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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

|ý |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002, OR
|- |  | --------------------------------------------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  TO     

COMMISSION
FILE NUMBER:001-15215

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SPECTRUM BANCORPORATION, INC.(Exact name of registrant as specified in its charter)

|Iowa(State or other jurisdiction of incorporation or organization)                                         |  | 42 0867112(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|10834 Old Mill Road, Suite One, Omaha, NE 68154-2648(Address of principal executive offices)    (Zip Code)
|(402) 333-8330(Registrant's telephone number, including area code)                                        

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Securities
Registered Pursuant to Section 12(b) of the Act:

|Title of each class                                                      |  | Name of each exchange on which registered
|------------------------------------------------------------------------ |  | -----------------------------------------
|10.00% Cumulative Trust Preferred Securities of Spectrum Capital Trust I |  | American Stock Exchange                  
|9.75% Cumulative Trust Preferred Securities of Spectrum Capital Trust II |  | American Stock Exchange                  

Securities
Registered Pursuant to Section 12(g) of the Act:

NONE(Title of class)

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.
YES ý NO o

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

All
voting and non-voting common equity is held by affiliates of the registrant.

At
September 15, 2002, there were 125,132 shares of registrant's common stock outstanding.

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TABLE OF CONTENTS

|                           |  |          |  |                                                                                      |  | Page No.
|-------------------------- |  | -------- |  | ------------------------------------------------------------------------------------ |  | --------
|Forward-looking Statements |  | 3       
|Part I                     |  |          |  |                                                                                      |  |         
|                           |  | Item 1.  |  | Business                                                                             |  | 3       
|                           |  | Item 2.  |  | Properties                                                                           |  | 10      
|                           |  | Item 3.  |  | Legal Proceedings                                                                    |  | 10      
|                           |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                  |  | 10      
|Part II                    |  |          |  |                                                                                      |  |         
|                           |  | Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                |  | 11      
|                           |  | Item 6.  |  | Selected Financial Data                                                              |  | 11      
|                           |  | Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operation |  | 13      
|                           |  | Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                           |  | 33      
|                           |  | Item 8.  |  | Financial Statements and Supplementary Data                                          |  | 34      
|                           |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |  | 34      
|Part III                   |  |          |  |                                                                                      |  |         
|                           |  | Item 10. |  | Directors and Executive Officers of the Registrant                                   |  | 35      
|                           |  | Item 11. |  | Executive Compensation                                                               |  | 36      
|                           |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                       |  | 37      
|                           |  | Item 13. |  | Certain Relationships and Related Transactions                                       |  | 39      
|Part IV                    |  |          |  |                                                                                      |  |         
|                           |  | Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |  | 41      
|SIGNATURES                 |  | 44      

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FORWARD-LOOKING STATEMENTS

This report includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can include
words such as "may", "believe", "will", "anticipated", "estimated", "projected", "could", "should", "plan" or similar expressions. Forward-looking statements are based on management's current
expectations. Factors that might cause future results to differ from management's expectations include, but are not limited to: fluctuations in interest rates, inflation, the effect of regulatory or
government legislative changes, expected cost savings and revenue growth not fully realized, the progress of strategic initiatives and whether realized within expected time frames, general economic
conditions, adequacy of allowance for loan losses, costs or difficulties associated with restructuring initiatives, changes in accounting policies or guidelines, changes in the quality or composition
of the Company's loans and investment portfolios, technology changes and competitive pressures in the geographic and business areas where the Company conducts its operations.

These
risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning
the Company and its business, including other factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.

PART I

ITEM 1.    BUSINESS

THE COMPANY

Spectrum, a multi-bank holding company, offers full service community banking through 16 banking locations in Nebraska, 21 banking locations in South
Dakota, 22 banking locations in southern Iowa, and two banking locations in northern Missouri. Its Chairman, Deryl F. Hamann, acquired Spectrum in 1971; at that time it had a single bank
charter in Leon, Iowa with two locations. In 1974, Mr. Hamann acquired the parent company of F&M Bank, Watertown, South Dakota; the parent was merged into Spectrum on May 31, 1999.
Citizens Corporation, an affiliated bank holding company with six Iowa banking locations, was merged into Spectrum on August 7, 2000. On March 23, 2001, Great Western
Securities, Inc., the parent company of Great Western Bank, Omaha, Nebraska, was merged into Spectrum. Acquisitions of other banks and savings institutions have been made by each of the holding
companies on both strategic and opportunistic bases. Expansion also occurred through acquisition of offices of other financial institutions and de novo branching. See "Mergers and Acquisitions" for
additional information.

THE BANKS

Spectrum has six direct subsidiaries: Great Western Bank, Omaha, Nebraska; F&M Bank, Watertown, South Dakota; Rushmore Bank & Trust, Rapid City, South
Dakota; Citizens Bank, Mount Ayr, Iowa; Citizens Bank, Clive, Iowa; and Citizens Bank of Princeton, Princeton, Missouri. Each subsidiary bank is chartered by the state banking authorities of the state
in which its headquarters is located. See "Supervision and Regulation." The following table sets forth information regarding Spectrum's banks as of June 30, 2002:

|                           |  | Common Stock Ownership |  | Assets |         | Net Loans |   | Deposits
|-------------------------- |  | ---------------------- |  | ------ | ------- | --------- | - | --------
|
|Great Western Bank         |  | 100.0%                 |  | $      | 747,984 |           | $ | 572,821 
|F&M Bank                   |  | 95.6%                  |  |        | 583,968 |           |   | 409,203 
|Rushmore Bank & Trust      |  | 90.0%                  |  |        | 250,102 |           |   | 196,365 
|Citizens Bank, Mount Ayr   |  | 100.0%                 |  |        | 264,791 |           |   | 205,132 
|Citizens Bank, Clive       |  | 95.2%                  |  |        | 85,755  |           |   | 61,775  
|Citizens Bank of Princeton |  | 100.0%                 |  |        | 39,388  |           |   | 29,983  

SPECTRUM BANC SERVICE CORPORATION

Subsidiary banks (excluding Great Western Bank) own 100% of Spectrum Banc Service Corporation, which provides data processing and related services to its bank
owners.

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STRATEGIES

Growth.Spectrum intends to grow within its existing markets, to branch into or acquire financial institutions in existing
markets, and to branch into or acquire financial institutions in other markets consistent with its capital requirements and management abilities.

Spectrum
seeks opportunities to acquire banks at acceptable prices. Spectrum's operating strategy is to provide high quality community banking services to its customers and increase
market share through solicitation of new business, repeat business and referrals from customers, and selected promotional strategies.

Branch Activity.Citizens Bank, Clive closed its branch in Hartford, Iowa in August 2002. As of February 28,
2002, F&M Bank acquired First Western Bank, N.A., Atkinson, Nebraska ("First Western") and Marquette Bank Nebraska, N.A., O'Neill, Nebraska ("Marquette") for $17,484,000. At
February 28, 2002, First Western and Marquette had assets of $110,429,000, deposits of $99,589,000, net loans of $62,981,000 and stockholders' equity of $10,217,000. In April, 2002 F&M Bank
opened a branch in Milbank, South Dakota. Citizens Bank, Mt Ayr opened a branch in Creston, Iowa in April 2002. Rushmore Bank & Trust opened a Wal-Mart Store location in
October 2001 in Rapid City, South Dakota. F&M Bank relocated its Chamberlain, South Dakota branch to a newly constructed facility, which opened in August of 2001. Should Spectrum be unable to
acquire existing banks or other financial institutions at acceptable prices, it will continue to seek expansion through new branches or possibly by chartering new banks.

LENDING ACTIVITIES

Spectrum provides a broad range of commercial and retail lending services. Each of Spectrum's subsidiary banks has a written credit policy that addresses the
needs of its market. Spectrum's Iowa and Missouri banks have substantially uniform credit policies. All of the credit policies contain underwriting and loan administration criteria, including levels
of loan commitment, loan types, credit criteria, concentration limits, loan administration, loan review and grading and related matters.

Spectrum
is able to facilitate substantial credit requests, through the purchase and sale of participations among its subsidiary banks, as well as unaffiliated banks or other financial
institutions. As of June 30, 2002, approximately 87% of all loans and leases were to customers within Spectrum's market area.

Real Estate Loans.These include various types of loans for which Spectrum's banks hold real property as collateral. The
risks of real estate loans include the borrower's inability to pay and deterioration in value of real estate as collateral. Real estate loans include commercial and residential real estate
construction loans. Real estate construction loans are principally made to builders to construct business buildings or single and multi-family residences. These loans typically have maturities of 6 to
12 months and adjustable interest rates, and are subject to origination fees. Terms may vary depending upon many factors, including location, type of project and financial condition of the
builder. Real estate loans on commercial buildings and consumer single and multi family residency generally have terms of five years of less and bear fixed interest rates.

Commercial and Agricultural Loans.These consist of loans to businesses for various purposes, including revolving lines of
credit and equipment financing. The loans secured by collateral other than real estate or equipment, in most cases, mature within one year, have adjustable interest rates, and are typically secured by
inventory, accounts receivable, livestock, crops, machinery and other commercial or agricultural operating assets. Revolving lines of credit for business and agricultural purposes typically mature
annually.

Loans to Individuals.Loans to individuals, which are not secured by real estate, generally have terms of two to six years
and bear interest at fixed rates. These loans usually are secured by motor vehicles, investment securities, or other personal assets, and in some instances are unsecured.

Citizens
Bank, Mount Ayr has three regional loan committees, which meet weekly. Citizens Bank Princeton has a weekly joint loan committee meeting with one of the regional loan committees
of Citizens Bank Mount Ayr. Great Western Bank has a senior loan committee and loan committee that meet weekly. F&M Bank has regional loan committee meetings bi-weekly as required by loan
volume. Rushmore Bank & Trust has an executive loan committee that meets weekly.

Interest
rates charged on loans vary with the degree of risk, maturity, underwriting and servicing costs, loan amount and extent of other banking relationships maintained with customers
and are further subject to competitive pressures, money market rates, availability of funds and government regulations.

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In
the ordinary course of business, Spectrum's banks issue letters of credit. See Note 19 to Consolidated Financial Statements. Spectrum's banks apply the same credit standards to
those commitments as they use in direct lending activities and have included these commitments in its lending risk evaluations. Spectrum's exposure to credit loss under letters of credit is
represented by the amount of those commitments.

Under
applicable federal and state law, permissible loans to one borrower after June 30, 2002, were limited to $10,457,533 for Great Western Bank, $7,572,611 for F&M Bank,
$3,451,842 for Rushmore Bank & Trust, $4,206,986 for Citizens Bank, Mount Ayr, $1,886,964 for Citizens Bank, Clive and $1,089,838 for Citizens Bank of Princeton. Certain exceptions, depending
on the laws of the four respective states in which the Banks operate, increase the loan limit to one borrower for loans secured by readily marketable securities and certain readily marketable
agricultural assets.

COMPETITION

The banking and financial services industry is highly competitive and undergoing rapid consolidation. Within the market area of Spectrum's banks, numerous
commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, investment firms and private lenders compete with the banks for deposits and loans. Many of these
competitors have significantly greater resources than Spectrum, including higher lending limits and more extensive financial, technical and marketing resources.

The
Financial Modernization Act, also known as the Gramm-Leach-Bliley Act, enacted in November 1999, affects competition between financial institutions. This act significantly
revised the laws regulating banks and bank holding companies and other providers of financial services, enabling bank holding companies and foreign banks that meet applicable statutory
requirementsdefined as financial holding companiesto engage in a broader range of services and to compete more efficiently in existing business lines. The Gramm-Leach-Bliley
Act authorizes financial holding companies to engage in securities, insurance, and other activities that are financial in nature or that do not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. As of June 30, 2002, Spectrum had not elected to convert to a financial holding company, but reserves this right under the new rule.
At this time, the management of Spectrum cannot currently predict the full impact of the enactment of the Gramm-Leach-Bliley Act on Spectrum.

EMPLOYEES

As of the August 31, 2002, Spectrum had approximately 709 full-time equivalent employees. Management considers its relationship with its
employees to be good.

SUPERVISION AND REGULATION

Spectrum and its subsidiary banks are extensively regulated under federal and state laws. These laws and regulations are primarily intended to protect depositors
and the deposit insurance fund of the FDIC, not securities holders of Spectrum. The following information is qualified in its entirety by reference to the particular statutory and regulatory
provisions. Any change in applicable laws, regulations or regulatory policies may have a material effect on the business, operations and prospects of Spectrum and its banks. Spectrum is unable to
predict the
nature or extent of the effects that fiscal or monetary policies, economic controls or new federal or state legislation may have on its business and earnings in the future.

The
Gramm-Leach-Bliley Act preserves the role of the Federal Reserve as the umbrella supervisor for holding companies while at the same time incorporating a system of functional
regulation designed to take advantage of the strengths of the various federal and state regulators. In particular, the Act replaces the broad exemption from Securities and Exchange Commission
regulation that banks previously enjoyed with more limited exemptions, and it reaffirms that states are the regulators for the insurance activities of all persons, including federally chartered banks.
The Gramm-Leach-Bliley Act also establishes a minimum federal standard of financial privacy. In general, the applicable federal regulations prohibit affected financial institutions (including banks,
insurance agencies and broker/dealers) from sharing information about their customers with non-affiliated third parties unless (1) the financial institution has first provided a
privacy notice to the customer; (2) the financial institution has given the customer an opportunity to opt out of the disclosure; and (3) the customer has not opted out after being given
a reasonable opportunity to do so. Compliance with the notice and other requirements under the regulations was required by July 1, 2001.

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Recent regulatory developments.The terrorists' attacks in September 2001 have impacted the financial services
industry and have already led to federal legislation that attempts to address certain related issues involving financial institutions. On October 26, 2001, President Bush signed into law the
Uniting and Strengthening America by Providing Appropriate Tools Required to intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act"). Among its other provisions, the USA PATRIOT Act
requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls with respect to its
private banking accounts involving foreign individuals and certain foreign banks; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United
States for, or on behalf of, foreign banks that do not have a physical presence in any country. The USA PATRIOT Act also requires the Secretary of the Treasury to prescribe, by regulations to be
issued jointly with the federal banking regulators and certain other agencies, minimum standards that financial institutions must follow to verify the identity of customers, both foreign and domestic,
when a customer opens an account. In addition, the USA PATRIOT Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities
with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. Most specific changes take effect
October 25, 2002. At this time, the company is unable to determine whether the provisions of the USA PATRIOT Act will have a material impact on the business of the Company and its subsidiaries.

SPECTRUM

General.Spectrum is a bank holding company registered under the Bank Holding Company Act of 1956 and is subject to
regulation, supervision and examination by the Federal Reserve. Spectrum is required to file an annual report and other reports as the Federal Reserve now requires or may require.

Acquisitions.As a bank holding company, Spectrum is required to obtain the prior approval of the Federal Reserve before
acquiring direct or indirect ownership or control of more than 5% of the voting shares of a bank or bank holding company. The Federal Reserve will not approve any acquisition, merger or consolidation
that would have
a substantial anti-competitive result, unless the anti-competitive effects of the proposed transaction are outweighed by a greater public interest in meeting the needs and
convenience of the public. The Federal Reserve also considers managerial, capital and other financial factors in acting on acquisition or merger applications.

Permissible Activities.Subject to limited exceptions, a bank holding company may not engage in, or acquire direct or
indirect control of more than 5% of the voting shares of any company engaged in a non-banking activity, unless this activity has been determined by the Federal Reserve to be closely
related to banking or managing banks. The Federal Reserve has identified specific non-banking activities in which a bank holding company may engage with notice to, or prior approval by,
the Federal Reserve.

Capital Adequacy.The Federal Reserve monitors the regulatory capital adequacy of bank holding companies. As discussed below,
Spectrum's banks are also subject to the regulatory capital adequacy requirements of the FDIC and Nebraska, South Dakota, Iowa and Missouri regulations, as applicable. The Federal Reserve uses a
combination of risk-based guidelines and leverage ratios to evaluate the regulatory capital adequacy of Spectrum.

The
Federal Reserve has adopted a system using risk-based capital adequacy guidelines to evaluate the regulatory capital adequacy of bank holding companies on a consolidated
basis. Under the risk-based capital guidelines, different categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk
weights are multiplied by corresponding asset balances to determine a risk-weighted asset base. Some off balance sheet items, such as loan commitments in excess of one year, mortgage loans
sold with recourse and letters of credit, are added to the risk-weighted asset base by converting them to a balance sheet equivalent and assigning to them the appropriate risk weight. For
purposes of the regulatory risk-based capital guidelines, total capital is defined as the sum of core and supplementary capital elements, with supplementary capital being limited to 100%
of core capital. For bank holding companies, core capital, also known as Tier I capital, generally includes common stockholders' equity, perpetual preferred stock and minority interests in
consolidated subsidiaries less the unamortized balance of intangible assets. No more than 25% of core capital may be comprised of cumulative preferred stock including the Trust Preferred Securities of
its subsidiaries. Supplementary capital, also known as Tier II capital, generally includes certain forms of perpetual preferred stock and cumulative preferred stock not included in core
capital, as well as maturing capital instruments, and the allowance for loan losses limited to 1.25% of risk-weighted assets. The regulatory guidelines require a minimum ratio of total
capital to risk-weighted assets of 8% to be adequately capitalized, of which at least 4% should be in the form of core capital.

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At
June 30, 2002, Spectrum's core or Tier I capital was $96,618,000.

In
addition to the risk-based capital guidelines, the Federal Reserve and the FDIC use a leverage ratio as an additional tool to evaluate the capital adequacy of banks and
bank holding companies. The leverage ratio is defined to be a company's core capital divided by its average tangible assets. Based upon the current capital status of Spectrum, the applicable minimum
required leverage ratio is 4%.

The
table below presents Spectrum's applicable regulatory capital ratios at June 30, 2002:

At June 30, 2002Ratio

Actual

Minimum RequiredTier I Capital to Average Assets

5.00%

4.00%Tier I Capital to Risk-Weighted Assets

6.21%

4.00%Total Capital to Risk-Weighted Assets

10.56%

8.00%


Failure
to meet the regulatory capital guidelines may result in the initiation by the Federal Reserve of appropriate supervisory or enforcement actions. All three of Spectrum's capital
ratios were above the minimum required as of June 30, 2002.

