Exhibit 13.1 financial highlights Years ended December 31 (In thousands, except per share
data) 2000
  1999
  1998
  1997
  1996EarningsTotal interest income
  $477,558
  $465,206
  $467,270
  $342,789
  $285,063Total interest expense
  210,281
  185,818
  194,787
  140,488
  114,088Net interest income
  267,277
  279,388
  272,483
  202,301
  170,975Net income
  71,634
  74,913
  45,463
  60,865
  42,925Per common
  and common equivalent shareBasic earnings per share
  $1.55
  $1.50
  $0.90
  $1.31
  $0.98Diluted earnings per share
  1.54
  1.48
  0.89
  1.27
  0.94Net book value
  8.25
  8.12
  8.49
  8.11
  6.40Dividends paid
  0.60
  0.56
  0.44
  0.35
  0.29At
  year-endTotal assets
  $6,089,729
  $6,302,235
  $6,239,772
  $5,660,218
  $3,789,855Total loans
  3,738,202
  3,690,353
  3,537,537
  3,160,501
  2,514,573Allowance for loan losses
  52,168
  48,878
  51,860
  41,387
  31,354Total deposits
  5,019,891
  4,909,863
  5,101,065
  4,341,065
  3,139,803Common equity
  345,431
  407,269
  424,656
  405,039
  276,802Key performance
  ratiosReturn on average common
  equity
  19.90%
  18.07%
  11.03%
  19.04%
  16.42%Return on average assets
  1.16%
  1.20%
  0.75%
  1.42%
  1.23%Net interest margin
  4.90%
  5.06%
  5.12%
  5.35%
  5.53%Dividend payout ratio
  38.96%
  37.84%
  49.44%
  27.56%
  30.85%Average common equity to
  average assets
  5.83%
  6.64%
  6.83%
  7.44%
  7.18%Nonperforming assets to
  period-end loans and OREO
  0.70%
  0.88%
  0.78%
  0.65%
  0.86%Allowance for loan losses
  to period-end loans
  1.40%
  1.32%
  1.47%
  1.31%
  1.25%Allowance for loan losses
  to nonperforming loans
  220.58%
  187.65%
  227.75%
  270.66%
  180.95%Net charge-offs to average
  loans
  0.34%
  0.66%
  0.43%
  0.24%
  0.22%Tier 1 capital
  8.13%
  10.01%
  9.44%
  11.54%
  9.30%Total risk-based capital
  10.73%
  12.45%
  12.09%
  14.89%
  11.26%Leverage ratio
  5.94%
  7.16%
  6.47%
  7.53%
  6.92%Efficiency ratio
  62.57%
  59.87%
  67.01%
  61.98%
  60.35%Earnings
  per share and ratios excluding goodwill and other
  intangible assets amortization and balances (Cash)Diluted earnings per share
  $1.70
  $1.62
  $1.06
  $1.37
  $1.00Return on assets
  1.30%
  1.35%
  0.92%
  1.54%
  1.32%Return on average common
  equity
  21.94%
  19.84%
  13.20%
  20.45%
  17.57%Efficiency ratio
  59.58%
  56.95%
  63.47%
  59.73%
  58.76%  To Our Shareholders:In 2000, Community First took steps to effectively expand our business
to meet the broader needs and expectations of our customers. The first change
involved a management transition in March, as Don Mengedoth became chairman in
order to devote more time to his role as president of the American Bankers
Association and I was appointed president and chief executive officer. This
resulted in expanded roles for Ron Strand as chief operating officer, and Craig
Weiss as chief financial officer.
            Change also brought
opportunity in 2000, as we moved to consolidate our twelve national and state
bank charters into a single national banka move that will better enable us to
fund our balance sheet, implement operating efficiencies and reduce short-term
borrowings. Our balance sheet changed further as we repurchased 8.8 million
shares of our common stock, which we believe is an excellent use of our
shareholders capital. 
The launch of our re-designed Web site in the fourth quarter of 2000 was the
first step in the transition to offer our customers online banking capabilities
and investment services.

Expect more products and
servicesUpgrading
our technology capabilities and expanding our product offerings are the result
of re-thinking the role of banks in todays world. Traditional bank offeringssuch
as savings accounts and loansface competition not only from other banks but from substitute products like money
market funds and credit card lines of credit. Our customers have different
financial needs. And those needs change over time.

To continue to
grow, we must meet a broader range of our commercial and retail customers
needs. Our business is not merely loans and checking accounts; its finding
financial solutions to help our customers meet their future needs. It has been demonstrated that the most profitable
customers of a bank are those who have been customers for the longest time,
with the most accounts and services at the bank. By meeting a greater portion
of a customers financial needs, we become thoroughly knowledgeable about that customers financial situation and build a
stronger relationship.

To offer more products and
services, we have acquired insurance agencies in some of the markets we serve.
We have forged a new relationship with PrimeVest to offer a broader array of
investment products. With our new online investing capability available in
2001,we will provide even more investment choices to our customers
through our online discount brokerage. Nearly three-quarters of the funds used
to buy investment products from Community First come from outside our banks as
these new products attract incremental dollars to our banks.



Expect
more delivery channels

We not only want to give customers the products they need, but provide
them in a way that fits their busy lifestyles. Our online banking site,
available in 2001, will enable customers to pay bills electronically any time
of day, any day of the week, as well as access their account information and
transfer funds between accounts. As we enhance our Internet capabilities in the
future, they will also be able to manage their investment portfolios and select
insurance products online.
            Electronic delivery channels add choices and convenience for our
customers, complementing our personal banking relationships and other channels
such as our robust bank by phone capabilities. We will maintain a high level
of personal service through our sales
representatives by ensuring that each office has the appropriate staff
to meet the needs of that markets customer base. We will rely on electronic
communications to handle routine transactions and use our highly-trained sales representatives to make sure that the
needs of every customer are clearly understood, as we strive to provide the
products and services that meet their
needs.
            To meet our goal of providing
more services to every customer, we need to re-orient the goals of our sales
representatives from closing discrete transactions to building a complete
financial management relationship with a customer, selling an array of
financial products, meeting a number of different needs.

As we reflect on the
past and the opportunities ahead, I would like to thank Pat Benedict for his
outstanding service on the Community First Bankshares Board of Directors. Pat
joined us in 1992 and has decided not to stand for reelection in 2001. We thank
Pat for his outstanding service and welcome his replacement board member,
Annette Quintana.
            Community First is not merely
a bank, but a financial services provider. We add value for our customers by
making their financial affairs easier to manage and more successful. We also
believe we have an obligation to our shareholders to increase the value of
their holdings, which we do by managing our business and our capital well. We
will continue to evaluate and implement strategies that enhance shareholder
value. Whether youre a customer, shareholder or employee, you have unique
expectations of Community First. We will continue to work hard to surpass them.
Thank you for your continued support.

Sincerely,



/s/ Mark A. AndersonMark A. AndersonPresident andChief Executive OfficerFebruary 15, 2001financial  review

Managements Discussion and Analysis

Consolidated
Statements of Financial Condition

Consolidated
Statements of Income

Consolidated
Statements of Comprehensive Income

Consolidated
Statements of Shareholders Equity

Consolidated
Statements of Cash Flows

Notes to
Consolidated Financial Statements

Independent
Auditors Letter

Five-Year
Summary

Quarterly Results of Operations

managements
  discussion and analysis
  
  Community First Bankshares, Inc.

Basis
of Presentation

The following represents managements
discussion and analysis of Community First Bankshares, Inc.s (the Company)
financial condition as of December 31, 2000 and 1999, and its results of
operations for the years ended December 31, 2000, 1999 and 1998. This
discussion should be read in conjunction with the consolidated financial
statements and related footnotes and the five year summary of selected
financial data. The information has been restated to reflect significant
mergers accounted for as a pooling of interests as if they had occurred at the
beginning of the first period presented. Purchases have been reflected in the
Companys results of operations for all periods following the acquisition and
are reflected in the Companys financial condition at all dates subsequent to
the acquisition.

Merger
and Acquisition Activity

The Company has made a number of acquisitions during these periods.
Each of these acquisitions has had an effect upon the Companys results of
operations and financial condition.
            Pooling of Interests Transactions. In the following
transactions during the periods presented, the Company accounted for the
acquisition using the pooling of interests method.

Pooling of Interests TransactionsAcquisition
  Location of
  Number
  of
  Total
  Assets atMonth and
  Bank or Name
  Locations
  at
  Date
  of AcquisitionYear
  of Acquired Entity
  Date
  of Acquisition
  (in
  Millions)December 1999
  Ramsey, Minnesota
  1
  $35October 1999
  El Cajon, California
  6
  252August 1998
  Salt Lake City, Utah
  2
  99July 1998
  Las Cruces, New Mexico
  3
  159May 1998
  FNB, Inc., Colorado
  2
  120April 1998
  Longmont, Colorado
  4
  138April 1998
  Thornton, Colorado
  4
  78

On December 21, 1999,
the Company issued approximately 317,000 shares of common stock to acquire
River Bancorp, Inc. (River Bancorp), a one-bank holding company headquartered
in Ramsey, Minnesota. At acquisition, Ramsey had approximately $35 million in
assets at one office in Ramsey, Minnesota. Because this acquisition was not
material to the Companys financial condition or operating results, the
Companys financial information has not been restated to reflect this merger.
            With respect to the other six
acquisitions listed above, the Companys results of operations and financial
condition have been restated for all historical periods.


  On October 7, 1999, the Company issued approximately
  3,022,000 shares of common stock to acquire Valley National Corporation
  (Valley National), a one-bank holding company headquartered in El Cajon,
  California. At acquisition, Valley National had approximately $252 million in
  assets at six banking offices located in California.
  On August 7, 1998, the Company issued approximately
  1,526,000 shares of common stock to acquire Guardian Bancorp (Guardian), a
  one-bank holding company headquartered in Salt Lake City, Utah. At
  acquisition, Guardian had approximately $99 million in assets at two offices
  in Utah.
  On July 1, 1998, the Company issued approximately
  1,932,000 shares of common stock to acquire Western Bancshares of Las Cruces,
  Inc. (Western), a one-bank holding company headquartered in Las Cruces, New
  Mexico. At acquisition, Western had approximately $159 million in assets at
  three offices in New Mexico.
  On May 7, 1998, the Company issued approximately
  1,135,000 shares of common stock to acquire FNB Inc. (FNB), a two-bank
  holding company with banks in Greeley and Fort Collins, Colorado. At
  acquisition, FNB had approximately $120 million in assets.
  On April 30, 1998, the Company issued approximately
  1,432,000 shares of common stock to acquire Pioneer Bank of Longmont
  (Longmont). At acquisition, Longmont had approximately $138 million in
  assets at four offices in Colorado.
  On April 3, 1998, the Company issued approximately
  853,000 shares of common stock to acquire Community Bancorp, Inc. (CBI), a
  one-bank holding company headquartered in Thornton, Colorado. At acquisition,
  CBI had approximately $78 million in assets at one bank in Colorado.

Purchase Transactions. On January 23, 1998,
the Company completed the purchase and assumption of approximately $730 million
in assets and liabilities of 37 offices of Banc One Corporation located in Arizona, Colorado and Utah. The transaction
was accounted for as a purchase of certain assets and assumption of certain
liabilities and resulted in the recognition of approximately $44 million of
deposit premium. The purchase was funded through a combination of net proceeds
from the issuance of 2,000,000 shares of common stock in December 1997 and the
proceeds of the issuance of $60 million 8.20% Cumulative Capital Securities by
a business trust subsidiary in December 1997.



Overview

General

For the year ended December 31, 2000, the Company reported net income
of $71.6 million, a decrease of $3.3 million, or 4.4%, from the $74.9 million
earned during 1999. Diluted earnings per share were $1.54, compared to $1.48 in
1999. Return on average assets was 1.16% for 2000, compared with 1.20% for
1999. Return on average common shareholders equity for 2000 and 1999 was
19.90% and 18.07%, respectively. The decrease in return on assets is
principally due to a reduction in net income, while the increase in return on equity is principally due to a
reduction in total stockholders equity as a result of the Companys
stock repurchase initiative.
            For the year ended December
31, 1999, the Company reported net income of $74.9 million, an increase of
$29.4 million, or 64.6% from the $45.5 million earned during 1998. Diluted
earnings per share were $1.48, compared to $0.89 in 1998. Return on average
assets was 1.20% for 1999, compared with 0.75% for 1998. Return on average
common shareholders equity for 1999 and 1998 was 18.07% and 11.03%,
respectively.
            Total assets were $6.1 billion
and $6.3 billion at December 31, 2000 and 1999, respectively. The decrease of
$213 million, or 3.4%, during 2000 was principally due to the Companys planned
balance sheet contraction.

Stock Repurchase Plan

In April 2000, the Company adopted a common stock repurchase program
providing for the systematic repurchase of up to 5 million shares of the
Companys common stock. In addition, during August 2000, the Company adopted an
additional common stock repurchase program providing for the repurchase of up
to an additional 5 million shares. Under each program, the shares are to be
purchased primarily on the open market, with timing depending upon market
conditions. Adoption of the two programs provide the Company with an
alternative opportunity for capital utilization. In addition, the shares
acquired can be used for the issuance of common
stock upon exercise of stock options, under the Companys compensation
plans and for other purposes, including business combinations. As of December
31, 2000, the Company had repurchased 8
million shares of common stock under these plans, at prices ranging form
$15.25 to $18.82. During 2000, the Company repurchased 8.8 million shares of
common stock, including 385,000 shares under a previously approved program and
400,000 shares in conjunction with an executive officer employment agreement,
in addition to the 8 million shares under the two programs approved in 2000.

Results of Operations

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

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

Years Ended December 31
  2000
  1999
  1998(Dollars
  in thousands)
  Average
  Balance
  Interest
  Interest
  Yields and
  Rates
  Average
  Balance
  Interest
  Interest
  Yields and
  Rates
  Average
  Balance
  Interest
  InterestYields andRatesAssetsLoans(1) (2)
  $3,706,144
  $357,034
  9.63%
  $3,573,060
  $336,229
  9.41%
  $3,383,724
  $340,168
  10.05%Investment securities(2)
  1,909,479
  128,490
  6.73%
  2,104,661
  136,775
  6.50%
  2,003,076
  130,088
  6.49%Other earning assets
  12,375
  628
  5.07%
  24,886
  1,277
  5.13%
  95,360
  5,193
  5.45%Total
  earning assets
  5,627,998
  486,152
  8.64%
  5,702,607
  474,281
  8.32%
  5,482,160
  475,449
  8.67%Noninterest-earning assets
  551,194
  
  
  542,687
  
  
  552,961Total
  assets
  $6,179,192
  
  
  $6,245,294
  
  
  $6,035,121Liabilities
  and Shareholders EquityInterest-bearing checking
  845,079
  13,437
  1.59%
  920,521
  13,345
  1.45%
  851,217
  14,558
  1.71%Savings deposits
  1,059,736
  35,673
  3.37%
  1,091,228
  31,558
  2.89%
  1,116,214
  34,550
  3.10%Time deposits
  2,132,327
  120,171
  5.64%
  2,099,426
  106,235
  5.06%
  2,167,904
  117,765
  5.43%Short-term borrowings
  568,540
  34,303
  6.03%
  557,920
  28,052
  5.03%
  345,060
  19,576
  5.67%Long-term borrowings
  95,814
  6,697
  6.99%
  97,732
  6,628
  6.78%
  122,117
  8,338
  6.83%Total
  interest-bearing liabilities
  4,701,496
  210,281
  4.47%
  4,766,827
  185,818
  3.90%
  4,602,512
  194,787
  4.23%Demand deposits
  931,556
  
  
  880,484
  
  
  840,983Noninterest-bearing
  liabilities
  66,138
  
  
  63,339
  
  
  59,516Trust owned preferred
  securities
  120,000
  
  
  120,000
  
  
  120,000Preferred shareholders
  equity
  0
  
  
  0
  
  
  0Common shareholders equity
  360,002
  
  
  414,644
  
  
  412,1101,477,696
  
  
  1,478,467
  
  
  1,432,609Total liabilities and
  shareholders equity
  $6,179,192
  
  
  $6,245,294
  
  
  $6,035,121Net interest income
  
  $275,871
  
  
  $288,463
  
  
  $280,662Net interest spread
  
  
  4.17%
  
  
  4.42%
  
  
  4.44%Net interest margin
  
  
  4.90%
  
  
  5.06%
  
  
  5.12%

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

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

2000 compared to 1999
  1999 compared to 1998(In
  thousands)
  Volume
  Rate
  Total
  Volume
  Rate
  TotalInterest income:Loans(1)
  $12,523
  $8,282
  $20,805
  $19,034
  $(22,973)
  $(3,939)Investment securities (1)
  (12,684)
  4,399
  (8,285)
  6,597
  90
  6,687Other
  earning assets
  (642)
  (7)
  (649)
  (3,838)
  (78)
  (3,916)Total interest income
  $(803)
  $12,674
  $11,871
  $21,793
  $(22,961)
  $(1,168)Interest expense:Savings deposits and interest-bearing
  checking
  (2,004)
  6,211
  4,207
  412
  (4,617)
  (4,205)Time deposits
  1,665
  12,271
  13,936
  (3,720)
  (7,810)
  (11,530)Short-term borrowings
  534
  5,717
  6,251
  12,076
  (3,600)
  8,476Long-term
  borrowings
  (130)
  199
  69
  (1,665)
  (45)
  (1,710)Total interest  expense
  65
  24,398
  24,463
  7,103
  (16,072)
  (8,969)Increase (decrease) in net
  interest income
  $(868)
  $(11,724)
  $(12,592)
  $14,690
  $(6,889)
  $7,801(1)        Fees on loans have been included in
interest on loans. Interest income is reported on a tax-equivalent basis.





