<PAGE>

                               TABLE OF CONTENTS

                           Introduction               1

                           Letter to Shareholders     2

                           Financial Review          10

                           Affiliated Banks          43

                           Board of Directors        50

                           Senior Officers           51

                           Corporate Information     52


FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE DATA)       1998(1)     1997(1)      1996        1995        1994
----------------------------------------------------------------------------------------------------------------------------
                                                                              (restated)  (restated)  (restated)  (restated)
<S>                                                               <C>         <C>         <C>         <C>         <C>
EARNINGS
----------------------------------------------------------------------------------------------------------------------------
Total interest income ..........................................  $  449,244  $  326,519  $  270,198  $  228,294  $  170,994
Total interest expense .........................................     188,484     134,540     108,761      94,424      60,671
Net interest income ............................................     260,760     191,979     161,437     133,870     110,323
Net income .....................................................      43,063      59,013      41,522      37,950      28,767

PER COMMON AND COMMON EQUIVALENT SHARE
----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share .......................................  $     0.91  $     1.36  $     1.01  $     0.98  $     0.75
Diluted earnings per share .....................................        0.90        1.32        0.97        0.93        0.71
Net book value .................................................        8.60        8.20        6.99        6.20        5.26
Dividends paid .................................................        0.44        0.35        0.29        0.24        0.22

AT YEAR-END
----------------------------------------------------------------------------------------------------------------------------
Total assets ...................................................  $6,002,972  $5,454,135  $3,606,406  $3,210,017  $2,494,917
Total loans ....................................................   3,386,142   3,024,322   2,395,165   2,058,152   1,575,271
Allowance for loan losses ......................................      50,173      40,045      30,165      25,906      20,414
Total deposits .................................................   4,884,672   4,152,918   2,972,744   2,749,665   2,114,479
Common equity ..................................................     405,246     388,013     261,405     216,394     165,868

KEY PERFORMANCE RATIOS
----------------------------------------------------------------------------------------------------------------------------
Return on average common equity ................................      10.93%      19.44%      16.85%      18.90%      17.43%
Return on average assets .......................................       0.74%       1.44%       1.25%       1.34%       1.22%
Net interest margin ............................................       5.09%       5.32%       5.49%       5.06%       4.95%
Dividend payout ratio ..........................................      48.94%      26.50%      29.85%      25.70%      30.69%
Average common equity to average assets ........................       6.78%       7.40%       7.12%       6.81%       6.74%
Nonperforming assets to period-end loans and OREO ..............       0.78%       0.63%       0.72%       0.31%       0.35%
Allowance for loan losses to period-end loans ..................       1.48%       1.32%       1.26%       1.26%       1.30%
Allowance for loan losses to nonperforming loans ...............     221.23%     268.02%     193.99%     648.30%     487.91%
Net charge-offs to average loans ...............................       0.44%       0.24%       0.18%       0.19%       0.03%
Tier 1 capital .................................................       9.35%      11.53%       9.18%       8.88%      11.02%
Total risk-based capital .......................................      12.08%      14.98%      11.18%      11.26%      13.60%
Leverage ratio .................................................       6.40%       7.51%       6.84%       6.37%       7.35%

</TABLE>

(1)INCLUSIVE OF THE EFFECT OF DISCONTINUED OPERATIONS AS FOLLOWS: NET INCOME 
(LOSS) - $(3.9 MILLION) AND $967,000, IN 1998 AND 1997 RESPECTIVELY; DILUTED 
EARNINGS PER SHARE - $(0.08) AND $0.02, IN 1998 AND 1997, RESPECTIVELY.



<PAGE>

                    TABLE OF CONTENTS

<TABLE>

<S>                                                                     <C>
Management's Discussion and Analysis                                    11

Consolidated Statements of Financial Condition                          23

Consolidated Statements of Income                                       24

Consolidated Statements of Comprehensive Income                         25

Consolidated Statements of Shareholders' Equity                         25

Consolidated Statements of Cash Flows                                   26

Notes to Consolidated Financial Statements                              27

Independent Auditor's Letter                                            39

Five-Year Summary                                                       40

Quarterly Results of Operations                                         42
</TABLE>

<PAGE>

                                           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, 1998 and 1997, and its results of operations for the years ended December 
31, 1998, 1997, and 1996. 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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------

                       POOLING OF INTERESTS TRANSACTIONS
------------------------------------------------------------------------------------------------
                LOCATION AND/OR                       NUMBER OF                  TOTAL ASSETS AT
DATE OF         NAME OF MAIN OFFICE                 LOCATIONS AT             DATE OF ACQUISITION
ACQUISITION     OF ACQUIRED ENTITY                DATE OF ACQUISITION              (IN MILLIONS)
------------------------------------------------------------------------------------------------
<S>             <C>                               <C>                        <C>
August 1998     Salt Lake City, Utah                      2                               $  99
July 1998       Las Cruces, New Mexico                    3                                 159
May 1998        FNB, Inc., Colorado                       2                                 120
April 1998      Longmont, Colorado                        4                                 138
April 1998      Thornton, Colorado                        4                                  78
December 1997   Gunnison, Colorado                        4                                  90
November 1997   Phoenix, Arizona                          1                                  54
December 1996   Mountain Parks, Denver, Colorado         17                                 600
October 1996    Trinidad, Colorado                        1                                  70
</TABLE>


With respect to certain acquisitions listed above, the Company's results of 
operations and financial condition have been restated for all historical 
periods:

     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 ("Pioneer"). At
     acquisition, Pioneer 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.

     On December 18, 1996, the Company issued approximately 10.4 million shares
     of common stock to acquire Mountain Parks Financial Corporation ("Mountain
     Parks"), a one-bank holding company headquartered in Denver, Colorado. At
     acquisition, Mountain Parks had approximately $600 million in assets at
     seventeen banking offices located in Colorado.

     The acquisitions in Trinidad, Phoenix and Gunnison listed in the table were
accounted for as a pooling of interests; however, because the acquisitions were
not material to the Company's financial condition or operating results, the
Company's financial information has not been restated to reflect these mergers.

     PURCHASE TRANSACTIONS. The following transactions during the periods
presented were accounted for as a purchase:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                             PURCHASE TRANSACTIONS
------------------------------------------------------------------------------------------
                LOCATION AND/OR                       NUMBER OF           TOTAL ASSETS AT
DATE OF         NAME OF MAIN OFFICE                LOCATIONS AT       DATE OF ACQUISITION
ACQUISITION     OF ACQUIRED ENTITY              DATE OF ACQUISITION          (IN MILLIONS)
------------------------------------------------------------------------------------------
<S>             <C>                             <C>                    <C>
January 1998    Banc One, Phoenix, Arizona (1)          37                       $    730
July 1997       Cheyenne, Wyoming                       24                          1,100
July 1996       Kiowa, Colorado (2)                      3                             58
July 1996       Englewood, Colorado (2)                  1                             19
</TABLE>

(1)  ACCOUNTED FOR AS A PURCHASE OF CERTAIN ASSETS AND ASSUMPTION OF CERTAIN
     LIABILITIES.
(2)  ACQUIRED BY MOUNTAIN PARKS PRIOR TO COMPANY'S ACQUISITION OF MOUNTAIN
     PARKS.


     On July 14, 1997, the Company completed the purchase of KeyBank N.A. 
(Wyoming), ("KeyBank") from KeyCorp of Cleveland, Ohio. At the time of 
acquisition, KeyBank had total assets of $1.1 billion in banking offices in 
24 Wyoming communities. The purchase price of the transaction, which was 
accounted for as a purchase, was $135 million and resulted in the recognition 
of goodwill of approximately $60 million. The purchase price was funded 
through a combination of proceeds from the issuance of $60 million 8.875% 
Cumulative Capital Securities by a business subsidiary of the Company in 
February 1997, partial proceeds from the Company's issuance of $60 million 
7.30% Subordinated Notes, and retained earnings of the Company.

     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.

     The Englewood and Kiowa transactions listed in the table were also 
accounted for as purchases.

                                    OVERVIEW

For the year ended December 31, 1998, the Company reported net income of 
$43.1 million, a decrease of $15.9 million, or 26.9% from the $59.0 million 
earned during 1997. Diluted earnings per share were $0.90, compared to $1.32 
in 1997. Return on average assets was .74% for 1998, compared with 1.44% for 
1997. Return on average common shareholders' 

11

<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY FIRST BANKSHARES, INC.

equity for 1998 and 1997 was 10.93% and 19.44%, respectively. Factors 
contributing to these changes included a loss of $3.9 million on the 
operation and disposal of discontinued operations, a $10 million one-time 
charge related to the Company's decision to liquidate its specialty lending 
portfolio, and a $5.5 million one-time charge associated with the Company's 
earnings improvement initiative.

     For the year ended December 31, 1997, the Company reported net income of 
$59.0 million, an increase of $19.1 million, or 47.9%, from the $39.9 million 
earned during 1996. Diluted earnings per share were $1.32, compared to $0.97 
in 1996. Return on average assets was 1.44% for 1997, compared with 1.25% for 
1996. Return on average common shareholders' equity for 1997 and 1996 was 
19.44% and 16.85%, respectively. Factors contributing to these changes 
included approximately $6.3 million of net income provided by entities 
acquired during 1997 and 1996.

     Total assets were $6,003 million and $5,454 million at December 31, 1998 
and 1997, respectively. The increase of $549 million, or 10.1%, during 1998 
was principally due to the 1998 purchase of assets and assumption of 
liabilities of Banc One Corporation offices located in Arizona, Colorado, and 
Utah, and loan growth in the Company's subsidiary banks.

                       SALE OF SUB-PRIME LENDING BUSINESS

In December 1996, the Company acquired two sub-prime lending affiliates, 
Mountain Parks Financial Services, Inc. ("MPFS") and Equity Lending, Inc. 
("ELI"), through its merger with Mountain Parks Financial Corporation. The 
Company subsequently decided to sell MPFS and ELI and accounted for these 
entities as discontinued operations during 1997 and the first two quarters of 
1998. At December 31, 1997, the net balance sheet effect of $72 million from 
these entities was included as an Other Asset. The Company recognized income 
of $967,000, net of tax, from these discontinued operations during 1997.

     During the first two quarters of 1998, the Company recognized a charge 
of $1.7 million, which reflected the expected loss on disposition of the 
subsidiaries, and realized a $2.2 million operating loss, consisting of 
$707,000 attributed to quarterly operations and $1.4 million associated with 
one-time operating expenses related to preparing the subsidiaries for sale.

     As of June 30, 1998, in anticipation of the disposition of certain 
operating assets, the Company changed the status of MPFS and ELI from 
discontinued operations and reflected the relat ed assets expected to be 
retained as loans. In July 1998, the Company sold the operating assets, 
excluding loans retained of MPFS and ELI in cash transactions. The Company 
retained approximately $50 million in sub-prime mortgage loans originated by 
ELI, approximately $50 million in automobile installment contracts originated 
by MPFS and servicing rights on an additional $100 million in ELI loans sold 
to other parties. In late 1998, the Company sold a portion of the loans 
retained from MPFS and ELI. The Company recorded another charge of $10 
million in the fourth quarter in connection with further expected losses upon 
liquidation of these assets, including direct losses, increased reserves, 
termination fees on certain servicing contracts and severance costs for loan 
servicing personnel. At December 31, 1998, the Company had approximately $25 
million in performing sub-prime mortgages and $40 million in automobile 
installment contracts. The Company expects to sell these assets in the first 
half of 1999, and the Company anticipates that after the sale, it will not 
pursue further sub-prime lending activities.

                              RESTRUCTURING CHARGE

During the fourth quarter of 1998, the Company recorded a $5.5 million, 
non-recurring charge as a result of the Company's initiative to improve 
future core profitability principally through a reduction in work force. As 
part of the plan, approximately 200 positions were eliminated throughout the 
organization. The charge included severance and other personnel related 
costs, as well as, the disposal of redundant computer equipment acquired in 
conjunction with recent acquisitions. These actions respond to recent changes 
in the financial markets which have placed additional pressure on margins, 
slowed the pace of acquisitions, and slowed the growth of sales of financial 
service products.

     As of December 31, 1998, all expected expenditures associated with the 
restructuring have been recognized and recorded, including the identification 
of specific personnel affected by the reduction in work force. Certain 
severance related payments to affected individuals will occur during 1999.

                             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.


                                                                          12

<PAGE>

                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                                                COMMUNITY FIRST BANKSHARES, INC.

     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:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                       1998                               1997                           1996
---------------------------------------------------------------------------------------------------------------------------------
                                                        INTEREST                        INTEREST                         INTEREST
                                                          YIELDS                          YIELDS                           YIELDS
                                    AVERAGE                  AND     AVERAGE                 AND      AVERAGE                 AND
(DOLLARS IN THOUSANDS)              BALANCE   INTEREST     RATES     BALANCE    INTEREST   RATES      BALANCE    INTEREST   RATES
---------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>        <C>          <C>      <C>         <C>          <C>     <C>         <C>        <C>
ASSETS
Loans(1)(2) .................... $3,243,167 $  325,712   10.04%   $2,625,203  $  260,086   9.91%   $2,184,839  $  219,786  10.06%
Investment securities(2) .......  1,964,741    127,486    6.49%    1,022,616      68,681   6.72%      792,046      52,874   6.68%
Other earning assets ...........     68,743      3,756    5.46%       68,542       3,426   5.00%       57,422       2,814   4.90%
                                 ------------------------------------------------------------------------------------------------
  Total earning assets..........  5,276,651    456,954    8.66%    3,716,361     332,193   8.94%    3,034,307     275,474   9.08%
Noninterest-earning assets .....    532,818                          383,408                          291,851
                                 ------------------------------------------------------------------------------------------------
  Total assets ................. $5,809,469                       $4,099,769                       $3,326,158
                                 ------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS'
   EQUITY
Interest-bearing checking ......    800,468     14,286    1.78%      497,864      10,437   2.10%      560,315      12,029   2.15%
Savings deposits ...............  1,055,424     31,296    2.97%      792,995      21,683   2.73%      500,899      13,039   2.60%
Time deposits ..................  2,114,498    114,994    5.44%    1,569,304      86,904   5.54%    1,257,078      69,454   5.53%
Short-term borrowings ..........    345,060     19,576    5.67%      177,917       9,465   5.32%      169,583       9,359   5.52%
Long-term borrowings ...........    122,050      8,332    6.83%       85,991       6,051   7.04%       69,169       4,880   7.06%
                                 ------------------------------------------------------------------------------------------------
  Total interest-bearing
    liabilities ................  4,437,500    188,484    4.25%    3,124,071     134,540   4.31%    2,557,044     108,761   4.25%
Demand deposits ................    799,477                          561,985                          468,612              
Noninterest-bearing
   liabilities .................     58,582                           47,981                           40,588              
Trust Owned Preferred
   Securities ..................    120,000                           57,699                               --              
Preferred shareholders'
   equity.......................         --                            4,506                           22,999              
Common shareholders'
   equity ......................    393,910                          303,527                          236,915              
                                 ------------------------------------------------------------------------------------------------
                                  1,371,969                          975,698                          769,114              
                                 ------------------------------------------------------------------------------------------------
Total liabilities and
  shareholders' equity.......... $5,809,469                       $4,099,769                       $3,326,158              
                                 ------------------------------------------------------------------------------------------------
Net interest income ............            $  268,470                        $  197,653                       $  166,713  
                                 ------------------------------------------------------------------------------------------------
Net interest spread ............                          4.41%                            4.63%                            4.83%
                                 ------------------------------------------------------------------------------------------------
Net interest margin ............                          5.09%                            5.32%                            5.49%
                                 ------------------------------------------------------------------------------------------------
</TABLE>

(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:

<TABLE>
<CAPTION>
                                                               1998 COMPARED TO 1997                  1997 COMPARED TO 1996   
                                                          --------------------------------------------------------------------
(IN THOUSANDS)                                              VOLUME       RATE        TOTAL       VOLUME        RATE      TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>          <C>         <C>         <C>        <C>
Interest income:
   Loans (1) (2) ......................................... $ 61,223   $  4,403     $ 65,626    $ 44,299    $ (3,999)  $ 40,300
   Investment securities (2) .............................   63,275     (4,470)      58,805      15,392         415     15,807
   Other earning assets ..................................       10        320          330         545          67        612
                                                          --------------------------------------------------------------------
Total interest income ....................................  124,508        253      124,761      60,236      (3,517)    56,719
                                                          --------------------------------------------------------------------

Interest expense:
   Savings deposits and interest-bearing checking ........   13,519        (58)      13,461       6,263         789      7,052
   Time deposits .........................................   30,192     (2,101)      28,091      17,251         199     17,450
   Short-term borrowings .................................    8,892      1,219       10,111         460        (354)       106
   Long-term borrowings ..................................    2,537       (256)       2,281       1,187         (16)     1,171
                                                          --------------------------------------------------------------------
Total interest  expense ..................................   55,140     (1,196)      53,944      25,161         618     25,779
                                                          --------------------------------------------------------------------
Increase (decrease) in net interest income ............... $ 69,368   $  1,449     $ 70,817    $ 35,075    $ (4,135)  $ 30,940
                                                          --------------------------------------------------------------------
</TABLE>

(1)  INCLUDES LOAN FEES.
(2)  INTEREST INCOME IS PRESENTED ON A TAX EQUIVALENT BASIS.