THE BANKS

General.Spectrum owns six banks: Great Western Bank, Omaha, Nebraska, a Nebraska banking corporation with 14 banking
locations; F & M Bank, Watertown, South Dakota, a South Dakota banking corporation with 17 banking locations; Rushmore Bank & Trust Co., Rapid City, South Dakota, a South Dakota banking
corporation with six banking locations; Citizens Bank, Mount Ayr, Iowa, an Iowa banking corporation with 19 banking locations; Citizens Bank, Clive, Iowa, an Iowa corporation with three banking
locations; and Citizens Bank of Princeton, Princeton, Missouri, a Missouri banking corporation with two banking locations. The deposits of each bank are insured by the FDIC and the banks are subject
to supervision and regulation by the FDIC. In addition, Great Western Bank is regulated by the Nebraska Department of Banking and Finance, the South Dakota banks are regulated by the South Dakota
Division of Banking, the Iowa banks are regulated by the Iowa Division of Banking, and Citizens Bank of Princeton is regulated by the Missouri Division of Finance.

Permissible Activities.No state bank may engage in any activity not permitted for national banks, unless the institution
complies with applicable capital requirements and the FDIC determines that the activity poses no significant risk to its Bank Insurance Fund. None of Spectrum's banks is presently involved in the
types of activities covered by this limitation. Under the Financial Modernization Act and rules adopted pursuant thereto, banks may create financial subsidiaries to engage in activities that are
"financial in nature." None of Spectrum's bank subsidiaries have elected to do so, but may do so in the future.

Community Reinvestment Act.Enacted in 1977, the federal Community Reinvestment Act has become important to financial
institutions, including their holding companies. This allows regulators to turn down an applicant seeking to make an acquisition or establish a branch unless it has performed satisfactorily under this
act. Satisfactory
performance means meeting adequately the credit needs of the communities the applicant serves. The applicable federal regulators regularly conduct examinations to assess the performance of financial
institutions. During their last examinations, ratings of satisfactory or outstanding were received by each of Spectrum's banks. As a result, management believes that the banks' performance under the
act will not impede regulatory approvals of any proposed acquisitions or branches.

Dividend Restrictions.Dividends paid by Spectrum's banks provide substantially all of the operating and investing cash flow
of Spectrum. Spectrum's banks are subject to legal limitations on the frequency and amount of dividends that may be paid to Spectrum. Under South Dakota and Nebraska law, the approval of the principal
regulator is required prior to the declaration of any dividend by a bank if the total of all dividends declared in any calendar year exceeds the total of its net profits of that year to date combined
with its retained net profits for the preceding two years. Under Iowa law, a bank may declare and pay dividends only out of undivided profits and only if not restricted by the principal regulator. The
Iowa principal regulator requires that Iowa state banks maintain an adjusted equity capital ratio of not less than 6.5% of adjusted assets plus a fully funded allowance for loan losses unless a lower
ratio is approved by the principal regulator. An Iowa state bank operating below the minimum requirement would be subject to immediate dividend restriction; a request for immediate capital injection
and/or a possible cease and desist order. Citizens Bank, Clive has committed to maintain a ratio for Tier I capital to average assets of not less than 8 percent until
August 1st, 2004, due to the fact that the bank

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relocated its principal place of business from Carlisle, Iowa, to Clive, Iowa. Under Missouri law, a bank may not pay dividends that would impair capital. The Missouri principal regulator generally
requires that Missouri state banks maintain equity capital of not less than 6% of assets. The Nebraska principal regulator requires a total capital to asset ratio of 6%, excluding intangibles other
than purchased mortgage servicing rights. At least 5.5% must be primary capital which includes all equity capital accounts plus allowances for loan and lease losses. In addition, either the applicable
state banking regulator or the FDIC has the power to prohibit Spectrum's banks from paying dividends if such payments would constitute unsafe or unsound banking practices or cause the bank to be
undercapitalized.

Examinations.Spectrum's banks are examined from time to time by the FDIC. Based upon an evaluation, the examining regulator
may revalue the assets of an insured institution and require that it establish specific reserves to compensate for the difference between the value determined by the regulator and the book value of
Spectrum's assets. The state bank regulators also conduct examinations of state-chartered banks. State bank regulators may accept the results of a federal examination in lieu of conducting an
independent examination. South Dakota, Iowa, Nebraska and Missouri regulators have the authority to revalue the assets of a state-chartered institution and require it to establish reserves.

Capital Adequacy.The FDIC has adopted regulations establishing minimum requirements for the capital adequacy of insured
institutions. The requirements address both risk-based capital and leverage capital, with risk-based assets and core and supplementary capital being determined in essentially
the same manner as described above for bank holding companies. The FDIC may establish higher minimum requirements if, for example, a bank has previously received special attention or has a high
susceptibility to interest rate risk.

The
FDIC risk-based capital guidelines require state non-member banks to have a minimum ratio of core capital to total risk-weighted assets of 4% and
a minimum ratio of total capital to total risk-weighted assets of 8%.

The
FDIC leverage guidelines require that state banks maintain core capital of no less than 3% and up to 5% of total tangible assets. The applicable guideline for Spectrum's banks is
estimated to be 4%. Banks with regulatory capital ratios below the required minimum are subject to administrative actions, including the termination of
deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.

The
table below presents the regulatory capital ratios of the Spectrum subsidiary banks at June 30, 2002:

|                                       |  | At June 30, 2002
|-------------------------------------- |  | ----------------
|
|Tier I capital to average assets       |  | 8.44%           
|Tier I capital to risk-weighted assets |  | 9.83%           
|Total capital to risk-weighted assets  |  | 11.08%          

Banking
regulators have adopted regulations that define five capital levels: well capitalized, adequately capitalized, undercapitalized, severely undercapitalized and critically
undercapitalized. An institution is critically undercapitalized if it has a tangible equity to total assets ratio that is equal to or less than 2%. An institution is well capitalized if it has a total
risk-based capital ratio of 10% or greater, Tier I risk-based capital ratio of 6% or greater, and a Tier I capital leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. An
institution is adequately capitalized if it has a total risk-based capital ratio of not less than
8%, a Tier I risk-based capital ratio not less than 4% and a leverage ratio of not less than 4%. Under these regulations, as of June 30, 2002, the Spectrum banks were above
well capitalized minimum ratios.

Federal
regulations require the federal banking regulators to take prompt corrective action to resolve the problems of depository institutions, including capital-deficient institutions.
In addition to requiring the submission of a capital restoration plan, the regulations contain broad limits on activities of institutions which are less than adequately capitalized, involving asset
growth, acquisitions, branch establishment, and expansion into new lines of business. With limited exceptions, an insured depository institution is prohibited from making capital distributions,
including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any distribution or payment.

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As
an institution's capital decreases, the powers of the federal regulators become greater. An undercapitalized or severely undercapitalized institution is subject to mandated capital
raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management, and other restrictions. The regulators have limited discretion in dealing with a
critically undercapitalized institution and are virtually required to appoint a receiver or conservator if the capital deficiency is not corrected promptly.

Real Estate Lending Evaluations.The federal regulators have adopted uniform standards for evaluations of loans secured by
real estate or made to finance improvements to real estate. Banks are required to establish and maintain written internal real estate lending policies consistent with safe and sound banking practices
and appropriate to the size of the institution and the nature and scope of its operations. The regulations establish loan to value ratio limitations on real estate loans. Spectrum's bank loan policies
establish limits on loan to value ratios that are equal to or less than those established in such regulations.

Interstate Banking Legislation.Federal legislation effective September 1995, eliminated many of the historical
barriers to the acquisition of banks by out-of-state bank holding companies. This law facilitates the interstate expansion and consolidation of banking organizations by
permitting: (1) bank holding companies that are adequately capitalized and managed to acquire banks located in states outside their home states regardless of whether acquisitions are authorized
under the laws of the host state; (2) the interstate merger of banks, subject to the right of individual states either to pass legislation providing for earlier effectiveness of mergers or to
opt out of this authority after June 1, 1997; (3) banks to establish new branches on an interstate basis provided that this action is specifically authorized by the law of the host
state; (4) foreign banks to establish, with approval of the appropriate regulators in the United States, branches outside their home states to the same extent that national or state banks
located in that state would be authorized to do so; and (5) banks to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as
agent for any bank or thrift affiliate, whether the affiliate is located in the same or different state. In August 2001, each of Spectrum's subsidiary banks executed an agency agreement
appointing each of the other subsidiary banks as its agent to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations to the full extent
permitted by applicable law and regulation.

Financial Modernization Act (Gramm-Leach-Bliley Act).Banks that elect to create "financial subsidiaries" may engage in
activities that are financial in nature, including:



None
of Spectrum's bank subsidiaries have elected to create financial subsidiaries.

CHANGING REGULATORY STRUCTURE

The laws and regulations affecting banks and bank holding companies are in a state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar changes will continue in the future. It is not possible to predict the outcome of these changes.

One
of the major additional burdens imposed on the banking industry is the increased authority of federal agencies to regulate the activities of federal and state banks and their holding
companies. The Federal Reserve,

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the Comptroller of the Currency and the FDIC have extensive authority to police unsafe or unsound practices and violations of applicable laws and regulations by depository institutions and their
holding companies. These agencies can assess civil money penalties. Other laws such as Sarbanes-Oxley Act of 2002 have expanded the
agencies' authority in recent years, and the agencies have not yet fully tested the limits of their powers. In addition, the South Dakota Division of Banking, Iowa Division of Banking, Nebraska
Department of Banking and Finance and Missouri Division of Finance, possess broad enforcement powers to address violations of their banking laws by banks chartered in their respective states.

ECONOMIC ENVIRONMENT

The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the Federal Reserve to affect the money supply are open market operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

The
Federal Reserve's monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of
future monetary policies and the effect of these policies on the business and earnings of Spectrum and its subsidiaries cannot be predicted.

ITEM 2.    PROPERTIES

The offices of Spectrum are located in a leased one-story building located at 10834 Old Mill Road, Suite One, Omaha, Nebraska 68154. Spectrum, through
its subsidiaries, currently operates 61 banking offices and one leasing office.

At
June 30, 2002, Spectrum, through its subsidiaries, owned the buildings for 48 of its branch offices and leased the remaining 13 offices. With only one exception, a branch of
Citizens Bank, Mt Ayr being leased from Spectrum, all leased properties are leased from unaffiliated third parties. We believe each of our facilities is in good condition, adequately covered by
insurance and sufficient to meet the needs at that location for the foreseeable future.

ITEM 3.    LEGAL PROCEEDINGS

Spectrum and its subsidiary banks are from time to time parties to various legal actions arising in the normal course of business. Management of Spectrum believes
there is no proceeding threatened or pending against Spectrum or its subsidiary banks, which, if determined adversely, would have a material adverse effect on the financial condition or results of
operations of Spectrum.

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

No matter was submitted to a vote of security holders, through solicitation of proxies or otherwise, during the quarter ending June 30, 2002.

10

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PART II

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

Market Information and Holders.There is no established public trading market for any class of common equity of Spectrum or
any of its subsidiaries.

As
of September 15, 2002, there were 125,132 shares of common stock issued and outstanding that were held by approximately 23 shareholders of record.

Common
stock dividends declared for fiscal year 2002 totaled $751,000, or $6.00 per common share, compared to $1,493,000 or $18.01 per common share in fiscal year 2001. The 2001 dividend
included $1,200,000 in the form of a note payable. In fiscal year 2000 dividends of $985,000, or $12.45 per common share were declared. For information regarding the payment of future dividends and
any possible restrictions see "Dividend Restrictions" under Item 1.

Frequency
(quarterly) and amount of cash dividends per common share declared were as follows:

Year ended June 30, 2002First

Second

Third

FourthCash dividends declared

1.50

1.50

1.50

1.50


Year ended June 30, 2001First

Second

Third

FourthCash dividends declared

0.70

0.70

0.00

1.50


On
March 23, 2001, Spectrum issued 46,319 shares of its common stock and 100,000 shares of its Series 3 variable rate nonvoting, noncumulative perpetual preferred stock in
the merger of Great Western Securities, Inc. into Spectrum. Such shares of common stock were issued to existing stockholders of Spectrum who were holders of one-half of the
outstanding shares of common stock of Great Western Securities, Inc. Such shares of preferred stock were issued to Jack K. Harvey, holder of all of the outstanding preferred stock and
one-half of the outstanding shares of the common stock of Great Western Securities, Inc. No underwriters were involved in the transaction. The issuance was made in a transaction
exempt from the requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to Section 4 (2) thereof.

On
August 7, 2000 Spectrum issued 7,584 shares of its common stock in exchange for all outstanding common stock of Citizens Corporation ("Citizens") and assumption of $1,200,000
Capital Notes to existing Spectrum stockholders. Its subsidiary, Citizens Bank, Chariton, Iowa was merged into Spectrum's subsidiary, Citizens Bank, Mt. Ayr, Iowa. No cash proceeds were generated from
the issuance.

ITEM 6.    SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data for Spectrum for each of the years in the five-year period ended June 30,
2002. The data set forth below includes the accounts of Iowa State Bank, Hamburg, Iowa and United National Bank of Iowa, Sidney, Iowa from August 1, 2000, the effective date of acquisition of
those
banking subsidiaries of Hamburg Financial, Inc., the accounts of Great Western Bank, Omaha, Nebraska from March 23, 2001, the effective date of acquisition of that banking subsidiary of
Great Western Securities, the accounts of Founders Trust National Bank, Sioux Falls, South Dakota ("Founders") from March 31, 2001, the date of acquisition of Founders and the accounts of First
Western Bank, N.A., Atkinson, Nebraska ("First Western") and Marquette Bank Nebraska, N.A., O'Neill, Nebraska ("Marquette") from February 28, 2002, the date of acquisition of
First Western and Marquette. The completed acquisitions were accounted for under the purchase method of accounting. The following table should be read in conjunction with the consolidated financial
statements of Spectrum and the notes thereto appearing elsewhere in this report and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operation."

The
merger of Spectrum and Citizens Corporation on August 7, 2000 has been accounted for at historical cost in a manner similar to a pooling-of-interests
combination and, accordingly, the consolidated financial statements prior to the combination have been restated to include the accounts and results of operations of

11

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Spectrum and Citizens Corporation. See "Related Party Transactions." The Selected Consolidated Financial Data below takes into account this restatement.

|                                                                                                                          |  | At or for the year ended June 30, |          
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ---------
|
|
|Consolidated statements of income:                                                                                        |  |                                   |          
|Interest income                                                                                                           |  | $                                 | 127,915  
|Interest expense                                                                                                          |  |                                   | 60,181   
|Net interest income                                                                                                       |  |                                   | 67,734   
|Provision for loan losses                                                                                                 |  |                                   | 6,067    
|Other income                                                                                                              |  |                                   | 21,897   
|Other expenses                                                                                                            |  |                                   | 62,318   
|Income taxes                                                                                                              |  |                                   | 7,393    
|Minority interest in earnings of subsidiaries                                                                             |  |                                   | 636      
|Net income                                                                                                                |  |                                   | 13,217   
|Per common share data:                                                                                                    |  |                                   |          
|Earnings per share                                                                                                        |  | $                                 | 98.36    
|Dividends                                                                                                                 |  |                                   | 6.00     
|Tangible book value per share(1)                                                                                          |  |                                   | 393.63   
|Consolidated balance sheets:                                                                                              |  |                                   |          
|Assets                                                                                                                    |  | $                                 | 2,012,157
|Loans, net of unearned income(2)                                                                                          |  |                                   | 1,496,200
|Allowance for loan losses                                                                                                 |  |                                   | 20,344   
|Deposits                                                                                                                  |  |                                   | 1,635,967
|Long term notes payable                                                                                                   |  |                                   | 123,157  
|Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures. |  |                                   | 48,000   
|Nonperforming assets                                                                                                      |  |                                   | 19,960   
|Stockholders' equity                                                                                                      |  |                                   | 110,163  
|Key ratios:                                                                                                               |  |                                   |          
|Net interest margin(3)                                                                                                    |  |                                   | 4.01     
|Return on average assets                                                                                                  |  |                                   | 0.71     
|Return on average stockholders' equity                                                                                    |  |                                   | 12.76    
|Nonperforming loans to loans, net of unearned income                                                                      |  |                                   | 1.17     
|Net loans charged-off to average loans                                                                                    |  |                                   | 0.41     
|Dividend payout ratio                                                                                                     |  |                                   | 6.10     
|Allowance for loan losses to loans, net of unearned income                                                                |  |                                   | 1.36     
|Allowance for loan losses to nonperforming loans                                                                          |  |                                   | 116.49   
|Tier I risk-based capital                                                                                                 |  |                                   | 6.21     
|Total risk-based capital                                                                                                  |  |                                   | 10.56    
|Tier I leverage ratio                                                                                                     |  |                                   | 5.00     
|Stockholders' equity to assets                                                                                            |  |                                   | 5.47     
|Ratio of earnings to fixed charges(4):                                                                                    |  |                                   |          
|Including interest on deposits                                                                                            |  |                                   | 1.32     
|Excluding interest on deposits                                                                                            |  |                                   | 2.33     

---

12

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following is management's discussion and analysis of the financial condition and results of the operation of Spectrum. It is intended to explain certain
financial information regarding Spectrum and should be read in conjunction with the Consolidated Financial Statements, related Notes, and the Five Year Summary of Selected Data included in this
report.

CRITICAL ACCOUNTING POLICIES

The "Management's Discussion and Analysis of Financial Condition and Results of Operations," and disclosures included within this Form 10-K
Annual Report, are based on the Company's audited consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On
an ongoing basis, management evaluates the estimates used, including the adequacy of allowances for loan losses, valuation of mortgage servicing rights and intangibles. Estimates are based upon
historical experience, current economic conditions and other factors that management considers reasonable under the circumstances. These estimates result in judgments regarding the carrying values of
assets and liabilities where these values are not readily available from other sources as well as assessing and identifying the accounting treatments of commitments and contingencies. Actual results
may differ from these estimates under different assumptions or conditions. The Company's significant accounting policies are described in the "Notes to Consolidated Financial Statements" under "Nature
of Business and Significant Accounting Policies". Three of the Company's more critical accounting policies involve the more significant judgments and assumptions used in the preparation of the
consolidated financial statements, these are related to the allowance for loan losses, mortgage servicing rights and intangibles.