Net interest income on a
tax-equivalent basis in 2000 was $275.9 million, a $12.6 million decrease from
1999. The decrease was primarily due to a 1.3% decrease in earning assets and a
16 basis point reduction in the net interest margin. The decrease in earning
assets is the result of the Companys planned balance sheet contraction, principally in the reduction of average investment
securities, offset by an increase in average loans. Average investment
securities in 2000 were $195 million less than in 1999. Average loans in 2000
increased $133 million from the 1999 average. Net interest income on a
tax-equivalent basis in 1999 was $288.5 million, a $7.8 million increase from
1998. The increase was primarily due to a 4.0% increase in earning assets
partially offset by a 6 basis point reduction in the net interest margin. The increase in earning assets was due to loan growth
in existing markets.
           The net interest margin was
4.90%, 5.06% and 5.12% in 2000, 1999 and 1998, respectively. This decrease in
margin was due to a 25 basis point decrease in the yield spread between 1999
and 2000, and a change in the mix of earning assets to lower-yielding assets.
Average loans to average earning assets was 65.9% in 2000 compared to 62.7% in
1999 and 61.7% in 1998.

Provision
for Loan Losses
Annual fluctuations in the provision for loan losses result from managements
regular assessment of the adequacy of the allowance for loan losses. The
provision for loan losses for 2000 was $15.8 million, a decrease of $4.4
million or 21.8%, from the $20.2 million provision during 1999. The decrease in
the loan loss provision was principally due to the Companys credit experience
as reflected in a reduction in the level of net charge-offs. The amount of the
loan loss provision to be recorded in future periods will depend on
managements assessment of the adequacy of the allowance for loan losses in
relation to the entire loan portfolio. The provision for loan losses for 1999
was $20.2 million, a decrease of $2.9 million, or 12.6% from the 1998 provision
of $23.1 million. The decrease was primarily due to the operation and disposal
of the Companys sub-prime lending affiliates in 1999 and 1998.

Noninterest
Income
The Company continues to expand noninterest income associated with the
Companys community banking operations. The primary sources of noninterest
income consist of service charges on deposit accounts, service fees on checking
accounts, insurance commissions, fees from the sale of investment products and
fees for trust services. Management is working to increase the contribution of noninterest income to operating
results by increasing the delivery of financial products and services,
including trust services, insurance policy sales and security sales through a
third party provider of standardized securities products.
            Noninterest income for 2000
was $75.2 million, an increase of $2.7 million, or 3.7%, from the $72.5 million
earned in 1999. The increase was principally due to an increase in service
charges on deposit accounts in 2000 to $39.5 million from the $37.0 million in
1999, an increase of $2.5 million, or 6.8%. Insurance commissions increased to
$10.6 million in 2000, from $8.8 million in 1999, an increase of $1.8 million,
or 20.4%. Commissions from the sale of investment securities increased to $6.8
million in 2000, from $5.3 million in 1999, an increase of $1.5 million, or
28.3%. Trust revenue increased to $5.8 million in 2000, from $5.1 million in
1999, an increase of $663,000 or 12.9%. Net gains on the sale of investment
securities were $2.1 million less in 2000 than in 1999.
            Noninterest income for 1999
was $72.5 million, an increase of $9.2 million, or 14.5%, from the $63.3
million earned in 1998. The increase was principally due to an increase in service
charges on deposit accounts in 1999 from $31.9 million earned during 1998 to
$37.0 million earned in 1999, an increase of $5.1 million, or 16.0%.

Noninterest
Expense
Noninterest expenses consist of salaries and benefits, occupancy, equipment and
other expenses such as legal and postage necessary for the operation of the
Company. Management is committed to improving the quality of service while
controlling such costs through improved efficiency and consolidation of certain
activities to achieve economies of scale.
            The following table presents
the components of noninterest expense for the periods indicated:

Years Ended December 31(In thousands)
  2000
  1999
  1998Salaries and employee benefits
  $110,024
  $106,542
  $119,250Net occupancy
  31,941
  32,726
  33,929FDIC insurance
  1,039
  625
  771Legal and accounting
  3,874
  3,651
  4,237Other professional services
  4,415
  5,168
  6,014Acquisition, integration
  and conforming
  
  3,053
  3,721Data processing and loan servicing fees
  4,545
  4,116
  5,209Company-obligated mandatorily redeemable preferred
  securities of CFB Capital I & II
  10,245
  10,245
  10,218Amortization of intangibles
  10,481
  10,500
  10,366Other
  42,755
  41,601
  46,933Total noninterest expense
  $219,319
  $218,227
  $240,648Noninterest expense
increased $1.1 million to $219.3 million in 2000. The increase was principally
due to an increase in salaries and employee benefits, offset in part by a
reduction in acquisition and related expenses. Salaries and employee benefits
increased to $110.0 million in 2000, from $106.5 million in 1999, an increase
of $3.5 million, or 3.3%. The increase was attributed to annual merit
increases, as the number of employees remained stable during 2000. FDIC
insurance increased to $1.0 million in 2000, from $625,000 in 1999, an increase
of $414,000, or 66.2%, as a result of an industry-wide increase in the 2000
premium rate assessed by regulatory authorities. The Company recorded $3.1
million in acquisition, integration and conforming expenses in 1999, related to
the acquisition through merger of Valley National and River Bancorp. Other
noninterest expense was $42.8 million, an increase of $1.2 million, or 2.9%,
from $41.6 million in 1999.
            Noninterest expense decreased
$22.4 million to $218.2 million in 1999. The decrease was principally due to a
decrease in salaries and employee benefits, net occupancy expense and
acquisition and related expenses, including legal and accounting and other
professional services. The $12.8 million decrease in salaries and employee
benefits and the $1.2 million decrease in net occupancy expense are due
principally to certain expense control and operating efficiency initiatives
announced by the Company during the fourth quarter of 1998 and implemented
during 1999. The $586,000 decrease in legal and accounting, the decrease of
$846,000 in other professional services, and the decrease of $668,000 in
acquisition, integration and conforming expenses are principally due to a
reduction in the volume of acquisition activity during 1999. The Company
incurred acquisition expenses of $3.1 million during 1999 in connection with
the 1999 acquisitions.

Provision
for Income Taxes
The Company records a provision for income taxes currently payable and for
taxes payable in the future because of differences in the timing of recognition
of certain items for financial statement and income tax purposes. The effective
income tax rate differs from the statutory rate primarily due to tax-exempt
income from loans and investments and state income taxes. The 2000 effective
tax rate is similar to the Companys anticipated effective tax rates in future
periods. The effective tax rate was 33.3%, 34.0% and 31.4% for 2000, 1999 and
1998, respectively. As a result of effective tax strategies, the Companys
effective tax rate was lower than 
historical effective rates during 1998.

Financial Condition

Investment
of Funds

Loans
At December 31, 2000, total loans were $3.7 billion, an increase of $48
million, or 1.3%, from the December 31, 1999, level. The increase is
principally the net result of a $160 million increase in in-market loan growth
in the Companys existing markets, offset by the amortization of $133 million
in discounted lease receivables which were permitted to run off during 2000.
            During 2000, the Company
elected to discontinue active solicitation of purchased loans. Many of these
assets have been originated by selected Midwestern regional banks and national
leasing and finance companies, with which the Company has had ongoing
relationships. The Companys portfolio of purchased loan assets was $188
million at December 31, 2000, compared to $301 million at December 31, 1999.
These assets are subject to the Companys standard credit guidelines, as well
as specific requirements for such assets, and bear the credit risks attendant to
commercial loans. It is anticipated that the purchased loan asset volume will
decrease during 2001, in that the Company has elected to discontinue active
solicitation of purchased loans.
            The following table presents
the Companys balance of each major category of loans at the dates indicated:

2000
  1999
  1998
  1997
  1996(Dollars in thousands)
  Amount
  Percent
  of Total
  Loans
  Amount
  Percent
  of Total
  Loans
  Amount
  Percent
  of Total
  Loans
  Amount
  Percentof Total
  Loans
  Amount
  Percentof TotalLoansLoan category:Real
  estate
  $1,458,494
  39.02%
  $1,319,678
  35.76%
  $1,291,287
  36.51%
  $1,213,272
  38.39%
  $951,737
  37.85%Real estate
  construction
  466,616
  12.48%
  434,924
  11.79%
  366,277
  10.35%
  253,385
  8.02%
  183,891
  7.31%Commercial
  872,824
  23.35%
  994,624
  26.95%
  966,404
  27.32%
  834,653
  26.41%
  736,831
  29.30%Consumer
  and other
  686,064
  18.35%
  681,423
  18.46%
  618,530
  17.48%
  565,833
  17.90%
  402,296
  16.00%Agricultural
  254,204
  6.80%
  259,704
  7.04%
  295,039
  8.34%
  293,358
  9.28%
  239,818
  9.54%Total loans
  $3,738,202
  100.00%
  $3,690,353
  100.00%
  $3,537,537
  100.00%
  $3,160,501
  100.00%
  $2,514,573
  100.00%Less allowance for loan
  losses
  (52,168)
  
  (48,878)
  
  (51,860)
  
  (41,387)
  
  (31,354)Total
  $3,686,034
  
  $3,641,475
  
  $3,485,677
  
  $3,119,114
  
  $2,483,219

General. The Companys loan mix remained relatively constant from 1999 to 2000.
Real estate loans continued to be the largest category of loans, representing
51.5% of the total loan portfolio.

Real Estate and Real Estate
Construction Loans. A significant portion of the Companys
real estate loan portfolio consists of residential real estate first mortgages
that have been underwritten and documented to meet secondary mortgage
requirements. Substantially all of the Companys real estate loans are based in
the Companys primary market area. As of December 31, 2000, $713 million, or
37.0%, of the Companys real estate loan portfolio consisted of residential
real estate loans, $154 million, or 8.0%, were secured by farmland, $591
million, or 30.7%, represented commercial and other real estate loans and $467
million, or 24.3%, represented construction loans.

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

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

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

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

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

Book Value at December 31,(In
  thousands)
  2000
  1999
  1998U.S. Treasury
  $
  $
  $U.S. Government agencies
  
  
  7,499Mortgage-backed securities
  
  
  Collateralized mortgage obligations
  
  
  State and political securities
  
  
  14,986Other
  73,222
  74,248
  70,374Total
  $73,222
  $74,248
  $92,859The following table
sets forth the composition of the Companys available-for-sale securities
portfolio at estimated fair value as of the dates indicated:

Book Value at December 31,(In
  thousands)
  2000
  1999
  1998U.S. Treasury
  $77,951
  $114,798
  $134,957U.S. Government agencies
  435,255
  438,608
  364,680Mortgage-backed securities
  993,939
  1,113,818
  1,219,056Collateralized mortgage obligations
  9,635
  25,978
  62,050State and political securities
  115,400
  148,502
  145,761Other
  82,330
  95,813
  78,080Total
  $1,714,510
  $1,937,517
  $2,004,584

Held-to-Maturity
  Securities
  At December 31, 2000, Maturing inOne Year or Less
  Over One Year
  Through 5 Years
  Over 5 Years
  Through 10 Years
  Over 10 Years
  
  Total(Dollars in thousands)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)Other
  
  
  
  
  
  
  $73,222
  7.34%
  $73,222
  7.34%Total
  
  
  
  
  
  
  $73,222
  7.34%
  $73,222
  7.34%

(1)        Interest yields on investments are
presented on a tax-equivalent basis to reflect the tax-exempt nature of certain
assets. Yields are based on a 35% incremental tax rate and a 3.79% cost of
funds.

Available-for-Sale Securities
  At
  December 31, 2000, Maturing inOne Year or Less
  Over One YearThrough 5 Years
  Over 5 YearsThrough 10 Years
  Over 10 Years
  
  Total(Dollars in thousands)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)
  Amount
  Weighted
  Yield(1)
  Amount
  WeightedYield(1)U.S. Treasury
  $11,038
  6.19%
  $66,913
  5.95%
  $
  
  $
  
  $77,951
  5.98%U.S. Government agencies
  8,180
  5.84%
  255,944
  5.98%
  169,214
  6.34%
  1,917
  7.01%
  435,255
  6.12%Mortgage-backed securities
  207
  8.71%
  14,016
  6.93%
  17,974
  6.65%
  961,742
  6.58%
  993,939
  6.59%Collateralized mortgage
  obligations
  
  
  
  
  3,605
  6.84%
  6,030
  6.55%
  9,635
  6.66%Municipal bonds
  7,756
  7.30%
  19,270
  7.22%
  20,108
  7.47%
  68,266
  7.11%
  115,400
  7.20%Other
  1,495
  7.07%
  297
  5.61%
  648
  5.29%
  79,890
  6.79%
  82,330
  6.78%Total
  $28,676
  6.45%
  $356,440
  6.08%
  $211,549
  6.48%
  $1,117,845
  6.63%
  $1,714,510
  6.49%

(1)        Interest yields on investments are
presented on a tax equivalent basis to reflect the tax exempt nature of certain
assets. Yields are based on a 35% incremental tax rate and a 3.79% cost of
funds

The Companys investments, including
available-for-sale and held-to-maturity securities, decreased $224 million, or
11.1%, to $1.8 billion at December 31, 2000, from $2.0 billion at December 31,
1999. At December 31, 2000, the Companys investments represented 29.4% of
total assets, compared to 31.9% at December 31, 1999.

Credit Policy
The Companys lending activities are guided by the general loan policy
established by the Board of Directors. The Senior Credit Committee of the
Company has established loan approval limits for each region of the Company and
each subsidiary bank. The limits established for each bank range from $50,000
to $500,000 per borrower (except for the Fargo office, which has a $750,000
limit per borrower). Renewals of any criticized or classified loans have a
limit of $25,000. Amounts in excess of the individual bank lending authority
are presented to the regional credit officers. The regional credit officers for
Arizona, California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, Utah,
Wisconsin, Wyoming and the Dakotas have lending authority up to $750,000 per
nonclassified borrower with concurrence of a second regional credit officer or
the respective regional managing officer. Loans above $1,500,000 per pass rated
borrower, $1,000,000 per watch rated borrower and $250,000 per classified
borrower are presented to the Senior Credit Committee for approval.
            Although the Company has a
diversified loan portfolio, the economic health of significant portions of the
Companys primary trade area and the ability of many of the banks borrowers to
repay their loans (including real estate and commercial loans, as well as
agricultural loans) is dependent to a large extent on the health of their local
sector of the economy. The Company has identified and implemented strategies to
deal with these factors, including an emphasis on quality local loan growth and
the diversification and performance of its earning asset portfolios.