     Net interest income on a tax equivalent basis in 1998 was $268.5 
million, a $70.8 million increase from 1997. The increase was primarily due 
to a 42.0% increase in earning assets partially offset by a 23 basis point 
reduction in the net interest margin. The increase in earning assets was due 
to three bank acquisitions completed by the Company during 1998 and 1997, the 
purchase of assets and assumption of liabilities of Banc One Corporation 
offices in Arizona, Colorado, and Utah, and loan growth in existing markets. 
Net interest income on a tax equivalent basis in

13


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY FIRST BANKSHARES, INC.


1997 was $197.7 million, a $30.9 million increase from 1996. The increase was 
primarily due to a 22.5% increase in earning assets partially offset by a 17 
basis point reduction in the net interest margin. The increase in earning 
assets was due to the six bank acquisitions completed by the Company between 
the third quarter of 1996 and December 1997 and loan growth in the existing 
markets.

     The net interest margin was 5.09%, 5.32%, and 5.49% in 1998, 1997 and 
1996, respectively. This decrease in margin was due to a 22 basis point 
decrease in the yield spread between 1997 and 1998, and a change in the mix 
of earning assets to lower-yielding assets. Average loans to average earning 
assets changed from 72.0% in 1996, to 70.6% in 1997, and 61.5% 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 1998 was $22.5 million, an increase of $16.4 
million or 268.9%, from the $6.1 million provision during 1997. The increase 
in the loan loss provision was principally due to the Company's credit 
experience in the operation and disposal of its sub-prime lending affiliates, 
which totaled $11.9 million in 1998. 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 1997 was $6.1 million, a 
decrease of $1.4 million, or 18.7% from the 1996 provision of $7.5 million.

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 commission, fees from the sale of investment 
products, and fees for trust services. Management is working to increase 
noninterest income 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 1998 was $60.3 million, an increase of $13.1 
million, or 27.8%, from the $47.2 million earned in 1997. The increase was 
principally due to an increase in service charges on deposit accounts in 1998 
from $21.1 million earned during 1997 to $30.3 million earned in 1998, an 
increase of $9.2 million, or 43.6%. Of the increase, $8.5 million was 
attributed to banks acquired in 1998 and 1997. Net investment security gains 
were $1.8 million in 1998.

     Noninterest income for 1997 was $47.2 million, an increase of $10.3 
million, or 27.9%, from the $36.9 million earned in 1996. The increase was 
principally due to an increase in service charges on deposit accounts in 1997 
to $21.1 million from the $16.0 million in 1996, an increase of $5.1 million, 
or 31.9%. The increase is attributed to $2.7 million in service charges on 
deposit accounts at banks acquired during 1997 and $494,000 at banks acquired 
during 1996.

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 anticipated in its 
acquisition strategy.

The following table presents the components of noninterest expense for the 
periods indicated:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 (IN THOUSANDS)                          1998              1997              1996
--------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>               <C>
Salaries and employee benefits ..........................   $114,014          $ 78,380          $ 66,298
Net occupancy ...........................................     32,110            23,285            18,852
FDIC insurance ..........................................        686               381               675
Legal and accounting ....................................      4,073             2,269             2,481
Other professional services .............................      5,447             2,892             2,305
Acquisition, integration and conforming .................      3,721               398             2,928
Data processing and loan servicing fees .................      4,640             1,782             1,842
Impairment of equity method investment ..................         --                --               940
Minority interest .......................................         --                80               222
Company-obligated mandatorily redeemable
   preferred securities of CFB Capital I & II ...........     10,218             5,108                --
Amortization of Intangibles .............................     10,366             5,550             3,433
Other ...................................................     44,817            29,828            26,004
                                                         -----------------------------------------------
   Total noninterest expense ............................   $230,092          $149,953          $125,980
                                                         -----------------------------------------------
</TABLE>


     Noninterest expense increased $80.1 million to $230.1 million in 1998. 
The increase was principally due to an increase in salaries and employee 
benefits, net occupancy expense, and acquisition and related expenses. The 
$35.6 million increase in salaries and employee benefits includes $18.7 
million in additional expenses related to acquisitions completed by the 
Company in 1998 and 1997. The $8.8 million increase in net occupancy is also 
due primarily to acquisitions completed by the Company. Legal and accounting 
fees increased $1.8 million, or 78.3%, from $2.3 million to $4.1 million 
during 1998. The Company incurred acquisition expenses of $3.7 million in 
1998 in connection with the 1998 acquisitions. Company-obligated mandatorily 
redeemable preferred stock expense increased by $5.1 million, or 100%, to 
$10.2 million in 1998 compared to $5.1 million in 1997, which reflects the 
increase in the average underlying securities from $58 million in 1997 to 
$120 million in 1998. Amortization of intangibles increased $4.8 million, or 
86.8%, due to intangible assets, such as goodwill, noncompete agreements and 
insurance agency customer policy expirations recorded in connection with the 
Company's acquisitions. Other noninterest expense was $44.8 million, an 
increase of $15.0 million, or 50.3%, from $29.8 million in 1997.

     Noninterest expense for 1997 was $150.0 million, an increase of $24.0 
million, or 19.0%, from the level of $126 million during 1996. The increase 
was principally due to an increase of $12.1 million, or 18.3%, in salaries 
and employee benefits, of which $5.8 million was due to the 1997 acquisitions 
and $1.7 million was due to the banks acquired during 1996. Net occupancy 
expense increased $4.4 million to $23.3 million, $2.1 million due to 1997 and 
1996 acquisitions. Acquisition expenses of $398,000 were incurred in 1997 in 
conjunction with the acquisitions of Republic and Summit. Intangibles expense 
increased $2.2 million, or 61.7%, due to the additional intangible assets 
recognized in connection with the Company's acquisitions. Other noninterest 
expense was $29.8 million, an increase of $3.8 million, or 14.6%, from $26.0 
million during 1996.

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. As a 
result of effective tax strategies, the Company's effective tax rate during 
1998 and 1997 were lower than historical effective rates. It


                                                                            14

<PAGE>

                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                                                COMMUNITY FIRST BANKSHARES, INC.

is anticipated that the effective tax rate will increase in future periods. 
The effective tax rate was 31.3%, 29.8%, and 36.0% for 1998, 1997, and 1996, 
respectively.

YEAR 2000 ISSUE
The Company is evaluating the potential impact of what is commonly referred 
to as the "Year 2000" issue. This issue addresses the potential inability of 
certain information systems to properly recognize and process dates 
containing the year 2000 and beyond. If not corrected, these systems could 
fail or create erroneous results. The Company has established a dedicated 
Year 2000 Team to focus on all significant operational areas throughout the 
Company. This team has worked with management to commence the following 
steps: (i) implementing a Year 2000 Assessment and Testing Plan for all items 
that may be affected by the Year 2000 date change; (ii) working with loan 
customers to help them understand the impact of the Year 2000 on their 
business; (iii) communicating with third parties that interact with the 
Company to ensure they are addressing the Year 2000 issue; (iv) communicating 
with hardware and software suppliers to ensure Year 2000 compliance among 
their products; and (v) contingency and disaster recovery planning to ensure 
Year 2000 problem resolution. The Company has identified and tested the 
applications it believes are mission critical, and the initial test results 
indicated that these systems are Year 2000 compliant. The Company completed 
testing and established compliance with respect to its applications, subject 
to equipment upgrades during 1999, ongoing communi cations with third 
parties, and compliance of any entities acquired in 1999. Regardless of the 
Year 2000 compliance of the Company's systems, there can be no assurance that 
the Company will not be adversely affected by the failure of others to become 
Year 2000 compliant. Such risks may include potential losses related to loans 
made to third parties whose businesses are adversely affected by the Year 
2000 issue, the disruption or inaccuracy of data provided by non-Year 2000 
compliant third parties and business disruption caused by the failure of 
service providers, such as security and data processing companies, to become 
Year 2000 compliant. Another pervasive banking risk associated with the Year 
2000 issue is the risk of banking customers withdrawing and retaining large 
amounts of cash during late 1999, thus reducing the Company's deposits and 
needed working capital. Because of these uncertainties, there can be no 
assurance that the Year 2000 issue will not have a material financial impact 
in any future period.

     The Company incurred operating costs of $400,000 during 1998, which 
included $100,000 in labor cost associated with dedicated staff, $200,000 of 
labor cost related to other staff time devoted to Year 2000 compliance and 
$100,000 in costs related to the write off of non-compliant equipment. The 
Company also incurred $1.0 million in capital expenditures for equipment 
upgrades related to the compliance effort. During 1999, the Company expects 
to incur an additional $400,000 in operating costs, which represents 4% of 
the Company's information technology operating budget and an additional $1 
million in capital expenditures, which represents 34% of the Company's 
information technology capital expenditure budget for 1999. The costs 
incurred in 1998 were funded from operating income. Costs incurred in 1999 
will be funded from operating income as well. The Company has not delayed any 
information technology projects as a result of their Year 2000 compliance 
effort.

     The Company has identified contingency plans for all mission critical 
applications and the affiliate bank environment. The verification and 
validation of these plans are expected to be completed during the first six 
months of 1999. The Company's Year 2000 compliance effort has been reviewed 
on five occasions by regulatory authorities during 1998, with additional 
reviews expected in 1999.

                              FINANCIAL CONDITION

INVESTMENT OF FUNDS

LOANS
At December 31, 1998, total loans were $3.4 billion, an increase of $362 
million, or 12.0%, from the December 31, 1997, level of $3.0 billion. A 
significant portion of this increase is attributable to in-market loan growth 
in the Company's existing markets.

     The Company has continued to purchase commercial loan assets to enhance 
earning asset yield performance. Many of such loan assets have been 
originated by selected midwestern regional banks and national leasing and 
finance companies with whom the Company has ongoing relationships. The 
Company's portfolio of purchased loan assets was $322 million at December 31, 
1998, compared to $208 million at December 31, 1997. Banks acquired in 1998 
and 1997 accounted for $108 million of the increase. 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 increase during 1999.

     The following table presents the Company's balance of each major 
category of loans at the dates indicated:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
                                              1998                          1997                           1996         
------------------------------------------------------------------------------------------------------------------------
                                                  PERCENT                         PERCENT                        PERCENT
                                                 OF TOTAL                        OF TOTAL                       OF TOTAL
(DOLLARS IN THOUSANDS)                AMOUNT        LOANS         AMOUNT            LOANS         AMOUNT           LOANS
------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>           <C>                <C>          <C>               <C>
Loan category:
  Real estate .................... $ 1,225,255     36.19%     $ 1,152,918          38.13%     $   900,055         37.57%
  Real estate construction .......     358,317     10.58%         247,486           8.18%         178,331          7.45%
  Commercial .....................     904,063     26.70%         778,176          25.73%         685,648         28.63%
  Consumer and other .............     603,468     17.82%         552,384          18.26%         391,313         16.34%
  Agricultural ...................     295,039      8.71%         293,358           9.70%         239,818         10.01%
                                   -------------------------------------------------------------------------------------
Total loans ......................   3,386,142    100.00%       3,024,322         100.00%       2,395,165        100.00%
                                   -------------------------------------------------------------------------------------
Less allowance for loan losses ...     (50,173)                   (40,045)                        (30,165)
                                   -------------------------------------------------------------------------------------
Total ............................ $ 3,335,969                $ 2,984,277                   $   2,365,000
                                   -------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                   1995                           1994            
------------------------------------------------------------------------------------------------
                                                       PERCENT                           PERCENT  
                                                      OF TOTAL                          OF TOTAL  
(DOLLARS IN THOUSANDS)                    AMOUNT         LOANS         AMOUNT              LOANS  
------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>          <C>                   <C> 
Loan category:                                                                                    
  Real estate ....................   $   783,474        38.08%    $   598,248             37.98%  
  Real estate construction .......       138,180         6.71%         93,735              5.95%  
  Commercial .....................       577,737        28.07%        439,717             27.91%  
  Consumer and other .............       315,403        15.32%        264,630             16.80%  
  Agricultural ...................       243,358        11.82%        178,941             11.36%  
                                   -------------------------------------------------------------
Total loans ......................     2,058,152       100.00%      1,575,271            100.00%  
                                   -------------------------------------------------------------
Less allowance for loan losses ...       (25,906)                     (20,414)                    
                                   -------------------------------------------------------------
Total ............................   $ 2,032,246                $   1,554,857                    
                                   -------------------------------------------------------------
</TABLE>

15

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY FIRST BANKSHARES, INC.

GENERAL. The Company's loan mix remained relatively constant from 1997 to 1998.
Real estate loans continued to be the largest category of loans, representing
46.8% of the total loan portfolio.

REAL ESTATE 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, 1998, $524 million, or 33.1%, of the
Company's real estate loan portfolio consisted of residential real estate loans,
$144 million, or 9.1%, were secured by farmland, $558 million, or 35.2%,
represented commercial and other real estate loans and $358 million, or 22.6%,
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
Management maintains 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:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                               BOOK VALUE AT DECEMBER 31,
(IN THOUSANDS)                               1998          1997           1996
------------------------------------------------------------------------------
<S>                                   <C>            <C>           <C>
U.S. Treasury ....................... $        --    $    1,536    $     2,537
U.S. Government agencies ............          --        19,780         16,690
Mortgage-backed securities ..........          --        82,357        103,027
State and political securities ......          --        52,702         59,641
Other securities ....................      69,906        65,616         79,551
                                      ----------------------------------------
Total ............................... $    69,906    $  221,991    $   261,446
                                      ----------------------------------------
</TABLE>


     The following table sets forth the composition of the Company's
available-for-sale securities portfolio at estimated fair value as of the dates
indicated:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                               BOOK VALUE AT DECEMBER 31,
(IN THOUSANDS)                               1998          1997           1996
-------------------------------------------------------------------------------
<S>                                   <C>            <C>           <C>
U.S. Treasury ....................... $    131,924   $   147,126   $   138,987
U.S. Government agencies ............      352,958       287,747        85,561
Mortgage-backed securities ..........    1,219,056       840,357       247,408
Collateralized mortgage obligations .       62,050       108,103        43,259
State and political securities ......      137,205        71,862        17,165
Other ...............................       77,337        84,727        13,794
                                      ----------------------------------------
Total ............................... $  1,980,530   $ 1,539,922   $   546,174
                                      ----------------------------------------
</TABLE>


<TABLE>
<CAPTION>

HELD-TO-MATURITY SECURITIES                             AT DECEMBER 31, 1998, MATURING IN
--------------------------------------------------------------------------------------------------------------------------------
                                                OVER ONE YEAR       OVER 5 YEARS
                         ONE YEAR OR LESS     THROUGH 5 YEARS   THROUGH 10 YEARS         OVER 10 YEARS                     TOTAL
--------------------------------------------------------------------------------------------------------------------------------
                                 WEIGHTED            WEIGHTED           WEIGHTED              WEIGHTED                  WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT       YIELD(1)  AMOUNT    YIELD(1) AMOUNT    YIELD(1) AMOUNT       YIELD(1)   AMOUNT         YIELD(1)
--------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>        <C>         <C>     <C>         <C>    <C>       <C>         <C>           <C>         <C>    
 
Municipal Bonds .....  $   45      10.09%    $   122   12.20%      --       --    $    --         --        $   167        11.63%
Other ...............      --         --          --      --       --       --     69,739        7.46%       69,739         7.46%
                      ----------------------------------------------------------------------------------------------------------
Total ...............  $   45      10.09%    $   122   12.20%      --       --    $69,739        7.46%      $69,906         7.47%
                      ----------------------------------------------------------------------------------------------------------
</TABLE>




(1)  INTEREST YIELDS ON INVESTMENTS ARE PRESENTED ON A TAX EQUIVALENT BASIS TO
     REFLECT THE TAX EXEMPT NATURE OF CURRENT ASSETS. YIELDS ARE BASED ON A 35%
     INCREMENTAL TAX RATE AND A 3.39% COST OF FUNDS.



