, North Dakota58124-0001.

 

**FORWARD-LOOKING STATEMENTS**

 

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

 

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

 

**Our Earnings areSignificantly Affected by General Business and Economic Conditions**.  Our business and financial results areaffected by general business and economic conditions in the United States andabroad. These conditions include short-term and long-term interest rates,inflation, monetary supply, fluctuations in both debt and equity capitalmarkets, and the condition of the U.S. economy, in general, and the localeconomies in which we operate.  Shouldeconomic conditions continue to worsen in the United States or abroad, demandfor loans and other products and services we offer could decrease 

 

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and the number of borrowers whofail to repay their loans could increase. In addition, interest rates in theUnited States have been at their lowest levels in decades and if interest ratesnow 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 subjectto fluctuation and is affected by economic and competitive factors whichinfluence interest rates, including the volume and mix of interest-earningassets and interest-bearing liabilities, and the level of non-performingassets.  Our performance is subject tointerest rate risk to the degree that our interest-bearing liabilities repriceor mature more slowly or more rapidly or on a different basis than our interestearning assets.  Although we have anasset liability management strategy designed to control our risk from changesin market interest rates, rapid and sustained changes in interest rates stillcould have an adverse effect on our profitability.  At December 31, 2002, based on the difference between repricingassets and repricing liabilities, we were liability sensitive which means thatour liabilities would reprice more quickly than our assets as interest rateschange.  This means that a risinginterest rate environment would increase our interest expense faster than whatwe might earn our assets.

 

**Credit Losses areInherent in Our Business, and Our Allowance for Loan Losses May be Inadequateto Cover Actual Loan Losses.**  Every loan carries a risk of non-payment.  We have adopted underwriting and creditmonitoring procedures and credit policies, including the establishment andreview of the allowance for credit losses, that we believe are appropriate tominimize this risk by assessing the likelihood of nonperformance, tracking loanperformance and diversifying our loan portfolio.  We make a number of assumptions and judgments about thecollectibility of our loan portfolio when determining the amount of the loanloss allowance.  We determine the amountof the allowance through a periodic review and consideration of severalfactors, including: the quality, size and diversity of our loan portfolio; anevaluation of non-performing loans; our historical loan loss experience; andthe amount and quality of collateral, including guarantees, securing the loans.

 

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

 

**The FinancialServices Industry is Highly Competitive**. We operate ina competitive environment for our financial products and services. Thecompetition among financial services companies to attract and retain customersis intense. Customer loyalty can be easily influenced by a competitor’s newproducts, especially offerings that provide cost savings to the customer.  Some of our competitors may be better ableto provide a wider range of products and services. We expect these competitivepressures to increase due to legislative, regulatory and technological changesand the continued consolidation in the financial services industry. Technologyhas lowered barriers to entry and made it possible for non-banks to offerproducts and services traditionally provided by banks.  Also, investment banks and insurance companiesare competing with banks in traditional banking businesses such as lending andconsumer banking. Many of our competitors are larger and better capitalizedthan we are.  Many of our competitorsmay also have fewer regulatory constraints and lower cost structures.  We expect that the consolidation of thefinancial services industry will result in larger, better-capitalized companiesoffering 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 financialservices company called a “financial holding company.” Financial holdingcompanies may offer many kinds of financial services, including banking,securities underwriting, insurance (both agency and underwriting) and merchantbanking. Under the GLB 

 

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Act, securities firms andinsurance companies that elect to become a financial holding company mayacquire banks and other financial institutions. The GLB Act significantlychanges the competitive environment in which we do business.  The GLB Act also imposes new restrictions onour use of customer financial information that could make it difficult orcostly for us to cross-sell banking, insurance and investment products to ourcustomers.

 

**Our Earnings areSignificantly Affected by the Fiscal and Monetary Policies of the FederalGovernment and its Agencies**. The policies of theFederal Reserve Board impact us significantly. The Federal Reserve Board regulates the supply of money and credit in theUnited States. Its policies directly and indirectly influence the rate ofinterest that commercial banks pay on their interest-bearing deposits and canaffect the value of financial instruments we hold. Those policies alsodetermine 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, potentiallyincreasing the risk that they may fail to repay their loans.