Nonperforming
Assets
The Company follows regulatory guidelines with respect to classifying loans on
a nonaccrual basis. Loans are placed on nonaccrual when they become past due
over 90 days or when the collection of interest or principal is considered
unlikely. The Company does not return a loan to accrual status until it is
brought current with respect to both principal and interest and future principal
payments are no longer in doubt. When a loan is placed on nonaccrual status, any previously accrued and uncollected
interest is reversed. Interest income of $4,693,000 on nonaccrual loans would
have been recorded during 2000 if the loans had been current in accordance with
their original terms. During 2000, the Company recorded interest income of
$955,000 related to loans that were on nonaccrual status as of December 31,
2000.
            The Company considers
nonperforming assets to include all nonaccrual loans, restructured loans
defined as troubled debt restructurings under SFAS No. 15 and other real estate
owned (OREO).
            Nonperforming assets of the
Company are summarized in the following table:

December
  31 (Dollars in thousands)
  2000
  1999
  1998
  1997
  1996Loans:Nonaccrual loans
  $23,426
  $25,764
  $22,609
  $15,151
  $15,902Restructured
  loans
  224
  284
  162
  140
  1,425Nonperforming loans
  23,650
  26,048
  22,771
  15,291
  17,327OREO
  2,437
  6,525
  4,763
  5,433
  4,238Nonperforming
  assets
  $26,087
  $32,573
  $27,534
  $20,724
  $21,565Loans 90 days or more past
  due but still accruing
  $2,482
  $1,949
  $3,525
  $4,292
  $2,690Nonperforming loans as a percentage of total loans
  0.63%
  0.71%
  0.64%
  0.48%
  0.69%Nonperforming assets as a percentage of total assets
  0.43%
  0.52%
  0.44%
  0.37%
  0.57%Nonperforming assets as a percentage of total loans
  and OREO
  0.70%
  0.88%
  0.78%
  0.65%
  0.86%Total loans
  $3,738,202
  $3,690,353
  $3,537,537
  $3,160,501
  $2,514,573Total assets
  $6,089,729
  $6,302,235
  $6,239,772
  $5,660,218
  $3,789,855Nonperforming assets
were $26.1 million at December 31, 2000, a decrease of $6.5 million, or 19.9%,
from $32.6 million at December 31, 1999. Nonperforming loans decreased by $2.4
million during the same period. OREO decreased $4.1 million, or 63.1%, from
$6.5 million at December 31, 1999 to $2.4 million at December 31, 2000. The
ratio of nonperforming assets to total assets at December 31, 2000, was .43%,
compared to .52% at December 31, 1999.

Nonperforming assets
were $32.6 million at December 31, 1999, an increase of $5.1 million, or 18.5%
from $27.5 million at December 31, 1998. Nonperforming loans increased by $3.3
million due principally to an increase in nonaccrual loans in the remaining
specialty lending area. OREO increased $1.8 million, or 37.0%, from $4.8
million at December 31, 1998 to $6.5 million at December 31, 1999. The increase
in OREO is attributed principally to assets in the Companys remaining
specialty lending portfolio. The ratio of nonperforming assets to total assets
at December 31, 1999 was .52% , compared to .44% at December 31, 1998.

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

The allowance is
allocated to individual loan categories based on the relative risk
characteristics of the loan portfolios. Commercial and agricultural allocations
are based on a quarterly review of the individual loans outstanding, including
outstanding commitments to lend. Real estate and consumer allocations are based
on a quarterly analysis of the performance of the respective portfolios,
including historical and expected delinquency and charge-off statistics. The
allowance allocated to real estate loans, including real estate construction,
increased $2.2 million from $10.5 million at December 31, 1999 to $12.7 million
at December 31, 2000. The allowance allocated to the consumer loan portfolio
decreased $510,000, from $4.7 million to $4.1 million at December 31, 1999 and
2000, respectively.
            The Company also maintains an
unallocated allowance to recognize its exposure to inherent, but undetected
losses within the loan portfolio. This exposure is caused by inherent delays in
obtaining information regarding an individual borrowers financial condition or
change in their specific business condition; the judgmental nature of
individual loan evaluations, collateral assessments and the interpretation of
economic trends; the volatility of general economic or specific customer
conditions affecting the identification and quantification of losses for large
individual credits; and the sensitivity of assumptions used in establishing
allocated allowances for general categories of loans. The unallocated allowance
also addresses risk in concentration of credit to specific borrowers, products
or industries. The unallocated portion of the allowance increased from $22.4
million at December 31, 1999 to $25.1 million at December 31, 2000. The
allocated allowance as a percentage of loans outstanding was .72% at December
31, 1999 and December 31, 2000. The unallocated portion increased from .60% to
 .68% at December 31, 1999 and 2000, respectively. The accompanying table shows
the allocated and unallocated portions of the allowance for the various loan
classifications.
            The Companys experience in
the consumer loan and real estate loan portfolios of its sub-prime lending
subsidiaries during 1999 and 1998 resulted in increased allowance levels in
these loan classifications. Management has reviewed the allocations in the
various classifications of loans and believes the allowance was adequate at all
times during the five-year period ended December 31, 2000. The analysis
methodology has been consistently applied during this five-year period.
            The following table sets forth
the Companys allowance for loan losses as of the dates indicated:

December
  31 (Dollars in thousands)
  2000
  1999
  1998
  1997
  1996Balance at beginning of year
  $48,878
  $51,860
  $41,387
  $31,354
  $27,104Allowance of acquired companies and other
  
  270
  1,950
  10,065
  784Charge-offs:Real estate
  1,176
  2,181
  2,340
  802
  1,166Real estate construction
  408
  2,965
  36
  635
  Commercial
  6,644
  8,349
  2,771
  1,863
  2,233Consumer and other
  7,893
  13,802
  11,806
  5,326
  2,836Agricultural
  996
  553
  1,381
  726
  443Total charge-offs
  17,117
  27,850
  18,334
  9,352
  6,678Recoveries:Real estate
  155
  928
  237
  306
  297Real estate construction
  4
  
  
  
  4Commercial
  1,565
  468
  972
  650
  707Consumer and other
  2,648
  2,537
  2,113
  1,113
  513Agricultural
  254
  481
  399
  647
  78Total
  recoveries
  4,626
  4,414
  3,721
  2,716
  1,599Net charge-offs
  12,491
  23,436
  14,613
  6,636
  5,079Provision charged to
  operations
  15,781
  20,184
  23,136
  6,604
  8,545Balance at end of year
  $52,168
  $48,878
  $51,860
  $41,387
  $31,354Allowance as a percentage of total loans
  1.40%
  1.32%
  1.47%
  1.31%
  1.25%Net charge-offs to average loans outstanding
  0.34%
  0.66%
  0.43%
  0.24%
  0.22%Total loans
  $3,738,202
  $3,690,353
  $3,537,537
  $3,160,501
  $2,514,573Average loans
  $3,706,144
  $3,573,060
  $3,383,724
  $2,747,123
  $2,296,345

At December 31, 2000,
the allowance for loan losses was $52.2 million, an increase of $3.3 million
from the December 31, 1999, level of $48.9 million. At December 31, 2000, the
allowance for loan losses as a percentage of total loans was 1.40%, as compared
to 1.32% at December 31, 1999. This increase was attributed to the Companys
analysis of the loan portfolio credit quality at the Companys bank
subsidiaries.
            At December 31, 1999, the
allowance for loan losses was $48.9 million, a decrease of $3.0 million from
the December 31, 1998, level of $51.9 million. This decrease was the result of
an increase in 1999 net charge-offs and the Companys analysis of the loan
portfolio credit quality at the Companys bank subsidiaries. At December 31,
1999, the allowance for loan losses as a percentage of total loans was 1.32%,
as compared to 1.47% at December 31, 1998.
            During 2000, net charge-offs
were $12.5 million, a decrease of $10.9 million from the $23.4 million during
1999. The decrease is principally attributed to losses recorded in the
Companys sub-prime specialty lending operation during 1999. The Companys
provision for loan loss decreased from $20.2 million in 1999 to $15.8 million
in 2000. The provision for loan loss is recorded to bring the allowance for loan
losses to the level deemed appropriate by management.

During 1999, net
charge-offs were $23.4 million, an increase of $8.8 million from the net
charge-offs of $14.6 million in 1998. The principal causes for the increase
were the increase in real estate construction loan net charge-offs of $2.9
million; the increase in commercial loan net charge-offs of $6.1 million; and
an increase in consumer loan and other loan net charge-offs of $1.6 million.
These increases are substantially the result of isolated credit determination
and not a systemic deterioration in a broader component of the loan portfolio.
The Companys provision for loan loss was $20.2 million in 1999 and $23.1
million in 1998.
            The following table sets forth
the allocation of the allowance for loan losses to various loan categories, as
well as the allocation as a percentage of loans outstanding in each category,
as of the dates indicated:

Allowance for Loan Losses at December 31,
  Allowance as a Percent of Loans Outstandingby Category at December 31,(Dollars in thousands)
  2000
  1999
  1998
  1997
  1996
  2000
  1999
  1998
  1997
  1996Real estate
  $12,234
  $10,329
  $9,844
  $7,457
  $5,481
  0.84%
  0.78%
  0.76%
  0.61%
  0.58%Real estate construction
  515
  218
  190
  135
  103
  0.11%
  0.05%
  0.05%
  0.05%
  0.06%Commercial
  7,117
  8,673
  7,705
  6,582
  5,675
  0.82%
  0.87%
  0.80%
  0.79%
  0.77%Consumer and other
  4,147
  4,657
  8,405
  4,257
  2,558
  0.60%
  0.68%
  1.36%
  0.75%
  0.64%Agricultural
  3,016
  2,643
  3,077
  2,487
  2,312
  1.19%
  1.02%
  1.04%
  0.85%
  0.96%Total allocated allowance
  27,029
  26,520
  29,221
  20,918
  16,129
  0.72%
  0.72%
  0.83%
  0.66%
  0.64%Total unallocated allowance
  25,139
  22,358
  22,639
  20,469
  15,225
  0.68%
  0.60%
  0.64%
  0.65%
  0.61%Total allowance
  $52,168
  $48,878
  $51,860
  $41,387
  $31,354
  1.40%
  1.32%
  1.47%
  1.31%
  1.25%Source of Funds

Deposits
The Companys major source of funds is provided by core deposits from
individuals, businesses and local government units. Core deposits consist of
all in-market noninterest-bearing deposits, interest-bearing savings and
checking accounts and time deposits of less than $100,000.
            The following table sets forth
a summary of the deposits of the Company at the dates indicated:

December 31(in
  thousands)
  2000
  1999
  1998Noninterest-bearing
  $500,834
  $616,861
  $591,718Interest-bearing:Savings
  and checking accounts
  2,349,606
  2,276,705
  2,369,945Time
  accounts less than $100,000
  1,496,483
  1,436,783
  1,515,996Time
  accounts greater than $100,000
  672,968
  579,514
  623,406Total deposits
  $5,019,891
  $4,909,863
  $5,101,065

Total deposits at December 31, 2000, were $5.0
billion, an increase of $110 million, or 2.2%, from $4.9 billion at December
31, 1999. The Companys core deposits as a percentage of total deposits were
84.0% and 86.7% as of December 31, 2000 and December 31, 1999, respectively.
            At December 31, 2000, $673
million, or 13.4% of total deposits were in time accounts greater than
$100,000, an increase of $93 million, or 16.0%, from $580 million at December
31, 1999. Management believes virtually all the deposits in excess of $100,000
are with persons or entities that hold other deposit relationships with the
banks. Maturities of deposits in excess of $100,000 at December 31, 2000 were
(in thousands):

Maturing in less than three months
  $246,954Maturing in three to six months
  161,144Maturing in six to twelve months
  174,529Maturing in over twelve
  months
  90,341Total deposits in excess of
  $100,000
  $672,968

At December 31, 2000,
the Company had $131 million in deposits obtained through a brokered deposit
relationship. In addition to the availability of core deposits, management has
determined it may continue to employ a brokered deposit program in an effort to
attract lower cost sources of funds.

Short-Term
Borrowings
Short-term borrowings include securities sold under agreements to repurchase,
commercial paper, Federal Home Loan Bank advances and federal funds purchased.
These funds are used to fund the growth in loans and securities and manage the
Companys rate sensitivity risk. They are subject to short-term price swings as
the Companys needs change or the overall market rates for short-term
investment funds change.
            The Companys subsidiary banks
have arrangements with the Federal Home Loan Bank that provide for borrowing up
to $313 million. As of December 31, 2000, $155.0 million in advances were
outstanding. The Company also had a $29.0 million balance outstanding on its
$35 million short-term commercial paper arrangement at December 31, 2000. The
$314 million decrease in short-term borrowings from December 31, 1999 is due to
the Companys planned balance sheet contraction and its decision to rely less
upon short term borrowings to fund asset growth.

The following table sets forth a summary of the short-term borrowings
of the Company during 2000, 1999 and 1998, and as of the end of each such
period:



(Dollars in thousands)
  Outstanding at Year-End
  Average Daily Amount Outstanding
  Maximum Outstanding
   at any Month-End
  WeightedAverageInterest Rate
  AverageInterestRate
   atYear-End2000Federal funds purchased
  and securities sold under agreements to repurchase
  $205,758
  $226,791
  $274,577
  5.31%
  5.33%Commercial paper
  28,952
  25,488
  32,078
  6.74%
  7.31%FHLB advances
  155,000
  258,935
  364,000
  6.41%
  6.55%Other
  20,000
  57,326
  88,000
  6.80%
  7.37%Total
  $409,710
  $568,540
  $739,564
  6.03%
  6.03%1999Federal funds purchased
  and securities sold under agreements to repurchase
  $252,760
  $186,267
  $261,191
  4.48%
  5.04%Commercial paper
  19,412
  18,403
  22,546
  5.60%
  6.03%FHLB advances
  383,500
  289,859
  383,500
  5.29%
  5.43%Other
  68,753
  63,391
  119,806
  5.30%
  5.77%Total
  $724,425
  $557,920
  $724,425
  5.03%
  5.35%1998Federal funds purchased
  and securities sold under agreements to repurchase
  $143,057
  $87,094
  $152,748
  4.92%
  4.13%Commercial paper
  14,310
  23,998
  34,570
  5.87%
  5.87%FHLB advances
  210,000
  200,902
  304,000
  5.95%
  5.18%Other
  68,359
  33,066
  68,359
  5.70%
  5.29%Total
  $435,726
  $345,060
  $466,763
  5.67%
  4.87%Long-Term
Debt
Long-term debt of the Company was $124 million as of December 31, 2000, and $76
million as of December 31, 1999.

Company-Obligated
Mandatorily Redeemable Preferred Securities
Company-obligated mandatorily redeemable preferred securities of the Company
was $120 million as of December 31, 2000 and 1999, which consisted of $60
million of 8.20% Cumulative Capital Securities issued December 10, 1997 through
CFB Capital II and $60 million of 8.875% Cumulative Capital Securities issued
February 5, 1997 through CFB Capital I. The proceeds of both offerings were
invested by CFB Capital II and CFB Capital I, respectively, in Junior
Subordinated Debentures of the Company. The debentures mature not earlier than
February 1, 2002 and not later than December 15, 2027.

Shareholders
Equity
Total shareholders equity decreased $61.9 million, or 15.2%, to $345.4 million
at December 31, 2000, from $407.3 million at December 31, 1999, due principally
to an increase of $136.2 million in treasury stock as a result of the Companys
common stock repurchase program. This was offset in part through the retention
of a majority of earnings and a $35.4 million reduction in unrealized gains on
available-for-sale securities, net of tax.
            On April 10, 2000, the Company
announced its intention to repurchase up to 5 million shares of the Companys
common stock. On August 9, 2000, the Company announced its intention to
repurchase up to an additional 5 million shares of the Companys common stock.
As of December 31, 2000 the Company had repurchased 8,000,000 shares of common
stock at prices ranging form $15.25 to $18.82.
            In April 1998, in conjunction
with the Companys shareholder approval of a charter amendment that facilitated
a two-for-one split of the Companys common stock in the form of a 100 percent
dividend paid to holders of record as of May 1, 1998, the Company increased the
number of authorized common shares from 30,000,000 to 80,000,000. The number of
authorized preferred shares remained at 2,000,000. The increases are expected
to provide the Company greater ability to utilize common and preferred stock in
connection with raising additional capital, expanding its business through
acquisitions and other general purposes.
            On February 28, 1997, the
Company issued notice of redemption to the holders of its Depositary Shares, which
represented ownership of shares of 7% Cumulative Convertible Preferred Stock
(approximately $23 million in stated value). Virtually all of such holders
elected to convert to common stock prior to redemption, which resulted in the
issuance of approximately 2,886,000 shares of Common Stock.