<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE-SECURITIES                                     AT DECEMBER 31, 1998, MATURING IN
-----------------------------------------------------------------------------------------------------------------
                                                                           OVER ONE YEAR             OVER 5 YEARS
                                               ONE YEAR OR LESS          THROUGH 5 YEARS         THROUGH 10 YEARS
-----------------------------------------------------------------------------------------------------------------
                                                       WEIGHTED                 WEIGHTED                 WEIGHTED
(DOLLARS IN THOUSANDS)                      AMOUNT        YIELD(1)   AMOUNT        YIELD(1)   AMOUNT        YIELD(1)
----------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>       <C>            <C>      <C>             <C>    
U.S. Treasury ......................... $   63,567        6.33%  $   68,357        6.25% $        --       --    
U.S. Government agencies ..............      4,088        5.85%     206,730        5.93%     141,526        6.33%
Mortgage-backed Securities (2) ........      2,414        6.71%      26,059        6.71%      26,539        7.13%
Collateralized mortgage obligations ...        297        7.14%         550        7.40%       9,716        6.20%
Municipal Bonds .......................     11,217        7.29%      28,230        7.50%      27,153        8.13%
Other .................................        761        6.81%         358        6.71%       4,558        4.35%
                                       -------------------------------------------------------------------------
Total ................................. $   82,344        6.46%  $  330,284        6.20%  $  209,492        6.61%
                                       -------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE-SECURITIES                  AT DECEMBER 31, 1998, MATURING IN
-----------------------------------------------------------------------------------------
                                                  OVER 10 YEARS                     TOTAL 
-----------------------------------------------------------------------------------------
                                                       WEIGHTED                  WEIGHTED 
(DOLLARS IN THOUSANDS)                        AMOUNT      YIELD(1)    AMOUNT        YIELD(1)
-----------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>           <C>
U.S. Treasury ......................... $        --       --      $  131,924        6.29% 
U.S. Government agencies ..............         614        7.62%     352,958        6.09% 
Mortgage-backed Securities (2) ........   1,164,044        6.54%   1,219,056        6.56% 
Collateralized mortgage obligations ...      51,487        6.30%      62,050        6.30% 
Municipal Bonds .......................      70,605        7.34%     137,205        7.52% 
Other .................................      71,660        6.99%      77,337        6.83%
                                         ------------------------------------------------ 
Total .................................  $1,358,410        6.60%  $1,980,530        6.53% 
                                         ------------------------------------------------
</TABLE>

(1)  INTEREST YIELDS ON INVESTMENTS ARE PRESENTED ON A TAX EQUIVALENT BASIS TO
     REFLECT THE TAX EXEMPT NATURE OF CURRENT ASSETS. YIELDS ARE BASED ON A 35%
     INCREMENTAL TAX RATE AND A 3.39% COST OF FUNDS.

(2)  MORTGAGE-BACKED SECURITIES MATURITY IS BASED ON ESTIMATED REMAINING LIFE.
                                                                              16
<PAGE>

                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                                                COMMUNITY FIRST BANKSHARES, INC.

     The Company's investments, including available-for-sale and
held-to-maturity securities, increased $288 million, or 16.3%, to $2,050 million
at December 31, 1998, from $1,762 million at December 31, 1997. This increase
was due to the purchase of additional securities in connection with the Banc One
Corporation transaction. At December 31, 1998, the Company's investments
represented 34.2% of total assets, compared to 32.3% at December 31, 1997.

CREDIT POLICY
The Company's lending activities are guided by the general loan policies 
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 $300,000 per borrower (except for the Fargo bank, which has a 
$750,000 limit per borrower). However, 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, Colorado, Iowa, Minnesota, Nebraska, 
New Mexico, Utah, Wisconsin, Wyoming and the Dakotas have lending authority 
up to $750,000 per nonclassified borrower at which time a second regional 
credit officer or the respective regional managing officer must concur. Loans 
above $1,500,000 per nonclassified 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 the agricultural 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 $3,645,000 on nonaccrual loans would have been 
recorded during 1998 if the loans had been current in accordance with their 
original terms. During 1998, the Company recorded interest income of 
$1,489,000 related to loans that were on nonaccrual status as of December 31, 
1998.

     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:

<TABLE>
<CAPTION>
DECEMBER 31, (DOLLARS IN THOUSANDS)                                      1998         1997         1996         1995          1994
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>           <C>          <C>           <C> 
Loans:
    Nonaccrual loans ............................................. $   22,517   $   14,801   $   15,283   $    3,511    $    4,029
    Restructured loans ...........................................        162          140          267          485           155
                                                                   ---------------------------------------------------------------
    Nonperforming loans ..........................................     22,679       14,941       15,550        3,996         4,184
OREO .............................................................      3,660        4,184        1,677        2,309         1,265
                                                                   ---------------------------------------------------------------
    Nonperforming assets ......................................... $   26,339   $   19,125   $   17,227   $    6,305    $    5,449
                                                                   ---------------------------------------------------------------
Loans 90 days or more past due but still accruing ................ $    3,088   $    3,748   $    2,678   $    1,050    $      796
                                                                   ---------------------------------------------------------------
Nonperforming loans as a percentage of total loans ...............       0.67%        0.49%        0.65%        0.19%         0.27%
Nonperforming assets as a percentage of total assets .............       0.44%        0.35%        0.48%        0.20%         0.22%
Nonperforming assets as a percentage of total loans and OREO .....       0.78%        0.63%        0.72%        0.31%         0.35%
Total loans ...................................................... $3,386,142   $3,024,322   $2,395,165   $2,058,152    $1,575,271
Total assets ..................................................... $6,002,972   $5,454,135   $3,606,406   $3,210,017    $2,494,917
</TABLE>


     Nonperforming assets were $26.3 million at December 31, 1998, an increase
of $7.2 million, or 37.7% from $19.1 million at December 31, 1997. Nonperforming
loans increased by $7.7 million due principally to an increase in nonaccrual
loans in the specialty lending area, primarily automobile loans. The Company has
announced its intent to sell the remaining loans of this subsidiary.

     Nonperforming assets were $19.1 million at December 31, 1997, an increase
of $1.9 million, or 11.0%, from $17.2 million at December 31, 1996.
Nonperforming loans decreased by $609,000. OREO increased $2.5 million, or
147.1%, from $1.7 million at December 31, 1996 to $4.2 million at December 31,
1997. The ratio of nonperforming assets to total assets at December 31, 1997,
was .35%, compared to .48% at December 31, 1996.

ALLOWANCE FOR LOAN LOSSES
The current level of the allowance for loan losses is the 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 $2.3 million from $7.3 million at December
31, 1997 to $9.6 million at December 31, 1998, due principally to the loans
retained at ELI, the Company's sub-prime real estate lending subsidiary. The
allowance allocated to the consumer loan portfolio 

17


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY FIRST BANKSHARES, INC.

increased $4.1 million, from $4.0 million to $8.1 million at December 31, 
1997 and 1998 respectively. This increase was due principally to the loans 
retained at MPFS, the Company's sub-prime consumer lending subsidiary.

     The Company also routinely maintains an unallocated allowance to 
recognize its exposure to unanticipated 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 $20.1 million at December 31, 1997 to $22.2 million at 
December 31, 1998. The increase was principally due to growth in the overall 
loan portfolio. While the allocated allowance as a percentage of loans 
outstanding increased from .66% at December 31, 1997 to .83% at December 31, 
1998, the unallocated portion decreased from .66% to .65% at December 31, 
1997 and 1998, 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 1998 and 1997 
resulted in negative variances from the allowance levels in these loan 
classifications. In other periods, the Company has experienced a positive 
variance, and management believes the Company's estimates have been 
conservative but consistent with actual experience. 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, 1998. 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:

<TABLE>
<CAPTION>
DECEMBER 31, (DOLLARS IN THOUSANDS)                      1998             1997             1996             1995             1994
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>              <C>              <C>
Balance at beginning of year ....................  $   40,045       $   30,165       $   25,906       $   20,414       $   17,205
Allowance of acquired companies .................       1,950           10,065              784            5,230            1,153
Charge-offs:
   Real estate ..................................       2,237              673            1,102              789              138
   Real estate construction .....................          36              635               --               45               --
   Commercial ...................................       2,674            1,652            1,310            1,355              823
   Consumer and other ...........................      11,638            5,217            2,657            1,849              826
   Agricultural .................................       1,381              726              443              373               38
                                                    -----------------------------------------------------------------------------
Total charge-offs ...............................      17,966            8,903            5,512            4,411            1,825
Recoveries:
   Real estate ..................................         237              249              276               67              589
   Real estate construction .....................          --               --                4               --               --
   Commercial ...................................         901              610              655              309              310
   Consumer and other ...........................       2,098            1,105              491              612              314
   Agricultural .................................         399              647               78               57              210
                                                    -----------------------------------------------------------------------------
Total recoveries ................................       3,635            2,611            1,504            1,045            1,423
                                                    -----------------------------------------------------------------------------
Net charge-offs .................................      14,331            6,292            4,008            3,366              402
Provision charged to operations .................      22,509            6,107            7,483            3,628            2,458
                                                    -----------------------------------------------------------------------------
Balance at end of year ..........................  $   50,173       $   40,045       $   30,165       $   25,906       $   20,414
                                                    -----------------------------------------------------------------------------
Allowance as a percentage of total loans ........        1.48%            1.32%            1.26%            1.26%            1.30%
Net charge-offs to average loans outstanding ....        0.44%            0.24%            0.18%            0.19%            0.03%
Total loans .....................................  $3,386,142       $3,024,322       $2,395,165       $2,058,152       $1,575,271
Average loans ...................................  $3,243,167       $2,625,203       $2,184,839       $1,816,712       $1,421,903
</TABLE>


     At December 31, 1998, the allowance for loan losses was $50.2 million, an
increase of $10.2 million from the December 31, 1997, level of $40.0 million. At
December 31, 1998, the allowance for loan losses as a percentage of total loans
was 1.48%, as compared to 1.32% at December 31, 1997. This increase was
attributed to the Company's analysis of the loan portfolio credit quality at the
Company's bank subsidiaries, specifically its sub-prime lending portfolio.

     At December 31, 1997, the allowance for loan losses was $40.0 million, an
increase of $9.8 million from the December 31, 1996, level of $30.2 million. The
Company's 1997 acquisitions accounted for $10.1 million of the change, with the
remaining change due to maintaining an adequate reserve in recognition of the
Company's loan growth and the increase in net charge-offs during 1997. At
December 31, 1997, the allowance for loan losses as a percentage of total loans
was 1.32%, as compared to 1.26% at December 31, 1996.

     During 1998, net charge-offs were $14.3 million, an increase of $8.0
million from the $6.3 million during 1997. The increase is principally
attributed to losses recorded in the Company's sub-prime specialty lending
portfolio. Net charge-offs in the sub-prime specialty lending portfolio during
1998 totaled $9.8 million, including $4.4 million during the period in which
these activities were reported as discontinued operations. The Company's
provision for loan losses increased from $6.1 million in 1997 to $22.5 million
in 1998.

     During 1997, net charge-offs were $6.3 million, an increase of $2.3 million
from the net charge-offs of $4.0 million in 1996. The principal causes for the
increase were the increase of real estate loan net charge-offs of $237,000; an
increase in commercial loan net charge-offs of $387,000; the decrease in
agricultural loan net charge-offs of $286,000; and an increase in consumer loan
and other loan net charge-offs of $1,946,000. The Company's provision for loan
losses was $6.1 million in 1997 and $7.5 million in 1996.

                                                                           18

<PAGE>

                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                                                COMMUNITY FIRST BANKSHARES, INC.

     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:

<TABLE>
<CAPTION>
                                       ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31,   
------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)               1998        1997       1996      1995      1994
------------------------------------------------------------------------------------
<S>                               <C>         <C>        <C>       <C>       <C>
Real estate ....................  $ 9,380     $ 7,205    $ 5,278   $ 5,270   $ 4,148
Real estate construction .......      179         124         89        69        47
Commercial .....................    7,222       6,097      5,211     4,755     3,897
Consumer and other .............    8,080       3,992      2,269     1,961     1,852
Agricultural ...................    3,077       2,487      2,312     1,869     2,006
                                 ---------------------------------------------------
Total Allocated Allowance ......   27,938      19,905     15,159    13,924    11,950
Total Unallocated Allowance ....   22,235      20,140     15,006    11,982     8,464
                                 ---------------------------------------------------
Total Allowance ................  $50,173     $40,045    $30,165   $25,906   $20,414
                                 ---------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                   ALLOWANCE AS A PERCENT OF LOANS OUTSTANDING
                                              BY CATEGORY AT DECEMBER 31,     
------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)              1998     1997     1996      1995     1994 
------------------------------------------------------------------------------
<S>                               <C>       <C>      <C>      <C>       <C>
Real estate ....................   0.77%    0.62%    0.59%     0.67%    0.69% 
Real estate construction .......   0.05%    0.05%    0.05%     0.05%    0.05% 
Commercial .....................   0.80%    0.78%    0.76%     0.82%    0.89% 
Consumer and other .............   1.34%    0.72%    0.58%     0.62%    0.70% 
Agricultural ...................   1.04%    0.85%    0.96%     0.77%    1.12% 
                                ---------------------------------------------
Total Allocated Allowance ......   0.83%    0.66%    0.63%     0.68%    0.76% 
Total Unallocated Allowance ....   0.65%    0.66%    0.63%     0.58%    0.54%
                                --------------------------------------------- 
Total Allowance ................   1.48%    1.32%    1.26%     1.26%    1.30%
                                --------------------------------------------- 
</TABLE>


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 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:

<TABLE>
<CAPTION>

DECEMBER 31, (IN THOUSANDS)                        1998             1997             1996
-----------------------------------------------------------------------------------------
<S>                                          <C>              <C>              <C>
Noninterest-bearing ........................ $  547,703       $  705,315       $  531,245
Interest-bearing:
   Savings and checking accounts ...........  2,254,005        1,586,777        1,151,499
   Time accounts less than $100,000 ........  1,478,105        1,386,735          999,864
   Time accounts greater than $100,000 .....    604,859          474,091          290,136
                                            ---------------------------------------------
Total deposits ............................. $4,884,672       $4,152,918       $2,972,744
                                            ---------------------------------------------
</TABLE>

     Total deposits at December 31, 1998, were $4.9 billion, an increase of $732
million, or 17.6%, from $4.2 billion at December 31, 1997. The Company's core
deposits as a percentage of total deposits were 87.6% and 88.6% as of December
31, 1998 and December 31, 1997, respectively. The increase in total deposits was
primarily due to the 1998 Banc One Corporation transaction, with aggregate total
deposits of $730 million as of the acquisition date.

     At December 31, 1998, $605 million, or 12.4% of total deposits were in 
time accounts greater than $100,000. The increase of $131 million, or 27.6%, 
from $474 million at December 31, 1997, was due in part to $73 million of 
deposits obtained through the institutions acquired during 1998. 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, 1998 were (in thousands):

<TABLE>


---------------------------------------------------------------------
<S>                                                       <C>
Maturing in less than three months .......................  $ 217,689
Maturing in three to six months ..........................    125,938
Maturing in six to twelve months .........................    172,803
Maturing in over twelve months ...........................     88,429
---------------------------------------------------------------------
Total deposits in excess of $100,000 .....................  $ 604,859
---------------------------------------------------------------------
</TABLE>

     In addition to the availability of core deposits, management has determined
it may, in the future employ a brokered deposit program in an effort to attract
lower cost sources of funds. The Company intends to continue to expand its core
deposit base through acquisitions.

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 had arrangements with the Federal Home Loan
Bank that provide for borrowing up to $685 million. As of December 31, 1998,
$210 million advances were outstanding. The Company also had a $14.3 million
balance outstanding on its $35 million short-term commercial paper arrangement
at December 31, 1998. The $161 million increase in short-term borrowings from
December 31, 1997 is due to strong loan demand at the Company's bank
subsidiaries.

19

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY FIRST BANKSHARES, INC.

     The following table sets forth a summary of the short-term borrowings of
the Company during 1998, 1997, and 1996, and as of the end of each such period:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                  AVERAGE        MAXIMUM     WEIGHTED      AVERAGE
                                                                                    DAILY    OUTSTANDING      AVERAGE     INTEREST
                                                               OUTSTANDING         AMOUNT         AT ANY     INTEREST      RATE AT
(DOLLARS IN THOUSANDS)                                         AT YEAR-END    OUTSTANDING      MONTH-END         RATE     YEAR-END
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>            <C>             <C>          <C>
1998
Federal 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%
                                                                  -----------------------

1997
Federal funds purchased and securities sold under 
  agreements to repurchase ...................................... $ 44,462       $ 67,871       $ 57,287         5.34%       4.11%
Commercial paper ................................................   11,167          8,812         23,346         5.91%       5.78%
FHLB advances ...................................................  216,506         98,774        267,326         5.06%       5.70%
Other ...........................................................    3,104          2,460          4,731         5.24%       6.02%
                                                                  -----------------------
   Total ........................................................ $275,239       $177,917       $275,848         5.32%       5.31%
                                                                  -----------------------

1996
Federal funds purchased and securities sold under 
   agreements to repurchase ..................................... $ 78,369       $ 56,356       $ 83,451         4.76%       5.55%
Commercial paper ................................................   14,062         12,643         14,965         5.72%       5.63%
FHLB advances ...................................................  153,272         97,402        183,272         5.94%       6.32%
Other ...........................................................    3,203          3,182          4,140         5.58%       5.95%
                                                                  -----------------------
   Total ........................................................ $248,906       $169,583       $274,167         5.52%       6.02%
                                                                  -----------------------
</TABLE>



LONG TERM DEBT
Long-term debt of the Company was $93 million as of December 31, 1998, and $125
million as of December 31, 1997. The decrease is due in part to the Company's
October 1998 redemption of all $11.5 million of its 9.00% Exchangeable
Subordinated Notes due August 15, 2005 at a redemption price of 103% of the
principal amount.

COMPANY-OBLIGATED MANDATORILY 
REDEEMABLE PREFERRED SECURITIES
Company-obligated mandatorily redeemable preferred securities of the Company was
$120 million as of December 31, 1998, 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 no earlier than February 1, 2002 and no later
than December 15, 2027.