 

**Maintaining orIncreasing our Market Share Depends on Market Acceptance of New Products andServices**.  Oursuccess depends, in part, on our ability to develop, and gain customeracceptance of, new products and services. Financial services companies face increasing pressure to provideproducts and services at lower prices. This can reduce our net interest marginand revenues from our fee-based products and services.  In addition, the widespread adoption of newtechnologies, including Internet-based services, could require us to makesubstantial expenditures to modify or adapt our existing products and services.We may not be able to successfully introduce new products and services, achievemarket acceptance of our products and services, or develop and maintain loyalcustomers.

 

**Changes in theregulatory structure or the statutes or regulations that apply to us could havea material impact on our operations**.  We are subject to extensive regulation,supervision and examination by the Federal Reserve Board and the Office of theComptroller of the Currency. The supervision, regulation and examination ofbanks and bank holding companies by bank regulatory agencies are intendedprimarily for the protection of depositors rather than the shareholders ofthese entities. Our success depends on our continued ability to comply withthese regulations. Some of these regulations may increase our costs and thusplace non-bank financial institutions in stronger, more competitive positions.Regulatory authorities have extensive discretion in carrying out theirsupervisory and enforcement responsibilities. They have also implementedregulations which have increased capital requirements, increased insurancepremiums, required approval of acquisitions and other changes of control, andresulted in increased administrative and professional expenses. Any change inthe existing regulatory structure or the applicable statutes or regulationscould have a material impact on our operations. Additional legislation andregulations may be enacted or adopted in the future which could significantlyaffect our powers, authority and operations, which in turn could have amaterial adverse effect on our operations.

 

**We are dependent uponkey executives who would be difficult to replace.**  Our continued profitability is dependent onour senior management team.  We wouldlikely have a difficult transition period if the services of any of our seniorexecutives were lost for any reason. Recruiting talent in the competitive financial services industry isdifficult generally.  There is noassurance that we will be able to retain our current key executives or attractadditional qualified key persons as needed.

 

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

 

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**EXECUTIVE OFFICERS**

 

The executiveofficers 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 onMarch 1, 2000.  Prior to this time, hewas Vice Chairman - Corporate Services of the Company from October 1998 toMarch 2000.  He also served as ChiefFinancial Officer, Secretary and Treasurer of the Company since the Companybegan operation in 1987 to March 2000, and he was Chief Information Officerfrom****February1998 to March 2000.  He was VicePresident and Regional Controller for First Bank System, now known as U.S.Bancorp, from 1984 to 1987.  From 1979to 1984, he held various

 

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

 

Ronald K.Strand was appointed Vice Chairman - Chief Operating Officer of the Company onMarch 1, 2000.  He had been ViceChairman - Financial Services Division since October 1998.  Mr. Strand was Executive Vice President -Banking Group from February 1993 to October 1998, and was previously SeniorVice President and Region Manager for South Dakota and North Dakota fromJanuary 1991 to February 1993.  Mr.Strand had been Vice President and Regional Manager for the Company andPresident, Chief Executive Officer and a director of the Company’s affiliatebank 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 NorthDakota, N.A., Wahpeton, from 1985 until 1988. He was employed by Norwest for a total of 15 years, having previouslyworked in Norwest banks in Jamestown, North Dakota, and Moorhead, Minnesota.