Provision and allowance for loan losses.The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. The Company has policies and procedures for
evaluating the overall credit quality of its loan portfolio including timely identification of potential problem credits. On a quarterly or more frequent basis, management reviews the appropriate
level for the allowance for loan losses. This review and analysis is based on the results of:



To
the extent actual results differ from forecasts and management's judgment the allowance for loan losses may be greater or less than future charge-offs.

Mortgage servicing rights.Mortgage servicing rights are established based on the cost of acquiring the right to service
mortgage loans. These costs are initially capitalized and then amortized in proportion to, and proportionately over the period of estimated future net servicing income based on the ratio of net
servicing income received in the current period to total net servicing income projected to be realized from the mortgage servicing rights. Projected net servicing income is determined on the basis of
the future balances of loans after scheduled loan amortization and estimated prepayments. An independent outside company estimates for the Company future prepayment rates based on relevant
characteristics of the servicing portfolio, such as loan types,

13

---

interest rate stratification and recent prepayment experience, as well as current rate levels, market forecasts and other economic conditions.

The
Company reports mortgage servicing rights at the lower of amortized cost or fair value. The carrying value of mortgage servicing rights is adjusted by estimated impairment losses.
The fair value of mortgage servicing rights is determined based on the present value of estimated expected future cash flows, using assumptions as to current market discount rates and prepayment
speeds. Mortgage servicing rights are stratified by loan type and interest rate for purposes of impairment measurement. Loan types include fixed-rate, balloon government, conventional and
adjustable-rate mortgage loans. See Note 8 to the consolidated financial statements. Impairment losses are recognized in the following manner:

Intangibles.Intangible assets consist of goodwill, core deposit intangibles, an unidentifiable intangible asset (related to
a branch acquisition), and client listing and franchise costs. Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired in the purchase of subsidiaries.
Core deposit intangible represents the identifiable intangible value assigned to core deposit bases arising from purchase acquisitions. The unidentifiable intangible asset represents the excess of
liabilities assumed over the fair value of net assets acquired in a purchase of a failed financial institution. Client listing intangible represents the identifiable intangible value assigned to a
client listing arising from a purchase acquisition. Franchise intangible represents a contractual arrangement under which the franchiser grants the franchisee the right to perform certain functions
within a designated geographical area.

Goodwill
is tested for impairment at least annually. Other intangible assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset is
not recoverable.

MERGERS AND ACQUISITIONS

On May 31, 1999, Decatur Corporation became the surviving corporation in a merger of its affiliated bank holding companies, Spectrum
Bancorporation, Inc. and Rushmore Financial Services, Inc. Decatur then changed its name to Spectrum Bancorporation, Inc. but retained its Iowa charter to facilitate acquisitions
within that state. The merger has been accounted for at historical cost in a manner similar to a pooling-of-interests combination and, accordingly, the consolidated financial
statements prior to the combination have been restated to include the accounts and results of operations of Spectrum.

On
March 27, 1998, Spectrum acquired all of the outstanding shares of First Savings & Loan Association of South Dakota, Inc., Aberdeen, South Dakota. First Savings
was merged into F&M Bank, a subsidiary bank of Spectrum.
Assets of $16,999,000, loans, net of unearned fees of $14,016,000 and deposits of $14,085,000 were acquired in connection with the merger.

On
January 14, 2000, Spectrum chartered Citizens Bank, Carlisle, Iowa, which purchased certain assets and assumed certain deposits of the failed Hartford-Carlisle Savings Bank. In
addition to the main office in Carlisle, the bank acquired facilities in Hartford and Runnells, Iowa. On December 26, 2000, the bank moved its main office from Carlisle to Clive, Iowa, a suburb
of Des Moines. In August 2002, the bank closed the Hartford office. Liquid assets of $4,800,000; loans, net of unearned fees of $34,539,000, and deposits of $70,465,000 were acquired in
connection with the purchase and assumption. Spectrum owns 95.24% of the stock of this bank. The newly chartered state bank was capitalized with $10.5 million in capital; the purchase included
a $5.5 million premium paid to the FDIC. The acquisition was accounted for in a manner similar to a purchase and the deposit premium was allocated to goodwill. A major reason for this
acquisition was the proximity of this bank's offices to the Des Moines market, and the ability to branch.

On
July 13, 2000, Spectrum's subsidiary, Citizens Bank, Mt. Ayr purchased the assets and assumed the liabilities of the branch of Commercial Federal Bank, FSB located in
Kellerton, Iowa. A premium of approximately $175,000 was paid to acquire deposits of approximately $3,300,000.

14

---

As
of August 7, 2000, Spectrum acquired all of the outstanding shares of Hamburg Financial, Inc. ("HFI"), an unaffiliated holding company that owned two banks in
southwestern Iowa. Spectrum paid $8,730,995 in cash which included a premium of $2,236,123 to acquire HFI and its subsidiaries; Thurman State Corporation, a second-tier holding company
which owned the United National Bank of Iowa, headquartered in Sidney, Iowa; and Iowa State Bank, headquartered in Hamburg, Iowa. Deposits of $56,196,000 and loans of $48,989,000 were acquired. The
transaction was accounted for as a purchase. HFI and Thurman State Corporation were merged into Spectrum. HFI's bank subsidiaries were merged into Spectrum's subsidiary bank, Citizens Bank, Mt. Ayr.

On
August 7, 2000, Spectrum acquired all of the outstanding shares of Citizens Corporation ("Citizens"), an affiliated one-bank holding company that owned Citizens
Bank, Chariton, Iowa. Spectrum exchanged 7,584 newly issued shares of common stock for all 4,628 outstanding shares of Citizens, and assumed a $1,200,000, 10.00% capital note payable. Citizens Bank,
Chariton, Iowa was merged into Spectrum's subsidiary, Citizens Bank, Mt. Ayr. Deposits of $60,382,514 and loans of $52,472,988 were acquired. Since the entities were under common control, the merger
has been accounted for at historical cost in a manner similar to pooling-of-interests and, accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of both entities. The results of operations previously reported by the separate entities and the combined amounts presented in the
accompanying consolidated financial statements (in thousands) are summarized below.

Year Ended
June 30, 2000Interest income:Spectrum Bancorporation, Inc. and Subsidiaries

$
55,572Citizens Corporation and Subsidiary


5,791Combined

$
61,363Net income:Spectrum Bancorporation, Inc. and Subsidiaries

$
7,586Citizens Corporation and Subsidiary(1)


1,558Combined

$
9,144


---

On
March 23, 2001, Spectrum acquired Great Western Securities ("GWS") for $58,348,384 in cash and by issuing 46,319 shares of common stock and $10,000,000 in nonvoting,
non-cumulative perpetual preferred stock. The common stock was issued to existing shareholders in Spectrum for their 50% interest in GWS. The remaining portion was purchased from an
unrelated party. The acquisition has been accounted for as a purchase and results of operation of GWS since the date of acquisition are included in the consolidated financial statements. Deposits of
$507,207,856 and loans of $511,415,557 were acquired. The net assets previously attributed to the ownership of Spectrum's shareholders were recorded at predecessor cost, due to the shareholders'
continuing interests. The remaining net assets were recorded at fair value. As a result of the merger, a core deposit intangible of $6,775,000 has been recognized and is being amortized over
5 years by an accelerated method. In addition, the intangible cost in excess of net assets acquired, other than purchased mortgage servicing rights, has been allocated to goodwill.

Unaudited
pro forma consolidated results of operations as though GWS had been acquired as of July 1, 1999 (in thousands except share data) are summarized below.

|                                    |  | For the Year Ended June 30, 2001 |         | For the Year Ended June 30, 2000
|----------------------------------- |  | -------------------------------- | ------- | --------------------------------
|Total interest income               |  | $                                | 130,785 |                                 
|Net interest income                 |  |                                  | 66,243  |                                 
|Net income                          |  |                                  | 10,156  |                                 
|Basic earnings per common share     |  |                                  | 72.68   |                                 
|Weighted average shares outstanding |  |                                  | 125,354 |                                 

The
above amounts reflect adjustments for amortization of intangible assets, additional depreciation and amortization on revalued purchased assets and deposits, and preferred stock
dividend requirements.

15

---

As
of March 31, 2001, F&M Bank acquired Founders Trust National Bank, Sioux Falls, South Dakota ("Founders") for $2,501,000, subject to adjustment for certain contingencies. At
March 31, 2001 Founders had assets of $34,644,000, deposits of $31,588,000, net loans of $17,762,000 and stockholders' equity of $2,183,000. The acquisition has been accounted for as a purchase
and results of operations of Founders after the date of acquisition are included in the consolidated financial statements.

As
of February 28, 2002 F&M Bank acquired by merger First Western Bank, N.A., Atkinson, Nebraska ("First Western") and Marquette Bank Nebraska, N.A., O'Neill,
Nebraska ("Marquette") for $17,484,000. At February 28, 2002 First Western and Marquette had assets of $110,429,000, deposits of $99,589,000, net loans of $62,981,000 and stockholders' equity
of $10,217,000. The acquisition has been accounted for as a purchase and results of operation of First Western and Marquette after the date of acquisition are included in the consolidated financial
statements.

Great
Western Bank has agreed to acquire Peoples Bank, Overland Park, Kansas with approximately $28,166,000 in total assets, $3,300,000 in net loans, $26,035,000 in deposits and
$2,000,000 in stockholders' equity as of August 31, 2002. Peoples Bank has one location, which will consolidate with Great Western Bank locations. The merger is subject to regulatory approval
and is expected to close in last calendar quarter of 2002.

RESULTS OF OPERATION

GENERAL

Net income for the year ended June 30, 2002 was $13,217,000,an increase of $3,799,000 when compared to net
income of $9,418,000 for the year ended June 30, 2001. The increase in net income was due primarily to the acquisition of Great Western Securities and its subsidiary, Great Western Bank in the
third quarter of fiscal 2001 and to Spectrum's internal growth. The contribution of Great Western Bank's net income to the net income of Spectrum was $7,369,000 in fiscal 2002 compared with $2,266,000
in fiscal 2001. Net income increased $274,000 for the year ended June 30, 2001 when compared to net income of $9,144,000 for the year ended June 30, 2000. The increase in net income for
this period reflected greater volumes of loans and deposits due to acquisitions and Spectrum's internal growth.

Spectrum's
return on average assets was 0.71% for the year ended June 30, 2002 compared to 0.82% for the year ended June 30, 2001. This decrease is due to average assets
increasing 61.99% compared to fiscal net income increasing only 40.34% during 2002. The difference between these two percentages is primarily attributable to increases in salary and employee benefits
expenses, amortization of mortgage servicing rights and provision for loan losses, as discussed in "Other Expenses" below. Spectrum's return on average stockholders' equity was 12.76% for the year
ended June 30, 2002 compared to 14.53% for the year ended June 30, 2001. This decrease is attributable to the recent acquisitions, as discussed above in "Mergers and Acquisitions".

16

---

NET INTEREST INCOME

Net interest income represents the amount by which interest income on interest-earning assets, including loans and securities, exceeds interest paid on
interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of Spectrum's revenue. Interest rate fluctuations, as well as changes in the
amount and type of interest-earning assets and interest-bearing liabilities, combine to affect net interest income.

The
following table presents the average balances of Spectrum for each of the last three fiscal years and indicates the interest earned or paid on each major category of interest-earning
assets and interest-bearing liabilities on a fully taxable-equivalent basis, assuming a 34% tax rate, and the average rates earned or paid on each major category. This analysis details the
contribution of interest-earning assets and the overall impact of the cost of funds on net interest income.

|                              |                                                                                                               | Year Ended June 30, |  
|----------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------- | -
|
|
|
|Interest-earning assets:      |                                                                                                               |                     |  
|                              | Loans, net of unearned fees(1)(2)                                                                             |                     | $
|Investment securities:        |                                                                                                               |                     |  
|                              | Taxable                                                                                                       |                     |  
|                              | Tax exempt (tax equivalent)                                                                                   |                     |  
|                              | Federal funds sold and other                                                                                  |                     |  
|                              |                                                                                                               |                     |  
|                              | Total interest-earning assets                                                                                 |                     | $
|                              |                                                                                                               |                     |  
|Interest-bearing liabilities: |                                                                                                               |                     |  
|                              | Demand, saving and money market deposits                                                                      |                     | $
|                              | Time deposits                                                                                                 |                     |  
|                              |                                                                                                               |                     |  
|                              | Total interest-bearing deposits                                                                               |                     |  
|                              | Federal Home Loan Bank borrowings, federal funds purchased and securities sold under agreements to repurchase |                     |  
|                              | Notes payable                                                                                                 |                     |  
|                              | Company obligated mandatorily redeemable preferred securities                                                 |                     |  
|                              |                                                                                                               |                     |  
|                              | Total interest-bearing liabilities                                                                            |                     | $
|                              |                                                                                                               |                     |  
|                              | Net interest income                                                                                           |                     |  
|                              |                                                                                                               |                     |  
|                              | Interest rate spread(3)                                                                                       |                     |  
|                              | Net interest margin(4)                                                                                        |                     |  
|                              | Ratio of average interest-bearing liabilities to average interest-earning assets                              |                     |  

---

Net interest income, on a tax-equivalent basis, was $68,399,000 for the year ended June 30, 2002, an increase of $28,035,000
from $40,364,000 in 2001. This increase resulted from an increase of $637,506,000 in average interest-earning assets to $1,703,724,000 for the year ended June 30, 2002, from $1,066,218,000 in
2001. The majority of the asset growth occurred in the loans and securities portfolios, both from acquisitions and internal growth. Average loans increased $524,651,000 to $1,368,931,000 for the year
ended June 30, 2002, from $844,280,000 in 2001.

17

---

Interest
expense increased $8,356,000 to $60,181,000 for the year ended June 30, 2002, from $51,825,000 in 2001. The cost of interest-bearing liabilities for the year ended
June 30, 2002, was 3.87% compared to 5.26% in 2001. When combined with noninterest-bearing deposits, the cost of funds was 3.47% for the year ended June 30, 2002, compared to 4.79% in
2001. The average balance of Federal Home Loan Bank borrowings, federal funds purchased, and securities sold under agreements to repurchase increased to $140,218,000 in 2002, an increase of
$53,434,000 from $86,784,000 in 2001. This source was used to supplement core deposits in funding the loan growth.

As
a result of these factors, net interest margin, on a tax-equivalent basis, increased to 4.01% for the year ended June 30, 2002, from 3.79% for the year ended
June 30, 2001.

Net
interest income, on a tax-equivalent basis, was $40,364,000 for the year ended June 30, 2001, an increase of $10,071,000 from $30,293,000 in 2000. This increase
resulted from an increase of $346,574,000 in average interest-earning assets to $1,066,218,000 for the year ended June 30, 2001, from $719,644,000 in 2000. The majority of the asset growth was
due to growth in the loans and securities portfolios, both from acquisitions and internal growth. Average loans increased $276,622,000 to $844,280,000 for the year ended June 30, 2001, from
$567,658,000 in 2000.

Interest
expense increased $20,310,000 to $51,825,000 for the year ended June 30, 2001, from $31,515,000 in 2000. The cost of interest-bearing liabilities for the year ended
June 30, 2001, was 5.26% compared to 4.84% in 2000. When combined with noninterest-bearing deposits, the cost of funds was 4.79% for the year ended June 30, 2001, compared to 4.41% in
2000. The average balance of Federal Home Loan Bank borrowings, federal funds purchased, and securities sold under agreements to repurchase increased to $86,784,000 in 2001, an increase of
$26,819,000 from $59,965,000 in 2000. This source as well as an increase in notes payable and Company obligated mandatorily redeemable preferred securities were used to supplement core deposits in
funding the loan growth.

As
a result of these factors, net interest margin, on a tax-equivalent basis, decreased to 3.79% for the year ended June 30, 2001, compared to 4.21% for the year ended
June 30, 2000.

The
following table presents the changes in the components of net interest income and identifies the portion of each change due to differences in the average volume of interest-earning
assets and interest-bearing liabilities and the portion of each change due to the average rate on those assets and liabilities. The changes in interest due to both volume and rate changes in the table
have been allocated to volume or rate change in proportion to the absolute dollar amounts of the change in each.

|                                                                                                              |  | 2002 vs. 2001 |        | 2001 vs. 2000 |   | 2000 vs. 1999 |  
|------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- | -
|
|
|
|Interest-earning assets:                                                                                      |  |               |        |               |   |               |  
|Loans, net of unearned fees                                                                                   |  | $             | 43,210 |               | $ | (10,731       | )
|Investment securities:                                                                                        |  |               |        |               |   |               |  
|Taxable                                                                                                       |  |               | 6,009  |               |   | (1,169        | )
|Tax exempt (tax equivalent)                                                                                   |  |               | 443    |               |   | (17           | )
|Federal funds sold                                                                                            |  |               | 402    |               |   | (1,756        | )
|                                                                                                              |  |               |        |               |   |               |  
|Total interest income                                                                                         |  |               | 50,064 |               |   | (13,673       | )
|                                                                                                              |  |               |        |               |   |               |  
|Interest-bearing liabilities:                                                                                 |  |               |        |               |   |               |  
|Demand, savings and money market deposits                                                                     |  |               | 5,848  |               |   | (1,632        | )
|Time deposits                                                                                                 |  |               | 11,814 |               |   | (11,715       | )
|                                                                                                              |  |               |        |               |   |               |  
|Total interest-bearing deposit expense                                                                        |  |               | 17,662 |               |   | (13,347       | )
|Federal Home Loan Bank borrowings, federal funds purchased and securities sold under agreements to repurchase |  |               | 2,439  |               |   | (1,374        | )
|Notes payable                                                                                                 |  |               | 1,851  |               |   | (805          | )
|Company obligated mandatorily redeemable preferred securities                                                 |  |               | 1,930  |               |   | (0            | )
|                                                                                                              |  |               |        |               |   |               |  
|Total interest expense                                                                                        |  |               | 23,882 |               |   | (15,526       | )
|                                                                                                              |  |               |        |               |   |               |  
|Increase (decrease) in net interest income                                                                    |  | $             | 26,182 |               | $ | 1,853         |  
|                                                                                                              |  |               |        |               |   |               |  

18

---

PROVISION FOR LOAN LOSSES

The amount of the provision for loan losses is based on a quarterly or a more frequent evaluation of the loan portfolio, especially non-performing and
other potential problem loans. During these evaluations, consideration is given to such factors as: management's evaluation of specific loans; the level and composition of non-performing
loans; historical loss experience; results of examinations by regulatory agencies; expectations of current economic conditions and their impact on particular industries and individual borrowers; the
market value of collateral; the strength of available guarantees; concentrations of credits; and other judgmental factors. In addition, the chief credit officer of Spectrum, assisted by personnel of
affiliated banks and an unaffiliated company performs loan review services on a periodic basis.