SHAREHOLDERS' EQUITY
Total shareholders' equity increased $17.2 million, or 4.4%, to $405.2 million
at December 31, 1998, from $388.0 million at December 31, 1997, as a result of
the retention of a majority of earnings and the issuance of common stock. During
1998 the equivalent of 320,090 shares of common stock were issued, resulting in
an increase in shareholders' equity of $1.4 million.

     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 com mon 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 represent ownership of one-quarter share
of 7% Cumulative Convertible Preferred Stock (approximately $23 million in
stated value). The redemption price was $26.40 (plus accrued and unpaid
dividends) for each Depositary Share with a stated value of $25.00 per share.
Holders of the Depositary Shares have the right to convert their investment into
Common Stock, prior to redemption, at a rate of 3.138 shares of Common Stock for
each Depositary Share. Virtually all of such holders elected to convert prior to
redemption, which resulted in the issuance of approximately 2,886,000 shares of
Common Stock.

     The Company maintains a Board-approved stock repurchase plan under which it
regularly repurchases shares of its common stock in open market transactions to
support the needs of employee benefit and other compensation plans. During 1998,
the Company purchased 731,000 shares in accordance with the plan. At December
31, 1998, the Company believes the amount of treasury shares does not exceed its
estimated needs for such employee benefit and compensation plans over the next
two years.

                           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 borrowings 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 

                                                                         20

<PAGE>

                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                                                COMMUNITY FIRST BANKSHARES, INC.

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 1998, 1997 and 1996, the liquidity ratio was 5.65%, 10.00%, and 
8.59%, respectively. The decrease in liquidity ratio from year-end 1997 to 
year-end 1998 is due principally to a high level of short-term funds at 
December 31, 1997, in preparation for the January 1998 Banc One Corporation 
transaction. The level of loans maturing within one year greatly added to the 
Company's liquidity position in 1998. Including loans maturing within one 
year, the liquidity ratio was 25.58%, 31.07%, and 33.97%, respectively, for 
the same periods.

     The Company has revolving lines of credit with its primary lenders, 
which provide for borrowing up to $50 million. This line would be utilized to 
finance acquisitions which may be completed in 1999. There was an outstanding 
balance of $21 million on this line of credit at December 31, 1998.

     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 $147.6 million in federal funds from 9 nonaffiliated financial 
institutions.

     Additionally, most of the Company's subsidiary banks have joined 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 $685 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 ("Gap 
Analysis") 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 on page 22.

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, 1998, the impact of such a change in 
interest rates would be approximately .52 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, 1998, 
the impact of such a change in interest rates would be approximately 8.18 
percent, of equity fair value.

     Based on each of these methods of measuring interest rate risk, 
management believes the Company is slightly asset sensitive as of December 
31, 1998 for periods beyond one year.

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

21

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMUNITY FIRST BANKSHARES, INC.

     The following table sets forth the Company's interest rate sensitivity 
analysis by contractual repricing or maturity at December 31, 1998:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                         REPRICING OR MATURING IN
-----------------------------------------------------------------------------------------------------------
                                              1 YEAR             OVER 1            OVER 5
(DOLLARS IN THOUSANDS)                       OR LESS         TO 5 YEARS             YEARS             TOTAL
-----------------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>               <C>                <C>       
Rate sensitive assets:
  Loans ................................ $ 1,682,869        $ 1,316,023       $   387,250        $ 3,386,142
  Held to maturity securities ..........          45                122            69,739             69,906
  Available-for-sale securities ........     286,121            545,789         1,148,620          1,980,530
  Other interest-bearing assets ........       5,167                 --                --              5,167
                                         -------------------------------------------------------------------
  Total rate sensitive assets .......... $ 1,974,202        $ 1,861,934       $ 1,605,609        $ 5,441,745
                                         -------------------------------------------------------------------

Rate sensitive liabilities:
  Savings deposits and interest-
    bearing checking ................... $        --        $        --       $ 2,254,005        $ 2,254,005
  Time deposits ........................   1,691,402            388,748             2,814          2,082,964
  Short-term borrowings ................     435,615                111                --            435,726
  Long-term borrowings .................       1,596             30,328            66,786             98,710
                                         -------------------------------------------------------------------
  Total rate sensitive liabilities ..... $ 2,128,613        $   419,187       $ 2,323,605        $ 4,871,405
                                         -------------------------------------------------------------------

Rate sensitive gap ..................... $  (154,411)       $ 1,442,747       $  (717,996)       $   570,340
Cumulative rate sensitive gap .......... $  (154,411)       $ 1,288,336       $   570,340        $   570,340
</TABLE>



     The following sets forth the Company's interest rate sensitivity analysis
at December 31, 1998, with respect to the individual categories of loans and
provides separate analyses with respect to fixed interest rate loans and
floating interest rate loans:

<TABLE>
<CAPTION>
                                                       REPRICING OR MATURING IN
------------------------------------------------------------------------------------------------
                                       1 YEAR           OVER 1           OVER 5
(DOLLARS IN THOUSANDS)                OR LESS       TO 5 YEARS            YEARS            TOTAL
------------------------------------------------------------------------------------------------
<S>                                <C>              <C>              <C>              <C>
Loan category:
  Real estate .................... $  479,133       $  521,767       $  224,355       $1,225,255
  Real estate construction .......    358,317               --               --          358,317
  Agricultural ...................    234,944           52,199            7,896          295,039
  Commercial .....................    495,768          324,463           83,832          904,063
  Consumer and other .............    114,707          417,594           71,167          603,468
                                  --------------------------------------------------------------
  Total loans .................... $1,682,869       $1,316,023       $  387,250       $3,386,142
                                  --------------------------------------------------------------

Fixed interest rate loans ........ $  446,944       $1,165,329       $  378,230       $1,990,503
Floating interest rate loans .....  1,235,925          150,694            9,020        1,395,639
                                  --------------------------------------------------------------
  Total loans .................... $1,682,869       $1,316,023       $  387,250       $3,386,142
                                  --------------------------------------------------------------
</TABLE>



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, 1998, 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.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                    REGULATORY CAPITAL REQUIREMENTS
-----------------------------------------------------------------------------------------
                                          TIER I       TOTAL RISK-            TOTAL RISK-
(DOLLARS IN THOUSANDS)                   CAPITAL    BASED CAPITAL  LEVERAGE  BASED ASSETS
-----------------------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>      <C>
Minimum ................................   4.00%        8.00%       3.00%           N/A
Well-Capitalized .......................   6.00%       10.00%       5.00%           N/A
-----------------------------------------------------------------------------------------

Community First Bankshares, Inc. 
December 31, 1998 ......................   9.35%       12.08%       6.40%    $4,045,169
December 31, 1997 ......................  11.53%       14.98%       7.51%    $3,502,962
</TABLE>


     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
and profitably integrate operations of institutions acquired in the future;
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;
possible risks associated with the Year 2000 issue, and other risks detailed in
the Company's filings with the Securities and Exchange Commission, which risks
are difficult to predict and many of which are beyond the control of the
Company.

                                                                             22

<PAGE>

                                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                                COMMUNITY FIRST BANKSHARES, INC.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)                                  1998               1997
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     (RESTATED)
<S>                                                                                             <C>                <C>
ASSETS
Cash and due from banks ....................................................................... $   250,963        $   254,676
Federal funds sold and securities purchased under agreements to resell ........................         100             76,455
Interest-bearing deposits .....................................................................       5,067             12,131
Available-for-sale securities .................................................................   1,980,530          1,539,922
Held-to-maturity securities (Fair Value: 1998 - $69,906, 1997 - $223,829) .....................      69,906            221,991
Loans .........................................................................................   3,386,142          3,024,322
   Less: Allowance for Loan Losses ............................................................     (50,173)           (40,045)
                                                                                                ------------------------------
Net Loans .....................................................................................   3,335,969          2,984,277
Bank premises and equipment, net ..............................................................     123,254            116,637
Accrued interest receivable ...................................................................      51,429             45,221
Intangible assets .............................................................................     133,231             97,563
Other assets ..................................................................................      52,523            105,262
                                                                                                ------------------------------
Total assets .................................................................................. $ 6,002,972        $ 5,454,135
                                                                                                ------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest-bearing ......................................................................... $   547,703            705,315
  Interest-bearing:
         Savings and NOW accounts .............................................................   2,254,005          1,586,777
         Time accounts over $100,000 ..........................................................     604,859            474,091
         Other time accounts ..................................................................   1,478,105          1,386,735
                                                                                                ------------------------------
Total deposits ................................................................................   4,884,672          4,152,918

Federal funds purchased and securities sold under agreements to repurchase ....................     143,057             44,462
Other short-term borrowings ...................................................................     292,669            230,777
Long-term debt ................................................................................      93,472            124,529
Accrued interest payable ......................................................................      26,650             22,704
Due to brokers ................................................................................          --            340,457
Other liabilities .............................................................................      37,206             30,275
                                                                                                ------------------------------
Total liabilities .............................................................................   5,477,726          4,946,122

Company-obligated mandatorily redeemable preferred securities of CFB Capital I and II .........     120,000            120,000
Shareholders' equity:
  Common stock, par value $.01 per share:
      Authorized Shares - 80,000,000
      Issued Shares - 47,683,452 ..............................................................         477                474
  Capital surplus .............................................................................     172,043            170,662
  Retained earnings ...........................................................................     231,689            212,638
  Accumulated other comprehensive income ......................................................      13,146              5,622
  Less: Cost of common stock in treasury - 1998 - 564,588 shares; 1997 - 72,510 shares ........     (12,109)            (1,383)
                                                                                                ------------------------------
Total shareholders' equity ....................................................................     405,246            388,013
                                                                                                ------------------------------
Total liabilities and shareholders' equity .................................................... $ 6,002,972        $ 5,454,135
                                                                                                ------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.



23



<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY FIRST BANKSHARES, INC.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)                         1998            1997           1996
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         (RESTATED)      (RESTATED)
<C>                                                                                   <C>             <C>             <C>
INTEREST INCOME:
     Loans .......................................................................... $    323,315    $    258,859    $    218,307
     Investment securities ..........................................................      122,173          64,234          49,077
     Interest-bearing deposits ......................................................          721             767             794
     Federal funds sold and resale agreements .......................................        3,035           2,659           2,020
                                                                                      --------------------------------------------
Total interest income ...............................................................      449,244         326,519         270,198

Interest expense:
     Deposits .......................................................................      160,576         119,024          94,522
     Short-term and other borrowings ................................................       19,576           9,465           9,359
     Long-term debt .................................................................        8,332           6,051           4,880
                                                                                      --------------------------------------------
Total interest expense ..............................................................      188,484         134,540         108,761
                                                                                      --------------------------------------------
Net interest income .................................................................      260,760         191,979         161,437
Provision for loan losses ...........................................................       22,509           6,107           7,483
                                                                                      --------------------------------------------
Net interest income after provision for loan losses .................................      238,251         185,872         153,954

NONINTEREST INCOME:
     Service charges on deposit accounts ............................................       30,266          21,059          16,031
     Insurance commissions ..........................................................        7,197           5,375           5,213
     Fees from fiduciary activities .................................................        4,944           3,805           3,332
     Net gains on sales of securities ...............................................        1,801             466              93
     Other ..........................................................................       16,052          16,498          12,277
                                                                                      --------------------------------------------
Total noninterest income ............................................................       60,260          47,203          36,946

NONINTEREST EXPENSE:
     Salaries and employee benefits .................................................      114,014          78,380          66,298
     Net occupancy ..................................................................       32,110          23,285          18,852
     FDIC insurance .................................................................          686             381             675
     Legal and accounting ...........................................................        4,073           2,269           2,481
     Other professional service .....................................................        5,447           2,892           2,305
     Acquisition expense ............................................................        3,721             398           2,928
     Data processing ................................................................        4,640           1,782           1,842
     Company-obligated mandatorily redeemable preferred securities of CFB 
        Capital I & II...............................................................       10,218           5,108              --
     Amortization of intangibles ....................................................       10,366           5,550           3,433
     Impairment of equity method investment .........................................           --              --             940
     Other ..........................................................................       44,817          29,908          26,226
                                                                                      --------------------------------------------
Total noninterest expense ...........................................................      230,092         149,953         125,980

Income from continuing operations before income taxes and extraordinary item ........       68,419          83,122          64,920
Provision for income taxes ..........................................................       21,448          24,811          23,398
                                                                                      --------------------------------------------
Income from continuing operations before extraordinary item .........................       46,971          58,311          41,522
Discontinued Operations:
     Loss/income from operations of discontinued operations (Less applicable 
        income taxes) ...............................................................       (2,232)            967              --
     Loss on disposal of discontinued operations, including provision for 
        operating losses during phase-out period (less applicable income taxes) .....       (1,676)             --              --
                                                                                      --------------------------------------------
Income before extraordinary item .................................................... $     43,063    $     59,278    $     41,522
Extraordinary item:
Loss on early extinguishment of debt, net of taxes ..................................           --            (265)             --
                                                                                      --------------------------------------------
Net Income ..........................................................................       43,063          59,013          41,522
                                                                                      --------------------------------------------
Preferred stock dividend ............................................................           --              --           1,610
                                                                                      --------------------------------------------
Net income applicable to common equity .............................................. $     43,063    $     59,013    $     39,912
                                                                                      --------------------------------------------
Earnings per common and common equivalent share:
Basic income per share from continuing operations before extraordinary item ......... $       0.99    $       1.35    $       1.01
Discontinued operations .............................................................         (.08)           0.02              --
Extraordinary item ..................................................................           --           (0.01)             --
                                                                                      --------------------------------------------
Basic net income .................................................................... $       0.91    $       1.36    $       1.01
                                                                                      --------------------------------------------
Diluted income per share from continuing operations before extraordinary item ....... $       0.98    $       1.31    $       0.97
Discontinued operations .............................................................         (.08)           0.02              --
Extraordinary item ..................................................................           --           (0.01)             --
                                                                                      --------------------------------------------
Diluted net income .................................................................. $       0.90    $       1.32    $       0.97
                                                                                      --------------------------------------------
Average common and common equivalent shares outstanding:
     Basic ..........................................................................   47,280,245      43,461,264      39,429,607
     Diluted ........................................................................   47,881,575      44,649,922      42,695,783
</TABLE>

SEE ACCOMPANYING NOTES.

                                                                             24

<PAGE>

                                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                COMMUNITY FIRST BANKSHARES, INC.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, (DOLLARS IN THOUSANDS)                                      1998            1997            1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>              <C>
Net Income ....................................................................  $ 43,063        $ 59,013        $ 39,912
Other comprehensive income, net of tax:
     Unrealized gains on securities:
            Unrealized holding gains arising during period ....................     7,524           4,444            (762)
            Less: Reclassified adjustment for gains Included in net income ....      (864)           (294)            (52)
                                                                                 -----------------------------------------
Other comprehensive income ....................................................     6,660           4,150            (814)
                                                                                 -----------------------------------------
Comprehensive income ..........................................................  $ 49,723        $ 63,163        $ 39,098
                                                                                 -----------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.