 

Craig A. Weisswas appointed Chief Financial Officer on March 1, 2000 and Executive VicePresident – Chief Financial Officer in August 2001.  He was Senior Vice President - Finance of the Company fromFebruary 1998 to March 2000.  He alsoserved as Vice  President - Finance ofthe Company from 1988 to 1998 and Finance and Accounting Manager from 1987 to1988.  Prior to 1987, he was employed byFirst 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 beenExecutive Vice President - Treasury since August 2001.  From 1997 to 2001, he was Senior VicePresident - Treasury.  He was previouslyVice President/Funds Manager of the Company from 1988 to 1997 and FundsManagement 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. Fisherwas appointed Chief Information Officer of the Company on March 1, 2000.  He has been President and Chief ExecutiveOfficer of Community First Technologies, Inc. (formerly known as CommunityFirst Service Corporation) since October 1998 and previously served asExecutive Vice President - Bank Operations at this subsidiary.  Mr. Fisher was District Manager and SeniorVice President of Fiserv Inc., a financial services data and item processorfrom October 1996 to September 1998. Prior to that, he served as Senior Vice President and Operations Managerof Norwest Bank Texas, N.A. from August 1988 to October 1996.

 

                Douglas G. Vang has been Senior VicePresident – Director of Human Resources since April 2001.  From 1995 to 2001, he served in varioussenior executive officer positions, including Senior Vice President, Chief OperatingOfficer and Division President for Banner Health System, a nonprofit healthcare system.  Mr. Vang is an attorneyand certified public accountant.

 

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

 

Thomas A. Hilthas been Senior Vice President - Chief Administrative Officer of the Companysince 1988 and served as President of Community First Service Corporation (nowknown as Community

 

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First Technologies, Inc.), theCompany’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 asU.S. Bank, from 1984 to 1987.  Prior to1984, he held various positions with U.S. Bank since 1967, includingresponsibility for systems development, programming, audit and examinationfunctions.

 

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

 

Dean D. Klinghas been Senior Vice President - Financial Service Program Manager since April2001.  He served as Regional SalesManager for Wells Fargo Bank North Dakota, N.A. from 1983 to April 2001.

 

Charles A.Mausbach has been Executive Vice President-Western Division President sinceAugust 2001.  From March 1998 to August2001 he was Senior Vice President - Southwestern Region President.  He served as President of Community FirstNational Bank, Worthington, Minnesota from October 1992 to February 1998 andPresident of Community First National Bank, Windom, Minnesota from March 1991to October 1992.  He began his bankingcareer at the Company’s affiliate bank in Wahpeton, North Dakota and had atotal of 18 years of banking experience prior to joining the Company.

 

Bradley J.Rasmus was appointed Executive Vice President and Division President inFebruary 2003.  He was Senior VicePresident – Community Financial Center President from February 2001 to February2003.  Prior to that time, he was SeniorVice 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 AccountDevelopment for Richard Leahy Corporation, a financial services company.

 

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

 

ELECTION.  The Company’s officers are elected by theBoard of Directors.  The officers serveuntil their successors are elected or until their earlier resignation, removalor death.

 

Donald R.Mengedoth served as Chairman of the Board and a director of the Company sinceits organization in 1987.  Until March1, 2000, he also served as President and Chief Executive Officer of theCompany.  Under an Employment Agreemententered into on March 1, 2000, Mr. Mengedoth served as Chairman of the Board ofDirectors from March 1, 2000 to December 31, 2002.

 

**ITEM2.  PROPERTIES**

 

The Companymaintains its offices at 520 Main Avenue, Fargo, North Dakota, consisting ofapproximately 51,000 square feet.  TheCompany believes these facilities will be adequate for the foreseeablefuture.  The Company also utilizesoffice space at the banking subsidiary’s offices located in Denver, Coloradoand Cheyenne, Wyoming.  The bankingsubsidiary owns each of its offices and those of its branches, and thesefacilities range in size from approximately 1,200 to 36,000 square feet.  In 1997

 

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the Company constructed, andnow owns, a 47,000 square foot two-story building in Fargo, North Dakota whichis leased to CFT.  The Company alsoleases a 15,000 square foot credit service center in Fargo, North Dakota at anannual rental rate of $304,000.