The
provision for loan losses for the year ended June 30, 2002, was $6,067,000 compared to $2,618,000 for the year ended June 30, 2001. This represents an increase of
$3,449,000, or 131.74%. This increase is was due to increases in net charge-offs and acquisitions. See "Non-performing Loans" and "Allowance for Loan Losses". The provision for
loan losses for the year ended June 30, 2001 increased $582,000 when compared to $2,036,000 for the previous year. This increase was due to increases in non-performing loans and net
loans charged off.

OTHER INCOME

The
following table presents Spectrum's other income for the indicated periods.

|                               |  | Year Ended June 30, |       
|------------------------------ |  | ------------------- | ------
|
|
|Service charges and other fees |  | $                   | 10,134
|Net gains from sale of loans   |  |                     | 2,917 
|Gain (loss) on securities, net |  |                     | 215   
|Loan servicing fees            |  |                     | 3,524 
|Trust department income        |  |                     | 1,610 
|Other income                   |  |                     | 3,497 
|                               |  |                     |       
|Total other income             |  | $                   | 21,897
|                               |  |                     |       

During
the year ended June 30, 2002, total other income increased to $21,897,000 from $11,467,000 for the year ended June 30, 2001, due primarily to increased service
charges and other fees and loan servicing fees. Increases in these fees for fiscal 2002 resulted from the acquisition of Great Western Bank at the end of the third quarter of fiscal 2001. Great
Western had $4,411,000 and $1,060,000 service charges and other fees for fiscal years ended June 30, 2002 and June 30, 2001, respectively and $3,527,000 and $240,000 loan servicing fees
for the fiscal years ended June 30,2002 and June 30, 2001, respectively. Great Western Bank is the only Spectrum bank that services mortgage loans, pursuant to purchased mortgage
servicing rights. Total other income for the year ended June 30, 2001, increased to $11,467,000 compared to $7,233,000 for year ended June 30, 2000, an increase of $4,234,000 due to
increased income from service charges and other fees.

OTHER EXPENSES

The following table presents Spectrum's other expenses for the indicated periods.

|                                                                    |  | Year Ended June 30,
|------------------------------------------------------------------- |  | -------------------
|
|
|Salaries and employee benefits                                      |  | $                  
|Occupancy expense, net                                              |  |                    
|Amortization and valuation adjustment for mortgage servicing rights |  |                    
|Data processing                                                     |  |                    
|Equipment expenses                                                  |  |                    
|Advertising                                                         |  |                    
|Amortization of cost in excess of net assets acquired               |  |                    
|Amortization of core deposit intangible and other intangibles       |  |                    
|Other expenses                                                      |  |                    
|                                                                    |  |                    
|Total other expense                                                 |  | $                  
|                                                                    |  |                    

19

---

Other
expenses increased $28,487,000 or 84.20%, to $62,318,000 during the year ended June 30, 2002, from $33,831,000 for the year ended June 30, 2001. This increase is
primarily the result of an increase in salary and employee benefits and an increase of in amortization of mortgage servicing rights acquired. Other expenses increased $12,774,000 or 60.66%, to
$33,831,000 in 2001 from $21,057,000 in 2000, a result of the acquisition of Great Western Securities and its subsidiary, Great Western Bank.

Salaries
and employee benefits rose $11,282,000 or 64.22%, to $28,851,000 for the year ended June 30, 2002, from $17,569,000 for the corresponding period of 2001. This increase is
due to acquisitions in fiscal 2002 and 2001, and the acquisition of Great Western Bank. At the time of the acquisition on March 23, 2001, Great Western Bank had approximately 241
full-time equivalent employees. Also contributing to the increase in salaries and employee benefits were general staffing increases concurrent with expansion of offices and business lines.
Salaries and benefits rose $6,631,000, or 60.62%, to $17,569,000 in 2001 from $10,938,000 in 2000. This increase in salaries was due to Spectrum's continuing growth and acquisitions throughout this
period.

Net
occupancy expense increased $1,502,000, or 66.23%, to $3,770,000 for the year ended June 30, 2002, from $2,268,000 for the year ended June 30, 2001. Net occupancy costs
increased due to the acquisitions in fiscal 2002 and 2001 and internal growth. Net occupancy expense increased $1,019,000, or 81.59%, to $2,268,000 in 2001 from $1,249,000 in 2000. Net occupancy costs
increased due to the acquisition of Great Western Bank which had 14 facilities located in Nebraska.

Amortization
of mortgage servicing rights acquired increased $8,745,000, to $9,049,000 for the year ended June 30, 2002, from $304,000 for June 30, 2001. Mortgage servicing
rights amortization of $9,049,000 includes the recognition of a valuation allowance due to a change in the estimated future prepayment rates of the servicing portfolio, caused by a declining interest
rate environment in the twelve months ended June 30, 2002. A valuation allowance of $5,233,000 was recognized in the fiscal year ended June 30, 2002. There was no mortgage servicing
rights amortization cost for the year ended June 30, 2000, due to the acquisition of Great Western Bank in the third quarter of the year ended June 30, 2001. Great Western Bank is
currently the only Spectrum bank that services mortgage loans pursuant to purchased mortgage servicing rights. A decline in mortgage interest rates in future periods may result in further changes in
prepayment rates and further acceleration in amortization expenses, the result of which will be estimated at the end of each quarter.

As
a result of declines in mortgage interest rates since June 30, 2002, an additional valuation allowance for mortgage servicing rights may be required in the first quarter of
fiscal year ending June 30, 2003. Although no amount has been determined, the additional charge to earnings could range from $1,000,000 to $4,000,000 on a pretax basis.

Data
processing costs increased $976,000, or 46.15% to $3,091,000 for the year ended June 30, 2002, from $2,115,000 during the year ended June 30, 2001. The increase was
due to acquisitions and internal growth. Data processing expense increased $396,000, or 23.04%, to $2,115,000 in 2001 from $1,719,000 in 2000. The increase was due to acquisitions during this period.

Equipment
costs increased $991,000, or 65.24% to $2,510,000 for the year ended June 30, 2002, from $1,519,000 during the year ended June 30, 2001. The increase was due to
acquisitions and internal growth. Equipment expense increased $800,000, or 111.27%, to $1,519,000 in 2001 from $719,000 in 2000. This increase was due to acquisitions and internal growth during fiscal
year 2001.

Advertising
costs increased $910,000, or 71.65% to $2,180,000 for the year ended June 30, 2002, from $1,270,000 during the year ended June 30, 2001. The increase was due to
internal growth. Advertising costs increased $172,000, or 15.66%, to $1,270,000 in 2001 from $1,098,000 in 2000. The increase was due to internal growth.

Amortization
of goodwill was zero for the year ended June 30, 2002, compared to $728,000 for the year ended June 30, 2001. This decrease is due to the early adoption of
Statement of Financial Accounting Standard (SFAS) No. 142"Goodwill and Other Intangible Assets"("Statement 142") at the beginning of fiscal
year 2002. Beginning in 2002, goodwill was no longer amortized but will be evaluated at least on an annual basis for impairment. For the year ended June 30, 2002, goodwill totaling $39,315,000
will not be amortized against current year operations pursuant to Statement 142. See "Recent Accounting Pronouncement" section for further details. Amortization of goodwill increased $480,000, or
193.55% to $728,000 for the year ended June 30, 2001, from $248,000 for the year ended June 30, 2000. This increase was due to the acquisition of Great Western Bank in the third quarter
of the year ended June 30, 2001. See Note 1 and Note 7 "Intangible Assets" to the Consolidated Financial Statements.

20

---

Amortization
of core deposit intangible and other intangibles was $2,629,000 for the year ended June 30, 2002 compared to $960,000 for the year ended June 30, 2001. This
increase is due to a full year's amortization of the core deposit intangible asset, $2,145,000, from the acquisition of Great Western Bank in the third quarter of fiscal 2001. This accounted for
81.59% of the total amortization of core deposit intangible and other intangibles for the fiscal year 2002. This core deposit intangible is being amortized on an accelerated method over
5 years. Amortization of core deposit intangible was $960,000 for year ended June 30, 2001 compared to $176,000 for the year ended June 30, 2000, due to the acquisition of Great
Western Bank in the third quarter of the year ended June 30, 2001. See Note 1 and Note 7 "Intangible Assets" to the Consolidated Financial Statements.

Other
operating expenses include, among many other items, postage, due from bank account charges, armored car and courier fees, travel and entertainment, regulatory examination fees,
directors' fees, dues and subscriptions, and FDIC insurance premiums. These expenses increased $3,140,000, or 44.24%, to $10,238,000 for the year ended June 30, 2002, from $7,098,000 for the
year ended June 30, 2001. These expenses increased $2,188,000, or 44.56%, to $7,098,000 during 2001 from $4,910,000 during 2000. Other operating expenses increased for these periods due to
Spectrum's growth and acquisitions.

FEDERAL INCOME TAX

Spectrum's
consolidated income tax rate varies from statutory rates principally due to interest income from tax-exempt securities. The provision for income taxes increased by
$2,471,000 to $7,393,000 for the year ended June 30, 2002, from $4,922,000 for the year ended June 30, 2001, reflecting the increase of income before taxes for the period. Spectrum's
recorded income tax expenses increased $482,000 in 2001 from $4,440,000 in 2000.

RECENT ACCOUNTING PRONOUNCEMENT

In July 2001, the Financial Accounting Standards Board ("FASB") issued two statements-Statement 141,Business
Combinations,and Statement 142,Goodwill and Other Intangible Assets, which affected the Company's accounting for its reported
goodwill.

Statement
141:



Statement
142:



Upon
adoption of these Statements, the Company is required to:



The
provisions of Statement 141 apply to all business combinations initiated after June 30, 2002 and all business combinations accounted for by the purchase method for which the
date of acquisition is July 1, 2001, or later. The provisions of Statement 142 are required to be implemented by the Company by the first quarter of its 2003 fiscal year. The Company has
elected early adoption and implemented Statement 142 in the first quarter of fiscal 2002. The impact of adopting Statement 142 was to eliminate the amortization of goodwill and other intangibles that
are determined to have an indefinite life and subject goodwill and other intangibles to annual impairment tests. See Note 1 "Intangible Assets" to the consolidated financial statements.

21

---

ANALYSIS OF FINANCIAL CONDITION

LOAN PORTFOLIO

Total loans, net of unearned fees, increased $193,151,000, or 14.82%, to $1,496,200,000 at June 30, 2002, from $1,303,049,000 at June 30, 2001. The
increase was primarily due to the acquisitions of First Western and Marquette that accounted for 32.61% of the increase and internal growth. Total loans, net of unearned fees, increased $668,292,000,
or 105.28%, at June 30, 2001, from $634,757,000 at June 30, 2000 primarily due to the acquisition of Great Western Bank.

Spectrum's
subsidiary banks primarily make commercial loans to small to medium-sized businesses and professionals and installment loans to individuals. The subsidiary banks offer a
variety of commercial lending products including revolving lines of credit, letters of credit, working capital loans and loans to finance accounts receivable, inventory and equipment. See
"BusinessLoans." Typically, the subsidiary banks' commercial loans have floating rates of interest, are for varying terms, (generally not exceeding five years), are personally guaranteed
by principals of the borrowing company, and are collateralized by accounts receivable, inventory or other business assets.

The
following tables present Spectrum's loan balances at the dates indicated categorized by loan type:

|                               |  | June 30, 2002 |           | June 30, 2001 |        | June 30, 2000 |  
|------------------------------ |  | ------------- | --------- | ------------- | ------ | ------------- | -
|
|Loans to individuals           |  | $             | 199,896   |               | 13.54  | %             | $
|Real estate loans              |  |               | 164,812   |               | 11.17  |               |  
|Commercial and agricultural    |  |               | 1,126,417 |               | 76.32  |               |  
|Other loans                    |  |               | 6,241     |               | 0.42   |               |  
|                               |  |               |           |               |        |               |  
|Total face amount of loans     |  |               | 1,497,366 |               | 101.46 |               |  
|Unearned loan fees             |  |               | (1,166    | )             | (0.08  | )             |  
|                               |  |               |           |               |        |               |  
|Loans                          |  |               | 1,496,200 |               | 101.38 | %             |  
|Less allowance for loan losses |  |               | (20,344   | )             | (1.38  | )             |  
|                               |  |               |           |               |        |               |  
|Net Loans                      |  | $             | 1,475,856 |               | 100.00 | %             | $
|                               |  |               |           |               |        |               |  

June 30, 1999

June 30, 1998(dollars in thousands)Loans to individuals

$
86,243

16.71
%
$
68,529

15.21
%Real estate loans


107,944

20.92


147,324

32.69Commercial and agricultural


326,515

63.28


229,114

50.84Other loans


2,563

0.50


12,358

2.74Total face amount of loans


523,265

101.41


457,325

101.48Unearned loan fees


(465
)
(0.09
)

(414
)
(0.09
)Loans


522,800

101.32
%

456,911

101.39
%Less allowance for loan losses


(6,838
)
(1.32
)

(6,276
)
(1.39
)Net Loans

$
515,962

100.00
%
$
450,635

100.00
%


Spectrum's
primary category of loans, commercial and agricultural loans, constituting over two-thirds of loans as of June 30, 2002, trended upward as indicated at the
stated dates. At June 30, 2002, agricultural loans totaled $174,076,000. Of this amount, $65,215,000 comprised loans secured by agricultural real estate, and $108,861,000 comprised loans
secured by agricultural operating assets. At June 30, 2001, agricultural loans totaled $126,194,000. Of this amount, $52,609,000 comprised loans primarily secured by agricultural real estate,
and $73,585,000 comprised loans secured by agricultural operating assets.

Commercial
and agricultural loans were $1,126,417,000 as of June 30, 2002, an increase of $213,806,000 over the $912,611,000 balance as of June 30, 2001. This increase is
due to internal growth, which accounted for 62.63% of the growth for these loan types. The acquisition of First Western and Marquette accounted for 37.37% of the increase. Commercial and agricultural
loans as of June 30, 2001 increased by $523,996,000 when compared to June 30, 2000, due to the acquisition of Great Western Bank.

22

---

Loan
concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities, or loans secured by similar collateral, that
would cause them to be similarly impacted by economic or other conditions. Spectrum had loans secured by real estate amounting to $767,886,000 at June 30, 2002. Other than loans secured by real
estate and the loan categories set forth in the above table, Spectrum had no concentrations of loans at June 30, 2002. Spectrum had no loans outstanding to foreign countries or borrowers
headquartered in foreign countries at June 30, 2002.

Management
of Spectrum's subsidiary banks may renew loans at maturity, when requested by a customer whose financial strength appears to support such renewal or when such renewal appears
to be in Spectrum's best interest. Spectrum requires payment of accrued interest in such instances and may adjust the rate of interest, require a principal reduction or modify other terms of the loan
at the time of renewal.

Although
the risk of non-payment exists for a variety of reasons relating to all loans, other more specific risks are associated with each type of loan. Risks associated with
real estate mortgage loans include the borrower's inability to pay and deterioration in value of real estate held as collateral. Several risks are present in construction loans, including economic
conditions in the building industry, fluctuating land values, failure of the contractor to complete work and the borrower's inability to repay. As of June 30, 2002, construction loans were
$116,633,000 or 7.8% of total loans. Risks associated with commercial and agricultural loans are the quality of the borrower's management and the impact of local economic factors as well as prices
received for products and services. Loans to individuals face the risk of a borrower's unemployment as a result of deteriorating economic conditions as well
as the personal circumstances of the borrower. Management believes that risk levels associated with the various types of loans are dependent upon the existence of the risks at any particular time, for
example, economic conditions in the building industry.

LOAN MATURITIES

The
following tables present, at June 30, 2002, and June 30, 2001, loans, net of unearned fees, by maturity in each major category of Spectrum's portfolio based on
contractual repricing schedules. Actual maturities may differ from the contractual repricing maturities shown below as a result of renewals and prepayments. Loan renewals are evaluated by Spectrum in
the same manner as new credit applications. If loans are not repaid upon maturity, these loans are subject to the same credit evaluation and other underwriting criteria as new loan applications, and
are subject to new terms and conditions as deemed appropriate by Spectrum's lending personnel.

|                            |             | At June 30, 2002
|--------------------------- | ----------- | ----------------
|
|
|
|Loans to individuals        |             | $               
|Real estate loans           |             |                 
|Commercial and agricultural |             |                 
|Other loans                 |             |                 
|                            |             |                 
|                            | Total loans |                 
|                            |             |                 

|                            |             | At June 30, 2001
|--------------------------- | ----------- | ----------------
|
|
|
|Loans to individuals        |             | $               
|Real estate loans           |             |                 
|Commercial and agricultural |             |                 
|Other loans                 |             |                 
|                            |             |                 
|                            | Total loans |                 
|                            |             |                 

23

---

LOAN REVIEW PROCESS

Spectrum's subsidiary banks follow both internal and external loan review programs to evaluate the credit risk in their loan portfolios and assess the adequacy of
the allowance for loan losses.