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


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                PREFERRED STOCK          COMMON STOCK
YEARS ENDED DECEMBER 31, 1998, 1997, 1996                    ---------------------     ----------------      CAPITAL    RETAINED
(DOLLARS IN THOUSANDS)                                       SHARES         AMOUNT     SHARES    AMOUNT      SURPLUS    EARNINGS
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>         <C>         <C>           <C>        <C>         <C>
BALANCE AT DECEMBER 31, 1995 .............................  230,000    $ 23,000    38,773,036    $  388     $ 75,904    $139,226 
Net income ...............................................       --          --            --        --           --      41,522 
Preferred stock dividends ($7.00 per share) ..............       --          --            --        --           --      (1,610)
Common stock dividends ($0.29 per share) .................       --          --            --        --           --      (9,728)
Issuance of common stock .................................       --          --     1,765,169        17       10,015       4,920 
Retirement of common stock ...............................       --          --      (184,834)       (2)        (729)     (1,139)
Purchases of common stock for treasury, at cost ..........       --          --            --        --           --          -- 
Sales of treasury stock to employee benefit plans ........       --          --            --        --          162          -- 
Exercise of options, net of stock
    tendered in payment ..................................       --          --       430,398         5        2,827        (321)
Conversion of convertible preferred stock ................     (125)        (12)           --        --           --          (5)
Change in unrealized loss on available-for-sale
    securities, net of income tax benefit of $661 ........       --          --            --        --           --          -- 
---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 .............................  229,875    $ 22,988    40,783,769    $  408     $ 88,179    $172,865 
Net income ...............................................       --          --            --        --           --      59,013 
Common stock dividends ($0.35 per share) .................       --          --            --        --           --     (19,034)
Purchases of common stock for treasury, at cost ..........       --          --            --        --           --          -- 
Sales of common stock to
    employee benefit plans ...............................       --          --        68,486         2        1,066          -- 
Issuance of common stock .................................       --          --     6,512,888        64       79,029       1,315 
Retirement of common stock ...............................       --          --        (1,781)       --           --          -- 
Exercise of options, net of stock
    tendered in payment ..................................       --          --            --        --        2,388      (1,521)
Conversion of convertible preferred stock ................ (229,875)    (22,988)           --        --           --          -- 
Change in unrealized loss on available-for-sale
    securities, net of income taxes of $2,168 ............       --          --            --        --           --          -- 
---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 .............................       --          --    47,363,362    $  474     $170,662    $212,638 
Net income ...............................................       --          --            --        --           --      43,063 
Common stock dividends ($0.44 per share) .................       --          --            --        --           --     (19,705)
Purchases of common stock for treasury, at cost ..........       --          --            --        --           --          -- 
Issuance of common stock .................................       --          --       320,090         3        1,381          -- 
Exercise of options, net of stock
         tendered in payment .............................       --          --            --        --           --      (4,307)
Change in unrealized loss on available-for-sale
    securities, net of income taxes of $4,742 ............       --          --            --        --           --          -- 
---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 .............................       --          --    47,683,452    $  477     $172,043    $231,689 
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                         TREASURY STOCK
YEARS ENDED DECEMBER 31, 1998, 1997, 1996                    UNREALIZED             ----------------------
(DOLLARS IN THOUSANDS)                                        GAIN(LOSS)            SHARES          AMOUNT           TOTAL
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>                  <C>             <C>
BALANCE AT DECEMBER 31, 1995 .............................      $ 1,940            157,248        $ (1,064)       $239,394 
Net income ...............................................           --                 --              --          41,522 
Preferred stock dividends ($7.00 per share) ..............           --                 --              --          (1,610)
Common stock dividends ($0.29 per share) .................           --                 --              --          (9,728)
Issuance of common stock .................................           --                 --              --          14,952 
Retirement of common stock ...............................           --                 --              --          (1,870)
Purchases of common stock for treasury, at cost ..........           --            129,800          (1,535)         (1,535)
Sales of treasury stock to employee benefit plans ........           --            (45,164)            307             469 
Exercise of options, net of stock                                                                                          
    tendered in payment ..................................           --           (138,698)          1,050           3,561 
Conversion of convertible preferred stock ................           --             (1,566)             17              -- 
Change in unrealized loss on available-for-sale                                                                            
    securities, net of income tax benefit of $661 ........         (762)                --              --            (762)
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 .............................      $ 1,178            101,620        $ (1,225)       $284,393 
Net income ...............................................           --                 --              --          59,013 
Common stock dividends ($0.35 per share) .................           --                 --              --         (19,034)
Purchases of common stock for treasury, at cost ..........           --            157,000          (2,777)         (2,777)
Sales of common stock to                                                                                                   
    employee benefit plans ...............................           --                 --              --           1,068 
Issuance of common stock .................................           --                 --              --          80,408 
Retirement of common stock ...............................           --                 --              --              -- 
Exercise of options, net of stock                                                                                          
    tendered in payment ..................................           --           (186,110)          2,619           3,486 
Conversion of convertible preferred stock ................           --                 --              --         (22,988)
Change in unrealized loss on available-for-sale                                                                            
    securities, net of income taxes of $2,168 ............        4,444                 --              --           4,444 
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 .............................      $ 5,622             72,510        $ (1,383)       $388,013 
Net income ...............................................           --                 --              --          43,063 
Common stock dividends ($0.44 per share) .................           --                 --              --         (19,705)
Purchases of common stock for treasury, at cost ..........           --            731,000         (16,314)        (16,314)
Issuance of common stock .................................           --                 --              --           1,384 
Exercise of options, net of stock                                                                                          
         tendered in payment .............................           --           (238,922)          5,588           1,281 
Change in unrealized loss on available-for-sale                                                                            
    securities, net of income taxes of $4,742 ............        7,524                 --              --           7,524 
                                                                                                                           
BALANCE AT DECEMBER 31, 1998 .............................      $13,146            564,588        $(12,109)       $405,246 
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.


25

<PAGE>


STATEMENTS OF CONSOLIDATED CASH FLOWS
COMMUNITY FIRST BANKSHARES, INC.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31(IN THOUSANDS)                                                1998               1997               1996
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                   (RESTATED)         (RESTATED)
<S>                                                                           <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations ..........................................  $    46,971        $    58,046        $    41,522
Adjustments to reconcile net income to net cash provided by 
 operating activities:
   Provision for loan losses ...............................................       22,509              6,107              7,483
   Depreciation ............................................................       15,450             10,468              8,122
   Amortization of intangibles .............................................       10,366              5,550              3,433
   Net amortization of premiums and discounts on securities ................         (813)               (68)             1,867
   Deferred income tax benefit .............................................       (6,585)            (3,500)            (4,084)
   Decrease in interest receivable .........................................       (6,208)            (5,154)                (3)
   Increase in interest payable ............................................        3,946              1,744                323
   Other, net ..............................................................      (59,965)             8,042             (4,372)
                                                                            ---------------------------------------------------
Net cash provided by operating activities ..................................       25,671             81,235             54,291

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired .........................................           --            145,351             14,026
Net decrease (increase) in interest-bearing deposits .......................        7,064             (4,639)            (1,733)
Purchases of available-for-sale securities .................................   (2,952,170)          (739,549)          (233,826)
Maturities of available-for-sale securities ................................    2,193,292            367,211            219,778
Sales of securities, net of gains ..........................................      145,125             75,136             30,461
Purchases of held-to-maturity securities ...................................      (11,425)           (35,542)           (31,213)
Maturities of held-to-maturity securities ..................................        9,277             31,466             34,648
Net increase in loans ......................................................     (302,665)          (171,794)          (277,870)
Net increase in bank premises and equipment ................................      (22,067)           (20,935)           (19,735)
Net decrease (increase) in minority interest ...............................           --             (2,946)               468
                                                                            ---------------------------------------------------
Net cash used in investing activities ......................................     (933,569)          (356,241)          (264,996)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and
   savings accounts ........................................................      509,616             48,010             85,393
Net increase in time accounts ..............................................      222,138             68,960              6,107
Net increase in short-term and other borrowings ............................      160,218             23,358            157,696
Net decrease (increase) in long-term debt ..................................      (30,788)            68,587            (34,594)
Net proceeds from issuance of Company-obligated 
   mandatorily redeemable preferred securities of CFB
   Capital I and II ........................................................           --            120,000                 --
Net proceeds from issuance of common stock .................................        1,384             80,408             14,952
Conversion of preferred stock to common stock ..............................           --            (22,988)                --
Purchase of common stock held in treasury ..................................      (16,314)            (2,777)            (1,535)
Sale of common stock held in treasury ......................................        1,281              4,554              4,030
Retirement of common stock .................................................           --                 --             (1,870)
Preferred stock dividends paid .............................................           --                 --             (1,610)
Common stock dividends paid ................................................      (19,705)           (19,034)            (9,728)
                                                                            ---------------------------------------------------
Net cash provided by financing activities ..................................      827,830            369,078            218,841
                                                                            ---------------------------------------------------
Net (decrease) increase in cash and cash equivalents .......................      (80,068)            94,072              8,136
Cash and cash equivalents at beginning of year .............................      331,131            237,059            228,923
                                                                            ---------------------------------------------------
Cash and cash equivalents at end of year ...................................  $   251,063        $   331,131        $   237,059
                                                                            ---------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.


                                                                       26

<PAGE>

     DECEMBER 31, 1998, 1997 AND 1996 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.


                       1. SIGNIFICANT ACCOUNTING POLICIES

Community First Bankshares, Inc. (the "Company") is a multi-bank holding 
company which, at the end of 1998, served 154 communities in Arizona, 
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 eleven 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 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 
("Western") on July 1, 1998 and Guardian Bancorp ("Guardian") on August 7, 
1998. These acquisitions were accounted for using the pooling of interests 
method. While none of these transactions, individually, was material to the 
Company's financial condition or operating results, the aggregation of these 
business combinations does have a material affect on the Company's financial 
condition and operating results.

     In addition, also discussed in Note 2, the Company acquired Mountain 
Parks Financial Corporation ("Mountain Parks") on December 18, 1996. This 
acquisition was accounted for using the pooling of interests method. 
Accordingly, the consolidated financial information has been restated to 
reflect the results of operations of the seven companies on a combined basis 
for all periods presented.

     On April 28, 1998, the shareholders approved a charter amendment that 
facilitated 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 generally accepted 
accounting principles 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 as a component of 
retained earnings 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. These estimates are based
principally on a continual review of the loan portfolio, loan charge-off
experience, economic conditions and industry guidelines. 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 banking subsidiaries 
is amortized over a period of fifteen years. At December 31, 1998, goodwill 
totaled $82,002,000, net of accumulated amortization of $17,162,000. Other 
intangible assets, principally deposit base intangibles, unexpired premium 
lists and noncompetition agreements, totaled $51,229,000, net of accumulated 
amortization of $6,788,000, and are amortized over their estimated useful 
lives ranging from three to twenty-five years.

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.

27

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY FIRST BANKSHARES, INC.

     Diluted earnings per common share is based on net income before 
considering the preferred stock dividends declared. The weighted average 
number of shares of common stock outstanding is increased by the assumed 
conversion of convertible preferred stock outstanding and the number of 
shares of common stock 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 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, Colorado 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 ("Pioneer"), Longmont, 
Colorado, with offices in Berthoud, Longmont, Lyons, and Niwot, Colorado. At 
acquisition, Pioneer 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 and one office in Arvada, 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.

     The operating results of the Company and Guardian, Western, FNB, 
Pioneer, and CBI, ("Acquired Banks") for the years ended December 31, 1997 
and 1996 prior to restatement were:

<TABLE>
<CAPTION>
                                              THE      ACQUIRED
(IN THOUSANDS, EXCEPT PER SHARE DATA)     COMPANY         BANKS       COMBINED
------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>
YEAR ENDED DECEMBER 31, 1997:
   Net interest income ............      $161,344      $ 30,635       $191,979
   Net income applicable to
     common equity ................        46,552        12,461         59,013
   Earnings per share:
     Basic ........................      $   1.26      $   1.91       $   1.36
     Diluted ......................      $   1.22      $   1.91       $   1.32

YEAR ENDED DECEMBER 31, 1996:
   Net interest income ............      $134,192      $ 27,245       $161,437
   Net Income .....................        32,510         9,012         41,522
   Net income applicable to
     common equity ................        30,900         9,012         39,912
   Earnings per share:
     Basic ........................      $   0.94      $   1.41       $   1.01
     Diluted ......................      $   0.90      $   1.41       $   0.97
</TABLE>

     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. 
At December 31, 1998, the Company retained $25 million in loans originated by 
Equity Lending and servicing rights on an additional $100 million in Equity 
Lending loans sold to other parties. At December 31, 1998, the Company also 
retained $40 million in auto installment contracts originated by MPFS. In 
addition to a fourth quarter 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 quarter of 1998, when the 
companies were classified as discontinued operations. Losses on the 
discontinued operations included a $2.2 million operating loss and a $1.7 
million expected loss on disposal. Equity Lending, which originates 
residential non-conforming mortgages and MPFS, which purchases sub-prime auto 
installment contracts, were 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.

     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.

     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

                                                                          28

<PAGE>

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.

assumption of certain liabilities and resulted in the recognition of a 
deposit based intangible of approximately $44 million.

     On December 1, 1997, the Company issued approximately 630,000 shares of 
common stock to acquire First National Summit Bankshares, Inc. ("Summit"), a 
one-bank holding company headquartered in Gunnison, Colorado. At acquisition, 
Summit had approximately $90 million in assets and $82 million in deposits at 
banking offices located in Crested Butte, Fruitvale, Grand Junction, 
Gunnison, and Mt. Crested Butte, Colorado. The Company used the pooling of 
interests method to account for the transaction. This merger was not material 
to the Company's financial condition 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 
financial statement from the date of merger.

     On November 24, 1997, the Company issued approximately 737,000 shares of 
common stock to acquire Republic National Bancorp, Inc. ("Republic"), a 
holding company with one bank in Phoenix, Arizona. At acquisition, Republic 
had approximately $54 million in assets and $49 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 financial 
statements from the date of the merger.

     On July 14, 1997, the Company completed the acquisition of KeyBank 
National Association, Cheyenne, Wyoming ("KeyBank Wyoming") with 28 banking 
offices located in 24 communities throughout the state of Wyoming. The 
transaction, which was accounted for as a purchase, resulted in the addition 
of approximately $1.1 billion in assets and $900 million in deposits and the 
recognition of goodwill of approximately $60 million. The operating results 
of KeyBank Wyoming, subsequent to the date of acquisition, are included in 
the Company's consolidated financial statements from the date of acquisition.

     The following unaudited proforma consolidated financial information for 
the year ended December 31, 1997, reflects the results of operations as if 
the acquisition of KeyBank Wyoming had occurred on January 1, 1997. In 
addition to combining the historical results of operations of the two 
companies, the proforma operating results include adjustments for the 
estimated effect of purchase accounting on the Company's results, principally 
amortization of intangibles, adjustments to reflect the estimated impact on 
income and expense related to the assets and liabilities retained by KeyCorp 
and assumes the following were completed at the beginning of the period 
presented: (i) the $60 million offering of 8.875% Cumulative Capital 
Securities of CFB Capital I completed in February 1997; (ii) the redemption 
on March 31, 1997 of the Company's 7.75% Subordinated Notes due 2000 in the 
principal amount of $23 million; and (iii) the conversion during March 1997 
of substantially all of the Company's 7% Cumulative Convertible Preferred 
Stock.

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)  YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
------------------------------------------------------------------------------
<S>                                                                <C>
Net Interest Income ............................................   $   209,649
Income from continuing operations ..............................        60,826
Income before extraordinary item ...............................        61,793
Net Income .....................................................        61,528
Earnings per common share
   Basic .......................................................   $      1.40
   Diluted .....................................................   $      1.38

</TABLE>

     The proforma information may not be indicative of the results that 
actually would have occurred if the combination had been in effect on the 
date indicated or that may be obtained in the future.

     On April 30, 1997, the Company sold its 24.36% minority interest in Vail 
Banks, Inc., the parent company of WestStar Bank, Vail, Colorado for 
approximately $3 million. The sale was completed in response to regulatory 
requirements with regard to competitive factors resulting from the Company's 
December 1996 acquisition of Mountain Parks.

     On April 4, 1997, the Company, through its Colorado subsidiary, 
completed the sale of its offices in Grandby and Grand Lake, Colorado in 
response to regulatory requirements with regard to competitive factors 
resulting from the Company's merger with Mountain Parks. The transaction 
included approximately $24 million in deposits and resulted in the 
recognition of a gain of approximately $2.8 million.

     The operating results subsequent to the date of acquisition of all of 
the companies acquired in purchase transactions are included in the Company's 
consolidated financial statements for the years ended December 31, 1998, 1997 
and 1996.

                             3. ACCOUNTING CHANGES

SFAS No. 130 - Reporting Comprehensive Income - In June 1997, the FASB issued 
Statement 130, Reporting Comprehensive Income. This statement establishes 
standards for the reporting and display of comprehensive income and its 
components in a full set of financial statements. The Statement requires that 
all items that are required to be recognized under accounting standards as 
components of comprehensive income be reported in a financial statement that 
is displayed as prominently as other financial statements. The Statement 
requires the classification of items of other comprehensive income separately 
from retained earnings and capital surplus in the equity section of the 
statement of financial position. SFAS 130 was effective January 1, 1998, with 
all prior periods presented restated to conform to the provisions of this 
statement.

     Accumulated other comprehensive income consists of unrealized gains and 
losses on available-for-sale securities. Ending accumulated comprehensive 
income balances and the income tax expense allocated to amounts of unrealized 
gains and losses on available-for-sale securities are disclosed in the 
Consolidated Statements of Shareholders' Equity.


29


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY FIRST BANKSHARES, INC.