 

**ITEM3.  LEGAL PROCEEDINGS**

 

From time totime, the Company and its subsidiaries are subject to various legal actions andproceedings in the normal course of business, some of which may involvesubstantial claims for compensatory damages. In some cases, these actions and proceedings relate in whole or in partto activities of banks prior to their acquisition and may be covered byagreements of former owners of these banks to indemnify the Company.  Although litigation is subject to manyuncertainties and the ultimate exposure with respect to current matters cannotbe ascertained, management does not believe that the final outcome will have amaterial adverse effect on the financial condition of the Company.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**PARTII**

 

**ITEM 5.  MARKET FOR REGISTRANT’SCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

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

 

**ITEM6.  SELECTED FINANCIAL DATA**

 

Selectedfinancial 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 “ConsolidatedStatement of Income-Five Year Summary” on page 45 of the “Financial Review”section of the 2002 Annual Report are incorporated herein by reference to suchinformation 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’sDiscussion and Analysis of Financial Condition and Results of Operations onpages 3 through 28 of the “Financial Review” section of the 2002 Annual Reportis incorporated hereby by reference, and attached hereto as Exhibit 13.1.

 

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**ITEM7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Theinformation set forth on pages 16 through 28 of the “Financial Review” sectionof the 2002 Annual Report under the caption “Management’s Discussion andAnalysis - Results of Operations, Financial Condition and Asset/LiabilityManagement” is incorporated herein by reference, and attached hereto as Exhibit13.1.

 

**ITEM8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

TheConsolidated Statements of Financial Condition of the Company as of December31, 2002 and 2001, and the related Consolidated Statements of Income,Consolidated Statements of Comprehensive Income, Shareholders’ Equity and CashFlows for each of the three years ended December 31, 2002, 2001, and 2000, theNotes to the Consolidated Financial Statements and the Report of Ernst &Young LLP, independent auditors, contained in the Company’s 2002 Annual Reporton pages 29 through 43 of the section entitled “Financial Review” areincorporated herein by reference, and attached hereto as Exhibit 13.1.

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

 

None.

 

**PARTIII**

 

**ITEM10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

Theinformation set forth in the Company’s Proxy Statement as filed with theSecurities and Exchange Commission under the captions “Election of Directors”and “Section 16(a) Beneficial Ownership Reporting Compliance” for the AnnualMeeting of Stockholders to be held April 22, 2003, is incorporated herein byreference.  Information regarding theexecutive officers of the Company is included under a separate caption in PartI of this Form 10-K.

 

**ITEM11.  EXECUTIVE COMPENSATION**

 

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

 

**ITEM 12.  SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

Theinformation set forth in the Proxy Statement for the Annual Meeting ofStockholders to be held April 22, 2003, under the caption “Security Ownershipof Principal Shareholders and Management” is incorporated herein by reference.

 

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**ITEM13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Theinformation set forth in the Proxy Statement for the Annual Meeting ofStockholders to be held April 22, 2003, under the caption “CertainTransactions” is incorporated herein by reference.

 

**ITEM14.  CONTROLS AND PROCEDURES**

 

**Annual evaluation of the Company’s DisclosureControls and Internal Controls.**  Within the 90 days prior to the date of thisAnnual Report on Form 10-K, the Company evaluated the effectiveness of thedesign and operation of its “disclosure controls and procedures” (the“Disclosure Controls”), and its “internal controls and procedures for financialreporting” (the “Internal Controls”). This evaluation (the “Controls Evaluation”) was done under thesupervisions and with the participation of management, including our ChiefExecutive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Rules adopted by the Securities and ExchangeCommission (the “SEC” or “Commission”) require that in this section of theAnnual Report we present the conclusions of the CEO and the CFO about theeffectiveness of our Disclosure Controls and Internal Controls based on and asof the date of the Controls Evaluation.

 

**CEO and CFO Certifications.**  Appearing in this Annual Report are twoseparate forms of “Certifications” of the CEO and the CFO.  The first form of Certification, immediatelyfollowing the Signatures section, is required in accord with Section 302 of theSarbanes-Oxley Act of 2002 (the “Section 302 Certification”).  This section of the Annual Report which youare currently reading is the information concerning the Controls Evaluationreferred to in the Section 302 Certifications and this information should beread in conjunction with the Section 302 Certifications for a more completeunderstanding of the topics presented. The second Certification is pursuant to Section 906 of Sarbanes-Oxleyand concerns compliance and disclosure under the Securities Exchange Act of1934.