Internally,
each bank maintains a classified loan list that, along with the list of non-performing loans discussed below, helps Spectrum management assess the overall quality
of the loan portfolio and the adequacy of the allowance for loan losses. The classification categories of substandard, doubtful and loss correspond with those of state and FDIC examiners. Loans
classified as "substandard" are those loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition,
which may jeopardize repayment. Loans classified as "doubtful" are those loans that have characteristics similar to substandard loans, but also have an increased risk of loss or would require a
partial write-off in liquidation. Although loans classified as substandard do not duplicate loans classified as doubtful, both substandard and doubtful loans may include some loans that
are past due at least 90 days, are on nonaccrual status or have been restructured. Loans classified as "loss" are those loans that are in the process of being charged off.

In
addition to the internally classified loans, each subsidiary bank has a "watch list" of loans that further assists monitoring of its loan portfolios. A loan is included on the watch
list if it demonstrates one or more deficiencies requiring attention in the near term. Such loans do not have all the characteristics of a classified loan (substandard, doubtful or loss), but do have
elements of weakness as compared with those of a satisfactory credit. Management of the subsidiary banks reviews these loans to assist in assessing the adequacy of the allowance for loan losses.
Substantially all of the loans on the watch list at June 30, 2002 were current and paying in accordance with loan terms.

Spectrum's
external loan review process consists of an intensive on-site review of more than 50% of dollar value of loans at each subsidiary bank (other than Great Western
Bank) during twelve to twenty-four month periods, depending on conditions. Reviews are performed by a regional consulting firm, which is affiliated with Spectrum's external auditor, and by
loan officers of Spectrum's subsidiary banks for all the banks except Citizens Bank, Clive and Citizens Bank of Princeton. The chief credit officer and loan officers of subsidiaries banks perform the
Clive and Princeton reviews. Spectrum's chief credit officer is responsible for determining the frequency and scope of external loan reviews and evaluating the results of those reviews. The report of
the consulting firm is presented to each bank's management and board of directors for review. The external review is used to supplement and provide a check on the internal review conducted by
subsidiary bank management.

Great
Western Bank is Spectrum's only bank with an internal loan review staff. 50% of the dollar values of Great Western Bank's loans are reviewed in a 24-month cycle. The
chief credit officer of Spectrum supplements Great Western Bank's internal review staff.

NON-PERFORMING LOANS

Non-performing loans consist of nonaccrual, past due and restructured loans. A past due loan is an accruing loan that is contractually past due
90 days or more as to principal and/or interest payments. Loans on which management does not expect to collect interest in the normal course of business are placed on nonaccrual or are
restructured. When a loan is placed on nonaccrual, any interest previously accrued but not yet collected is reversed against current income unless, in the opinion of management, the outstanding
interest remains collectible. Thereafter, interest is generally included in income only to the extent of cash received. A loan is restored to accrual status when all interest and principal payments
are current and the borrower has demonstrated to management the ability to make payments of principal and interest as scheduled.

A
restructured loan is one upon which interest accrues at a below market rate or upon which certain principal has been forgiven so as to aid the borrower in the final repayment of the
loan, with any interest previously accrued, but not yet collected, being reversed against current income. Interest is accrued based upon the new loan terms.

Non-performing
loans are fully or substantially collateralized by assets. In general, the excess of loan balances over collateral values are allocated in the allowance.
Assets acquired through foreclosure are carried at the lower of cost or estimated fair value, net of estimated costs of disposal, if any.

24

---

The
following table lists nonaccrual, over 90 days past due and restructured loans, other real estate and other repossessed assets at June 30, 2002, and for each of the
prior four years.

|                                                                                                        |  | At June 30, |       
|------------------------------------------------------------------------------------------------------- |  | ----------- | ------
|
|
|Nonaccrual loans                                                                                        |  | $           | 11,592
|Accruing loans past due over 90 days                                                                    |  |             | 1,895 
|Restructured loans                                                                                      |  |             | 3,977 
|                                                                                                        |  |             |       
|Total non-performing loans                                                                              |  |             | 17,464
|Other real estate and other repossessed assets                                                          |  |             | 2,496 
|                                                                                                        |  |             |       
|Total non-performing assets                                                                             |  | $           | 19,960
|                                                                                                        |  |             |       
|Ratio of total nonperforming loans to loans, net of unearned fees                                       |  |             | 1.17  
|Ratio of total non-performing assets to total loans plus other real estate and other repossessed assets |  |             | 1.33  
|Ratio of non-performing assets to total assets                                                          |  |             | .99   

Nonaccrual
loans were $11,592,000 as of June 30, 2002, an increase of $6,889,000 over the balance of $4,703,000 as of June 30, 2001. This increase is primarily due to
internal growth and acquisitions in fiscal 2002. Two loans accounted for 14.6% of the increase and acquisition of Marquette and First Western Banks accounted for 13.8% of the increase. Nonaccrual
loans increased $2,783,000 as of June 30, 2001 when compared to June 30, 2000, primarily due to internal growth in fiscal year 2001.

Restructured
loans were $3,977,000, $13,510,000 and $5,164,000 at June 30, 2002, 2001, and 2000, respectively. A single commercial borrower paid off a total of $7,379,543 of
restructured loans in February 2002. This primarily caused the decrease in restructured loans and non-performing loans and assets in fiscal year 2002. Restructured loans at
June 30, 2001 increased $8,346,000 when compared to June 30, 2000 primarily due to a single borrower, this commercial borrower paid off their loans in fiscal 2002.

A
potential problem loan is defined as a loan where information about possible credit problems of the borrower is known, causing management to have serious doubts as to the ability of
the borrower to comply with the present loan repayment terms and which may result in the inclusion of such loan in one of the nonperforming asset categories. Spectrum does not believe it has any
potential problem loans other than those reported in the above table.

Foreclosures
on defaulted loans result in Spectrum acquiring other real estate and other repossessed assets. Accordingly, Spectrum incurs other expenses, specifically net costs
applicable to other real estate and other repossessed assets, in maintaining, insuring and selling such assets. Spectrum's subsidiary banks attempt to convert nonperforming loans into interest-earning
assets either through liquidation of the collateral securing the loan or through intensified collection efforts.

ALLOWANCE FOR LOAN LOSSES

Implicit in Spectrum's lending activities is the fact that loan losses will be incurred and that the risk of loss will vary with the type of loan being made and
the creditworthiness of the borrower over the term of the loan. To reflect the currently perceived risk of loss associated with Spectrum's loan portfolio, provisions are made to the allowance for loan
losses. The allowance is created by direct charges of the provision against income and the allowance is available to absorb realized loan losses.

The
allowance for loan losses is maintained to absorb probable losses inherent in the loan portfolio. Spectrum's allowance was $20,344,000 or 1.36% of loans, net of unearned fees, at
June 30, 2002 compared to $18,955,000 or 1.45% of loans, net of unearned fees, at June 30, 2001. The increase in the total allowance is due to acquisitions and internal growth in fiscal
year 2002. The decrease in the allowance to loans, net unearned was primarily due to charge-off of a restructured loan to a single commercial borrower in fiscal year 2002.

Management
performs regular monthly assessments of these estimated losses by utilizing a methodology that relies on several key elements. Larger-balance, non-homogeneous
loans representing significant individual credit exposures are evaluated based upon the borrower's overall financial condition, resources and payment record; the prospects for support from any
financially responsible guarantors and, if appropriate, the realizable value of the collateral. The allowance on these loans is calculated by applying loss factors to outstanding loans and certain

25

---

unused commitments. Loss factors include management's assessment of current economic conditions and the potential impact on various industries, and the financial conditions of the borrowers.

Net
loans charged off for the year ended June 30, 2002 was $5,677,000 compared with $2,296,000 in 2001. One borrower accounted for $2,653,000 of the loans charged-off
for the fiscal year 2002. Net loans charged off for the year ended June 30, 2001 was $2,296,000 compared with $540,000 in 2000. This increase is primarily due to the
acquisition of Hamburg Financial, Inc. whose loans were deemed by management to carry more risk than the remainder of Spectrums' loans.

Specific
allowances are maintained for larger-balance, non-homogeneous loans that have been individually determined to be impaired as prescribed by Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan." Impairment is measured on a loan-by-loan basis for these loans by either the present
value of the expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the method predominantly used, which is the fair value of the
collateral.

Each
portfolio of smaller balance, homogeneous loans, including individual installment, consumer and residential loans, is collectively evaluated for impairment. The allowance for loan
losses attributed to these loans is established from an estimate of probable losses inherent in the portfolio. Loss factors are applied to outstanding loans based upon historical credit losses, trends
in volumes and terms of loans, and consideration of economic, geographical, product and other factors.

The
allowance for loan losses is based upon estimates, and actual charge-offs can vary significantly from the estimated amounts. By assessing the probable estimated losses
inherent in the loan portfolio on a quarterly or more frequent basis, adjustments are made to specific and inherent loss estimates based upon the most recent information available.

The
following table presents the provisions, loans charged off and recoveries of loans previously charged off, the amount of the allowance, average loans outstanding and certain
pertinent ratios for the year ended June 30, 2002, and for each of the prior four years.

|                                            |                             | At June 30, |          
|------------------------------------------- | --------------------------- | ----------- | ---------
|
|
|Average loans outstanding(1)                |                             | $           | 1,368,931
|                                            |                             |             |          
|Total loans at end of period(1)             |                             | $           | 1,496,200
|                                            |                             |             |          
|Allowance at beginning of period            |                             | $           | 18,955   
|Loans charged off:                          |                             |             |          
|                                            | Loans to individuals        |             |          
|                                            | Real estate loans           |             |          
|Commercial and agricultural                 |                             |             | 5,046    
|                                            | Other loans                 |             |          
|                                            |                             |             |          
|                                            | Total charge-offs           |             |          
|                                            |                             |             |          
|Recoveries of loans previously charged off: |                             |             |          
|                                            | Loans to individuals        |             |          
|                                            | Real estate loans           |             |          
|                                            | Commercial and agricultural |             |          
|                                            | Other loans                 |             |          
|                                            |                             |             |          
|                                            | Total recoveries            |             |          
|                                            |                             |             |          
|                                            | Net loans charged off       |             |          
|                                            | Provision for loan losses   |             |          
|                                            | Business acquisition(3)     |             |          
|                                            |                             |             |          
|Allowance at end of period                  |                             | $           | 20,344   
|                                            |                             |             |          
|Net loan charged off to average loans       |                             |             | 0.41     
|Allowance to total loans at end of period   |                             |             | 1.36     

---

26

---

Management
and the boards of directors of the subsidiary banks make credit and loan decisions in conformity with loan policies established by their boards of directors. The subsidiary
banks' practices are to charge off any loan or portion of a loan when the loan is determined by management to be uncollectable due to the borrower's failure to meet repayment terms, the borrower's
deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan's classification as a loss by regulatory examiners or for other reasons. Spectrum charged off
$6,451,000 during the year ended June 30, 2002 and $2,627,000 for June 30, 2001. One borrower accounted for $2,653,000 or 41.10% of the total charged off loans for the fiscal year 2002
as discussed earlier in this section. Recoveries during fiscal year 2002 were $774,000 when compared to $331,000 for fiscal year June 30, 2001. One commercial borrower accounted for $316,000 or
40.8% of the total recoveries in fiscal year 2002. See "Non-Performing Loans".

The
following table shows the allocations in the allowance and the respective percentages of each loan category to total loans at June 30, 2002, and at year-end for
each of the prior four years. Portions of the allowance have been allocated to categories based on an analysis of the status of particular loans and homogenous pools of loans. The allocation table
should not be interpreted as an indication of the specific amounts, by loan classification, to be charged to the allowance. Management believes that the table may be a useful device for assessing the
adequacy of the allowance as a whole. The table has been derived in part by applying historical loan loss ratios to both internally classified loans and the portfolio as a whole in determining the
allocation of the loan losses attributable to each category of loans.

|                                |  | At June 30, 2002 |        | At June 30, 2001 |        | At June 30, 2000 |  
|------------------------------- |  | ---------------- | ------ | ---------------- | ------ | ---------------- | -
|
|
|Loans to individuals            |  | $                | 2,401  |                  | 13.35  | %                | $
|Real estate loans               |  |                  | 1,999  |                  | 11.05  |                  |  
|Commercial and agricultural     |  |                  | 15,554 |                  | 75.17  |                  |  
|Other loans                     |  |                  | 390    |                  | 0.43   |                  |  
|                                |  |                  |        |                  |        |                  |  
|Total allowance for loan losses |  | $                | 20,344 |                  | 100.00 | %                | $
|                                |  |                  |        |                  |        |                  |  

|                                |  | At June 30, 1999 |       | At June 30, 1998 |       
|------------------------------- |  | ---------------- | ----- | ---------------- | ------
|
|
|Loans to individuals            |  | $                | 877   |                  | 16.48 
|Real estate loans               |  |                  | 980   |                  | 20.63 
|Commercial and agricultural     |  |                  | 4,876 |                  | 62.40 
|Other loans                     |  |                  | 105   |                  | 0.49  
|                                |  |                  |       |                  |       
|Total allowance for loan losses |  | $                | 6,838 |                  | 100.00
|                                |  |                  |       |                  |       

27

---

SECURITIES

Securities, all of which are classified as available-for-sale and carried at fair value, increased $69,049,000, or 26.06%, to $334,059,000
at June 30, 2002, from $265,010,000 at June 30, 2001. The increase was due to internal growth and acquisitions.

The
board of directors of each subsidiary bank reviews all securities transactions at each board meeting and the securities portfolio periodically. For obligations of U.S. Government
agencies and corporation, state, county, municipal and other securities, Spectrum's investment policy allows for the purchase of securities with maturities in excess of ten years. As of
June 30, 2002, 96.38% of Spectrum's securities with defined maturities mature in less than ten years. Mortgage-backed securities are deemed not to have defined maturities for purposes of this
analysis.

As
of June 30, 2002, 44.02% of Spectrum's investment portfolio had defined maturities. The investment portfolio with defined maturities was concentrated in the following
categories: obligations of the U.S. Treasury, U.S. government agencies, corporations and state and local political subdivisions totaled $118,882,000, or 35.59% of the portfolio and corporate debt
totaled 28,177,000, or 8.43% of the portfolio. Mortgage-backed securities totaled $179,871,000 or 53.84% of Spectrum's investment portfolio. The remaining $7,129,000 or 2.13% of Spectrum's investment
portfolio is in equity securities, which primarily are stock in the Federal Home Loan Banks of Des Moines and Topeka totaled $7,129,000 as of June 30, 2002.

Certain
of Spectrum's securities are pledged to secure public and trust fund deposits and for other purposes required or permitted by law. At June 30, 2002, the face value of U.S.
Government and other securities so pledged amounted to $197,047,000, or 58.99% of the total securities portfolio.

The
following table provides the maturity distribution and weighted average interest rates of Spectrum's securities portfolio at June 30, 2002. The yield has been computed by
dividing the forward annualized income stream on the securities, plus or minus the anticipated amortization of premium or accretion of discount, by the book value of the securities. The book value of
available-for-sale securities is their fair value. All securities are classified as available-for-sale. The restatement of the yields on
tax-exempt securities to a fully taxable-equivalent basis has been computed assuming a tax rate of 34%. The equity securities are primarily composed of stock in the Federal Home Loan Banks
of Des Moines and Topeka. The yield is set quarterly by the Federal Home Loan

28

---

Bank's board of directors. For the quarter ended June 30, 2002, the yields were 3.00% and 4.75% at Federal Home Loan Banks of Des Moines and Topeka, respectively.

|                                                                |                                 | At June 30, 2002                         |                           
|--------------------------------------------------------------- | ------------------------------- | ---------------------------------------- | --------------------------
|
|
|U.S. Treasury securities:                                       |                                 |                                          |                           
|                                                                | Within one year                 |                                          | $                         
|                                                                | After one but within five years |                                          |                           
|                                                                |                                 |                                          |                           
|                                                                | Total U.S. Treasury securities  |                                          |                           
|                                                                |                                 |                                          |                           
|Obligations of other U.S. Government agencies and corporations: |                                 |                                          |                           
|                                                                | Within one year                 |                                          |                           
|                                                                | After one but within five years |                                          |                           
|                                                                | After five but within ten years |                                          |                           
|                                                                | After ten years                 |                                          |                           
|                                                                |                                 |                                          |                           
|Total obligations of U.S. Government agencies and corporations  |                                 |                                          | 66,504                    
|                                                                |                                 |                                          |                           
|Obligations of states and political subdivisions:               |                                 |                                          |                           
|                                                                | Within one year                 |                                          |                           
|                                                                | After one but within five years |                                          |                           
|                                                                | After five but within ten years |                                          |                           
|                                                                | After ten years                 |                                          |                           
|                                                                |                                 |                                          |                           
|Total obligations of states and political subdivisions          |                                 |                                          | 49,668                    
|                                                                |                                 |                                          |                           
|Other securities:                                               |                                 |                                          |                           
|                                                                | Within one year                 |                                          |                           
|                                                                | After one but within five years |                                          |                           
|                                                                | After five but within ten years |                                          |                           
|                                                                | After ten years                 |                                          |                           
|                                                                |                                 |                                          |                           
|                                                                |                                 | Total other securities                   |                           
|                                                                |                                 |                                          |                           
|                                                                |                                 | Total securities with defined maturities |                           
|                                                                |                                 |                                          | Mortgage Backed Securities
|Equity securities                                               |                                 |                                          | 7,129                     
|                                                                |                                 |                                          |                           
|                                                                | Total securities                |                                          | $                         
|                                                                |                                 |                                          |                           

DEPOSITS

Total deposits increased $214,877,000, or 15.12%, to $1,635,967,000 at June 30, 2002, from $1,421,090,000 at June 30, 2001. The increase in deposits
is due to internal growth and the purchase of First Western and Marquette Banks, which account for 46.37% of the increase. See "Mergers and Acquisitions". Total deposits increased $729,555,000, or
105.50% to $1,421,090 at June 30, 2001, from $691,535,000 at June 30, 2000. The increase in deposits is due to internal growth and the purchase of Iowa State Bank, United National Bank
of Iowa, Commercial Federal Bank's Kellerton, Iowa office, Founders Trust National Bank and Great Western Bank which collectively had deposits of $593,292,000.