                                 4. SECURITIES

The following is a summary of available-for-sale securities and 
held-to-maturity securities at December 31, 1998 (in thousands):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                          AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------------------------------------------
                                                                GROSS             GROSS       ESTIMATED
                                           AMORTIZED       UNREALIZED        UNREALIZED            FAIR
                                                COST            GAINS            LOSSES           VALUE
-------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>              <C>              <C>
United States Treasury .................  $  129,820       $    2,105       $        1       $  131,924
United States Government agencies ......     351,122            2,416              580          352,958
Mortgage-backed securities .............   1,205,771           14,621            1,336        1,219,056
Collateralized mortgage obligations ....      61,760              391              101           62,050
State and political securities .........     134,198            3,321              314          137,205
Other securities .......................      76,870            1,520            1,053           77,337
                                          -------------------------------------------------------------
Total ..................................  $1,959,541       $   24,374       $    3,385       $1,980,530
                                          -------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------
                                  HELD-TO-MATURITY SECURITIES
------------------------------------------------------------------------
                                          GROSS        GROSS   ESTIMATED
                         AMORTIZED   UNREALIZED   UNREALIZED        FAIR
                              COST        GAINS       LOSSES       VALUE
------------------------------------------------------------------------
<S>                      <C>         <C>          <C>           <C>
Other securities .......   $69,906       $  --       $  --       $69,906
                          ----------------------------------------------
Total ..................   $69,906       $  --       $  --       $69,906
                          ----------------------------------------------
</TABLE>

     The following is a summary of available-for-sale securities and
held-to-maturity securities at December 31, 1997 (in thousands):


<TABLE>
<CAPTION>
                                                        AVAILABLE-FOR-SALE SECURITIES

                                                                GROSS            GROSS       ESTIMATED
                                            AMORTIZED      UNREALIZED       UNREALIZED            FAIR
                                                 COST           GAINS           LOSSES           VALUE
-------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>              <C>              <C>
United States Treasury .................. $  146,228       $    1,048       $      150       $  147,126
United States Government agencies .......    286,976            1,137              366          287,747
Mortgage-backed securities ..............    834,110            6,755              508          840,357
Collateralized mortgage obligations .....    107,799              403               99          108,103
State and political securities ..........     71,055              912              105           71,862
Other securities ........................     85,032               37              342           84,727
                                         --------------------------------------------------------------
Total ................................... $1,531,200       $   10,292       $    1,570       $1,539,922
                                         --------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                     HELD-TO-MATURITY SECURITIES

                                                          GROSS         GROSS       ESTIMATED
                                      AMORTIZED      UNREALIZED    UNREALIZED            FAIR
                                           COST           GAINS        LOSSES           VALUE
---------------------------------------------------------------------------------------------
<S>                                    <C>           <C>           <C>               <C>
United States Treasury ................ $  1,536       $      3       $     --       $  1,539
United States Government agencies .....   19,780             87             34         19,833
Mortgage-backed securities ............   82,357            567            672         82,252
State and political securities ........   52,702          1,915             19         54,598
Other securities ......................   65,616             --              9         65,607
                                       ------------------------------------------------------
Total ................................. $221,991       $  2,572       $    734       $223,829
                                       ------------------------------------------------------
</TABLE>

     Proceeds from the sale of available-for-sale securities during the years
ended December 31, 1998, 1997 and 1996, were $146,926,000, $75,600,000, and
$30,558,000, respectively. Gross gains of $1,870,000, $550,000, and $200,000 and
gross losses of $69,000, $86,000, and $103,000 were realized on those sales
during 1998, 1997 and 1996, respectively. The tax effect on the net gains during
1998, 1997 and 1996 was approximately $630,000, $162,000, and $34,000,
respectively. Transfers of held-to-maturity securities to available-for-sale
were completed to conform certain portions of the investment portfolio to
designations made in connection with business combinations. There were no sales
of held-to-maturity securities during 1998, 1997 or 1996.

     The amortized cost and estimated fair value of debt securities at December
31, 1998, 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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                                    AMORTIZED        ESTIMATED
AVAILABLE-FOR-SALE (IN THOUSANDS)                        COST       FAIR VALUE
------------------------------------------------------------------------------
<S>                                              <C>              <C>
Due in one year or less .......................  $     79,152     $     79,633
Due after one year through five years .........       299,545          303,675
Due after five years through ten years ........       172,492          173,237
Due after ten years ...........................       140,821          142,879
                                                 -----------------------------
                                                      692,010          699,424
Mortgage-backed securities ....................     1,205,771        1,219,056
Collateralized mortgage obligations ...........        61,760           62,050
                                                 -----------------------------
Total .........................................  $  1,959,541     $  1,980,530
                                                 -----------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                    AMORTIZED        ESTIMATED
HELD-TO-MATURITY (IN THOUSANDS)                          COST       FAIR VALUE
------------------------------------------------------------------------------
<S>                                              <C>              <C>
Due in one year or less .......................  $         45     $         45
Due after one year through five years .........           122              122
Due after five years through ten years ........            --               --
Due after ten years ...........................        69,739           69,739
                                                 -----------------------------
                                                       69,906           69,906
Mortgage-backed securities ....................            --               --
                                                 -----------------------------
Total .........................................  $     69,906     $     69,906
                                                 -----------------------------
</TABLE>

     At December 31, 1998, available-for-sale securities included $1,529,000 in
commitments to purchase specific investment securities at a future date.

     Available-for-sale and held-to-maturity securities carried at $993,734,000
and $826,043,000 at December 31, 1998 and 1997, 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 $134,557,000 and $61,749,000 at December 31, 1998 and 1997,
respectively.


                                                                             30

<PAGE>

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.

                               5. LOANS

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------
                                            1998               1997 
-------------------------------------------------------------------
<S>                                  <C>                <C>
Real estate ........................ $ 1,225,255        $ 1,152,918
Real estate construction ...........     358,317            247,486
Commercial .........................     904,063            778,176
Consumer and other .................     603,468            552,384
Agriculture ........................     295,039            293,358
                                     ------------------------------
                                       3,386,142          3,024,322
Less allowance for loan losses .....     (50,173)           (40,045)
                                     ------------------------------
Net Loans .......................... $ 3,335,969        $ 2,984,277
                                     ------------------------------
</TABLE>

     At December 31, 1998, real estate loans totaling $360,000,000 were pledged
to secure borrowings. At December 31, 1998, loans held for sale totaled
$65,000,000, and consisted of consumer loans and real estate loans at the
Company's specialty lending subsidiaries.

     The Company's policy for valuing loans held for sale is to carry the
balances at fair market value.

                          6. ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
<CAPTION>

                                                 1998            1997            1996 
-------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>
Balance at beginning of year ..............  $ 40,045        $ 30,165        $ 25,906
Allowance of acquired companies (1) .......     1,950          10,065             784
Provision charged to operating expense ....    22,509           6,107           7,483
Loans charged off .........................   (17,966)         (8,903)         (5,512)
Recoveries of loans charged off ...........     3,635           2,611           1,504
                                            -----------------------------------------
Balance at end of year ....................  $ 50,173        $ 40,045        $ 30,165
                                            -----------------------------------------
</TABLE>

(1)  INCLUDES ONLY ACQUISITIONS OF COMPANIES ACCOUNTED FOR AS PURCHASES.

     Nonaccrual loans totaled $22,517,000, $14,801,000, and $15,283,000 at 
December 31, 1998, 1997, and 1996, respectively. The Company includes all 
loans considered impaired under SFAS No. 114 in nonaccrual loans. The amount 
of impaired loans was not material at December 31, 1998. Interest income of 
$3,645,000 on nonaccrual loans would have been recorded during 1998 if the 
loans had been current in accordance with their original terms. During 1998, 
the Company recorded interest income of $1,489,000 related to loans that were 
on nonaccrual status as of December 31, 1998.

     Management determines the adequacy of the allowance based on evaluations 
of the loan portfolio and related commitments, recent loss experience and 
other relevant factors, including economic conditions. This evaluation is 
inherently subjective as it requires estimates, including amounts of future 
cash collections expected on nonaccrual loans that may be susceptible to 
significant change. The allowance for credit losses relating to impaired 
loans is based on the loans observable market price, the collateral for 
certain collateral dependent loans or discounted cash flows.

     The Company allocates the allowance to specific cate gories based on 
relative risk characteristics of the loan portfolio and other financial 
instruments with credit exposure. Commercial and agricultural allocations are 
based on quarterly reviews of individual loans outstanding, including 
commitments to lend and an analysis of the portfolio's recent performance. 
The real estate, including real estate construction, and consumer allocations 
are based on the quarterly analysis of the respective portfolio performance, 
including historical and expected delinquency and charge-off statistics.

                     7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Due to the nature of its business and the financing needs of its customers, 
the Company is involved with 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 PURCHASED AND SHORT-TERM BORROWED FUNDS
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 deposits are estimated using a discounted cash flow analysis that used the
interest rates currently being offered on certificates of deposit to discount
the aggregated expected monthly maturities.


31

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY FIRST BANKSHARES, INC.

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):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                       1998                                  1997
----------------------------------------------------------------------------------------------------------
                                         CARRYING               FAIR           CARRYING               FAIR
                                           AMOUNT              VALUE             AMOUNT              VALUE
----------------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>                <C>
Financial assets:
  Cash and due from banks ..........  $   250,963        $   250,963        $   254,676        $   254,676
  Federal funds sold and
    resale agreements ..............          100                100             76,455             76,455
  Interest-bearing deposits ........        5,067              5,070             12,131             12,131
  Available-for-sale securities ....    1,980,530          1,980,530          1,539,922          1,539,922
  Held-to-maturity securities ......       69,906             69,906            221,991            223,829
  Loans ............................    3,386,142          3,378,230          3,024,322          3,017,771
  Allowance for loan losses ........      (50,173)           (50,173)           (40,045)           (40,045)
                                      --------------------------------------------------------------------
  Net loans ........................    3,335,969          3,328,057          2,984,277          2,977,726
Financial liabilities:
  Deposits:
    Noninterest-bearing ............  $   547,703        $   547,703        $   705,315        $   705,315
    Interest-bearing:
     Savings and NOW ...............    2,254,005          2,254,005          1,586,777          1,586,777
     Time accounts over $100,000 ...      604,859            605,290            474,091            474,575
     Other time accounts ...........    1,478,105          1,478,453          1,386,735          1,385,616
                                      --------------------------------------------------------------------
Total deposits .....................    4,884,672          4,885,451          4,152,918          4,152,283
Federal funds purchased and
  repurchase agreements ............      143,057            143,057             44,462             44,462
Other short-term borrowings ........      292,669            292,669            230,777            230,777
Long-term debt .....................       93,472             96,031            124,529            124,529
</TABLE>


            8. 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, 1998 and 1997, were as follows (in thousands):

<TABLE>
<CAPTION>
----------------------------------------------------------
                                       1998           1997
----------------------------------------------------------
<S>                                <C>            <C>
Commitments to extend credit ..... $627,919       $516,577
Standby letters of credit ........   21,799         19,604
Commercial letters of credit .....    4,354          1,816
</TABLE>

     Commitments to extend credit are legally binding and have fixed expiration
dates or other termination clauses. The Company's exposure to credit loss on
commitments to extend credit, in the event of nonperformance by the
counterparty, is represented by the contractual amounts of the commitments. The
Company monitors its credit risk for commitments to extend credit by applying
the same credit policies in making commitments as it does for loans and by
obtaining collateral to secure commitments based on management's credit
assessment of the counterparty. Collateral held varies, but 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, 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 the agricultural 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.

                                                                           32



<PAGE>

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.


                         9. BANK PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
                                                          1998           1997
-----------------------------------------------------------------------------
<S>                                                   <C>            <C>
Land ...............................................  $ 18,977       $ 17,976
Buildings ..........................................   121,514        106,554
Furniture, fixtures and equipment ..................    83,841         78,905
Leased property under capital lease obligations ....     9,638         11,454
                                                    -------------------------
                                                       233,970        214,889
Less accumulated depreciation ......................   110,716         98,252
                                                    -------------------------
                                                      $123,254       $116,637
                                                    -------------------------
</TABLE>

                           10. SHORT-TERM BORROWINGS

As of December 31, 1998, the Company's subsidiary banks had $210,000,000 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 4.89% to 5.27% at December 31, 1998. The Company's
subsidiaries had additional short-term borrowings of $68,359,000 outstanding at
December 31, 1998.

     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 $25,000,000 through
December 31, 1998, with no commitment fee. As of December 31, 1998, the Company
had a balance of $4,725,000 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 .30% that provides for borrowing up to $25,000,000 through October
29, 1999, with a commitment fee of .15% of the revolving commitment amount. As
of December 31, 1998, the Company had a balance of $16,500,000 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, 1998,
there was a $14,310,000 commercial paper balance outstanding with a blended rate
of 5.87%. The terms of the lines of credit include certain covenants with which
the Company must comply. At December 31, 1998, 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):

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------
                                                                         1998           1997 
--------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>
Parent Company:
  Subordinated notes payable,
          interest at 7.30%, payable semi-annually,
          maturing June 30, 2004, unsecured                          $ 60,000       $ 60,000
  Term note payable to bank, interest at 6.19% until
          February 1, 2008, then at .50% over One Year,
          Three Year, or Five Year U.S. Treasury rate, payable
          semi-annually, maturing February 1, 2013,
          secured by real property                                      3,200             --
  Exchangeable subordinated notes payable,
          interest at 9.00% payable quarterly,
          maturing August 15, 2005, unsecured                              --         11,500
  Term note payable to bank, interest at bank's base
          rate (8.50% at December 31, 1997), payable
          quarterly, principal payments of $100,000 due
          annually through October 1, 1999, unsecured                      --            400
  Term note payable to bank, interest at bank's prime
          rate, maturing April 1, 1998, secured by bank stock              --            475
Subsidiaries:
  Federal Home Loan Bank advances,
          interest rates ranging from 5.32% to 8.33%,
          payable quarterly, with maturities ranging from
          November 18, 2002 to March 10, 2010                          27,787         49,112
  Term Note payable to bank, interest at 5.19%
          payable monthly, principal payments ranging
          from $38,700 to $54,600, per schedule
          due monthly through March 31, 2003                            2,356          2,800
  Other Notes Payable                                                     129            242
                                                                ----------------------------
                                                                     $ 93,472       $124,529
                                                                ----------------------------
</TABLE>

     The 7.30% subordinated notes payable are not redeemable, in whole or in
part, by the Company. These notes, of which 100% of the balance qualifies as
Tier II capital 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, 1998, the Company was in
compliance with all covenants pertaining to the subordinated notes payable.

     On October 30, 1998, the Company redeemed all of its 9.00% Exchangeable
Subordinated Notes due August 15, 2005 at a redemption price of 103% of the
principal amount, plus accrued interest to the redemption date. The total
outstanding principal amount of the notes, which were issued on July 1995, was
$11.5 million. The early redemption resulted in a one-time pre-tax charge of
$345,000.


33

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY FIRST BANKSHARES, INC.

Maturities of long-term debt outstanding, primarily of the parent 
company, at December 31, 1998, were (in thousands):

<TABLE>

--------------------------------------
<S>                            <C>
1999 ..........................$   695
2000 ..........................    736
2001 ..........................    782
2002 .......................... 21,959
2003 ..........................  5,040
Thereafter .................... 64,260
                               -------
                               $93,472
                               -------
--------------------------------------
</TABLE>

     During March 1997, the Company redeemed its $23 million in aggregate
principal amount of 7.75% Subordinated Notes (the "7.75% Notes"). The 7.75%
Notes were redeemed at par plus accrued interest and resulted in an
extraordinary loss of $265,000, net of taxes, on the early extinguishment of
debt.

       12. 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 Corporation, 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, 1998, the combined $120 million in Capital Securities
qualified as Tier I capital under capital guidelines of the Federal Reserve.

                            13. SHAREHOLDERS' EQUITY

COMMON STOCK
On April 3, 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the purpose of issuing up to 3,500,000
shares of its common stock. The shares may be offered in acquisition
transactions in exchange for shares of capital stock, partnership interests or
other assets representing an interest, direct or indirect, in other companies or
entities, or in exchange for assets used in or related to the business of such
entities. Amendment No. 1, effective June 11, 1998, increased the shares under
this registration statement to 7,000,000 shares, to reflect the effect of the
shares remaining as of May 15, 1998, when the shareholders approved a charter
amendment to facilitate a two-for-one split of the Company's common stock, in
the form of a 100 percent stock dividend. Subsequently, two additional
acquisitions, totaling 1,609,906 shares, were completed under this registration
statement. At December 31, 1998, there remain 5,390,094 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.
Subsequently, one additional acquisition, totaling 1,932,284 shares, was
completed under this registration statement. At December 31, 1998, there remain
944,130 shares to be issued under the registration statement.

     On December 15, 1997, the Company completed the issuance of 2,000,000
shares of common stock pursuant to the shelf registration described below. The
issuance of these shares occurred at a selling price of $24.75 per share with an
underwriting discount of $.87 per share paid by the Company. The Company used
the proceeds, in combination with the $60 million Capital Securities issue to
capitalize its bank subsidiaries in Colorado and Arizona which acquired branches
of Banc One Corporation.

     On October 9, 1997, the Company filed a shelf registration with the
Securities and Exchange Commission for the offering for cash, from time to time,
of up to $150 million in any combination of common stock, preferred stock or
debt securities. Proceeds from the sale of Securities offered under this shelf
registration will be used to finance acquisitions by the Company and for general
corporate purposes.

     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, the Company adopted
a new common stock repurchase program providing for a systematic repurchase of
up to 1,200,000 additional shares. The shares acquired are used primarily for
the issuance of common stock upon exercise of stock options, issuance of common
stock under compensation plans, which might include contributions directly to
employees or to an employee stock ownership plan, for preferred stock
conversion, and issuance of common stock for purposes that do not include
business combinations.

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% or more of the Company's voting stock, or an announcement of
a tender offer or exchange offer to acquire an interest of 15% or more by a
person or group, without the prior consent of the Company. If exercised, or if
the Company is acquired, each right entitles the holder 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.

                                                                             34

<PAGE>

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.