Asset/Liability Management

Liquidity
Management
Liquidity management is an effort of management to provide a continuing flow of
funds to meet its financial commitments, customer borrowing needs and deposit
withdrawal requirements. The liquidity position of the Company and its
subsidiary banks is monitored by the Asset/Liability Management Committee of
the Company. The largest category of assets representing a ready source of
liquidity for the Company is its short-term financial instruments, which
include federal funds sold, interest-bearing deposits at other financial
institutions, U.S. Treasury securities and other securities maturing within one
year. Liquidity is also provided through
the regularly scheduled maturities of assets. The investment portfolio
contains a number of high quality issues with varying maturities and regular
principal payments. Maturities in the loan portfolio also provide a steady flow
of funds, and strict adherence to the credit policies of the Company helps
ensure the collectibility of these loans. The liquidity position of the Company
is also greatly enhanced by its significant base of core deposits.
            The liquidity ratio is one
measure of a banks ability to meet its current obligations and is defined as
the percentage of liquid assets to deposits. Liquid assets include cash and due
from banks, unpledged investment securities with maturities of less than one
year and federal funds sold. At year-end 2000, 1999 and 1998, the liquidity
ratio was 5.21%, 5.39% and 5.93%, respectively. The level of loans maturing
within one year greatly added to the Companys liquidity position in 2000.
Including loans maturing within one year, the liquidity ratio was 24.98%,
27.15% and 26.94%, respectively, for the same periods.
            The Company has revolving
lines of credit with its primary lenders, which provide for borrowing up to $30
million. This line would be utilized to finance stock repurchase activity which
may be completed in 2001. There was an outstanding balance of $20 million on
this line of credit at December 31, 2000.
            The Company also maintains
available lines of federal funds borrowings, as well as seasonal borrowing
privileges, at the Federal Reserve Bank of Minneapolis. The Companys
subsidiary banks have the ability to borrow an aggregate of $203 million in
federal funds from seven nonaffiliated financial institutions.
            Additionally, all the
Companys subsidiary banks are members of the Federal Home Loan Bank (FHLB)
System. As part of membership, the Companys subsidiary banks purchased a
modest amount of stock of FHLB and obtained advance lines of credit which
represent an aggregate of $313 million in additional funding capacity.

Interest
Rate Sensitivity
Interest rate sensitivity indicates the exposure of a financial institutions
earnings to future fluctuations in interest rates. Management of interest rate
sensitivity is accomplished through the composition of loans and investments
and by adjusting the maturities on earning assets and interest-bearing
liabilities. Rate sensitivity and liquidity are related since both are affected
by maturing assets and liabilities. However, interest rate sensitivity also
takes into consideration those assets and liabilities with interest rates that
are subject to change prior to maturity.
            The Companys Asset and
Liability Management Committee (ALCO) attempts to structure the Companys
balance sheet to provide for an approximately equal amount of rate sensitive
assets and rate sensitive liabilities. In addition to facilitating liquidity
needs, this strategy assists management in maintaining relative stability in
net interest income despite unexpected fluctuations in interest rates. ALCO
uses three methods for measuring and managing interest rate risk: Repricing Mismatch
Analysis, Balance Sheet Simulation Modeling and Equity Fair Value Modeling.

Repricing
Mismatch Analysis
Management performs a Repricing Mismatch Analysis (Gap Analysis) which
represents a point in time net position of assets, liabilities and off-balance
sheet instruments subject to repricing in specified time periods. Guidelines
established by ALCO, and approved by the Companys Board of Directors, limit
the impact on net interest income to five percent given a 100 basis point
change in interest rates over one year. However, management believes Gap
Analysis alone does not accurately measure the magnitude of changes in net
interest income since changes in interest rate do not impact all categories of
assets, liabilities and off-balance sheet instruments equally or
simultaneously. A summary of the Gap Analysis is presented at the end of this
section.

Balance
Sheet Simulation Modeling
Balance Sheet Simulation Modeling allows management to analyze the impact of
short-term (less than 12 months) interest rate fluctuations using projected
balance sheet information. The balance sheet changes are based on forecasted
repayments of loans and securities, growth in loans and deposits, and
historical pricing spreads.
            Management uses the model to
simulate the impact of immediate and longer-term shifts in the yield curve. The
results of these models are reviewed by ALCO and used to develop the Companys
strategies. Guidelines established by ALCO limit the impact on net interest
income to five percent given a 100 basis point change in interest rates. As of
December 31, 2000, the impact of such a change in interest rates would be
approximately 3.02 percent of net interest income.

Equity
Fair Value Modeling
Because Balance Sheet Simulation Modeling is dependent on accurate forecasts,
its usefulness is limited to periods of one year or less. As a result, the
Company uses the Equity Fair Value Modeling to measure long-term interest rate
exposure. The method estimates the impact of interest rate changes on the
estimated discounted future cash flows of the Companys current assets,
liabilities and off-balance sheet instruments. Guidelines established by ALCO
limit the change in fair value to 15 percent given
a 100 basis point change in interest rates. As of December 31, 2000, the
impact of such a change in interest rates would be approximately 6.37 percent
of equity fair value.
            Based on each of these methods
of measuring interest rate risk, management believes the Company was liability
sensitive as of December 31, 2000.
            The Company does not engage in
the speculative use of derivative financial instruments.

The following table sets forth the Companys interest rate sensitivity
analysis by contractual repricing or maturity at December 31, 2000:

Repricing or Maturing in(In thousands)
  1 Year or Less
  Over 1 to -5 Years
  Over 5 Years
  TotalRate sensitive assets:Loans
  $1,486,421
  $1,737,825
  $513,956
  $3,738,202Held-to-maturity
  securities
  
  
  73,222
  73,222Available-for-sale
  securities
  117,721
  501,260
  1,095,529
  1,714,510Other
  interest-bearing assets
  1,110
  
  
  1,110Total
  rate sensitive assets
  $1,605,252
  $2,239,085
  $1,682,707
  $5,527,044Rate sensitive
  liabilities:Savings
  deposits and interest-bearing
  checking
  $2,349,606
  $
  $
  $2,349,606Time
  deposits
  1,801,050
  366,804
  1,597
  2,169,451Short-term
  borrowings
  409,575
  135
  
  409,710Long-term
  borrowings
  25,506
  35,479
  64,986
  125,971Total
  rate sensitive liabilities
  $4,585,737
  $402,418
  $66,583
  $5,054,738Rate sensitive gap
  $(2,980,485)
  $1,836,667
  $1,616,124
  $472,306Cumulative
  rate sensitive gap
  (2,980,485)
  (1,143,818)
  472,306
  472,306

The following sets
forth the Companys interest rate sensitivity analysis at December 31, 2000,
with respect to the individual categories of loans and provides separate
analyses with respect to fixed interest rate loans and floating interest rate
loans:

Repricing or Maturing in(In thousands)
  1 Year
  or Less
  Over 1
  to 5 Years
  Over 5
  Years
  TotalLoan category:Real
  estate
  $351,196
  $839,823
  $267,475
  $1,458,494Real
  estate construction
  466,616
  
  
  466,616Agriculture
  183,540
  60,693
  9,971
  254,204Commercial
  417,600
  336,632
  118,592
  872,824Consumer
  and other
  67,469
  500,677
  117,918
  686,064Total loans
  $1,486,421
  $1,737,825
  $513,956
  $3,738,202Floating interest rate
  loans
  $1,079,123
  $378,525
  $75,214
  $1,532,862Fixed interest rate loans
  407,298
  1,359,300
  438,742
  2,205,340Total loans
  $1,486,421
  $1,737,825
  $513,956
  $3,738,202

Capital
Management
Risk-based guidelines established by regulatory agencies require the Company to
maintain minimum amounts and ratios of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets.
    As of December 31, 2000, the Company
is considered well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Company must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table.



Regulatory Capital Requirements:(Dollars in thousands)
  Tier 1
  Capital
  Total Risk-
  Based Capital
  Leverage
  Total Risk-
  Based AssetsMinimum
  4.00%
  8.00%
  3.00%
  N/AWell Capitalized
  6.00%
  10.00%
  5.00%
  N/ACommunity
  First Bankshares, Inc.December 31, 2000
  8.13%
  10.73%
  5.94%
  $4,408,524December 31, 1999
  10.01%
  12.45%
  7.16%
  $4,452,587

Due to the Companys
level of Tier 1 capital and substantial level of earning assets invested in low
risk government agency and mortgage-backed securities, the Companys risk-based
capital ratios significantly exceed the regulatory minimums. The Company
conducts an ongoing assessment of its capital needs in order to maintain an
adequate level of capital to support business growth, to ensure depositor
protection and to facilitate corporate expansion. Management continues to
explore steps to increase its capital levels to permit it to make future
acquisitions. Portions of the subordinated debt financing referred to under
Borrowings, above, are treated as Tier 2 capital.




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

consolidated statements of financial
condition

Years ended December 31 (Dollars in thousands, except per
  share data)
  2000
  1999AssetsCash and due from banks
  $256,136
  $247,051Federal funds sold and
  securities purchased under agreements to resell
  
  4,775Interest-bearing deposits
  1,110
  4,648Available-for-sale
  securities
  1,714,510
  1,937,517Held-to-maturity securities
  (Fair Value: 2000  $73,222; 1999  $74,248)
  73,222
  74,248Loans
  3,738,202
  3,690,353Less:
  Allowance for loan losses
  (52,168)
  (48,878)Net loans
  3,686,034
  3,641,475Bank premises and
  equipment, net
  121,675
  125,457Accrued interest receivable
  52,494
  51,030Intangibles
  114,971
  126,378Other assets
  69,577
  89,656Total assets
  $6,089,729
  $6,302,235Liabilities
  and shareholders equityDeposits:Noninterest-bearing
  $500,834
  $616,861Interest-bearing:Savings
  and NOW accounts
  2,349,606
  2,276,705Time
  accounts over $100,000
  672,968
  579,514Other
  time accounts
  1,496,483
  1,436,783Total deposits
  5,019,891
  4,909,863Federal funds purchased and
  securities sold under agreements to repurchase
  205,758
  252,760Other short-term borrowings
  203,952
  471,665Long-term debt
  123,957
  75,622Accrued interest payable
  45,489
  31,949Other liabilities
  25,251
  33,107Total liabilities
  5,624,298
  5,774,966Company-obligated
  mandatorily redeemable preferred securities of CFB Capital I and II
  120,000
  120,000Shareholders equity:Common
  stock, par value $.01 per share: Authorized Shares  80,000,000 Issued Shares
   51,021,896
  510
  510Capital
  surplus
  192,368
  192,071Retained
  earnings
  315,091
  276,502Unrealized
  loss on available-for-sale securities, net of tax
  (9,486)
  (44,896)Less cost
  of common stock in treasury  2000  9,155,144 shares; 1999  885,964 shares
  (153,052)
  (16,918)Total shareholders equity
  345,431
  407,269Total liabilities and
  shareholders equity
  $6,089,729
  $6,302,235

See
accompanying notes.



consolidated statements of
income

Years ended December 31 (Dollars in thousands, except per
  share data)
  2000
  1999
  1998Interest
  income:Loans
  $353,405
  $332,974
  $337,771Investment
  securities
  123,525
  130,955
  124,306Interest-bearing
  deposits
  184
  463
  1,017Federal
  funds sold and resale agreements
  444
  814
  4,176Total interest income
  477,558
  465,206
  467,270Interest
  expense:Deposits
  169,281
  151,138
  166,873Short-term
  and other borrowings
  34,303
  28,052
  19,576Long-term
  debt
  6,697
  6,628
  8,338Total interest expense
  210,281
  185,818
  194,787Net interest income
  267,277
  279,388
  272,483Provision for loan losses
  15,781
  20,184
  23,136Net interest income after
  provision for loan losses
  251,496
  259,204
  249,347Noninterest
  income:Service
  charges on deposit accounts
  39,537
  37,013
  31,880Insurance
  commissions
  10,550
  8,791
  7,197Security
  sales commissions
  6,805
  5,258
  4,249Fees from
  fiduciary activities
  5,811
  5,148
  4,944Net gains on sales of
  securities
  65
  2,175
  1,801Other
  12,437
  14,124
  13,196Total noninterest income
  75,205
  72,509
  63,267Noninterest
  expense:Salaries
  and employee benefits
  110,024
  106,542
  119,250Net
  occupancy
  31,941
  32,726
  33,929FDIC
  insurance
  1,039
  625
  771Legal and
  accounting
  3,874
  3,651
  4,237Other
  professional services
  4,415
  5,168
  6,014Acquisition,
  integration and conforming
  
  3,053
  3,721Data
  processing
  4,545
  4,116
  5,209Company-obligated
  mandatorily redeemable preferred securities of CFB Capital I & II
  10,245
  10,245
  10,218Amortization
  of intangibles
  10,481
  10,500
  10,366Other
  42,755
  41,601
  46,933Total noninterest expense
  219,319
  218,227
  240,648Income from continuing
  operations before income taxes
  107,382
  113,486
  71,966Provision for income taxes
  35,748
  38,573
  22,595Income from continuing
  operations
  71,634
  74,913
  49,371Discontinued operations:Income from operations of
  discontinued operations (less applicable income taxes)
  
  
  (2,232)Loss on disposal of
  discontinued operations, including provision for operating losses during
  phase-out period (less applicable income taxes)
  
  
  (1,676)Net income
  $71,634
  $74,913
  $45,463Earnings per common and
  common equivalent share:Basic income per share from
  continuing operations
  $1.55
  $1.50
  $0.98Discontinued operations
  0.00
  0.00
  (0.08)Basic net income
  $1.55
  $1.50
  $0.90Diluted income per share
  from continuing operations
  $1.54
  $1.48
  $0.97Discontinued operations
  0.00
  0.00
  (0.08)Diluted net income
  $1.54
  $1.48
  $0.89Average common and common
  equivalent shares outstanding:Basic
  46,219,120
  50,061,972
  50,272,551Diluted
  46,578,750
  50,670,559
  51,114,703See
accompanying notes.

consolidated statements of
comprehensive income

Years
  ended December 31 (Dollars in thousands, except per share data)Net income
  $71,634
  $74,913
  $45,463Other comprehensive
  income, net of tax:Unrealized
  gains (losses) on securities:Unrealized
  holding gains (losses) arising during period
  35,449
  (56,879)
  8,746Less:  Reclassification adjustment for gains
  included in net income
  (39)
  (1,305)
  (1,156)Other comprehensive income
  35,410
  (58,184)
  7,590Comprehensive income
  $107,044
  $16,729
  $53,053





consolidated
statements of shareholders equity

Common Stock
  Capital
  Retained
  Unrealized
  Treasury StockYears
  ended December 31, 2000, 1999, 1998(Dollars in thousands, except per share data)
  Shares
  Amount
  Surplus
  Earnings
  Gain(Loss)
  Shares
  Amount
  TotalBalance at December 31, 1997
  50,044,104
  $501
  $183,443
  $216,780
  $5,698
  72,510
  $(1,383)
  $405,039Net income
  
  
  
  45,463
  
  
  
  45,463Common stock dividends
  ($0.44 per share)
  
  
  
  (20,044)
  
  
  
  (20,044)Common stock dividends
  134,689
  1
  1,793
  (1,794)
  
  
  
  Cash in lieu of stock
  dividend
  
  
  
  (15)
  
  
  
  (15)Issuance of common stock
  320,090
  3
  1,381
  
  
  
  
  1,384Purchases of common stock
  for treasury, at cost
  
  
  
  
  
  731,000
  (16,314)
  (16,314)Exercise of options, net
  of stock tendered in payment
  58,654
  1
  271
  (4,307)
  
  (238,922)
  5,588
  1,553Change in unrealized gain
  on available-for-sale securities, net of income taxes of $4,788
  
  
  
  
  7,590
  
  
  7,590Balance at December 31, 1998
  50,557,537
  $506
  $186,888
  $236,083
  $13,288
  564,588
  $(12,109)
  $424,656Net income
  
  
  
  74,913
  
  
  
  74,913Common stock dividends
  ($0.56 per share)
  
  
  
  (27,041)
  
  
  
  (27,041)Common stock dividends
  143,566
  1
  2,217
  (2,218)
  
  
  
  Cash in lieu of stock
  dividend
  
  
  
  (34)
  
  
  
  (34)Issuance of common stock
  3,198,079
  32
  2,645
  (414)
  
  
  