29

---

The
following table presents the average amounts and the average rates paid on deposits of Spectrum for the year ended June 30, 2002, and for each of the prior two years:

|                                                           |  | Year Ended June 30, |          
|---------------------------------------------------------- |  | ------------------- | ---------
|
|
|
|Interest-bearing demand, savings and money market deposits |  | $                   | 522,953  
|Time deposits of less than $100,000                        |  |                     | 564,126  
|Time deposits of $100,000 or more                          |  |                     | 230,535  
|                                                           |  |                     |          
|Total interest-bearing deposits                            |  |                     | 1,317,614
|Noninterest-bearing demand deposits                        |  |                     | 177,411  
|                                                           |  |                     |          
|Total deposits                                             |  | $                   | 1,495,025
|                                                           |  |                     |          

The
maturity distribution of time deposits of $100,000 or more at June 30, 2002 is presented below:

At June 30, 2002(dollars in thousands)3 months or less

$
67,987Over 3 through 6 months


53,935Over 6 through 12 months


80,622Over 12 months


55,785Total time deposits of $100,000 or more

$
258,329


The
subsidiary banks rely to a limited extent on time deposits of $100,000 or more. Time deposits of $100,000 or more are a more volatile funding source than other deposits and are more
likely to affect Spectrum's future earnings because of interest rate sensitivity.

FEDERAL HOME LOAN BANK BORROWINGS

All of the subsidiary banks are members of the Federal Home Loan Bank. Due to the competitive rates available, each subsidiary bank has utilized Federal Home Loan
Bank advances as a source of funding. At June 30, 2002, the subsidiary banks had $69,337,000 in Federal Home Loan Bank advances compared to $70,696,000 at June 30, 2001 and $48,632,000
at June 30, 2000. At June 30, 2002, based on its Federal Home Loan Bank stockholdings, the aggregate unused borrowing capacity of Spectrum was $80,397,000.

A
variety of borrowing terms and maturities can be chosen from the Federal Home Loan Bank. Maturities available range generally from one day to 10 years. Interest rates can be
either fixed or variable and prepayment options are available if desired. The Federal Home Loan Bank offers both amortizing and non-amortizing advances. Historically, Federal Home Loan
Bank stock has been redeemable at the preset price of $100 per share, its current carrying value, but there can be no assurance that this policy will continue.

NOTES PAYABLE TO BANK

Spectrum has notes payable to an unaffiliated bank of $17,500,000 at June 30, 2002 compared to $9,750,000 at June 30, 2001 and $2,300,000 at
June 30, 2000. The increases are due to the Marquette and First Western Bank acquisitions in fiscal 2002 and the Great Western Bank acquisition in fiscal 2001. Spectrum has committed to
maintain specific covenants each quarter and year-end with the unaffiliated bank as stated in the March 23, 2001 loan agreement. For the period June 30, 2002 Spectrum did not
satisfy one of its covenants. The covenant in default required Spectrum to maintain a level of net charge-offs that is equal to or less than 0.35% of Spectrum's banking subsidiaries
combined total loans (total principal amount). The unaffiliated bank waived this covenant default for the period June 30, 2002. Terms of these notes are discussed in "Sources of Liquidity"
below.

CAPITAL NOTES

Capital Investors (See "Certain Relationships and Related Transactions") negotiated a loan from an unaffiliated bank of $35,000,000 to purchase Spectrum's
subordinated capital notes. The loan has the following

30

---

terms: the option to either fix the rate of interest at the five-year treasury rate plus 350 basis points but not less than the lender's cost of funds plus 250 basis points at the date
the loan is closed, or to select a rate of interest at LIBOR plus 215 basis points fixed at intervals ranging from 30 days to 180 days. Interest is payable quarterly and principal is to
be payable annually in each year beginning 2007 through 2011. Capital Investors collateralized its borrowing by pledging the subordinated capital notes to the unaffiliated bank. In addition, the
stockholders of Spectrum pledged their common stock as additional collateral for Capital Investors' loan. Capital Investors has also committed to maintain the same covenants Spectrum has with the
unaffiliated bank. As stated above in the "Notes Payable To Bank" section, Capital Investors also defaulted on the same named covenant and as stated above the unaffiliated bank waived this default for
the period June 30, 2002.

LINE OF CREDIT

Spectrum has a $5,000,000 revolving line of credit from the unaffiliated bank, to be used by Spectrum as a short-term liquidity facility. Spectrum
entered into a covenant with the unaffiliated lender not to pledge the stock of its subsidiary banks except to the lender as collateral for Spectrum's loans.

LIQUIDITY

SOURCES OF LIQUIDITY

Liquidity with respect to a financial institution is the ability to meet its short-term needs for cash without suffering an unfavorable impact on its
on-going operations. The need for the subsidiary banks to maintain funds on hand arises principally from maturities of short-term borrowings, deposit withdrawals, customers'
borrowing needs and the maintenance of reserve requirements. Liquidity with respect to a financial institution can be met from either assets or liabilities. On the asset side of the balance sheet, the
primary sources of liquidity are cash and due from banks, federal funds sold, maturities of securities and scheduled repayments and maturities of loans. The subsidiary banks maintain adequate levels
of cash and near-cash investments to meet their day-to-day needs. Cash and due from banks averaged $46,285,000 and $42,697,000 during the years ended
June 30, 2002 and 2001. These amounts comprised 2.48% and 3.71% of average total assets during the years ended June 30, 2002 and 2001. The average level of securities and federal funds
sold was $334,296,000 and $218,749,000 during the years ended June 30, 2002 and 2001.

At
June 30, 2002, $23,872,000, or 16.23%, of Spectrum's securities portfolio, excluding mortgage-backed securities and equity securities, are scheduled to mature within one year
and $78,864,000 or 53.63%, excluding mortgage-
backed securities, matured after one but within five years. The subsidiary banks' commercial lending activities are concentrated in loans with maturities of less than five years and with both fixed
and adjustable interest rates. Its installment lending activities are concentrated in loans with maturities of three to six years and with generally fixed interest rates. At June 30, 2002,
approximately $603,689,000, or 40.35%, of Spectrum's loans, net of unearned fees, matures within one year. See "Loan Maturities."

On
the liability side of the balance sheet, the principal sources of liquidity are deposits, borrowed funds and accessibility to money and capital markets. Spectrum attracts its deposits
primarily from individuals and businesses located within the market areas served by the subsidiary banks, and to lesser extent, on brokered deposits. Borrowed funds come primarily from three sources,
Federal Home Loan Bank borrowings, Spectrum's notes payable to an unaffiliated bank and the sale of subordinated capital notes to an affiliate. Interest is due quarterly to the unaffiliated bank at
either the lender's cost of funds plus 1.75% per annum or the LIBOR rate plus 1.5% (fixed for periods of up to 180 days) per annum, at the option of Spectrum. The maturity dates of these
outstanding debts are March 23, 2006. On August 12, 1999, Spectrum issued $20,400,000 of company obligated mandatorily redeemable preferred securities of a subsidiary trust, with
interest due at 10% per annum payable quarterly. The maturity date of the securities is August 18, 2029. On March 19, 2001 Spectrum issued $27,600,000 of company obligated mandatorily
redeemable preferred securities of a subsidiary trust, with interest due at 9.75% per annum payable quarterly. The maturity date of the securities is March 19, 2031.

CAPITAL RESOURCES

Spectrum monitors compliance with bank and bank holding company regulatory capital requirements, focusing primarily on risk-based capital guidelines.
As indicated in the table immediately below, at June 30, 2002, Spectrum was above the total capital minimum requirements. Under the risk-based capital method of capital measurement,
the ratio computed is dependent upon the amount and composition of assets recorded on the balance sheet, and the amount and composition of off-balance sheet items, in addition to the level
of capital. Included in the

31

---

risk-based capital method are two measures of capital adequacy, core capital and total capital, which consist of core and supplementary capital.

The
following tables present Spectrum's capital ratios as of the indicated dates.

|                                          |  | Risk-Based Capital Ratios |          
|----------------------------------------- |  | ------------------------- | ---------
|
|
|
|Core (Tier I) capital                     |  | $                         | 96,618   
|Core (Tier I) capital minimum requirement |  |                           | 62,257   
|                                          |  |                           |          
|Excess                                    |  | $                         | 34,361   
|                                          |  |                           |          
|Total capital                             |  | $                         | 164,356  
|Total capital minimum requirement         |  |                           | 124,515  
|                                          |  |                           |          
|Excess                                    |  | $                         | 39,841   
|                                          |  |                           |          
|Total risk-weighted assets                |  | $                         | 1,556,435
|                                          |  |                           |          

|                              |  | Leverage Ratios |          
|----------------------------- |  | --------------- | ---------
|
|
|
|Core capital                  |  | $               | 96,618   
|Minimum requirement           |  |                 | 77,313   
|                              |  |                 |          
|Excess                        |  | $               | 19,305   
|                              |  |                 |          
|Average total adjusted assets |  | $               | 1,932,825
|                              |  |                 |          

IMPACT OF INFLATION

The effects of inflation on the local economy and on Spectrum's operating results have been relatively modest for the past several years. Because substantially
all of Spectrum's assets and liabilities are monetary in nature, such as cash, securities, loans and deposits, their values are less sensitive to the effects of inflation than to changes in interest
rates, which do not necessarily change in accordance with inflation rates. Spectrum attempts to control the impact of interest rate fluctuations by managing the relationship between its interest rate
sensitive assets and liabilities.

32

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk arises when an interest-earning asset matures, is called, is prepaid or when such asset's rate of interest changes in a time frame different
from that of the supporting interest-bearing liability. Spectrum seeks to control the risk of significant adverse effects on Spectrum's net interest income caused by interest rate changes.

Spectrum
does not attempt to match each interest-earning asset with a specific interest-bearing liability. Instead, as shown in the table below, it aggregates all of its interest-earning
assets and interest-bearing liabilities to determine the difference between the two in specific time frames. This difference is known as the rate-sensitivity gap. A positive gap indicates
that more interest-earning assets than interest-bearing liabilities mature in a time frame, and a negative gap indicates the opposite. Maintaining a balanced rate-sensitivity gap will
reduce the risk associated with interest rate changes, but it will not guarantee a stable interest rate spread since various rates within a particular time frame may change by differing amounts and in
different directions. Management regularly monitors the rate-sensitivity gap and considers this position in its decisions with regards to interest rates and maturities for interest-earning
assets acquired and interest-bearing liabilities issued or accepted.

The
following table shows the ratio of the cumulative gap to total assets to be (21.39)% at the less than three-month interval, (29.18)% at the three month to less than
one-year interval and (.60)% at the one to five year intervals at June 30, 2002. Currently, Spectrum is in a liability-sensitive portion in the near term. Spectrum had $596,859,000
of interest-bearing demand, savings and money market deposits at June 30, 2002 that are somewhat less rate-sensitive. Excluding these deposits, Spectrum's interest-sensitive ratio
would have been 8.71% at the less than three-month interval, .92% at the three month to less than one-year interval and 29.50% at the one to five year intervals at June 30, 2002.
The interest sensitivity position is presented as of a point in time and can be modified to some extent by management as changing conditions dictate.

The
following table shows the interest rate sensitivity position of Spectrum at June 30, 2002:

|                                                                                                                                |                                           | Estimated Maturity or Repricing at June 30, 2002 |         
|------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------ | --------
|
|
|Interest-earning assets:                                                                                                        |                                           |                                                  |         
|Loans, net of unearned fees                                                                                                     |                                           | $                                                | 409,435 
|Investment securities:                                                                                                          |                                           |                                                  |         
|Taxable                                                                                                                         |                                           |                                                  | 24,565  
|Tax exempt                                                                                                                      |                                           |                                                  | 1,279   
|Federal funds sold and other                                                                                                    |                                           |                                                  | 16,650  
|                                                                                                                                |                                           |                                                  |         
|                                                                                                                                | Total interest-earning assets             |                                                  |         
|Interest-bearing liabilities:                                                                                                   |                                           |                                                  |         
|Deposits:                                                                                                                       |                                           |                                                  |         
|                                                                                                                                | Demand, savings and money market deposits |                                                  |         
|                                                                                                                                | Time deposits                             |                                                  |         
|Federal Home Loan Bank borrowings, federal funds purchased and securities sold under agreements to repurchase                   |                                           |                                                  | 71,992  
|Notes payable                                                                                                                   |                                           |                                                  | 52,500  
|Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures |                                           | $                                                | 0       
|                                                                                                                                |                                           |                                                  |         
|                                                                                                                                | Total interest-bearing liabilities        |                                                  | $       
|                                                                                                                                |                                           |                                                  |         
|Interest rate gap                                                                                                               |                                           | $                                                | (430,409
|                                                                                                                                |                                           |                                                  |         
|Cumulative interest rate gap at June 30, 2002                                                                                   |                                           | $                                                | (430,409
|                                                                                                                                |                                           |                                                  |         
|Cumulative interest rate gap to total assets                                                                                    |                                           |                                                  | (21.39  
|                                                                                                                                |                                           |                                                  |         

33

---

The
following table indicates that at June 30, 2002, if there had been a sudden and sustained increase in prevailing market interest rates, Spectrum's 2003 interest income would
be expected to decrease, while a decrease in rates would indicate an increase in income.

|                          |  | Net interest income |        | (Decrease) Increase |        | Percent Change |      
|------------------------- |  | ------------------- | ------ | ------------------- | ------ | -------------- | -----
|
|Changes in Interest Rates |  |                     |        |                     |        |                |      
|200 basis point rise      |  | $                   | 63,180 |                     | (4,554 | )              | (6.72
|100 basis point rise      |  |                     | 65,457 |                     | (2,277 | )              | (3.36
|Base rate scenario        |  |                     | 67,734 |                     | 0      |                | 0.00 
|100 basis point decline   |  |                     | 68,634 |                     | 900    |                | 1.33 
|200 basis point decline   |  |                     | 72,288 |                     | 4,554  |                | 6.72 

The
following table indicates that at June 30, 2001, if there had been a sudden and sustained increase in prevailing market interest rates, Spectrum's 2002 net interest income
would be expected to decrease, while a decrease in rates would indicate an increase in income. Spectrum's interest rate risk profile was slightly less sensitive to changes in interest rates at
June 30, 2002 versus June 30, 2001.

|                          |  | Net interest income |        | (Decrease) Increase |        | Percent Change |       
|------------------------- |  | ------------------- | ------ | ------------------- | ------ | -------------- | ------
|
|Changes in Interest Rates |  |                     |        |                     |        |                |       
|200 basis point rise      |  | $                   | 34,963 |                     | (4,881 | )              | (12.25
|100 basis point rise      |  |                     | 37,403 |                     | (2,441 | )              | (6.13 
|Base rate scenario        |  |                     | 39,844 |                     | 0      |                | 0.00  
|100 basis point decline   |  |                     | 41,272 |                     | 1,428  |                | 3.58  
|200 basis point decline   |  |                     | 44,725 |                     | 4,881  |                | 12.25 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of Spectrum at June 30, 2002 and 2001, together with the Independent Auditor's Report, are included in this
Form 10-K below.

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

There
has been no current report on Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants
and/or reporting disagreements on any matter of accounting principle or financial statement disclosure.

34

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of Spectrum and their respective ages and positions as of the date of this report are as follows:

|Name                |  | Age |  | Position with Spectrum                  |  | Position with Susidiary                                                                                                                                                                                                                                          
|------------------- |  | --- |  | --------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Deryl F. Hamann     |  | 69  |  | Chairman of the Board, CEO and Director |  | Chairman and Director of F&M Bank, Rushmore Bank & Trust and Great Western Bank                                                                                                                                                                                  
|Daniel A. Hamann    |  | 44  |  | President, COO and Director             |  | Chairman and Director of Citizens Bank, Mount Ayr, Citizens Bank, Clive and Citizens Bank of Princeton; Vice Chairman and Director of F&M Bank, Rushmore Bank & Trust; Chairman and Director of Spectrum Banc Service Corporation, Director
of Great Western Bank
|Daniel J. Brabec    |  | 43  |  | Executive Vice President and Director   |  | President and Director of Great Western Bank                                                                                                                                                                                                                     
|Jeffory A. Erickson |  | 44  |  | Director                                |  | President, CEO and Director of F&M Bank and Vice Chairman CEO and Director of Rushmore Bank & Trust                                                                                                                                                              
|Thomas B. Fischer   |  | 55  |  | Senior Vice President and Director      |  | None                                                                                                                                                                                                                                                             
|Art N. Burtscher    |  | 51  |  | Director                                |  | Vice Chairman and Director of
Great Western Bank                                                                                                                                                                                                                 
|Andrew C. Hove, Jr. |  | 67  |  | Director                                |  | None                                                                                                                                                                                                                                                             
|Robert W. Murray    |  | 67  |  | Director                                |  | None                                                                                                                                                                                                                                                             
|Leo W. Smith II     |  | 66  |  | Director                                |  | Director of Great Western Bank                                                                                                                                                                                                                                   
|James R. Clark      |  | 51  |  | CFO, Secretary and Treasurer            |  | None                                                                                                                                                                                                                                                             

Deryl F.
Hamann is the father of Daniel A. Hamann and the father-in-law of Daniel J. Brabec. All directors of Spectrum hold office until the
next meeting of stockholders or until their successors are elected and qualified.

Deryl F. Hamann.Mr. Hamann has been Chairman or President and CEO of Spectrum since 1971. He is Chairman of
the affiliated Spectrum Life Insurance Company, an Arizona reinsurance company. He is Chairman of the affiliated Spectrum Financial Services, Inc. He is a partner in the Omaha, Nebraska law
firm of Baird, Holm, McEachen, Pedersen, Hamann & Strasheim LLP, counsel to Spectrum.