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, 1998, 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.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                                        AT DECEMBER 31, 1998
---------------------------------------------------------------------------------------------------------
                                                            TIER 1    TOTAL RISK-             TOTAL RISK-
REGULATORY CAPITAL REQUIREMENTS: (DOLLARS IN THOUSANDS)    CAPITAL  BASED CAPITAL  LEVERAGE  BASED ASSETS
---------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>            <C>       <C> 
Minimum .............................................        4.00%        8.00%       3.00%           N/A
Well-Capitalized ....................................        6.00%       10.00%       5.00%           N/A
---------------------------------------------------------------------------------------------------------
BANK SUBSIDIARIES:
Community First National Bank, Fergus Falls .........        9.40%       10.54%       7.67%    $  665,856
Community First National Bank, Fargo ................        9.91%       11.15%       7.39%       393,564
Community First State Bank, Vermillion ..............       10.29%       11.45%       7.79%       211,778
Community First National Bank, Decorah ..............       10.62%       11.88%       7.82%       117,703
Community First National Bank, Alliance .............        9.84%       11.07%       8.06%       249,489
Community First National Bank, Spooner ..............        9.81%       10.94%       7.89%        83,539
Community First National Bank, Fort Morgan ..........        9.25%       10.50%       6.30%     1,225,378
Community First National Bank, Cheyenne .............       13.96%       14.97%       8.56%       617,224
Community First National Bank, Phoenix ..............       17.28%       17.94%       6.45%       260,263
Community First National Bank, Las Cruces ...........       11.17%       12.42%       8.61%       117,690
Community First National Bank, Salt Lake City .......        9.27%       10.52%       6.04%        77,678

Community First Bankshares, Inc. ....................        9.35%       12.08%       6.40%    $4,045,169
</TABLE>

<TABLE>
<CAPTION>
                                                                             AT DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------------
                                                                  TIER 1      TOTAL RISK-             TOTAL RISK-
REGULATORY CAPITAL REQUIREMENTS: (DOLLARS IN THOUSANDS)          CAPITAL    BASED CAPITAL  LEVERAGE  BASED ASSETS
------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>        <C>            <C>       <C>
Minimum ....................................................       4.00%        8.00%       3.00%           N/A
Well-Capitalized ...........................................       6.00%       10.00%       5.00%           N/A

BANK SUBSIDIARIES:
Community First National Bank, Fergus Falls ................       9.93%       11.10%       7.75%    $  624,017
Community First National Bank, Fargo .......................      10.03%       11.28%       7.46%       388,051
Community First State Bank, Vermillion .....................      10.73%       11.90%       7.83%       211,897
Community First National Bank, Decorah .....................      11.63%       12.89%       7.82%       108,761
Community First National Bank, Alliance ....................      10.40%       11.65%       8.48%       257,024
Community First National Bank, Spooner .....................      11.16%       12.32%       8.26%        71,856
Colorado Community First National Bank, Fort Morgan ........      10.11%       11.17%       7.26%     1,040,342
Colorado Community First National Bank, Gunnison ...........      11.18%       12.43%       7.20%        59,051
Community First National Bank, Cheyenne ....................      13.75%       14.79%       7.52%       606,471
Community First National Bank, Phoenix .....................       9.37%       10.62%       7.95%        45,712
Community First National Bank, Las Cruces ..................      12.50%       12.60%       9.20%       120,689
Community First National Bank, Salt Lake City ..............      14.67%       15.80%       8.50%        61,783

Community First Bankshares, Inc. ...........................      11.53%       14.98%       7.51%    $3,502,962
---------------------------------------------------------------------------------------------------------------
</TABLE>

35

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY FIRST BANKSHARES, INC.

                           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 at fair market value on the date of the
grant, as determined by the Company. The options vest ratably over a three-year
period and are exercisable over a five-year term starting one year after the
date of grant. Stock options outstanding under the plans are as follows:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                               1998                       1997
-------------------------------------------------------------------------------------------
                                                    WEIGHTED                       WEIGHTED
                                                     AVERAGE                        AVERAGE
                                    OPTIONS        PRICE PER       OPTIONS        PRICE PER
                                OUTSTANDING            SHARE   OUTSTANDING            SHARE
-------------------------------------------------------------------------------------------
<S>                             <C>                <C>         <C>                <C>
Beginning of Year ..............  1,344,892        $   10.36     1,127,310        $    8.01
   Options Granted .............    571,400            24.81       454,000            14.63
   Options Exercised ...........   (293,317)            8.44      (207,352)            6.87
   Options Forfeited ...........    (31,203)           18.62       (29,066)            9.11
                                 ----------------------------------------------------------
End of Year ....................  1,591,772        $   15.74     1,344,892        $   10.36
                                 ----------------------------------------------------------
Exercisable at end of year .....    748,371        $   10.38       675,542        $    8.23
</TABLE>


<TABLE>
<CAPTION>

                                            1998        1997
--------------------------------------------------------------
<S>                                     <C>         <C>
Weighted average fair
value of options granted .............  $   4.54    $    3.20
</TABLE>


     The range of exercise prices and the weighted average remaining contractual
life of the options outstanding at December 31, 1998 were as follows:

<TABLE>
<CAPTION>
                                        OPTIONS          WEIGHTED            WEIGHTED
                                 OUTSTANDING AT           AVERAGE             AVERAGE
RANGE OF EXERCISE                   DECEMBER 31    EXERCISE PRICE           REMAINING
PRICES PER SHARE                           1998         PER SHARE    CONTRACTUAL LIFE
-------------------------------------------------------------------------------------
<S>                              <C>               <C>               <C>
$23.75 to $24.88 ..................     553,200            $24.86         0.92 Years
$17.25 to $19.31 ..................      41,000            $17.72         2.99 Years
$10.63 to $14.25 ..................     616,130            $12.72         2.64 Years
$ 6.50 to $ 7.375 .................     381,442            $ 7.19         0.64 Years
</TABLE>

     At December 31, 1998, a total of 4,653,451 shares of authorized common
stock was reserved for exercise of options granted under the 1996 and 1987 Stock
Option Plans.

     The Company has elected to measure compensation costs as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and, accordingly,
does not recognize compensation expense. SFAS No. 123 requires the Company to
disclose pro forma information reflecting net income and earnings per share had
the Company elected to record compensation expense based on the fair market
value method described in SFAS 123. The fair value of the options was estimated
at the grant date using a Black-Scholes option pricing model. Option valuation
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in manage ment'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 5.35 percent and 6.15 percent in 1998 and
1997, respectively; dividend yield of 2.09 percent and 1.30 percent in 1998 and
1997, respectively; stock price volatility factors of .178 and .175 in 1998 and
1997, respectively; and expected life of options of four years in both 1998 and
1997.

     The pro forma disclosures include options granted in 1998 and 1997 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.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)            1998             1997
-------------------------------------------------------------------------------
<S>                                               <C>              <C>
Pro forma net income ...........................  $     42,144     $     58,479
Pro forma net income (diluted) .................        42,144     $     58,479


Pro forma earnings per share:
   Basic .......................................  $       0.89     $       1.35
   Diluted .....................................  $       0.88     $       1.31
</TABLE>


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 $1,735,000, $1,407,000, and $859,000 in
1998, 1997, and 1996, respectively.

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 $1,587,000, $1,205,000, and $806,000 in 1998, 1997, and 1996,
respectively.

                  15. RESTRICTIONS ON CASH AND DUE FROM BANKS

Bank subsidiaries are required to maintain average reserve balances with the
Federal Reserve Bank. Balances of $47,746,000 and $49,647,000 at December 31,
1998 and 1997, respectively, exceeded required amounts.



                                                                             36
<PAGE>

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.

                                16. INCOME TAXES

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                             1998          1997           1996
------------------------------------------------------------------------------
<S>                                   <C>            <C>           <C>
Federal:
   Current .......................    $    25,580    $   25,244    $    23,238
   Deferred ......................         (5,891)       (2,850)        (3,613)
                                      ----------------------------------------
                                           19,689        22,394         19,625
State:
   Current .......................          2,453         3,067          4,244
   Deferred ......................           (694)         (650)          (471)
                                      ----------------------------------------
                                            1,759         2,417          3,773
                                      ----------------------------------------
Provision for income taxes .......    $    21,448    $   24,811    $    23,398
                                      ----------------------------------------
</TABLE>


     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):


<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                             1998          1997           1996
------------------------------------------------------------------------------
<S>                                   <C>            <C>           <C>
Tax at Statutory rate (35%) ......    $    23,947    $   29,093    $    22,722
State income tax,
   net of federal tax benefit ....          1,034         1,575          2,318
Tax-exempt interest ..............         (2,904)       (2,425)        (1,839)
Amortization of goodwill .........            892           923            822
Other ............................         (1,521)       (4,355)          (625)
                                      ----------------------------------------
Provision for income taxes .......    $    21,448    $   24,811    $    23,398
                                      ----------------------------------------
</TABLE>



     Deferred income tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax reporting
purposes. Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1998 and 1997, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                         1998             1997
------------------------------------------------------------------------------
<S>                                              <C>              <C>
Deferred tax assets:
   Loan loss reserves .........................  $     15,976     $      8,609
   Other reserves .............................         2,548              246
   Deferred compensation ......................         1,807            1,097
   Deferred loan fees .........................           224              316
   Other ......................................         2,452            1,164
                                                 -----------------------------
                                                       23,007           11,432
Deferred tax liabilities:
   Unrealized gains ...........................         7,842            3,211
   Depreciation ...............................           588            1,168
   Purchase accounting ........................           124              349
   Other ......................................           272               58
                                                 -----------------------------
                                                        8,826            4,786
                                                 -----------------------------
Net deferred tax assets .......................  $     14,181     $      6,646
                                                 -----------------------------
</TABLE>



     The realization of the Company's deferred tax assets is dependent upon the
Company's ability to generate taxable income in future periods and the reversal
of deferred tax liabilities during the same period. The Company has evaluated
the available evidence supporting the realization of its deferred tax assets and
determined it is more likely than not that the assets will be realized.



                   17. COMMITMENTS AND CONTINGENT LIABILITIES

Total rent expense was $4,568,000, $3,308,000, and $1,757,000 in 1998, 1997, and
1996, 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, 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(IN THOUSANDS)                                      OPERATING          CAPITAL
------------------------------------------------------------------------------
<S>                                              <C>              <C>
1999 ........................................... $      1,902     $      2,296
2000 ...........................................        1,990            1,966
2001 ...........................................        1,807            1,141
2002 ...........................................        1,794              367
2003 ...........................................        1,767                9
                                                 -----------------------------
                                                 $      9,260     $      5,779
Executory costs (taxes) ........................                          (102)
                                                                  ------------
Net minimum lease payments .....................                         5,677
Less:
   Amount representing interest ................                          (439)
                                                                  ------------
   Present value of net minimum lease payments .                  $      5,238
                                                                  ------------
</TABLE>

     In the normal course of business, there are various outstanding legal
proceedings, claims, commitments and contingent liabilities. In the opinion of
management, the Company and its subsidiaries will not be materially affected by
the outcome of such matters.



37

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMUNITY FIRST BANKSHARES, INC.

                      18. COMMUNITY FIRST BANKSHARES, INC.
(PARENT COMPANY ONLY)


CONDENSED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
DECEMBER 31 (IN THOUSANDS)                             1998            1997
---------------------------------------------------------------------------
<S>                                              <C>            <C>
ASSETS
Cash and due from subsidiary banks ............  $    4,944     $     6,273
Interest-bearing deposits .....................         110             505
Available-for-sale securities .................         854          63,795
Investment in subsidiaries ....................     588,271         500,259
Furniture and equipment .......................       7,044           6,210
Receivable from subsidiaries ..................      11,056          11,272
Other assets ..................................      23,608          16,962
                                                ---------------------------
Total assets ..................................  $  635,887     $   605,276
                                                ---------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings .........................      35,535          11,167
Long-term debt ................................     186,911         196,086
Other liabilities .............................       8,195          10,010
Shareholders' equity ..........................     405,246         388,013
                                                ---------------------------
Total liabilities and shareholders' equity ....  $  635,887     $   605,276
                                                ---------------------------

</TABLE>

CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31 (IN THOUSANDS)           1998            1997            1996
-------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>
Income:
   Dividends from subsidiaries ............. $ 76,728        $ 35,967        $ 29,776
   Service fees from subsidiaries ..........    5,647           3,505           2,948
   Interest income .........................    1,049           1,562             122
   Other ...................................    1,641             662             487
                                             ----------------------------------------
Total income ...............................   85,065          41,696          33,333
Expense:
   Interest expense ........................   17,565          10,564           4,441
   Other expense ...........................   29,511          18,327          17,816
                                             ----------------------------------------
Total expense ..............................   47,076          28,891          22,257
                                             ----------------------------------------
Income before income tax benefit,
   equity in undistributed income of
   subsidiaries and extraordinary item .....   37,989          12,805          11,076
Income tax benefit .........................   13,606           9,518           6,955
                                             ----------------------------------------
Income before undistributed income of
   subsidiaries and extraordinary item .....   51,595          22,323          18,031
Equity in undistributed income of
   subsidiaries ............................   (8,532)         36,955          23,491
                                             ----------------------------------------
Income before cumulative effect
   of extraordinary item ...................   43,063          59,278          41,522
Extraordinary item, net of tax .............       --            (265)             --
                                             ----------------------------------------
Net Income ................................. $ 43,063        $ 59,013        $ 41,522
                                             ----------------------------------------
Net income applicable to common equity ..... $ 43,063        $ 59,013        $ 39,912
                                             ----------------------------------------
</TABLE>



CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 (IN THOUSANDS)                1998             1997             1996
--------------------------------------------------------------------------------------------
<S>                                              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations .............. $  46,971        $  58,046        $  41,522
Adjustments to reconcile net income to
   net cash used in operating activities:
      Equity in income of subsidiaries .........     8,532          (36,955)         (23,491)
      Depreciation .............................     1,076            1,448              (32)
      Increase in interest payable .............        --               --            1,730
      Other, net ...............................   (12,369)           6,364           (4,275)
                                                 --------------------------------------------
Net cash provided by operating activities ......    44,210           28,903           15,454

CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received from subsidiaries ...........    76,728           35,967           29,776
Purchases of stock in subsidiaries .............  (165,748)        (180,320)         (45,503)
Net loans to subsidiaries ......................       216           (8,691)          (1,791)
Sales of securities, net of gains ..............    62,941               --               --
Purchases of available-for-sale securities .....        --          (63,795)              --
Net increase in furniture and equipment ........    (1,910)          (6,001)            (477)
Net decrease in interest-bearing deposits ......       395             (505)              --
                                                 --------------------------------------------
Net cash used in investing activities ..........   (27,378)        (223,345)         (17,995)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
   short-term borrowings .......................    24,368           (2,997)           4,164
Proceeds from issuance of long-term debt .......    29,450          236,466           18,188
Preferred stock dividends paid .................        --               --           (1,610)
Common stock dividends paid ....................   (19,705)         (19,034)          (9,728)
Repayment of long-term debt ....................   (38,625)         (80,464)         (24,058)
Net proceeds from the issuance of
   Company-obligated mandatorily
   redeemable preferred securities of
   CFB Capital I and II ........................        --          (22,988)              --
Sale of common stock held in treasury ..........     1,281            4,554            4,030
Purchase of common stock held
   in treasury .................................   (16,314)          (2,777)          (1,535)
Retirement of common stock .....................        --               --           (1,870)
Net proceeds from issuance of
   common stock ................................     1,384           80,408           14,952
                                                 --------------------------------------------
Net cash (used in) provided by
   financing activities ........................   (18,161)         193,168            2,533
                                                 --------------------------------------------
Net decrease in cash and
   cash equivalents ............................    (1,329)          (1,274)              (8)
Cash and cash equivalents at
   beginning of year ...........................     6,273            7,547            7,555
                                                 --------------------------------------------
Cash and cash equivalents at end of year ....... $   4,944        $   6,273        $   7,547
                                                 --------------------------------------------
</TABLE>

     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, 1998 and 1997,
$57,559,000 and $44,653,000, respectively, of individual subsidiary banks'
capital was available for credit extension to the parent company. At December
31, 1998 and 1997, 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 $32,914,000 and $51,644,000 as of December 31, 1998 and 1997,
respectively.


                                                                            38

<PAGE>

                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                COMMUNITY FIRST BANKSHARES, INC.

                         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 were $10,390,000 and
$19,435,000 at December 31, 1998 and 1997, respectively. During 1998 and 1997,
$9,892,000, and $6,250,000 of new loans were made and repayments totaled
$18,937,000, and $4,414,000, respectively.

                             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)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31                                1998(1)            1997(1)               1996
---------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                   <C>
NUMERATOR:
   Income from continuing operations .......  $     46,971       $     58,311          $     41,522
   Preferred stock dividend ................            --                 --                (1,610)
                                             ------------------------------------------------------
   Numerator for basic earnings per
     share income available to
     common stockholders ...................        46,971             58,311                39,912
   Effect of dilutive securities:
   Preferred stock dividends ...............            --                 --                 1,610
                                             ------------------------------------------------------
   Numerator for diluted earnings
     per share income available to
     common stockholders after
     assumed conversions ...................  $     46,971       $     58,311          $     41,522
                                             ------------------------------------------------------
DENOMINATOR:
   Denominator for basic earnings per
     share weighted average share ..........    47,280,245         43,461,264            39,429,607
   Effect of dilutive securities:
     Employee stock options ................       601,330            631,480               379,464
     Convertible preferred stock ...........            --            557,178             2,886,712
                                             ------------------------------------------------------
     Dilutive potential common shares ......       601,330          1,188,658             3,266,176
   Denominator for diluted earnings per
     share adjusted weighted average
     shares and assumed conversions ........    47,881,575         44,649,922            42,695,783
                                             ------------------------------------------------------
Basic earnings per share ...................  $       0.99       $       1.35          $       1.01
Diluted earnings per share .................  $       0.98       $       1.31          $       0.97
</TABLE>

(1) INCLUSIVE OF THE EFFECT OF DISCONTINUED OPERATIONS AS FOLLOWS: NET INCOME
(LOSS) - $(3.9 MILLION) AND $967,000, IN 1998 AND 1997 RESPECTIVELY; DILUTED
EARNINGS PER SHARE $(0.08) AND $0.02, IN 1998 AND 1997, RESPECTIVELY.