  2,263Retirement of common stock
  (2,877,286)
  (29)
  
  
  
  
  
  (29)Purchases of common stock
  for treasury, at cost
  
  
  
  
  
  625,457
  (11,844)
  (11,844)Exercise of options, net
  of stocktendered
  in payment
  
  
  321
  (4,787)
  
  (304,081)
  7,035
  2,569Change in unrealized loss
  on available-for-sale securities, net of income taxes of $35,508
  
  
  
  
  (58,184)
  
  
  (58,184)Balance at December 31, 1999
  51,021,896
  $510
  $192,071
  $276,502
  $(44,896)
  885,964
  $(16,918)
  $407,269Net income
  
  
  
  71,634
  
  
  
  71,634Common stock dividends
  ($0.60 per share)
  
  
  
  (27,601)
  
  
  
  (27,601)Purchases of common stock
  for treasury, at cost
  
  
  
  
  
  8,760,278
  (145,725)
  (145,725)Sales
  of treasury stock to employee benefit plans
  
  
  
  (793)
  
  (127,136)
  2,573
  1,780Exercise of options, net
  of stock tendered in payment
  
  
  297
  (4,651)
  
  (363,962)
  7,018
  2,664Change in unrealized loss
  on available-for-sale securities, net of income taxes of $21,576
  
  
  
  
  35,410
  
  
  35,410Balance at December 31, 2000
  51,021,896
  $510
  $192,368
  $315,091
  $(9,486)
  9,155,144
  $(153,052)
  $345,431

See accompanying notes.

consolidated statements of cash flows

Years ended December 31 (In thousands)
  2000
  1999
  1998Cash
  flows from operating activitiesNet income
  $71,634
  $74,913
  $49,371Adjustments to reconcile
  net income to net cash provided by operating activities:Provision
  for loan losses
  15,781
  20,184
  23,136Depreciation
  14,307
  15,186
  16,277Amortization
  of intangibles
  10,481
  10,500
  10,366Net
  amortization of premiums and discounts on securities
  188
  1,067
  (685)Deferred
  income tax benefit
  (2,077)
  (1,088)
  (6,978)(Increase)
  decrease in interest receivable
  (1,464)
  2,230
  (6,225)Increase
  in interest payable
  13,540
  4,876
  3,912Other,
  net
  (6,350)
  (5,501)
  (59,980)Net cash provided by
  operating activities
  116,040
  122,367
  29,194Cash
  flows from investing activitiesAcquisitions, net of cash
  paid
  
  (1,956)
  Net decrease in
  interest-bearing deposits
  3,538
  6,815
  5,167Purchases of available-for-sale
  securities
  (129,097)
  (649,177)
  (2,964,003)Maturities of
  available-for-sale securities
  258,584
  497,314
  2,202,777Sales of securities, net
  of gains
  150,318
  151,635
  145,125Purchases of
  held-to-maturity securities
  (3,431)
  (4,710)
  (19,588)Maturities of
  held-to-maturity securities
  4,457
  291
  10,413Net increase in loans
  (60,340)
  (147,967)
  (318,163)Net increase in bank
  premises and equipment
  (10,525)
  (11,205)
  (22,652)Net cash provided by (used
  in) investing activities
  213,504
  (158,960)
  (960,924)Cash
  flows from financing activitiesNet (decrease) increase in
  demand deposits, NOW accounts and savings accounts
  (43,126)
  (83,965)
  533,588Net increase (decrease) in
  time accounts
  153,154
  (137,804)
  226,412Net (decrease) increase in
  short-term and other borrowings
  (314,715)
  287,549
  160,487Net increase (decrease) in
  long-term debt
  48,335
  (17,902)
  (31,088)Net proceeds from issuance
  of common stock
  
  2,234
  1,384Purchase of common stock
  held in treasury
  (145,725)
  (11,844)
  (16,314)Sale of common stock held
  in treasury
  4,444
  2,569
  1,553Cash dividends
  (27,601)
  (27,075)
  (20,059)Net cash (used in) provided
  by financing activities
  (325,234)
  13,762
  855,963Net increase (decrease) in
  cash and cash equivalents
  4,310
  (22,831)
  (75,767)Cash and cash equivalents
  at beginning of year
  251,826
  274,657
  350,424Cash and cash equivalents
  at end of year
  $256,136
  $251,826
  $274,657

See
accompanying notes.



notes to
consolidated financial statements

1. Significant Accounting Policies

Community First Bankshares, Inc. (the Company) is a multi-bank holding company which, at the end of 2000, served
155 communities in Arizona, California, Colorado, Iowa, Minnesota,
Nebraska, New Mexico, North Dakota, South Dakota, Utah, Wisconsin and Wyoming.
The Companys community banks provide a full range of banking services,
primarily in small and medium-sized communities and the surrounding
communities. In addition to its primary emphasis on commercial and consumer
banking services, the Company offers trust, insurance and nondeposit investment
products and services.

Basis of
Presentation

The consolidated financial statements include the accounts of Community
First Bankshares, Inc., its wholly-owned data processing, credit origination
and insurance agency subsidiaries and its two wholly-owned subsidiary banks.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in prior periods have been reclassified to
conform to the current presentation.
            As discussed in Note 2, the
Company acquired Valley National Corporation (Valley National) on October 7,
1999; Community Bancorp, Inc. (CBI) on April 3, 1998; Pioneer Bank of
Longmont (Longmont) on April 30, 1998; FNB, Inc. (FNB) on May 7, 1998;
Western Bancshares of Las Cruces, Inc. (Western) on July 1, 1998; and Guardian Bancorp (Guardian) on August 7, 1998.
These acquisitions were accounted for using the pooling of interests method.
The 1999 Valley National acquisition was material to the Companys financial
condition and operating results. While none of the 1998 transactions,
individually, were material to the Companys financial condition or operating
results, the aggregation of these business combinations does have a material
effect on the Companys financial condition and operating results. Accordingly,
the consolidated financial information has been restated to reflect the results
of operations of the six companies on a combined basis for all periods
presented.
            On April 28, 1998, the Company
effected a two-for-one split of the Companys common stock in the form of a 100
percent dividend payable to shareholders of record on May 1, 1998 and
distributed on May 15, 1998. Accordingly, the historical consolidated
information has been restated to reflect the impact of the two-for-one split on
the common share, weighted average common share and basic and diluted earnings
per share data.

Use of
Estimates

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

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

Management determines the classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
            Debt securities not classified
as held-to-maturity are classified as available-for-sale. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported within comprehensive income in shareholders equity.
            The amortized cost of debt
securities classified as held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity or, in the case
of mortgage-backed securities, over the estimated life of the security. Such
amortization and accretion is included as an adjustment to interest income from
investments. Realized gains and losses and declines in value judged to be other
than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.

Loans

Loans are stated at their principal balance outstanding, less the
allowance for loan losses. Interest on loans is recognized on an accrual basis.
Loans are placed on nonaccrual when they become past due over 90 days, or
earlier, if the collection of interest or principal is considered unlikely.
Thereafter, no interest income is recognized unless received in cash and until
such time as the borrower demonstrates the ability to pay interest and
principal.

Loan Fee
Income

The Company recognizes loan fees and certain direct origination costs
as a yield adjustment over the estimated life of the loan, utilizing a method
that results in a constant rate of return.

Allowance
for Loan Losses

The allowance for loan losses is maintained through charges to expense
at an amount that will provide for estimated loan losses. The current level of
the allowance for loan losses is a result of managements assessment of the
risks within the portfolio based on the information revealed in credit
reporting processes. This assessment of risk takes into account the composition
of the loan portfolio, previous loan experience, current economic conditions
and other factors that, in managements judgment, deserve recognition. An
allowance is recorded for individual loan categories based on the relative risk
characteristics of the loan portfolios. Commercial and agricultural amounts are
based on a quarterly review of the individual loans outstanding, including
outstanding commitments to lend. Real estate and consumer amounts are based on
a quarterly analysis of the performance of the respective portfolios, including
historical and expected delinquency and charge-off statistics.
            Ultimate losses may vary from
current estimates, and as adjustments become necessary, the allowance for loan
losses is adjusted in the periods in which such losses become known or fail to
occur. Actual loan charge-offs and subsequent recoveries are deducted from and
added to the allowance, respectively.

Bank
Premises and Equipment

Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation for financial reporting purposes is provided on the
straight-line method over the estimated lives of the assets and includes
amortization of assets recorded under capital leases. Estimated lives range
from three to twenty and twenty-five to forty years for equipment and premises,
respectively. Accelerated depreciation methods are used for income tax
reporting purposes.

Intangible
Assets

Goodwill, the excess cost over net assets acquired, of subsidiaries is
amortized over a period of fifteen years. At December 31, 2000, goodwill
totaled $68,813,000, net of accumulated amortization of $30,138,000. Other
intangible assets, principally deposit based intangibles, unexpired premium
lists and noncompetition agreements, totaled $46,158,000, net of accumulated
amortization of $12,621,000, and are amortized over their estimated useful
lives ranging from three to twenty-five years. The Company assesses the
recoverability of goodwill and other intangibles on an annual basis to
determine whether any impairment exists. This ongoing assessment includes
understanding and evaluating qualitative factors that would indicate the
potential for impairment. If the Company believes a potential impairment
exists, the Company estimates the relative market value of the corresponding
business activity to determine whether a permanent impairment exists.

Income
Taxes

The Company provides for income taxes based on
income reported for financial statement purposes, rather than amounts
currently payable under statutory tax laws. Deferred taxes are recorded to
reflect the tax consequences on future years differences between the tax bases
of assets and liabilities and the financial reporting of amounts at each
year-end.

Earnings
Per Share

Basic earnings per common share is calculated by dividing net income
applicable to common equity by the weighted-average number of shares of common
stock outstanding.
            Diluted earnings per common
share is calculated by adjusting net income, and the weighted-average number of
shares of common stock outstanding for shares that would be issued assuming the
exercise of stock options and warrants during each period. Such adjustments to
the weighted-average number of shares of common stock outstanding are made only
when such adjustments dilute earnings per share.

Cash and
Cash Equivalents

Cash and cash equivalents is defined as cash and due from banks,
federal funds sold and securities purchased under agreements to resell.

Stock-Based
Compensation

The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes no compensation expense for the stock option grants.
See Footnote 14.



2.  Business
Combinations and Divestitures

On November 20, 2000, the Company completed the sale of its office in
Fairplay, Colorado. The Fairplay office was acquired on December 18, 1996 as
part of the Companys merger with Mountain Parks Financial Corporation. The
transaction included the disposition of approximately $12 million in deposits.
            On February 11, 2000, the
Company completed the sale of its office in Richfield, Utah. The Richfield
office was acquired on January 23, 1998 as part of the Companys purchase and
assumption of 37 offices of Banc One Corporation located in Arizona, Colorado
and Utah. The transaction included the disposition of approximately $16 million
in deposits.
            On January 14, 2000, the
Company completed the sale of its office in Nephi, Utah. The Nephi office was
acquired on January 23, 1998 as part of the Companys purchase and assumption
of 37 offices of Banc One Corporation located in Arizona, Colorado and Utah.
The transaction included the disposition of approximately $17 million in
deposits.
            On December 21, 1999, the
Company issued approximately 317,000 shares of common stock to acquire River
Bancorp, Inc. (River Bancorp), and the holding company for Northland Security
Bank, Ramsey, Minnesota. At acquisition, River Bancorp had approximately $35
million in assets and $31 million in deposits. The Company used the pooling of
interests method to account for the transaction. This merger was not material
to the Companys consolidated financial information or operating results.
Accordingly, the Companys consolidated financial information has not been
restated to reflect this merger. The operating results are included in the
Companys consolidated statements from the date of the merger.
            On October 7, 1999, the
Company issued approximately 3,022,000 shares of common stock to acquire Valley
National Corporation (Valley National), the holding company for Valle de Oro
Bank, El Cajon, California. At acquisition, Valley National had approximately
$252 million in assets and $237 million in deposits. The Company used the
pooling of interests method to account for the transaction. The Companys
consolidated financial information has been restated to reflect this merger.
The operating results are included in the Companys consolidated statements for
all periods presented.
            On August 7, 1998, the Company
issued approximately 1,526,000 shares of common stock to acquire Guardian
Bancorp (Guardian), the holding company for Guardian State Bank, Salt Lake
City, Utah, with offices in Salt Lake City and Sandy, Utah. At acquisition,
Guardian had approximately $99 million in assets and $89 million in deposits.
The Company used the pooling of interests method to account for the
transaction. The Companys consolidated financial information has been restated
to reflect this merger. The operating results are included in the Companys
consolidated statements for all periods presented.

On July 1, 1998,
the Company issued approximately 1,932,000 shares of common stock to acquire
Western Bancshares of Las Cruces, Inc. (Western), the holding company for
Western Bank, Las Cruces, New Mexico, with offices in Anthony, Hatch and Las Cruces, New Mexico. At acquisition, Western
had approximately $159 million in assets and $136 million in deposits.
The Company used the pooling of interests
method to account for the transaction. The Companys consolidated financial
information has been restated to reflect this merger. The operating results are
included in the Companys consolidated
statements for all periods presented.
            On May 7, 1998, the Company
issued approximately 1,135,000 shares of common stock to acquire FNB, Inc.
(FNB) a bank holding company with banks in Greeley and Fort Collins,
Colorado. At acquisition, FNB had approximately $120 million in assets and $109
million in deposits. The Company used the pooling of interests method to
account for the transaction. The Companys consolidated financial information
has been restated to reflect this merger. The operating results are included in
the Companys consolidated statements for all periods presented.
            On April 30, 1998, the Company
issued approximately 1,432,000 shares of common stock to acquire Pioneer Bank
of Longmont (Longmont), Longmont, Colorado, with offices in Berthoud,
Longmont, Lyons and Niwot, Colorado. At acquisition, Longmont had approximately
$138 million in assets and $128 million in deposits. The Company used the
pooling of interests method to account for the transaction. The Companys
consolidated financial information has been restated to reflect this merger.
The operating results are included in the Companys consolidated statements for
all periods presented.
            On April 3, 1998, the Company
issued approximately 853,000 shares of common stock to acquire Community
Bancorp, Inc. (CBI), the parent company of Community First National Bank,
Thornton, Colorado, with two offices in Thornton, Colorado. At acquisition, CBI
had approximately $78 million in assets and $72 million in deposits. The
Company used the pooling of interests method to account for the transaction.
The Companys consolidated financial information has been restated to reflect this
merger. The operating results are included in the Companys consolidated
statements for all periods presented.
            On June 12, 1998, the Company,
through its Colorado subsidiary, completed the sale of its office in Ault,
Colorado. The Ault office was acquired on January 23, 1998 as part of the
Companys purchase and assumption of 37 offices of Banc One Corporation located in Arizona, Colorado and
Utah. The transaction included the disposition of approximately $9
million in deposits.
            In July 1998, the Company sold
the operating assets of its two sub-prime lending subsidiaries. Seven loan
production offices of Equity Lending, Inc. (Equity Lending) were sold to
FIRSTPLUS Financial Group, Inc., in a cash transaction on July 27, 1998.
Servicing rights to the portfolio of automobile installment contracts
originated by Mountain Parks Financial Services, Inc. (MPFS) were acquired by
Cygnet Financial Services, Inc. on July 31, 1998. In addition to a fourth
quarter 1998 charge of $10 million in anticipation of liquidating these
companies, the Company recorded a $3.9 million loss on these companies during
the first and second quarters of 1998, when the companies were classified as
discontinued operations. Losses on the discontinued operations included a $2.2
million operating loss and $1.7 million expected loss on disposal. Equity
Lending, which originated residential non-conforming mortgages, and MPFS, which
purchased sub-prime auto installment contracts, was acquired in December 1996,
as a result of the Companys merger with Mountain Parks Financial Corporation.
The two companies were classified as discontinued operations on the Companys
1997 financial statements. As of December 31, 2000 the Company had
approximately $6 million in sub-prime mortgages and $49,000 in sub-prime
automobile contracts remaining.
            On
January 23, 1998, the Company completed the purchase and assumption of
approximately $730 million in assets and liabilities of 37 offices of Banc One
Corporation located in Arizona, Colorado and Utah. The 25 Arizona and four Utah
offices were merged into the Companys Arizona affiliate. The eight Colorado
offices were merged into one of the Companys Colorado affiliates. The
transaction was accounted for as a purchase of certain assets and assumption of
certain liabilities and resulted in the recognition of a deposit based
intangible of approximately $44 million.
            The operating results of all
of the companies acquired in purchase transactions subsequent to the dates of
acquisition are included in the Companys consolidated financial statements for
the years ended December 31, 2000, 1999 and 1998.