Daniel A. Hamann.Mr. Daniel Hamann has been President of Spectrum since 1996 and served as Vice President of
Spectrum from 1992 to 1996. He is Chairman and Director of Citizens Bank, Mount Ayr, Citizens Bank, Clive and Citizens Bank of Princeton, and Vice Chairman of F&M Bank and Rushmore Bank &
Trust, and a Director of Great Western Bank. He is Chairman and Director of Spectrum's banks' subsidiary, Spectrum Banc Service Corporation. He is President and Director of the affiliated Spectrum
Life Insurance Company. He is Executive Vice President of Spectrum Financial Services, Inc., an affiliate of Spectrum.

Daniel J. Brabec.Mr. Brabec has served as Vice President of Spectrum since 1992 and as Executive Vice
President since 1999. Mr. Brabec served as CFO, Secretary and Treasurer of Spectrum from 1999 to 2001. Mr. Brabec served as Executive Vice President and Director of Rushmore
Bank & Trust from 1993 until July 1999, when he resigned
to assume expanded duties with Spectrum. He is a Director of the affiliated Spectrum Life Insurance Company. Mr. Brabec became President of Great Western Bank in January 2001.

35

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Jeffory A. Erickson.Mr. Erickson has served as President and CEO of F&M Bank since 1995. He was elected a
Director of Spectrum in January 2002. Since July 2002 he has served as Vice Chairman and Chief Executive Officer of Rushmore Bank & Trust.

Thomas B. Fischer.Mr. Fischer has been President of Spectrum Financial Services, Inc. an affiliate of
Spectrum since 1996. In 1997, he was elected Senior Vice President and Director of Spectrum. From 1992 to 1996, Mr. Fischer was Vice President, General Counsel, and Secretary of FirsTier
Financial, Inc., a multi-bank holding company headquartered in Omaha, Nebraska.

Art N. Burtscher.Mr. Burtscher is President of McCarthy Group Asset Management in Omaha. He has been a
Director of Spectrum since May 2001. He is Vice Chairman and Director of Great Western Bank, where he served as President from 1988 to 2001.

Andrew C. Hove, Jr.Mr. Hove, retired, was Vice Chairman and Acting Chairman of the Federal Deposit
Insurance Corporation in Washington, DC, from 1990 to 2001. He is the former Chairman and CEO of the Minden Exchange Bank & Trust Company, Minden, Nebraska, where he had served for
30 years. Mr. Hove became a Director of Spectrum in May 2001.

Robert W. Murray.Mr. Murray is Vice Chairman of National Travelers Life Insurance Company in West Des Moines,
Iowa. He is the former Chairman and CEO of Mercantile Bank Iowa and former Chairman and CEO of Hawkeye Bancorporation. Mr. Murray became a Director of Spectrum in May 2001.

Leo W. Smith II.General Smith (retired) is an independent consultant. He has been Director of Great Western
Bank since September 1998 and Director of Spectrum since May 2001. Prior to his service as a Director with United Way of the Midlands in Omaha, Nebraska, General Smith was the last Vice
Commander-In-Chief of the Strategic Air Command.

James R. Clark.Mr. Clark joined Spectrum Bancorporation as Chief Financial Officer, Treasurer, and Secretary in
August 2001. From 1994 to 1999, he was Vice President of Finance and Administration of (i) Structure, Inc. From 1977 to 1994, he held financial positions with Peter Kiewit
Sons', Inc., Omaha, Nebraska.

ITEM 11.    EXECUTIVE COMPENSATION

The following table presents the cash compensation paid by Spectrum and its subsidiaries to its Chief Executive Officer and Chief Operating Officer, the only
named officers, for the fiscal years 2000 through 2002. No other executive officer of Spectrum received compensation from Spectrum exceeding $100,000 for these years.

Name and Principal Position

Year

Salary

All Other
Compensation(1)Deryl F. Hamann, Chairman and Chief Executive Officer(2)

2002
2001
2000

681,812
340,822
258,796

29,733
10,000
9,720Daniel A. Hamann, President and Chief Operating Officer

2002
2001
2000

170,000
158,500
141,629

16,914
15,070
3,490Daniel J. Brabec, Executive Vice President and Director

2002

181,245

18,009


---

Spectrum
does not have any compensatory stock option plan for its executive officers and directors. None of the directors or officers of Spectrum have any options, warrants or other
similar rights to purchase securities of Spectrum.

Spectrum
has no board committees at the holding company level except an audit committee. On June 14, 2000, Spectrum adopted an Audit Committee Charter in compliance with SEC and
American Stock Exchange rules. As a result of this action, Spectrum added three independent directors to serve on its audit committee.

36

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INDEMNIFICATION

The articles of incorporation of Spectrum provide that the board of directors is authorized to indemnify, in the manner and to the extent provided by the Iowa
Business Corporation Act, any person entitled to indemnification thereunder. Generally under Iowa law, any individual who is made a party to a proceeding because the individual is or was a director
may be indemnified if the individual acted in good faith and had reasonable basis to believe that: (1) in the case of conduct in the individual's official capacity with the corporation, that
the individual's conduct was in the corporation's best interests; and (2) in all other cases, that the individual's conduct was at least not opposed to the corporation's best interest; and
regarding any criminal proceedings, the individual had no reasonable cause to believe the individual's conduct was unlawful. Iowa law also extends such indemnification to officers, employees, and
agents of the corporation and further provides that an Iowa corporation may advance expenses to a director, officer, employee, or agent of the corporation. Spectrum has adopted resolutions to
implement such indemnity.

Iowa
law also provides that an Iowa corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation,
or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by that individual in that capacity or
arising from the individual's status as a director, officer, employee, or agent. Spectrum has not purchased such insurance.

The
indemnification and advancement of expenses provided by Iowa law are not exclusive of any other rights to which persons seeking indemnification or advancement of expenses are
entitled under a provision in the articles of incorporation or bylaws, agreements, vote of stockholders or disinterested directors, or otherwise, both as to action in a person's official capacity and
as to action in another capacity while holding office. However, such provisions, agreements, votes or other actions shall not provide indemnification for a breach of a director's duty of loyalty to
the corporation or its stockholders, for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of the law, for a transaction from which the person seeking
indemnification derives an improper personal benefit, or for liability for unlawful distributions.

Iowa
law provides that a director is not liable for any action taken as a director, or any failure to take any action, as long as the director discharged his or her duties (1) in
good faith, (2) with the care of an ordinarily prudent person in a like position would exercise under similar circumstances, and (3) in a manner the director reasonably believes to be in
the best interests of the corporation.

There
is no pending litigation or proceeding involving a director, officer, employee or other agent of Spectrum as to which indemnification is being sought. Spectrum is not aware of any
other threatened litigation that may result in claims for indemnification by any director, officer, employee or other agent.

PHANTOM STOCK AGREEMENTS

Spectrum's subsidiary banks have phantom stock agreements with several senior bank officers, including Daniel A. Hamann, Chairman of Citizens Bank, Mount
Ayr and Daniel J. Brabec, President of Great Western Bank. Cash amounts are accumulated for the officers based on their bank's performance, 50% by achieving certain annual growth rates in net
income and 50% by achieving certain annual rates of return on assets. Accumulated amounts are payable to the officers over ten years beginning at age 65 or prior due to death or
permanent disability.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents information regarding beneficial ownership of common stock of Spectrum as of September 15, 2002 by (1) each shareholder
known by Spectrum to be the beneficial owner of more than 5% of its outstanding common stock and (2) each director of Spectrum and each named executive officer and (3) all directors and
executive officers as a group. Based on information furnished by the owners, management believes

37

---

that the stockholders listed below have sole investment and voting power regarding their shares, except that co-trustees share investment and voting power.

|Name and Address of Beneficial Owner                                  |  | Shares
Beneficially
Owned |   | Percentage
of Class |  
|--------------------------------------------------------------------- |  | ------------------------- | - | ------------------- | -
|Deryl F. Hamann
1500 Woodmen Tower
Omaha, NE 68102                    |  | 91,127(1                  | ) | 72.82               | %
|Daniel A. Hamann
10834 Old Mill Road, Suite One
Omaha, NE 68154       |  | 22,707(2                  | ) | 18.15               | %
|Esther Hamann Brabec
10834 Old Mill Road, Suite One
Omaha, NE 68154   |  | 24,844(3                  | ) | 19.85               | %
|Daniel J. Brabec
14545 West Center Road
Omaha, NE 68144               |  | 455(4                     | ) | *                   |  
|Julie Hamann Bunderson
10834 Old Mill Road, Suite One
Omaha, NE 68154 |  | 27,014(5                  | ) | 21.59               | %
|Art N. Burtscher
1125 So. 103rd St., Suite 450
Omaha, NE 68124        |  | -0-                       |   | -0-                 |  
|Jeffory A. Erickson
35 First Ave NE
Watertown, SD 57201               |  | -0-                       |   | -0-                 |  
|Andrew C. Hove, Jr.
6610 Blue Ridge Lane
Lincoln, NE 68516            |  | -0-                       |   | -0-                 |  
|Robert W. Murray
1716 So. 42nd St.
West Des Moines, IA 50265          |  | -0-                       |   | -0-                 |  
|Leo W. Smith II
1805 Harney St.
Omaha, NE 68102                       |  | -0-                       |   | -0-                 |  
|Thomas B. Fischer
10834 Old Mill Road, Suite One
Omaha, NE 68154      |  | -0-                       |   | -0-                 |  
|All executive officers and directors as a group (nine persons)        |  | 114,289                   |   | 91.33               | %

---

38

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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Spectrum Life Insurance Company and Spectrum Financial Services, Inc. are affiliates of Spectrum. They are owned, directly or indirectly, by
Deryl F. Hamann, individually or as trustee for the benefit of his children. Spectrum Life Insurance Company reinsures certain credit life, accident and health insurance policies sold by
Spectrum's subsidiary banks and unaffiliated banks as agents for an unaffiliated insurance company. Spectrum Life Insurance Company reinsures certain of the mortality and morbidity risks under such
policies in accordance with separate treaties with the unaffiliated insurance company, and received compensation from such insurance company of $945,665 during Spectrum's fiscal year ended
June 30, 2002, and $641,791 for the year ended June 30, 2001, for assuming such reinsurance risks with respect to credit insurance originated by Spectrum's subsidiary banks. Spectrum's
subsidiary banks receive a commission on such sales of credit insurance as permitted by applicable state law.

In
addition, Spectrum Financial Services receives a commission as general agent from the unaffiliated insurance company on such sales of credit insurance where permitted by law. Such
commissions on credit life insurance
originated by Spectrum's subsidiary banks was $17,091 during the fiscal year ended June 30, 2002, and $16,351 during the fiscal year ended June 30, 2001. Spectrum believes that the
foregoing arrangements are on terms similar to those which would be obtained with an unaffiliated party.

Spectrum
Financial Services places investment centers in banks, including Spectrum's subsidiary banks, and unaffiliated banks. The investment centers engage in the sale of life
insurance, annuities, mutual funds and certain other securities on the premises of the banks under lease arrangements and with joint or common employees. Spectrum Financial Services pays Spectrum's
subsidiary banks lease rentals based on commissions generated. Gross commissions originated from Spectrum's subsidiary banks were $764,097 during Spectrum's fiscal year ended June 30, 2002, and
$591,220 during the fiscal year ended June 30, 2001. Each Spectrum bank received approximately 75% (before broker compensation) of the amount of gross commissions generated from its leased
space as rental. Spectrum believes that these arrangements are on terms similar to those that would be obtained with an unaffiliated party.

Spectrum's
banks (excluding Great Western Bank) own all of the stock of Spectrum Banc Service Corporation. It provides data processing services and certain related services to the five
banks on a break-even basis. Spectrum Banc Services Corporation operates under lease agreement for office space from F&M Bank. Spectrum believes that these arrangements are on terms
similar to those that would be obtained with an unaffiliated party.

On
August 7, 2000, Spectrum became the surviving corporation in a merger with the affiliated Citizens Corporation, which owned Citizens Bank, Chariton, Iowa. The Hamann family or
their interests owned beneficially all of the stock to all parties to the merger. In the merger, the Hamann family or their interests received a total of 7,584 shares of common stock of Spectrum.
Shortly prior to the merger the Hamann family or their interests received 10% subordinated capital notes of Citizens Corporation, having a face amount of $1,200,000 due December 31, 2010, as a
distribution of income received while Citizens Corporation was an "S" corporation. The liability on the capital notes was assumed by Spectrum in the merger.

In
January of 2001, F&M Bank, a subsidiary of Spectrum, purchased the insurance agency business of Watertown Agency, Inc. from Spectrum Financial Services, Inc. for
$539,652. The selling corporation has been owned by the Hamann family and was engaged in the insurance agency business in Watertown, South Dakota since 1976. Spectrum believes that the price paid was
similar to the price that would have been paid by an unaffiliated party.

39

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On
March 23, 2001, Spectrum became the surviving corporation in a merger with the affiliated Great Western Securities, which owned Great Western Bank. The Hamann family or their
interests owned 50% of the common stock of Great Western Securities, Inc. In the merger, the Hamann family or their interests received a total of 46,319 shares of common stock of Spectrum. The
remainder of the consideration was paid to an unaffiliated party.

In
connection with the acquisition of Great Western Securities, stockholders of Spectrum formed Capital Investors, LLC. Capital Investors, LLC is owned by stockholders of Spectrum for
the purpose of financing the purchase of Spectrum's subordinated capital notes. This structure was designed to meet requirements of the third party lender to Capital Investors and to qualify
Spectrum's subordinated capital notes as Tier II capital for regulatory purposes. The subordinated capital notes bear interest at a floating rate of one percent per annum over prime rate and
will be due March 23, 2011 with interest payable quarterly. Spectrum has the right to prepay the subordinated capital notes without penalty. Depending upon the availability of funds and
Spectrum's capital
requirements, Spectrum intends to prepay the subordinated capital notes at the rate of 20% of the original principal amount each year beginning in 2007 through 2011. Spectrum's obligations under its
preferred securities guarantee and the junior subordinated debentures are unsecured and rank junior to Spectrum's obligations under its subordinated capital notes.

Capital
Investors negotiated a loan from an unaffiliated bank of $35,000,000 to purchase Spectrum's subordinated capital notes. The loan terms include the option to either fix the rate
of interest at the one to five-year treasury rate plus 350 basis points but not less than the lender's cost of funds plus 250 basis points, or to select a rate of interest at LIBOR plus
215 basis points fixed at intervals ranging from 30 days to 180 days. Interest is payable quarterly on the loan and principal is payable annually in each year beginning 2007 through
2011. Capital Investors collateralized its borrowing by pledging the subordinated capital notes to the unaffiliated bank. In addition, the stockholders of Spectrum pledged their common stock as
additional collateral for Capital Investors' loan.

Daniel A.
Hamann, Esther Hamann Brabec and Julie Hamann Bunderson, children of Deryl F Hamann are partiers to a Spilt Dollar Agreement dated Jul 12, 1995 pursuant to which
Spectrum pays premiums for insurance on the life of Deryl F, Hamann which are to be repaid upon maturity of the policy. See Exhibit Document 10.7. Spectrum is awaiting issuance of regulations present
to Sarbanes-Oxley Act of 2002 to determine applicability of the Act to this Agreement.

Deryl F.
Hamann is a partner in the law firm of Baird, Holm, McEachen, Pedersen, Hamann & Strasheim LLP, Omaha, Nebraska, and counsel to Spectrum. See "Legal Proceedings."
Mr. Hamann devotes approximately 5% of his time to law firm matters, 90% to Spectrum matters, and the remaining 5% of his time to other interests.

40

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PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K





|REGULATION S-K
EXHIBIT
NUMBER |  | DOCUMENT                                                                                                                                            |  | REFERENCE
TO PRIOR
FILING OR
EXHIBIT
NUMBER
ATTACHED
HERETO |  | SEQUENTIAL
PAGE NUMBER
WHERE ATTACHED
EXHIBITS ARE
LOCATED IN THIS
FORM 10-K REPORT
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- |  | -----------------------------------------------------------------------------------
|2.2                           |  | Agreement and Plan of Merger dated May 25, 2000, between Spectrum Bancorporation, Inc. and Citizens Corporation                                     |  | (2)                                                         |  | Not Applicable                                                                     
|2.3                           |  | Agreement dated November 14, 2000, between Jack K. Harvey and Great Western Securities, Inc.                                                        |  | (2)                                                         |  | Not Applicable                                                                     
|2.4                           |  | Agreement and Plan of Merger dated December 16, 2000, between Spectrum Bancorporation, Inc. and Great Western Securities, Inc.                      |  | (2)                                                         |  | Not Applicable                                                                     
|3.1                           |  | Articles of Amendment to Articles of Incorporation of Spectrum Bancorporation, Inc.                                                                 |  | (1)                                                         |  | Not Applicable                                                                     
|3.2                           |  | Bylaws of Spectrum Bancorporation, Inc.                                                                                                             |  | (1)                                                         |  | Not Applicable                                                                     
|4.1                           |  | Form of Subordinated Indenture dated August 18, 1999, to be entered into between the Registrant and Wilmington Trust Company, as Indenture Trustee. |  | (1)                                                         |  | Not Applicable                                                                     
|4.1                           |  | Form of Subordinated Indenture dated March 19, 2001 to be entered into between the Registrant and Wilmington Trust Company, as Indenture Trustee.   |  | (2)                                                         |  | Not Applicable                                                                     
|4.2                           |  | Form of Junior Subordinated Debenture.                                                                                                              |  | (1)                                                         |  | Not Applicable                                                                     
|4.2                           |  | Form of Junior Subordinated Debenture.                                                                                                              |  | (2)                                                         |  | Not Applicable                                                                     
|4.3                           |  | Certificate of Trust of Spectrum Capital I.                                                                                                         |  | (1)                                                         |  | Not Applicable                                                                     
|4.3                           |  | Certificate of Trust of Spectrum Capital II.                                                                                                        |  | (2)                                                         |  | Not Applicable                                                                     
|4.4                           |  | Trust Agreement of Spectrum Capital I dated as of June 11, 1999.                                                                                    |  | (1)                                                         |  | Not Applicable                                                                     
|4.4                           |  | Trust Agreement of Spectrum Capital II dated as of January 4, 2001.                                                                                 |  | (2)                                                         |  | Not Applicable                                                                     
|4.5                           |  | Form of Amended and Restated Trust Agreement of Spectrum Capital I dated August 18, 1999.                                                           |  | (1)                                                         |  | Not Applicable                                                                     
|4.5                           |  | Form of Amended and Restated Trust Agreement of Spectrum Capital II dated March 19, 2001.                                                           |  | (2)                                                         |  | Not Applicable                                                                     
|4.6                           |  | Form of Preferred Security Certificate of Capital I.                                                                                                |  | (1)                                                         |  | Not Applicable                                                                     
|4.6                           |  | Form of Preferred Security Certificate of Capital II.                                                                                               |  | (2)                                                         |  | Not Applicable                                                                     
|4.7                           |  | Form of Preferred Securities Guarantee Agreement.                                                                                                   |  | (1)                                                         |  | Not Applicable                                                                     
|4.8                           |  | Form of Agreement as to Expenses and Liabilities.                                                                                                   |  | (1)                                                         |  | Not Applicable                                                                     
|4.8                           |  | Form of Agreement as to Expenses and Liabilities.                                                                                                   |  | (2)                                                         |  | Not Applicable                                                                     