                         21. SUPPLEMENTAL DISCLOSURES TO
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31 (IN THOUSANDS)                   1998            1997            1996
---------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>
Noncash transfers of held-to-maturity
  securities to available-for-sale securities ..... $ 153,813       $  92,738       $  22,659
Unrealized (loss) gain on
  available-for-sale securities ...................    12,267           6,765          (1,184)
Income taxes paid .................................    18,683          26,425          29,145
Interest paid .....................................   237,838         175,455         144,093
Commitments to purchase
  investment securities ...........................     1,529         340,457              --
</TABLE>

                          INDEPENDENT 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, 1998
and 1997, and the related consolidated statements of income, consolidated
statements of comprehensive income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. 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 did not audit the consolidated financial statements of Guardian
Bancorp, Western Bancshares of Las Cruces, Inc., and Community Bancorp, Inc.,
which statements, in aggregate, reflect total assets constituting 6% of the
related consolidated financial statement totals as of December 31, 1997, and net
income constituting 16% and 15% of the related consolidated financial statement
totals for the years ended December 31, 1997 and 1996, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to data included for Guardian
Bancorp, Western Bancshares of Las Cruces, Inc., and Community Bancorp, Inc. is
based solely on the report of the other auditors.

     We conducted our audits in accordance with generally accepted auditing
standards. 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 and the reports of other auditors provide a
reasonable basis for our opinion.

     In our opinion, based on our audits and the reports of other auditors, 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, 1998 and 1997 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ Ernst and Young LLP

Minneapolis, Minnesota
March 5, 1999



39

<PAGE>

CONSOLIDATED STATEMENT OF CONDITION FIVE YEAR SUMMARY
COMMUNITY FIRST BANKSHARES, INC.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 (IN THOUSANDS)                                       1998           1997          1996           1995           1994
--------------------------------------------------------------------------------------------------------------------------------
                                                                           (RESTATED)    (RESTATED)    (RESTATED)     (RESTATED)
<S>                                                      <C>             <C>           <C>            <C>            <C>
ASSETS
Cash and due from banks ................................ $   250,963     $   254,676   $   204,084    $   163,528    $   119,246
Federal funds sold and securities purchased under 
  agreement to resell ..................................         100          76,455        32,975         65,395         25,660
Interest-bearing deposits ..............................       5,067          12,131         7,492          5,532          8,610
Available-for-sale securities ..........................   1,980,530       1,539,922       546,174        513,810        258,206
Held-to-maturity securities:
   U.S. Treasury .......................................          --           1,536         2,537          2,942         73,947
   U.S. Government agencies ............................          --          19,780        16,690         12,777         61,362
   Mortgage-backed securities ..........................          --          82,357       103,027        124,358        193,495
   Collateralized mortgage-obligations .................          --              --            --              1         22,811
   State and political securities ......................          --          52,702        59,641         58,615         48,136
   Other ...............................................      69,906          65,616        79,551         67,018         14,082
                                                         -----------------------------------------------------------------------
      Total securities .................................   2,050,436       1,761,913       807,620        779,521        672,039
Loans ..................................................   3,386,142       3,024,322     2,395,165      2,058,152      1,575,271
   Less: Allowance for Loan Losses .....................     (50,173)        (40,045)      (30,165)       (25,906)       (20,414)
                                                         -----------------------------------------------------------------------
   Net loans ...........................................   3,335,969       2,984,277     2,365,000      2,032,246      1,554,857
Other assets ...........................................     360,437         364,683       189,235        163,795        114,505
                                                         -----------------------------------------------------------------------
   Total assets ........................................ $ 6,002,972     $ 5,454,135   $ 3,606,406    $ 3,210,017    $ 2,494,917
                                                         -----------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
   Noninterest-bearing ................................. $   547,703     $   705,315   $   531,245    $   492,943    $   399,272
   Interest-bearing ....................................   4,336,969       3,447,603     2,441,499      2,256,722      1,715,207
                                                         -----------------------------------------------------------------------
      Total deposits ...................................   4,884,672       4,152,918     2,972,744      2,749,665      2,114,479
Short-term borrowings ..................................     435,726         275,239       248,906         90,881        113,469
Long-term debt .........................................      93,472         124,529        54,758         89,681         46,523
Other liabilities ......................................      63,856         393,436        45,605         40,396         33,599
                                                         -----------------------------------------------------------------------
   Total liabilities ...................................   5,477,726       4,946,122     3,322,013      2,970,623      2,308,070
Company-obligated mandatorily redeemable  
   preferred securities of CFB Capital I and II ........     120,000         120,000            --             --             --
Shareholders' equity ...................................     405,246         388,013       284,393        239,394        186,847
                                                         -----------------------------------------------------------------------
   Total liabilities and shareholders' equity .......... $ 6,002,972     $ 5,454,135   $ 3,606,406    $ 3,210,017    $ 2,494,917
                                                         -----------------------------------------------------------------------
</TABLE>



                                                                             40

<PAGE>

                            CONSOLIDATED STATEMENT OF INCOME FIVE YEAR SUMMARY
                                               COMMUNITY FIRST BANKSHARES, INC.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 (IN THOUSANDS)                          1998            1997            1996          1995           1994
---------------------------------------------------------------------------------------------------------------------------------
                                                                          (RESTATED)       (RESTATED)    (RESTATED)     (RESTATED)
<S>                                                      <C>             <C>             <C>           <C>           <C>
INTEREST INCOME:
   Loans ............................................... $    323,315    $   258,859     $   218,307   $   180,987   $    127,873
   Investment securities ...............................      122,173         64,234          49,077        44,177         41,150
   Other ...............................................        3,756          3,426           2,814         3,130          1,971
                                                        -------------------------------------------------------------------------
      Total interest income ............................      449,244        326,519         270,198       228,294        170,994

INTEREST EXPENSE:
   Deposits ............................................      160,576        119,024          94,522        82,578         53,212
   Short-term and other borrowings .....................       19,576          9,465           9,359         6,398          4,219
   Long-term debt ......................................        8,332          6,051           4,880         5,448          3,240
                                                        -------------------------------------------------------------------------
      Total interest expense ...........................      188,484        134,540         108,761        94,424         60,671
                                                        -------------------------------------------------------------------------
Net interest income ....................................      260,760        191,979         161,437       133,870        110,323
Provision for loan losses ..............................       22,509          6,107           7,483         3,628          2,458
                                                        -------------------------------------------------------------------------
Net interest income after provision for 
   loan losses .........................................      238,251        185,872         153,954       130,242        107,865

NONINTEREST INCOME:
   Service charges on deposit accounts .................       30,266         21,059          16,031        13,785         12,156
   Insurance commissions ...............................        7,197          5,375           5,213         4,283          3,777
   Fees from fiduciary activities ......................        4,944          3,805           3,332         2,718          2,157
   Net gains on sales of securities ....................        1,801            466              93            25             89
   Other ...............................................       16,052         16,498          12,277        11,318          9,504
                                                        -------------------------------------------------------------------------
      Total noninterest income .........................       60,260         47,203          36,946        32,129         27,683

NONINTEREST EXPENSE:
   Salaries and employee benefits ......................      114,014         78,380          66,298        52,883         44,194
   Net occupancy .......................................       32,110         23,285          18,852        14,076         12,504
   FDIC insurance ......................................          686            381             675         2,736          3,953
   Professional service fees ...........................        9,520          5,161           4,786         4,935          4,432
   Amortization of intangibles .........................       10,366          5,550           3,433         2,636          1,961
   Data processing and loan servicing fees .............        4,640          1,782           1,842         2,015          1,259
   Company-obligated mandatorily redeemable
      preferred securities of CFB Cap I & II ...........       10,218          5,108              --            --             --
   Other ...............................................       48,538         30,306          30,094        23,350         20,717
                                                        -------------------------------------------------------------------------
      Total noninterest expense ........................      230,092        149,953         125,980       102,631         89,020
                                                        -------------------------------------------------------------------------
Income from continuing operations before 
   income taxes, cumulative effect of 
   accounting change, and extraordinary item ...........       68,419         83,122          64,920        59,740         46,528
Provision for income taxes .............................       21,448         24,811          23,398        21,790         17,761
                                                        -------------------------------------------------------------------------
Income from continuing operations before 
   cumulative effect of accounting change, 
   and extraordinary item ..............................       46,971         58,311          41,522        37,950         28,767
Discontinued operations ................................       (2,232)           967              --            --             --
Disposal of discontinued operations ....................       (1,676)            --              --            --             --
Extraordinary item .....................................           --           (265)             --            --             --
                                                        -------------------------------------------------------------------------
Net income ............................................. $     43,063    $    59,013     $    41,522   $    37,950   $     28,767
                                                        -------------------------------------------------------------------------
Preferred dividend .....................................           --             --           1,610         1,610          1,091
Net income applicable to common equity ................. $     43,063    $    59,013     $    39,912   $    36,340   $     27,676
                                                        -------------------------------------------------------------------------
Earnings per common and common equivalent share:
   Basic ............................................... $       0.91    $      1.36     $      1.01   $      0.98   $       0.75
   Diluted ............................................. $       0.90    $      1.32     $      0.97   $      0.93   $       0.72
Average common shares outstanding:
   Basic ...............................................   47,280,245     43,461,264      39,429,607    37,113,098     37,009,450
   Diluted .............................................   47,881,575     44,649,922      42,695,783    40,725,658     40,622,010
</TABLE>


                                                                            41

<PAGE>

QUARTERLY RESULTS OF OPERATIONS
COMMUNITY FIRST BANKSHARES, INC.


     The following is a summary of the quarterly results of operations for the
years ended December 31, 1998 and 1997 (in thousands, except per share and per
share data):

<TABLE>
<CAPTION>
                                                                                 FIRST        SECOND         THIRD        FOURTH
                                                                               QUARTER       QUARTER       QUARTER       QUARTER
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>           <C>          <C>
YEAR ENDED DECEMBER 31, 1998
Interest income .........................................................  $   104,142   $   112,005   $   118,004   $   115,093
Interest expense ........................................................       44,010        47,526        50,423        46,525
                                                                           -----------------------------------------------------
Net interest income .....................................................       60,132        64,479        67,581        68,568
Provision for loan losses ...............................................        1,752         4,204         4,826        11,727
                                                                           -----------------------------------------------------
Net interest income after provision for loan losses .....................       58,380        60,275        62,755        56,841
Net gains on sales of securities ........................................          481           504           354           462
Noninterest income ......................................................       13,711        15,519        15,512        13,717
Noninterest expense .....................................................       49,528        62,043        57,277        61,244
                                                                           -----------------------------------------------------
Income before income taxes ..............................................       23,044        14,255        21,344         9,776
Provision for income taxes ..............................................        6,277         3,972         7,950         3,249
                                                                           -----------------------------------------------------
Net income ..............................................................       16,767        10,283        13,394         6,527
                                                                           -----------------------------------------------------
Discontinued Operations:
   Income from operations and disposal of discounted operations
   (Less applicable income taxes) .......................................          (68)       (3,840)           --            --
                                                                           -----------------------------------------------------
Net income applicable to common equity ..................................  $    16,699   $     6,443   $    13,394   $     6,527
                                                                           -----------------------------------------------------
Earnings per common and common equivalent shares:
Basic income from continuing operations before extraordinary items ......  $      0.35   $      0.22   $      0.28   $      0.14
Discontinued operations .................................................         0.00         (0.08)         0.00          0.00
   Extraordinary item ...................................................         0.00          0.00          0.00          0.00
                                                                           -----------------------------------------------------
Basic net income ........................................................  $      0.35   $      0.14   $      0.28   $      0.14
                                                                           -----------------------------------------------------
Diluted income from continuing operations before extraordinary items ....         0.35          0.21          0.28          0.14
Discontinued operations .................................................         0.00         (0.08)         0.00          0.00
Extra ordinary item .....................................................         0.00          0.00          0.00          0.00
                                                                           -----------------------------------------------------
Diluted net income ......................................................         0.35          0.13          0.28          0.14
                                                                           -----------------------------------------------------
Average common and common equivalent shares:
   Basic ................................................................   47,304,562    47,343,247    47,288,475    47,187,425
   Diluted ..............................................................   48,041,294    47,981,284    47,830,937    47,675,516
</TABLE>

<TABLE>
<CAPTION>
                                                                                 FIRST        SECOND         THIRD        FOURTH
                                                                               QUARTER       QUARTER       QUARTER       QUARTER
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997                                                 (RESTATED)    (RESTATED)    (RESTATED)    (RESTATED)
<S>                                                                          <C>           <C>           <C>           <C>
Interest income .........................................................       69,183        72,504        88,807        96,025
Interest expense ........................................................       27,596        28,544        38,066        40,334
                                                                           -----------------------------------------------------
Net interest income .....................................................       41,587        43,960        50,741        55,691
Provision for loan losses ...............................................        1,372         2,643         1,913           179
                                                                           -----------------------------------------------------
Net interest income after provision for loan losses .....................       40,215        41,317        48,828        55,512
Net gains on sales of securities ........................................           (3)           70            59           340
Noninterest income ......................................................        9,596        12,526        13,178        11,437
Noninterest expense .....................................................       30,193        33,704        40,520        45,536
                                                                           -----------------------------------------------------
Income before income taxes and extraordinary item .......................       19,615        20,209        21,545        21,753
Provision for income taxes ..............................................        5,964         6,076         6,569         6,202
                                                                           -----------------------------------------------------
Income from continuing operations before extraordinary item .............       13,651        14,133        14,976        15,551
                                                                           -----------------------------------------------------
Discontinued Operations:
   Income from operations of discontinued operations
   (Less applicable income taxes) .......................................          681           611           229          (554)
                                                                           -----------------------------------------------------
Income before extraordinary item ........................................       14,332        14,744        15,205        14,997
Extraordinary item:
   Loss on extinguishment of debt, net of taxes .........................         (265)           --            --           --
                                                                           -----------------------------------------------------
Net Income applicable to common equity ..................................       14,067        14,744        15,205        14,997
                                                                           -----------------------------------------------------
Earnings per common and common equivalent share:
Basic income from continuing operations before extraordinary items ......  $      0.33   $      0.32   $      0.34  $       0.35
Discontinued operations .................................................         0.02          0.01          0.01         (0.01)
Extraordinary item ......................................................        (0.01)         0.00          0.00          0.00
                                                                           -----------------------------------------------------
Basic net income ........................................................  $      0.34   $      0.33   $      0.35  $       0.34
                                                                           -----------------------------------------------------
Diluted income from continuing operations before extraordinary items ....  $      0.31   $      0.32   $      0.34  $       0.34
Discontinued operations .................................................         0.02          0.01          0.01         (0.01)
Extraordinary item ......................................................        (0.01)         0.00          0.00          0.00
                                                                           -----------------------------------------------------
Basic net income ........................................................  $      0.32   $      0.33   $      0.35  $       0.33
                                                                           -----------------------------------------------------
Average common and common equivalent shares:
   Basic ................................................................   41,497,922    43,852,978    43,797,110    44,658,624
   Diluted ..............................................................   44,239,582    44,402,918    44,496,978    45,452,742
</TABLE>


                                                                           42

<PAGE>


CORPORATE INFORMATION

MARKET PRICE RANGE OF COMMON SHARES
The Company's common stock trades on the Nasdaq Stock Market-Registered
Trademark- under the symbol CFBX. The following table sets forth the high and
low sales prices for the Company's common stock during the periods indicated:

<TABLE>
<CAPTION>
---------------------------------------------------------
                         1998               1997
                   HIGH      LOW       High      Low
---------------------------------------------------------
<S>               <C>        <C>       <C>       <C>
First Quarter .... 27        23 1/2    16 1/8    13 11/16
Second Quarter ... 26 3/16   23 9/16   19 3/16   14 1/2
Third Quarter .... 27        16 1/2    24 9/16   18 3/8
Fourth Quarter ... 22 11/16  14 1/8    27 9/16   22 3/4
---------------------------------------------------------
</TABLE>

SHAREHOLDERS
As of February 18, 1999, the Company had 1,600 shareholders of record and an
estimated 9,000 additional beneficial holders whose stock was held in street
name by brokerage houses.

DIVIDEND POLICY
The Board of Directors has adopted a policy of declaring regular quarterly
dividends equal to approximately 25 percent of earnings. A dividend of eight
cents per share was paid for the first two quarters in 1997 and increased to
nine and one-half cents per share for the third and fourth quarters of 1997. A
dividend of 11 cents per share was paid for each quarter of 1998.