3.
Accounting Changes

SFAS No. 133Accounting for Derivative Instruments and Hedging
ActivitiesIn June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which was amended by SFAS No. 137 and 138. The statement, as
amended, was adopted by the Company on January 1, 2001. Because of the
Companys minimal use of derivatives, management has concluded that the
adoption of the new Statement did not have a significant effect on earnings or
the financial position of the Company.
            SFAS No. 140Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
LiabilitiesIn September 2000, the Financial Accounting Standards Board issued
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities that replaces, in its entirety, FASB
Statement No. 125. Although Statement 140 has changed many of the rules
regarding securitizations, it continues to require an entity to recognize the
financial and servicing assets it controls and the liabilities it has incurred
and to derecognize financial assets when control has been surrendered in accordance
with the criteria provided in the Statement. The Statement is applicable
prospectively to transactions beginning in the second quarter 2001. Because the
Company does not currently use securitizations or other transfers of financial
assets as a form of financing, management believes the application of the new
rules will not have a material impact on its consolidated financial statements.

4.
Securities

The following is a summary of available-for-sale securities and
held-to-maturity securities at December 31, 2000 (in thousands):

Available-for-Sale SecuritiesGross
  Gross
  EstimatedAmortized
  Unrealized
  Unrealized
  FairCost
  Gains
  Losses
  ValueUnited States Treasury
  $76,939
  $1,040
  $28
  $77,951United
  States Government agencies
  436,975
  1,351
  3,071
  435,255Mortgage-backed securities
  998,147
  2,524
  6,732
  993,939Collateralized mortgage
  obligations
  9,649
  38
  52
  9,635State and political
  securities
  115,177
  974
  751
  115,400Other securities
  93,334
  1,215
  12,219
  82,330Total
  $1,730,221
  $7,142
  $22,853
  $1,714,510

Held-to-Maturity SecuritiesGross
  Gross
  EstimatedAmortized
  Unrealized
  Unrealized
  FairCost
  Gains
  Losses
  ValueOther securities
  $73,222
  
  
  $73,222Total
  $73,222
  
  
  $73,222The following is a
summary of available-for-sale securities and held-to-maturity securities at
December 31, 1999 (in thousands):

Available-for-Sale SecuritiesGross
  Gross
  EstimatedAmortized
  Unrealized
  Unrealized
  FairCost
  Gains
  Losses
  ValueUnited States Treasury
  $115,810
  $85
  $1,097
  $114,798United States Government
  agencies
  457,468
  4
  18,864
  438,608Mortgage-backed securities
  1,153,122
  504
  39,808
  1,113,818Collateralized mortgage
  obligations
  26,036
  63
  121
  25,978State and political
  securities
  153,682
  574
  5,754
  148,502Other securities
  104,096
  266
  8,549
  95,813Total
  $2,010,214
  $1,496
  $74,193
  $1,937,517


Held-to-Maturity SecuritiesGross
  Gross
  EstimatedAmortized
  Unrealized
  Unrealized
  FairCost
  Gains
  Losses
  ValueOther securities
  $74,248
  
  
  $74,248Total
  $74,248
  
  
  $74,248Proceeds from the sale
of available-for-sale securities during the years ended December 31, 2000, 1999
and 1998, were $150,383,000, $153,810,000 and $146,926,000, respectively. Gross
gains of $880,000, $2,175,000 and $1,870,000 and gross losses of $815,000, $0
and $69,000 were realized on those sales during 2000, 1999 and 1998,
respectively. The tax effect on the net gains during 2000, 1999 and 1998 was
approximately $23,000, $761,000 and $630,000, respectively. There were no sales
of held-to-maturity securities during 2000, 1999 or 1998.
            The amortized cost and
estimated fair value of debt securities at December 31, 2000, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

Amortized
  EstimatedAvailable-for-Sale(In thousands)
  Cost
  Fair ValueDue in one year or less
  $28,367
  $28,469Due after one year through
  five years
  340,769
  342,424Due after five years
  through ten years
  192,037
  189,970Due after ten years
  161,252
  150,073722,425
  710,936Mortgage-backed securities
  998,147
  993,939Collateralized mortgage
  obligations
  9,649
  9,635Total
  $1,730,221
  $1,714,510

Amortized
  EstimatedHeld-to-Maturity(In thousands)
  Cost
  Fair ValueDue after ten years
  $73,222
  $73,222Total
  $73,222
  $73,222At December 31, 2000,
available-for-sale securities included no commitments to purchase specific
investment securities at a future date.
            Available-for-sale and
held-to-maturity securities carried at $1,301,674,000 and $1,274,663,000 at
December 31, 2000 and 1999, respectively, were pledged to secure borrowings,
public and trust deposits and for other purposes required by law. Securities
sold under agreement to repurchase were collateralized by available-for-sale
and held-to-maturity securities with an aggregate carrying value of
$205,758,000 and $155,490,000 at December 31, 2000 and 1999, respectively.

5.
Loans

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

2000
  1999Real estate
  $1,458,494
  $1,319,678Real estate construction
  466,616
  434,924Commercial
  872,824
  994,624Consumer and other
  686,064
  681,423Agriculture
  254,204
  259,7043,738,202
  3,690,353Less : Allowance for loan
  losses
  (52,168)
  (48,878)Net loans
  $3,686,034
  $3,641,475At December 31, 2000,
real estate loans totaling $358,430,000 were pledged to secure borrowings.

6.
Allowance for Loan Losses

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

2000
  1999
  1998Balance at beginning of year
  $48,878
  $51,860
  $41,387Allowance of acquired companies/other(1)
  
  270
  1,950Provision charged to operating expense
  15,781
  20,184
  23,136Loans charged off
  (17,117)
  (27,850)
  (18,334)Recoveries of loans charged off
  4,626
  4,414
  3,721Balance at end of year
  $52,168
  $48,878
  $51,860(1)        Includes
only acquisitions of companies accounted for as purchases.

Nonaccrual loans totaled $23,426,000,
$25,764,000 and $22,609,000 at December 31, 2000, 1999 and 1998, respectively.
The Company includes all loans considered impaired under SFAS No. 114 in
nonaccrual loans. Interest income of $4,693,000 on nonaccrual loans would have
been recorded during 2000 if the loans had been current in accordance with
their original terms. During 2000, the Company recorded interest income of
$955,000 related to loans that were on nonaccrual status as of December 31,
2000.

7. Fair
Value of Financial Instruments

Due to the nature of its business and the financing needs of its
customers, the Company has a financial interest in a large number of financial
instruments, the majority for which an active market does not exist.
Accordingly, the Company has used various valuation techniques to estimate the
fair value of its financial instruments. These techniques are significantly
affected by the assumptions used, including the discount rate, the estimated
timing and amount of cash flows and the aggregation methods used to value
similar instruments. In this regard, the resulting fair value estimates cannot
be substantiated by comparison to independent markets and, in a majority of
cases, could not be realized by the immediate sale or settlement of the
instrument. Also, the estimates reflect a point in time valuation that could
change significantly based on changes in outside economic factors, such as the
general level of interest rates. The required disclosures exclude the estimated
values of nonfinancial instrument cash flows and are not intended to provide or
estimate a market value of the Company. The following assumptions were used by
the Company in estimating the fair value of the specific financial instruments.

Cash and
Cash Equivalents

The carrying amounts reported in the statement of financial condition
approximate fair values for these items that have no interest rate or credit
risk.

Federal
Funds Sold and Resale Agreements

The carrying amount approximates fair value due to the short maturity
of the instruments and floating interest rates which are tied to market
conditions.

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

Fair values for these items are based on available market quotes. If
market quotes are not available, fair values are based on market quotes of
comparable securities.

Interest-Bearing
Deposits

The fair value of interest-bearing deposits is estimated using a
discounted cash flow analysis using current market rates of interest-bearing
deposits with similar maturities to discount the future cash flows.

Loans

The loan portfolio consists of both variable and fixed rate loans. The
carrying amounts of variable rate loans, a majority of which reprice within the
next three months and for which there has been no significant change in credit
risk, are assumed to approximate fair values. The fair values for fixed rate
loans are estimated using discounted cash flow analyses. The discount rates
applied are based on the current interest rates for loans with similar terms to
borrowers of similar credit quality.

Deposit
Liabilities

The fair value of demand deposits, savings accounts and certain money
market deposits is defined by SFAS No. 107 to be equal to the amount payable on
demand at the date of the financial statements. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow analysis
that uses the interest rates currently being offered on certificates of deposit
to discount the aggregated expected monthly maturities.

Short-Term
Borrowings

Federal funds purchased, borrowings under
repurchase agreements and other short-term borrowings are at variable
rates or have short-term maturities, and their fair value is assumed to
approximate their carrying amount.

Long-Term
Debt

The fair value of long-term debt is estimated using a discounted cash
flow analysis using current market rates of debt with similar maturities to
discount the future cash flows.

Loan
Commitments and Letters of Credit

The majority of the Companys commitments have variable rates and do
not expose the Company to interest rate risk. The Companys commitments for
fixed rate loans are evaluated, and it is estimated the probability of
additional loans being issued under these commitments is not significant and there
is not a fair value liability.
            The estimated fair values of
the Companys financial instruments at December 31 are shown in the table below
(in thousands):

2000
  1999Carrying
  Fair
  Carrying
  FairAmount
  Value
  Amount
  ValueFinancial assets:Cash and
  due from banks
  $256,136
  $256,136
  $247,051
  $247,051Federal
  funds sold and resale agreements
  
  
  4,775
  4,775Interest-bearing
  deposits
  1,110
  1,110
  4,648
  4,648Available-for-sale
  securities
  1,714,510
  1,714,510
  1,937,517
  1,937,517Held-to-maturity
  securities
  73,222
  73,222
  74,248
  74,248Loans
  3,738,202
  3,734,251
  3,690,353
  3,661,969Allowance
  for loan losses
  (52,168)
  (52,168)
  (48,878)
  (48,878)Net
  loans
  3,686,034
  3,682,083
  3,641,475
  3,613,091Financial
  liabilities:Deposits:Noninterest-bearing
  $500,834
  $500,834
  $616,861
  $616,861Interest-bearing:Savings
  and NOW
  2,349,606
  2,349,606
  2,276,705
  2,276,705Time
  accounts over $100,000
  672,968
  674,343
  579,514
  578,847Other
  time accounts
  1,496,483
  1,496,266
  1,436,783
  1,428,348Total deposits
  5,019,891
  5,021,049
  4,909,863
  4,900,761Federal funds purchased
  and repurchase agreements
  205,758
  205,758
  252,760
  252,760Other short-term
  borrowings
  203,952
  203,952
  471,665
  471,665Long-term debt
  123,957
  117,293
  75,622
  73,5858.         Financial Instruments with
Off-Balance-Sheet Risk and Concentrations of Credit Risk

In the normal course of business, the Company is party to financial
instruments with off-balance-sheet risk. These transactions enable customers to
meet their financing needs and enable the Company to manage its interest rate
risk. These financial instruments include commitments to extend credit and
letters of credit. The contract or notional amounts of these financial
instruments at December 31, 2000 and 1999, were as follows (in thousands):

2000
  1999Commitments to extend credit
  $678,401
  $686,689Standby letters of credit
  19,108
  22,397Commercial letters of
  credit
  5,602
  6,147Commitments to extend
credit are legally binding and have fixed expiration dates or other termination
clauses. The Companys exposure to credit loss on commitments to extend credit,
in the event of nonperformance by the counterparty, is represented by the
contractual amounts of the commitments. The Company monitors its credit risk
for commitments to extend credit by applying the same credit policies in making
commitments as it does for loans and by obtaining collateral to secure
commitments based on managements credit assessment of the counterparty.
Collateral held by the Company may include marketable securities, receivables,
inventory, agricultural commodities, equipment and real estate. Because many of
the commitments are expected to expire without being drawn upon, total
commitment amounts do not necessarily represent the Companys future liquidity
requirements. In addition, the Company also offers various consumer credit line
products to its customers that are cancelable upon notification by the Company,
which are included above in commitments to extend credit.
            Standby letters of credit are
conditional commitments issued by the Company to guarantee the financial
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements.  Commercial letters of credit are issued by
the Company on behalf of customers to ensure payments of amounts owed or
collection of amounts receivable in connection with trade transactions. The
Companys exposure to credit loss in the event of nonperformance by the
counterparty is the contractual amount of the letter of credit and represents
the same exposure as that involved in extending loans.
            The amount of collateral
obtained to support letters of credit is based on a credit assessment of the
counterparty. Collateral held may include marketable securities, receivables,
inventory, agricultural commodities, equipment and real estate. Because the
conditions under which the Company is required to fund letters of credit may not
materialize, the liquidity requirements of letters of credit are expected to be
less than the total outstanding commitments.
            The Companys bank
subsidiaries grant real estate, agricultural, commercial, consumer and other
loans and commitments and letters of credit to customers throughout Arizona,
California, Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota,
South Dakota, Utah, Wisconsin and Wyoming. Although the Company has a
diversified loan portfolio, the ability of a significant portion of its debtors
to honor their contracts is dependent upon their local economic sector. The
maximum exposure to accounting loss that could occur, if the borrowers fail to
perform according to the loan agreements and the underlying collateral proved
to be of no value, is the total loan portfolio balances and commitments and
letters of credit.

9.
Bank Premises and Equipment

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

2000
  1999Land
  $22,271
  $22,217Buildings
  130,137
  126,754Furniture, fixtures and
  equipment
  84,966
  91,556Leased property under
  capital lease obligations
  10,177
  10,586247,551
  251,113Less accumulated
  depreciation
  125,876
  125,656$121,675
  $125,45710.
Short-Term Borrowings

As of December 31, 2000, the Companys subsidiary banks had
$155,000,000 in Federal Home Loan Bank (FHLB) borrowings, which are
collateralized by various investment securities and real estate loans. The
interest rates on FHLB borrowings are variable rates based on short-term market
conditions and the term of the advance, ranging from 6.29% to 6.66% at December
31, 2000. The Companys subsidiaries had no additional short-term borrowings
outstanding at December 31, 2000.
            The Company has a short-term
line of credit bearing interest at the Federal Funds rate plus 1.25% that
provides for borrowing up to $5,000,000 through April 30, 2001, with no
commitment fee. As of December 31, 2000,
the Company had no balance outstanding under this line of credit. The
Company also has a short-term line of credit bearing interest at a variable
rate of LIBOR plus .75% that provides for borrowing up to $25,000,000 through
October 27, 2001, with a commitment fee of .25% of the revolving commitment
amount. As of December 31, 2000, the Company had a balance of $20,000,000
outstanding under this line of credit. The Company has entered into an
agreement that allows for its designated agent to underwrite up to $35,000,000
in commercial paper and has obtained lines of credit to support these
borrowings. As of December 31, 2000, there was a $28,952,000 commercial paper
balance outstanding with a blended rate of 7.31%. The terms of the lines of
credit include certain covenants with which the Company must comply. At
December 31, 2000, the Company was in compliance with all covenants pertaining
to the lines of credit.

11. Long-Term Debt

Long-term debt consisted of the following at December 31 (in
thousands):

2000
  1999Parent Company:Subordinated notes payable,
  interest at 7.30%, payable semi-annually, maturing June 30, 2004, unsecured
  $60,000
  $60,000Term note payable to bank, interest at 6.19% until
  February 1, 2008, then at .50% over One Year, Three Year, or Five Year U.S.
  Treasury rate, payable semi-annually, maturing February 1, 2013, secured by
  real property
  2,773
  2,987Subsidiaries:Federal Home Loan Bank advances, interest rates
  ranging from 4.72% to 8.33%, payable quarterly, with maturities ranging from
  April 1, 2003 to March 10, 2010
  34,834
  10,653Subordinated term note payable to bank, interest of
  LIBOR plus 140 basis points, payable quarterly, maturing December 22, 2007,
  unsecured
  25,000
  Term note payable to bank, interest at 5.19% payable
  monthly, principal payments ranging from $45,700 to $54,700, per schedule due
  monthly through March 31, 2003
  1,350
  1,874Other Notes Payable
  
  108$123,957
  $75,622The Company has a
long-term line of credit bearing interest at the Federal Funds rate plus 1.25%
that provides for borrowing up to $10,000,000 through January 23, 2006, with a
 .20% fee on the unfunded amount. As of December 31, 2000, the Company had no
balance outstanding.
            The 7.30% subordinated notes
payable are not redeemable, in whole or in part, by the Company. These notes,
of which 60% of the balance qualifies as Tier II capital as of December 31,
2000, under the Federal Reserve Board guidelines, are direct obligations of the
Company and are subordinated to all other indebtedness of the Company. The
terms of the subordinated notes payable include certain covenants with which
the Company must comply. At December 31, 2000, the Company was in compliance
with all covenants pertaining to the subordinated notes payable.
            The subsidiary bank $25
million subordinated term note payable, qualifies as Tier II capital under the
Federal Reserve Board guidelines.