 

**Disclosure Controls and Internal Controls.**  Disclosure Controls are procedures that aredesigned to ensure that information required to be disclosed in our reportsfiled under the Securities Exchange Act of 1934 (the “Exchange Act”), such asthis Annual Report, is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms.  Disclosure Controls are also designed to ensure that suchinformation is accumulated and communicated to our management, including theCEO and CFO, as appropriate to allow timely decisions regarding required disclosure.  Internal Controls are procedures designed toprovide 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 ourpreparation financial statements in conformity with generally acceptedaccounting principles.

 

**Limitations on the Effectiveness of Controls.**  The Company’s management, including the CEOand CFO, does not expect that our Disclosure Controls or our Internal Controlswill prevent all error and all fraud.  Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met.  Further, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs.  Because of the inherent limitations in allcontrol systems no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the Company have beendetected.  These inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake.  Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people, orby management override of the control. The design of any system of controls also is based in part upon certainassumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions; over time, control 

 

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

 

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

 

Among othermatters, we sought in our evaluation to determine whether there were any“significant deficiencies” or “material weakness” in the Company’s InternalControls, or whether the Company had identified any acts of fraud involvingpersonnel who a have significant role in the Company’s Internal Controls.  This information was important both for theControls Evaluation generally and because items 5 and 6 in the Section 302 Certificationsof the CEO and CFO require that the CEO and CFO disclose such information toour Board’s Audit Committee and to our independent auditors and to report onrelated matters in this section of the Annual Report.  In the professional auditing literature, “significantdeficiencies” are referred to as “reportable conditions”; these are controlissues 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 aparticularly serious reportable condition where the internal control does notreduce to a relatively low level the risk that misstatements caused by error orfraud may occur in amounts that would be material in relation to the financialstatements and not be detected within a timely period by employees in thenormal course of performing their assigned functions.  We also sought to deal with other controls matters in theControls Evaluation, and in each case if a problem was identified, weconsidered what revision, improvement and/or correction to make in accord withour on-going procedures.

 

In accord withSEC requirements, the CEO and CFO note that, since the date of the ControlsEvaluation to the date of this Annual Report, there have been no significantchanges in Internal Controls or in other factors that could significantlyaffect Internal Controls, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 

**Conclusions. **Based upon the Controls Evaluation, our CEO andCFO have concluded that, subject to the limitations noted above, our DisclosureControls are effective to ensure that material information relating to theCompany and its consolidated subsidiaries is made known to management,including the CEO and CFO, particularly during the period when our periodicreports are being prepared, and that our Internal Controls are effective toprovide reasonable assurance that our financial statements are fairly presentedin conformity with generally accepted accounting principles.

 

19

----

 

**PARTIV**

 

**ITEM 15.  EXHIBITS, FINANCIALSTATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

 

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

 

1.                                       FINANCIALSTATEMENTS.  See Item 8, above andExhibit 13.1.

 

2.                                       FINANCIALSTATEMENT SCHEDULES.  All financialstatement schedules are omitted as the required information is inapplicable orthe information is presented in the financial statements or related notes.

 

3.                                       PROFORMA FINANCIAL INFORMATION.  None.

 

(b)                                 REPORTSON FORM 8-K.

 

NoForms 8-K were file bythe 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 plansand arrangements.

 

24

----

 

**SIGNATURES**

 

Pursuant to therequirements of section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, 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 tothe requirements of the Securities Exchange Act of 1934, this Report has beensigned by the following persons on behalf of the Registrant, in the capacitiesand 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, certifythat:

 

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

 

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

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

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

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

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

 

c)              presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

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

 

6.               Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard 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, certifythat:

 

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

 

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

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

 

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

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

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

 

c)              presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

d)             allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

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

 

6.               Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 

March 18, 2003

 
|   | /s/   Craig A. Weiss                       |
|--------|------------------------------------------------------|
|   | Craig A.  Weiss                                      |
|   | *Executive Vice President,  Chief Financial Officer* |

 

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