Maturities of long-term debt outstanding, at December 31, 2000, were (in
thousands):

2001
  $2,1982002
  2,3512003
  1,1352004
  60,4922005
  30,336Thereafter
  27,445$123,95712.       Company-Obligated Mandatorily Redeemable
Preferred Securities

On December 10, 1997, the Company issued $60 million of 8.20%
Cumulative Capital Securities, through CFB Capital II, a business trust
subsidiary organized in December 1997. The proceeds of the offering were
invested by CFB Capital II in Junior Subordinated Debentures of the Company.
The Company used the net proceeds in part to capitalize its bank subsidiaries
in Colorado and Arizona, which acquired branches of Banc One, in their
respective states. The debentures will mature not earlier than December 15,
2002, and not later than December 15, 2027.
            On February 5, 1997, the
Company issued $60 million of 8.875% Cumulative Capital Securities, through CFB
Capital I, a business trust subsidiary organized in January 1997. The proceeds
of the offering were invested by CFB Capital I in Junior Subordinated
Debentures of the Company. The Company used a portion of the net proceeds to
redeem $23 million in aggregate principal amount of 7.75% Subordinated Notes.
The remainder of the proceeds of the offering were used for general corporate
purposes, including in part, the purchase of KeyBank Wyoming. The debentures
will mature not earlier than February 1, 2002 and not later than February 1,
2027.
            At December 31, 2000, $118
million in Capital Securities qualified as Tier I capital under capital
guidelines of the Federal Reserve.

13.
Shareholders Equity

Common
Stock

In April 2000, the Company adopted a common stock repurchase program
providing for the systematic repurchase of up to 5 million shares of the
Companys common stock. In addition, during August 2000, the Company adopted an
additional common stock repurchase program providing for the repurchase of up
to an additional 5 million shares. Under each program, the shares were to be
purchased primarily on the open market, with timing depending upon market
conditions. Adoption of the two programs provided the Company with an
alternative opportunity for capital utilization. In addition, the shares
acquired can be used for the issuance of common stock upon exercise of stock
options, under the Companys compensation plans and for other purposes,
including business combinations. As of December 31, 2000, the Company had
repurchased 8 million shares of common stock under these programs, at prices
ranging from $15.25 to $18.82. During 2000, the Company repurchased 8.8 million
shares of common stock, including 385,000 shares under a previously approved
program and 400,000 shares in conjunction with an executive officer employment
agreement, in addition to the 8 million shares under the two programs approved
in 2000.
            In 1995, the Company extended
the common stock repurchase program established in 1992, which provided for the
systematic acquisition of up to 1,200,000 shares of the Companys common stock.
In addition, it adopted a new common stock repurchase program that provided for
the acquisition of an additional 1,200,000 shares of common stock. During 2000,
the repurchase of 385,000 shares under the 1992 program and its 1995 extensions
completed these programs, thus, as of December 31, 2000, no shares are
available under the 1992 and 1995 programs.
            On April 3, 1998, the Company
filed a shelf registration statement with the Securities and Exchange
Commission for the purpose of issuing up to 3,500,000 shares of its common
stock. The shares may be offered in acquisition transactions in exchange for
shares of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or entities, or in exchange
for assets used in or related to the business of such entities. Amendment No.
1, effective June 11, 1998, increased the shares under this registration
statement to 7,000,000 shares, to reflect the effect of the shares remaining as
of May 15, 1998, when the shareholders approved a charter amendment to
facilitate a two-for-one split of the Companys common stock, in the form of a
100 percent stock dividend. Subsequently, two additional acquisitions, totaling
1,843,447 shares, were completed under this registration statement. At December
31, 2000, there remain 5,156,553 shares to
be issued under the registration statement.
            On December 31, 1997, the
Company filed a shelf registration statement with the Securities and Exchange
Commission for the purpose of issuing up to 3,000,000 shares of its common
stock. The shares may be offered in acquisition transactions in exchange for
shares of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or entities, or in exchange
for assets used in or related to the business of such entities. Amendment No.
2, effective June 22, 1998 increased the shares under this registration
statement to 4,438,207 shares, to reflect the effect of the shares remaining as
of May 15, 1998, when the shareholders approved a charter amendment to
facilitate a two-for-one split of the Companys common stock, in the form of a
100 percent stock dividend. As of June 22, 1998, two acquisitions were
completed under the registration statement, totaling 1,561,793 shares,
resulting in a pre-split remaining authorized shares of 1,438,207.
Subsequently, two additional acquisitions, totaling 2,016,218 shares, were
completed under the December 31, 1997 registration statement. At December 31,
2000, there remain 860,196 shares to be issued under the registration
statement.
            On April 1, 1999, prior to
being acquired by the Company, Valley National was formed as a one-bank holding
company through a reorganization of its affiliate bank, Valle de Oro Bank. In
the reorganization, former Valle de Oro Bank shareholders received two shares
of Valley National common stock for each share of bank stock owned. Equity
records of Valley National and subsequently, the Company, have been restated to
reflect the reorganization.

The former Valley National Corporation and its predecessor, Valle de
Oro Bank, declared and paid a common stock dividend equal to 5% of its common
stock outstanding as of May 3, 1999, April 24, 1998 and April 25, 1997.

Preferred
Stock
Shareholders Rights Plan

The Company adopted a shareholders rights plan in January 1995 that
attached one right to each share of common stock outstanding on January 19,
1995. Each right entitles the holder to purchase one one-hundredth of a share
of a new series of junior participating preferred stock of the Company, which
has an initial exercise price of $31.50. The rights become exercisable only
upon the acquisition of 15 percent or more of the Companys voting stock, or an
announcement of a tender offer or exchange offer to acquire an interest of 15
percent or more by a person or group, without the prior consent of the Company.
If exercised, or if the Company is acquired, the rights entitle the holders (not
including the person or persons acquiring or proposing to acquire an amount of
common stock equal to 15 percent or more of the Company) to purchase, at the
exercise price, common stock with a market value equal to two times the
exercise price. The rights, which may be redeemed by the Company in certain
circumstances, expire January 5, 2005.

Capital
Requirements

The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Companys consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Companys assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Companys capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
            Quantitative measures
established by regulation to ensure capital adequacy require the Company to
maintain minimum amounts and ratios of total and Tier I capital to
risk-weighted assets, and of Tier I capital to average assets.
            As of December 31, 2000, the
Company is considered well capitalized under the regulatory framework for
prompt corrective action.  To be
categorized as well capitalized, the Company must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table.

At December 31, 2000Tier 1 Capital
  Total Risk- Based Capital
  Leverage
  Total Risk-Based AssetsRegulatory
  Capital Requirements:(Dollars in thousands)Minimum
  4.00%
  8.00%
  3.00%
  N/AWell-Capitalized
  6.00%
  10.00%
  5.00%
  N/ABank
  Subsidiaries:Community First National
  Bank, Fargo
  9.74%
  11.53%
  7.17%
  $4,162,469Community First State
  Bank, Vermillion
  10.19%
  11.44%
  8.02%
  205,071Community First Bankshares,
  Inc.
  8.13%
  10.73%
  5.94%
  $4,408,524

At December 31, 1999Tier 1 Capital
  Total Risk- Based Capital
  Leverage
  Total Risk-Based AssetsRegulatory
  Capital Requirements:(Dollars in thousands)Minimum
  4.00%
  8.00%
  3.00%
  N/AWell-Capitalized
  6.00%
  10.00%
  5.00%
  N/ABank
  Subsidiaries:Community First National
  Bank, Fergus Falls(1)
  9.68%
  10.89%
  7.79%
  $698,442Community First National
  Bank, Fargo
  9.55%
  10.64%
  7.32%
  441,573Community First State
  Bank, Vermillion
  9.67%
  10.51%
  7.56%
  222,510Community First National
  Bank, Decorah(1)
  10.01%
  11.26%
  7.75%
  130,185Community First National
  Bank, Alliance(1)
  11.99%
  13.24%
  9.11%
  225,235Community First National
  Bank, Spooner(1)
  10.08%
  11.33%
  7.46%
  84,590Community First National
  Bank, Fort Morgan(1)
  9.78%
  10.82%
  7.21%
  1,239,790Community First National
  Bank, Cheyenne(1)
  13.32%
  14.36%
  8.89%
  680,650Community First National
  Bank, Phoenix(1)
  14.89%
  15.64%
  7.22%
  315,105Community First National
  Bank, Las Cruces ((1)
  11.82%
  13.08%
  9.33%
  122,261Community First National
  Bank, Salt Lake City(1)
  10.72%
  11.97%
  8.11%
  82,629Valle de Oro Bank, El
  Cajon(1)
  11.17%
  12.30%
  7.97%
  185,098Northland Security, Ramsey(1)
  10.94%
  11.82%
  9.46%
  30,289Community First Bankshares,
  Inc.
  10.01%
  12.45%
  7.16%
  $4,452,587(1)       Merged
into Community First National Bank, Fargo in August 2000.

14. Employee Benefit Plans

Stock Option
Plan

During 1996, the Company approved the 1996 Stock Option Plan under
which an additional 4,000,000 shares of the Companys common stock were
reserved for granting of future stock options. Similar to the 1987 Stock Option
Plan, the Company may grant key employees incentive or nonqualified options to
purchase common stock of the Company. Incentive stock options must have an
exercise price of at least fair market value on the date of the grant, as
determined by the Company. The options generally vest ratably over a three-year
period and are exercisable over five- or ten-year terms.

Stock options outstanding under the plans are as follows:

2000
  1999Weighted
  
  WeightedAverage
  
  AverageOptions
  Price Per
  Options
  Price
  PerOutstanding
  Share
  Outstanding
  ShareBeginning of Year
  2,220,344
  $15.53
  2,053,978
  $13.67Options
  Granted
  759,800
  14.08
  608,795
  19.10Options
  Exercised
  (385,317)
  14.41
  (333,961)
  7.92Options
  Forfeited
  (152,965)
  15.68
  (108,468)
  21.49End of Year
  2,441,862
  $16.32
  2,220,344
  $15.53Exercisable at end of year
  1,223,586
  $16.06
  1,150,217
  $12.052000
  1999Weighted average fair value
  of options granted
  $5.04
  $5.62

The range of exercise
prices and the weighted-average remaining contractual life of the options
outstanding at December 31, 2000 were as follows:

Options
  Weighted
  WeightedOutstanding at
  Average
  AverageRange of
  Exercise
  December 31,
  Exercise Price
  RemainingPrices Per
  Share
  2000
  Per Share
  Contractual Life$24.6875 to $24.8750
  442,000
  $24.86
  2.10$17.2500 to $21.5000
  554,200
  $19.51
  7.82$10.6250 to $15.8750
  1,256,301
  $13.58
  6.02$4.5100 to $6.1600
  189,361
  $5.21
  4.55At December 31, 2000,
a total of 3,942,952 shares of authorized common stock was reserved for
exercise of options granted under the 1996 and 1987 Stock Option Plans.
            As described in Note 1, the
Company has elected to measure compensation costs as prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees and, accordingly, does not
recognize compensation expense. SFAS No. 123 requires the Company to disclose
pro forma information reflecting net income and earnings per share had the
Company elected to record compensation expense based on the fair market value
method described in SFAS 123. The fair value of the options was estimated at
the grant date using a Black-Sholes option pricing model. Option valuation
models require the input of highly subjective assumptions. Because the
Companys employee stock options have characteristics significantly different
from traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
            The following weighted-average
assumptions were used in the valuation model: risk-free interest rates of 6.67
percent and 4.60 percent in 2000 and 1999, respectively; dividend yield of  3.18 percent and 3.56 percent in 2000 and
1999, respectively; stock price volatility factors of .362 and .336 in 2000 and
1999, respectively; and expected life of options of 7.5 years.
            The pro forma disclosures
include options granted in 2000 and 1999 and are not likely to be representative
of the pro forma disclosures for future years. The estimated fair value of the
options is amortized to expense over the options vesting period.



(Dollars
in thousands, except per share data)

2000
  1999Pro forma net income
  $69,711
  $73,417Pro forma net income (diluted)
  69,711
  73,417Pro forma earnings per share:Basic
  $1.51
  $1.47Diluted
  1.50
  1.45

Employee Stock Ownership Plan

The Company has an employee stock ownership plan (ESOP) that is a
defined contribution plan covering all employees who are 21 years of age with
more than one year of service. Contributions are calculated using a formula
based on the Companys return on average assets on a yearly basis. The
contribution expense was $0, $1,335,000 and $1,890,000 in 2000, 1999 and 1998,
respectively. In 2001, the Company approved a plan which will merge the ESOP
into the Companys Profit Sharing Plan, thus, the Company anticipates no
contribution expense during 2001.

Profit-Sharing
Plan

The Company offers a contributory profit-sharing and thrift plan that
qualifies under section 401(k) of the Internal Revenue Code. The plan covers
all employees who are 21 years of age with more than one year of service. The
plan provides for an employer-matching contribution of 50% based on each
participants eligible contribution for each plan year, subject to a limitation
of the lesser of 6% of the participants annual compensation or the maximum
amount prescribed by the Internal Revenue Code. The Companys contribution was
$1,456,000, $1,639,000 and $1,630,000 in 2000, 1999 and 1998, respectively. In
2001, the Company adopted a plan which merges the Companys ESOP into the
Profit Sharing Plan and increases the employer-matching contribution to 100% of
the first 3% and 50% of the next 3% of each participants eligible contribution,
subject to a limitation of the lesser of the participants contribution or the
maximum amount prescribed by the Internal Revenue Code. The Company anticipates
an increase in the Company contribution in future periods as a result of these
changes.

15.       Restrictions on Cash and Due From Banks

Bank subsidiaries are required to maintain average reserve balances
with the Federal Reserve Bank. Balances of $42,659,000 and $37,859,000 at
December 31, 2000 and 1999, respectively, exceeded required amounts.

16.
Income Taxes

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

2000
  1999
  1998Federal:Current
  $34,443
  $36,509
  $26,636Deferred
  (1,741)
  (742)
  (6,177)32,702
  35,767
  20,459State:Current
  3,382
  3,152
  2,937Deferred
  (336)
  (346)
  (801)3,046
  2,806
  2,136Provision for income taxes
  $35,748
  $38,573
  $22,595

The reconciliation
between the provision for income taxes and the amount computed by applying the
statutory federal income tax rate was as follows (in thousands):



2000
  1999
  1998Tax at statutory rate (35%)
  $37,584
  $39,720
  $25,188State income tax, net of federal tax benefit
  1,980
  1,830
  1,283Tax-exempt interest
  (3,726)
  (3,756)
  (3,171)Amortization of goodwill
  918
  919
  892Other
  (1,008)
  (140)
  (1,597)Provision for income taxes
  $35,748
  $38,573
  $22,595Deferred income tax
assets and liabilities reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. Significant
components of the Companys deferred tax assets and liabilities as of December
31, 2000 and 1999, are as follows (in thousands):

2000
  1999Deferred tax assets:Unrealized net losses
  $6,225
  $27,801Loan loss reserves
  19,209
  16,332Depreciation
  329
  1,665Other reserves
  718
  2,385Deferred compensation
  868
  1,965Deferred loan fees
  54
  130Other
  2,987
  2,39830,390
  52,676Deferred tax liabilities:Purchase accounting
  188
  (233)Other
  2,716
  1,4862,904
  1,253Net deferred tax assets
  $27,486
  $51,423The realization of the
Companys deferred tax assets is dependent upon the Companys ability to
generate taxable income in future periods and the reversal of deferred tax
liabilities during the same period. The Company has evaluated the available
evidence supporting the realization of its deferred tax assets and determined
it is more likely than not that the assets will be realized.

17.       Commitments and Contingent Liabilities

Total rent expense was $5,704,000, $5,507,000 and $5,030,000 in 2000,
1999 and 1998, respectively.

Future minimum
payments, by year and in the aggregate, under noncancelable leases with initial
or remaining terms of one year or more, consisted of the following at December
31, 2000:

(In thousands)
  Operating
  Capital2001
  $3,347
  $1,1412002
  3,010
  3942003
  2,609
  1172004
  1,238
  1082005
  520
  108Thereafter
  2,229
  407$12,953
  $2,275Executory costs (taxes)
  
  Net minimum lease payments
  
  2,275Less:Amount
  representing interest
  
  (261)Present
  value of net minimum lease payments
  
  $2,014In the normal course
of business, there are various outstanding legal proceedings, claims,
commitments and contingent liabilities. In the opinion of management, the
Company and its subsidiaries will not be materially affected by the outcome of
such matters.

18.       Community First Bankshares, Inc.

(Parent Company Only)

Condensed
  Statements of Financial ConditionDecember
  31 (In thousands)
  2000
  1999AssetsCash and due from subsidiary banks
  $2,994
  $2,425Interest-bearing deposits
  2
  16Available-for-sale securities
  10,628
  2,120Investment in subsidiaries
  538,437
  575,568Furniture and equipment
  6,697
  6,632Receivable from subsidiaries
  12,919
  21,864Other assets
  17,027
  18,076Total assets
  $588,704
  $626,701Liabilities and
  shareholders equityShort-term borrowings
  $48,952
  $25,607Long-term debt
  186,485
  186,699Other liabilities
  7,836
  7,126Shareholders equity
  345,431
  407,269Total liabilities and
  shareholders equity
  $588,704
  $626,701

Condensed Statements of IncomeYears ended December 31 (In thousands)
  2000
  1999
  1998Income:Dividends
  from subsidiaries
  $58,067
  $73,242
  $76,728Service
  fees from subsidiaries
  411
  5,022
  5,647Interest
  income
  971
  991
  1,049Other
  1,559
  1,357
  1,641Total income
  61,008
  80,612
  85,065Expense:Interest
  expense
  18,462
  16,895
  17,565Other
  expense
  22,186
  20,596
  29,511Total expense
  40,648
  37,491
  47,076Income before income tax
  benefit, equity in undistributed income of subsidiaries
  20,360
  43,121
  37,989Income tax benefit
  13,120
  9,955
  13,606Income before
  undistributed income of subsidiaries
  33,480
  53,076
  51,595Equity in undistributed
  income (loss) of subsidiaries
  38,154
  21,837
  (6,132)Net income
  $71,634
  $74,913
  $45,463

Condensed Statements of Cash FlowsYears ended December 31 (In thousands)
  2000
  1999
  1998Cash
  flows from operating activities:Net income
  $71,634
  $74,913
  $49,371Adjustments to reconcile
  net income to net cash used in operating activities:Equity in
  undistributed income (loss) of subsidiaries
  (38,154)
  (21,837)
  6,132Depreciation
  867
  992
  1,076Increase (decrease) in
  interest payable
  2,176
  (13)
  Other, net
  (417)
  5,120
  (12,369)Net cash provided by
  operating activities
  36,106
  59,175
  44,210Cash
  flows from investing activities:Purchases of stock in
  subsidiaries
  
  (4,878)
  (88,938)Equity distribution from
  subsidiaries
  110,021
  
  Net loans to subsidiaries
  8,945
  (10,808)
  216Purchases of
  available-for-sale securities
  (32,473)
  (27,877)
  Sales of
  available-for-sale securities, net of gains
  1,630
  1,573
  62,941Maturities of investment
  securities
  23,009
  25,038
  Net increase in furniture
  and equipment
  (932)
  (580)
  (1,910)Net
  decrease in interest-bearing deposits
  14
  94
  395Net cash provided by (used
  in) investing activities
  110,214
  (17,438)
  (27,296)Cash
  flows from financing activities:Net increase (decrease) in
  short-term borrowings
  23,345
  (9,928)
  24,368Proceeds from issuance of
  long-term debt
  
  
  29,450Common stock dividends paid
  (27,601)
  (27,075)
  (20,059)Repayment of long-term
  debt
  (214)
  (212)
  (38,625)Sale of common stock held
  in treasury
  4,444
  2,569
  1,553Purchase of common stock
  held in treasury
  (145,725)
  (11,844)
  (16,314)Net proceeds from issuance
  of common stock
  
  2,234
  1,384Net cash used in financing
  activities
  (145,751)
  (44,256)
  (18,243)Net increase (decrease) in
  cash and cash equivalents
  569
  (2,519)
  (1,329)Cash and cash equivalents
  at beginning of year
  2,425
  4,944
  6,273Cash and cash equivalents
  at end of year
  $2,994
  $2,425
  $4,944

Certain restrictions
exist regarding the extent to which bank subsidiaries may transfer funds to the
Company in the form of dividends, loans or advances. Federal law prevents the
Company from borrowing from bank subsidiaries unless the loans are secured by
specified U.S. obligations. Secured loans to the Company or any individual
affiliate are generally limited in amount to 10% of the banks equity. Further,
loans to the Company and all affiliates in total are limited to 20% of the
banks equity. As of December 31, 2000 and 1999, $52,633,000 and $56,348,000,
respectively, of individual subsidiary banks capital was available for credit
extension to the parent company. At December 31, 2000 and 1999, bank subsidiaries had no credit extended to the Company.
            Payment of dividends to the
Company by its subsidiary banks is subject to various limitations by bank
regulatory agencies. Undistributed earnings of the bank subsidiaries available
for distribution as dividends under these limitations were $45,687,000 and
$36,801,000 as of December 31, 2000 and 1999, respectively.

19.
Related Party Transactions

Certain directors and executive officers of the Company and its
subsidiaries, including their immediate families, companies in which they are
principal owners and trusts in which they are involved, are loan customers of
the bank subsidiaries. The aggregate dollar amounts of these loans did not
exceed five percent of stockholders equity
at December 31, 2000, 1999 and 1998.

20.
Earnings Per Share

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

Years
  ended December 31
  2000
  1999
  1998(1)Numerator:Income from continuing operations
  $71,634
  $74,913
  $49,371Numerator for basic earnings per share income
  available to common stockholders
  71,634
  74,913
  49,371Denominator:Denominator for basic earnings per share
  weighted-average share
  46,219,120
  50,061,972
  50,272,551Effect of dilutive securities:Employee stock options
  359,630
  608,587
  842,152Dilutive potential common shares
  359,630
  608,587
  842,152Denominator for diluted
  earnings per share adjusted
  weighted-average shares and assumed conversions
  46,578,750
  50,670,559
  51,114,703Basic earnings per share
  $1.55
  $1.50
  $0.98Diluted earnings per share
  $1.54
  $1.48
  $0.97(1)        Inclusive of the effect of discontinued
operations as follows: Net loss of $3.9 million in 1998; diluted earnings per
share of $(0.08) in 1998.

21.       Supplemental Disclosures to Consolidated
Statements of Cash Flows

Years
  ended December 31 (In thousands)
  2000
  1999
  1998Noncash transfers of held-to-maturity securities to available-for-sale securities
  $
  $22,974
  $154,264Unrealized (loss) gain on available-for-sale
  securities
  56,986
  (93,922)
  12,379Income taxes paid
  35,149
  40,378
  20,258Interest paid
  287,719
  241,590
  244,521Commitments to purchase
  investment securities
  
  386
  1,529Independent
Auditors Letter

The Board of Directors and Shareholders
Community First Bankshares, Inc.

We have audited the accompanying consolidated statements of financial
condition of Community First Bankshares, Inc., and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of income, comprehensive
income, shareholders equity and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community First Bankshares, Inc., and subsidiaries at December 31, 2000 and
1999 and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles 
generally accepted in the United States.



/s/  Ernst
  & Young LLPMinneapolis, MinnesotaJanuary 17, 2001

consolidated statement of conditionfive
year summary

December 31 (In thousands)
  2000
  1999
  1998
  1997
  1996AssetsCash and due from banks
  $256,136
  $247,051
  $262,667
  $265,238
  $215,712Federal funds sold and
  securities purchased under agreement to resell
  
  4,775
  11,990
  85,186
  40,119Interest-bearing deposits
  1,110
  4,648
  11,463
  16,630
  11,390Available-for-sale
  securities
  1,714,510
  1,937,517
  2,004,584
  1,561,515
  570,999Held-to-maturity securities
  73,222
  74,248
  92,859
  238,046
  268,070Total securities
  1,787,732
  2,011,765
  2,097,443
  1,799,561
  839,069Loans
  3,738,202
  3,690,353
  3,537,537
  3,160,501
  2,514,573Less:
  Allowance for loan losses
  52,168
  48,878
  51,860
  41,387
  31,354Net loans
  3,686,034
  3,641,475
  3,485,677
  3,119,114
  2,483,219Other assets
  358,717
  392,521
  370,532
  374,489
  200,346Total assets
  $6,089,729
  $6,302,235
  $6,239,772
  $5,660,218
  $3,789,855Liabilities
  and shareholders equityDeposits:Noninterest-bearing
  $500,834
  $616,861
  $591,718
  $740,425
  $561,665Interest-bearing
  4,519,057
  4,293,002
  4,509,347
  3,600,640
  2,578,138Total deposits
  5,019,891
  4,909,863
  5,101,065
  4,341,065
  3,139,803Short-term borrowings
  409,710
  724,425
  435,726
  275,239
  248,906Long-term debt
  123,957
  75,622
  93,524
  124,612
  54,870Other liabilities
  70,740
  65,056
  64,801
  394,263
  46,486Total liabilities
  5,624,298
  5,774,966
  5,695,116
  5,135,179
  3,490,065Company-obligated
  mandatorily redeemable preferred securities of CFB Capital I and II
  120,000
  120,000
  120,000
  120,000
  Shareholders equity
  345,431
  407,269
  424,656
  405,039
  299,790Total liabilities and
  shareholders equity
  $6,089,729
  $6,302,235
  $6,239,772
  $5,660,218
  $3,789,855

consolidated
statement of incomefive year summary

Years Ended December 31 (In thousands)
  2000
  1999
  1998
  1997
  1996Interest
  income:Loans
  $353,405
  $332,974
  $337,771
  $271,912
  $230,599Investment
  securities
  123,525
  130,955
  124,306
  66,316
  50,675Other
  628
  1,277
  5,193
  4,561
  3,789Total
  interest income
  477,558
  465,206
  467,270
  342,789
  285,063Interest
  expense:Deposits
  169,281
  151,138
  166,873
  124,964
  99,838Short-term
  and other borrowings
  34,303
  28,052
  19,576
  9,465
  9,359Long-term
  debt
  6,697
  6,628
  8,338
  6,059
  4,891Total
  interest expense
  210,281
  185,818
  194,787
  140,488
  114,088Net interest income
  267,277
  279,388
  272,483
  202,301
  170,975Provision for loan losses
  15,781
  20,184
  23,136
  6,604
  8,545Net interest income after
  provision for
  loan losses
  251,496
  259,204
  249,347
  195,697
  162,430Noninterest
  income:Service
  charges on deposit accounts
  39,537
  37,013
  31,880
  22,701
  17,526Insurance
  commissions
  10,550
  8,791
  7,197
  5,375
  5,213Securities
  sales commission
  6,805
  5,258
  4,249
  2,576
  1,304Fees from
  fiduciary activities
  5,811
  5,148
  4,944
  3,805
  3,332Net gains
  on sales of securities
  65
  2,175
  1,801
  466
  97Other
  12,437
  14,124
  13,196
  15,024
  11,723Total
  noninterest income
  75,205
  72,509
  63,267
  49,947
  39,195Noninterest
  expense:Salaries
  and employee benefits
  110,024
  106,542
  119,250
  83,331
  70,657Net
  occupancy
  31,941
  32,726
  33,929
  25,000
  20,216FDIC
  insurance
  1,039
  625
  771
  458
  729Professional
  service fees
  8,289
  8,819
  10,251
  5,702
  5,291Amortization
  of intangibles
  10,481
  10,500
  10,366
  5,550
  3,433Data
  processing
  4,545
  4,116
  5,209
  2,262
  2,270Company-obligated
  mandatorily redeemable preferred securities of CFB Capital I & II
  10,245
  10,245
  10,218
  5,108
  Other
  42,755
  44,654
  50,654
  32,222
  31,915Total
  noninterest expense
  219,319
  218,227
  240,648
  159,633
  134,511Income from continuing
  operations before income taxes,
  and extraordinary item
  107,382
  113,486
  71,966
  86,011
  67,114Provision for income taxes
  35,748
  38,573
  22,595
  25,848
  24,189Income from continuing
  operations before extraordinary item
  71,634
  74,913
  49,371
  60,163
  42,925Discontinued operations
  
  
  (2,232)
  967
  Disposal of discontinued
  operations
  
  
  (1,676)
  
  Extraordinary item
  
  
  
  (265)
  Net income
  $71,634
  $74,913
  $45,463
  $60,865
  $42,925Preferred dividend
  
  
  
  
  1,610Net income applicable to
  common equity
  $71,634
  $74,913
  $45,463
  $60,865
  $41,315Earnings per common and
  common equivalent share:Basic
  $1.55
  $1.50
  $0.90
  $1.31
  $0.98Diluted
  $1.54
  $1.48
  $0.89
  $1.27
  $0.94Average common shares
  outstanding:Basic
  46,219,120
  50,061,972
  50,272,551
  46,416,814
  42,374,295Diluted
  46,578,750
  50,670,559
  51,114,703
  47,831,402
  45,724,109

quarterly results of operations (unaudited)

The following is a summary of
the quarterly results of operations for the years ended December 31, 2000 and
1999 (in thousands, except per share data):

First Quarter
  Second Quarter
  Third Quarter
  FourthQuarterYear ended December 31, 2000Interest income
  $117,430
  $120,192
  $120,955
  $118,981Interest expense
  48,935
  52,871
  54,842
  53,633Net interest income
  68,495
  67,321
  66,113
  65,348Provision for loan losses
  4,990
  3,811
  2,976
  4,004Net interest income after
  provision for loan losses
  63,505
  63,510
  63,137
  61,344Net gains (losses) on sales
  of securities
  4
  144
  (87)
  4Noninterest income
  18,481
  18,826
  19,247
  18,586Noninterest expense
  54,147
  55,069
  55,431
  54,672Income before income taxes
  27,843
  27,411
  26,866
  25,262Provision for income taxes
  9,180
  9,150
  9,115
  8,303Net income
  $18,663
  $18,261
  $17,751
  $16,959Earnings per common and
  common equivalent shares:Basic net
  income
  $0.37
  $0.38
  $0.40
  $0.40Diluted
  net income
  $0.37
  $0.38
  $0.40
  $0.40Average common and common
  equivalent shares:Basic
  50,312,866
  48,060,322
  44,399,867
  42,167,936Diluted
  50,613,345
  48,437,386
  44,810,942
  42,517,836First Quarter
  Second Quarter
  ThirdQuarter
  FourthQuarterYear ended
  December 31, 1999Interest income
  $114,729
  $116,046
  $117,075
  $117,356Interest expense
  45,556
  45,923
  46,933
  47,406Net interest income
  69,173
  70,123
  70,142
  69,950Provision for loan losses
  4,881
  6,348
  4,283
  4,672Net interest income after
  provision for loan losses
  64,292
  63,775
  65,859
  65,278Net gains on sales of
  securities
  530
  1,254
  229
  162Noninterest income
  15,950
  17,647
  18,063
  18,674Noninterest expense
  52,987
  54,021
  53,791
  57,428Income before income taxes
  27,785
  28,655
  30,360
  26,686Provision for income taxes
  9,530
  9,452
  10,433
  9,158Net income
  $18,255
  $19,203
  $19,927
  $17,528Earnings per common and
  common equivalent shares:Basic net
  income
  $0.36
  $0.38
  $0.40
  $0.35Diluted
  net income
  $0.36
  $0.38
  $0.39
  $0.35Average common and common
  equivalent shares:Basic
  50,161,750
  50,110,945
  50,004,710
  49,980,084Diluted
  50,770,799
  50,752,010
  50,643,031
  50,525,998