41

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|4.9  |  | Revised Form of Spectrum's Subordinated Capital Notes due 2011                                                                                                                                                          |  | (3) |  | Not Applicable
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | --------------
|10.1 |  | Time Note dated July 18, 2000, between Spectrum Bancorporation, Inc., as borrower, and LaSalle Bank National Association                                                                                                |  | (2) |  | Not Applicable
|10.3 |  | Agreement for Advances, Pledge and Security Agreement dated September 11, 1995, between Federal Home Loan Bank of Des Moines and Rushmore Bank & Trust. (Registrant's other subsidiary banks have identical
agreements) |  | (1) |  | Not Applicable
|10.4 |  | Form of CMS Agency Agreement (reverse repurchase agreement) between F&M Bank and its customers.                                                                                                                        |  | (1) |  | Not Applicable
|10.5 |  | Phantom Stock Long-Term Incentive Plan dated January 16, 1998, between Daniel A. Hamann and Citizens Bank.                                                                                                              |  | (1) |  | Not Applicable
|10.5 |  | Phantom Stock Long-Term Incentive Plan dated June 30, 2000 between Daniel A. Hamann and Citizens Bank.                                                                                                                  |  | (2) |  | Not Applicable
|10.6 |  | License Agreement dated September 5, 1997 between Jack Henry & Associates, Inc. and Spectrum Banc Service Corporation.                                                                                                  |  | (1) |  | Not Applicable
|10.7 |  | Split-Dollar Agreement dated July 12, 1995 among Decatur Corporation and Daniel A. Hamann, Esther Hamann Brabec and Julie Hamann Bunderson.                                                                             |  | (1) |  | Not Applicable
|10.8 |  | Phantom Stock Long-Term Incentive Plan dated January 24,2000, between Jeffory A. Erickson and F&M Bank.                                                                                                                 |  | (5) |  |               
|10.9 |  | Phantom Stock Long-Term Incentive Plan dated January 17,2001, between Dan J. Brabec and Great Western Bank.                                                                                                             |  | (5) |  |               
|12.1 |  | Statement re Computation of Ratios.                                                                                                                                                                                     |  | (5) |  |               
|21   |  | Subsidiaries of Registrant.                                                                                                                                                                                             |  | (5) |  |               
|24.1 |  | Power of Attorney for Art N. Burtscher.                                                                                                                                                                                 |  | (4) |  | Not Applicable
|24.2 |  | Power of Attorney for Andrew C. Hove, Jr.                                                                                                                                                                               |  | (4) |  | Not Applicable
|24.3 |  | Power of Attorney for Robert W. Murray.                                                                                                                                                                                 |  | (4) |  | Not Applicable
|24.4 |  | Power of Attorney for Leo W. Smith.                                                                                                                                                                                     |  | (4) |  | Not Applicable
|24.5 |  | Power of Attorney for Jeffory A. Erickson.                                                                                                                                                                              |  | (5) |  |               
|99.1 |  | Chief Executive Officer's Certificate Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                          |  | (5) |  |               
|99.2 |  | Chief Financial Officer's Certificate Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                          |  | (5) |  |               

---

42

---

All
of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.



No
reports on Form 8-K were filed during the fourth quarter.

43

---



SIGNATURES

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

| | SPECTRUM BANCORPORATION, INC.
| | -----------------------------
| | By                           

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

|/s/DERYL F. HAMANNDeryl F. Hamann, Chairman,
Chief Executive Officer and Director
(Principal Executive and Operating Officer)
Date: 9/27/02 |  | /s/DANIEL A. HAMANNDaniel A. Hamann, President
Chief Operating Officer and Director
Date: 9/27/02
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|/s/THOMAS B. FISCHERThomas B. Fischer,
Senior Vice President and Director
Date: 9/27/02                                                     |  | /s/ARTHUR N. BURTSCHER*Arthur N. Burtscher, Director
Date: 9/27/02                               
|/s/DANIEL J. BRABECDaniel J. Brabec,
Executive Vice President and Director
Date: 9/27/02                                                    |  | /s/ANDREW C. HOVE, JR.*Andrew C. Hove, Jr; Director
Date: 9/27/02                                
|/s/JAMES R. CLARKChief Financial Officer and Secretary/Treasurer
Date: 9/27/02                                                              |  | /s/ROBERT W. MURRAY*Robert W. Murray, Director
Date: 9/27/02                                     
|/s/JEFFORY A. ERICKSON*Jeffory A. Erickson, Director
Date: 9/27/02                                                                          |  | /s/LEO W. SMITH II*Leo W. Smith II, Director
Date: 9/27/02                                       
|                                                                                                                                            |  | *By:                                                                                             

44

---

SPECTRUM BANCORPORATION, INC.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL REPORT

JUNE 30, 2002

---



CONTENTS

|INDEPENDENT AUDITOR'S REPORT      |                                            | F-2
|--------------------------------- | ------------------------------------------ | ---
|CONSOLIDATED FINANCIAL STATEMENTS |                                            |    
|                                  | Balance sheets                             |    
|                                  | Statements of income                       |    
|                                  | Statements of stockholders' equity         |    
|                                  | Statements of cash flows                   |    
|                                  | Notes to consolidated financial statements |    

F-1

---



INDEPENDENT AUDITOR'S REPORT

To
the Board of Directors
Spectrum Bancorporation, Inc.
Omaha, Nebraska

We
have audited the accompanying consolidated balance sheets of Spectrum Bancorporation, Inc. and subsidiaries as of June 30, 2002 and 2001, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spectrum Bancorporation, Inc. and
subsidiaries as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with
accounting principles generally accepted in the United States of America.



Sioux
Falls, South Dakota
July 30, 2002

F-2

---



SPECTRUM BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS  June 30, 2002 and 2001  (In Thousands, except share data)

|                                                                                    |                                                                                                                                                                                                                                       | 2002                |                                 | 2001   
|----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------------- | -------
|ASSETS                                                                              |                                                                                                                                                                                                                                       |                     |                                 |        
|Cash and due from banks (Note 3)                                                    |                                                                                                                                                                                                                                       | $                   | 52,927                          |        
|Federal funds sold                                                                  |                                                                                                                                                                                                                                       |                     | 16,351                          |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       |                     | Total cash and cash equivalents |        
|Certificates of deposit                                                             |                                                                                                                                                                                                                                       |                     | 497                             |        
|Securities available for sale (Notes 4, 10 and 11)                                  |                                                                                                                                                                                                                                       |                     | 334,059                         |        
|Loans, net of allowance for loan losses of $20,344 and $18,955 (Notes 5, 11 and 20) |                                                                                                                                                                                                                                       |                     | 1,475,856                       |        
|Premises and equipment, net (Note 6)                                                |                                                                                                                                                                                                                                       |                     | 41,803                          |        
|Accrued interest receivable                                                         |                                                                                                                                                                                                                                       |                     | 15,089                          |        
|Core deposit intangible and other, net (Note 7)                                     |                                                                                                                                                                                                                                       |                     | 9,892                           |        
|Goodwill, net (Note 7)                                                              |                                                                                                                                                                                                                                       |                     | 39,315                          |        
|Mortgage servicing rights, net (Notes 7 and 8)                                      |                                                                                                                                                                                                                                       |                     | 15,131                          |        
|Other assets (Note 13)                                                              |                                                                                                                                                                                                                                       |                     | 11,237                          |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       | $                   | 2,012,157                       |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                |                                                                                                                                                                                                                                       |                     |                                 |        
|Liabilities                                                                         |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    | Deposits (Note 9):                                                                                                                                                                                                                    |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       | Noninterest bearing |                                 | $      
|                                                                                    |                                                                                                                                                                                                                                       | Interest bearing    |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       |                     | Total deposits                  |        
|                                                                                    | Federal funds purchased and securities sold under agreements to repurchase (Note 10)                                                                                                                                                  |                     |                                 | 70,544 
|                                                                                    | Notes payable (Note 11)                                                                                                                                                                                                               |                     |                                 | 124,264
|                                                                                    | Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures (Note 12)                                                                                            |                     |                                 | 48,000 
|                                                                                    | Accrued interest and other liabilities (Note 14)                                                                                                                                                                                      |                     |                                 | 17,990 
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       |                     | 1,896,765                       |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|Minority Interest in Subsidiaries (Note 2)                                          |                                                                                                                                                                                                                                       |                     | 5,229                           |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|Commitments and Contingencies (Notes 18 and 19)                                     |                                                                                                                                                                                                                                       |                     |                                 |        
|Stockholders' Equity (Note 16)                                                      |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    | Preferred stock, $100 par value; 500,000 shares authorized; issued and outstanding: 9,000 shares of 8% cumulative, nonvoting; 8,000 shares of 10% noncumulative, nonvoting; 100,000 shares of variable rate,
noncumulative, nonvoting |                     |                                 | 11,700 
|                                                                                    | Common stock, $1.00 par value, 1,000,000 shares authorized; issued and outstanding: 125,132 and 125,267 shares                                                                                                                        |                     |                                 | 125    
|                                                                                    | Additional paid-in capital                                                                                                                                                                                                            |                     |                                 | 2,058  
|                                                                                    | Retained earnings                                                                                                                                                                                                                     |                     |                                 | 92,285 
|                                                                                    | Accumulated other comprehensive income, net (Note 4)                                                                                                                                                                                  |                     |                                 | 3,995  
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       |                     | Total stockholders' equity      |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        
|                                                                                    |                                                                                                                                                                                                                                       | $                   | 2,012,157                       |        
|                                                                                    |                                                                                                                                                                                                                                       |                     |                                 |        

See
Notes to Consolidated Financial Statements.

F-3

---

SPECTRUM BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME  Years Ended June 30, 2002, 2001 and 2000  (In Thousands, except share and per share data)

|                                                |                                                                                 | 2002 |                                                                                | 2001    |   | 2000   |       
|----------------------------------------------- | ------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------ | ------- | - | ------ | ------
|Interest income on:                             |                                                                                 |      |                                                                                |         |   |        |       
|                                                | Loans                                                                           |      | $                                                                              | 110,101 |   | $      | 77,622
|                                                | Taxable securities                                                              |      |                                                                                | 14,966  |   |        | 10,148
|                                                | Nontaxable securities                                                           |      |                                                                                | 1,291   |   |        | 1,010 
|                                                | Dividends on securities                                                         |      |                                                                                | 290     |   |        | 268   
|                                                | Federal funds sold and other                                                    |      |                                                                                | 1,267   |   |        | 2,621 
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | 127,915                                                                        |         |   | 91,669 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|Interest expense on:                            |                                                                                 |      |                                                                                |         |   |        |       
|                                                | Deposits                                                                        |      |                                                                                | 46,620  |   |        | 42,305
|                                                | Federal funds purchased and securities sold under agreements to repurchase      |      |                                                                                | 1,644   |   |        | 1,567 
|                                                | Notes payable and company obligated mandatorily redeemable preferred securities |      |                                                                                | 11,917  |   |        | 7,953 
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | 60,181                                                                         |         |   | 51,825 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | Net interest income                                                            |         |   | 67,734 |       
|Provision for loan losses (Note 5)              |                                                                                 |      | 6,067                                                                          |         |   | 2,618  |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | Net interest income after provision for loan losses                            |         |   | 61,667 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|Other income:                                   |                                                                                 |      |                                                                                |         |   |        |       
|                                                | Service charges and other fees                                                  |      |                                                                                | 10,134  |   |        | 6,297 
|                                                | Net gains from sale of loans                                                    |      |                                                                                | 2,917   |   |        | 1,152 
|                                                | Loan servicing fees                                                             |      |                                                                                | 3,524   |   |        | 240   
|                                                | Casualty insurance commissions                                                  |      |                                                                                | 741     |   |        | 689   
|                                                | Credit life and health and accident insurance commissions                       |      |                                                                                | 416     |   |        | 262   
|                                                | Health and life insurance commissions                                           |      |                                                                                | 136     |   |        | 82    
|                                                | Other insurance commissions                                                     |      |                                                                                | 222     |   |        | 112   
|                                                | Real estate brokerage commissions                                               |      |                                                                                | 84      |   |        | 99    
|                                                | Investment center income                                                        |      |                                                                                | 855     |   |        | 503   
|                                                | Gain (loss) on sale of securities, net (Note 4)                                 |      |                                                                                | 215     |   |        | 133   
|                                                | Trust department income                                                         |      |                                                                                | 1,610   |   |        | 617   
|                                                | Other                                                                           |      |                                                                                | 1,043   |   |        | 1,281 
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | 21,897                                                                         |         |   | 11,467 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|Other expenses:                                 |                                                                                 |      |                                                                                |         |   |        |       
|                                                | Salaries and employee benefits                                                  |      |                                                                                | 28,851  |   |        | 17,569
|                                                | Occupancy expenses, net                                                         |      |                                                                                | 3,770   |   |        | 2,268 
|                                                | Amortization and valuation adjustments for mortgage servicing rights            |      |                                                                                | 9,049   |   |        | 304   
|                                                | Data processing                                                                 |      |                                                                                | 3,091   |   |        | 2,115 
|                                                | Equipment expenses                                                              |      |                                                                                | 2,510   |   |        | 1,519 
|                                                | Advertising                                                                     |      |                                                                                | 2,180   |   |        | 1,270 
|                                                | Amortization of goodwill                                                        |      |                                                                                |        |   |        | 728   
|                                                | Amortization of core deposit intangible and other                               |      |                                                                                | 2,629   |   |        | 960   
|                                                | Other operating expenses                                                        |      |                                                                                | 10,238  |   |        | 7,098 
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | 62,318                                                                         |         |   | 33,831 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | Income before income taxes and minority interest in net income of subsidiaries |         |   | 21,246 |       
|Income taxes (Note 13)                          |                                                                                 |      | 7,393                                                                          |         |   | 4,922  |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | Income before minority interest in net income of subsidiaries                  |         |   | 13,853 |       
|Minority interest in net income of subsidiaries |                                                                                 |      | 636                                                                            |         |   | 522    |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|                                                |                                                                                 |      | Net income                                                                     |         | $ | 13,217 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|Basic earnings per common share                 |                                                                                 | $    | 98.36                                                                          |         | $ | 101.16 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       
|Weighted average shares outstanding             |                                                                                 |      | 125,221                                                                        |         |   | 91,598 |       
|                                                |                                                                                 |      |                                                                                |         |   |        |       

See
Notes to Consolidated Financial Statements.

F-4

---



SPECTRUM BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  Years Ended June 30, 2002, 2001 and 2000  (In Thousands, except share data)

|                       |                                           | Comprehen-
sive
Income                                                         |   | Preferred
Stock |        | Common
Stock |        | Additional
Paid-in
Capital |     | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income(Loss) |    | Total |       
|---------------------- | ----------------------------------------- | ------------------------------------------------------------------------------ | - | --------------- | ------ | ------------ | ------ | -------------------------- | --- | ----------------- | - | -------------------------------------------- | -- | ----- | ------
|Balance, June 30, 1999 |                                           |                                                                                |   |                 | $      | 1,700        |        | $                          | 79  |                   | $ | 2,074                                        |    | $     | 38,931
|                       | Net income                                |                                                                                | $ | 9,144           |        |              |       |                            |     |                  |   |                                              |   |       |       
|                       | Other comprehensive income, net of tax:   |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           | Net change in unrealized gain (loss) on securities available for sale (Note 4) |   |                 | (1,801 | )            |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       | Comprehensive income                      |                                                                                | $ | 7,343           |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       | Cash dividends paid:                      |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           | Preferred stock                                                                |   |                 |        |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           | Common stock ($12.45 per share)                                                |   |                 |        |              |        |                           |     |                   |  |                                              |    |      |       
|                       | Redeem common stock                       |                                                                                |   |                 |        |              |       |                            |     |                  |   |                                              | (5 | )     |       
|                       | Adjustment to conform year ends (Note 17) |                                                                                |   |                 |        |              |       |                            |     |                  |   |                                              |   |       |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|Balance, June 30, 2000 |                                           |                                                                                |   |                 |        | 1,700        |        |                            | 79  |                   |   | 2,069                                        |    |       | 46,331
|                       | Net income                                |                                                                                | $ | 9,418           |        |              |       |                            |     |                  |   |                                              |   |       |       
|                       | Other comprehensive income, net of tax:   |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           | Net change in unrealized gain (loss) on securities available for sale (Note 4) |   |                 | 3,865  |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       | Comprehensive income                      |                                                                                | $ | 13,283          |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       | Redeem common stock                       |                                                                                |   |                 |        |              |       |                            |     |                  |   |                                              | (5 | )     |       
|                       | Issue stock for acquisition               |                                                                                |   |                 |        |              | 10,000 |                            |     | 46                |   |                                              |   |       |       
|                       | Cash dividends paid:                      |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           | Preferred stock                                                                |   |                 |        |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           | Common stock ($18.01 per share)                                                |   |                 |        |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|Balance, June 30, 2001 |                                           |                                                                                |   |                 |        | 11,700       |        |                            | 125 |                   |   | 2,064                                        |    |       | 80,792
|                       | Net income                                |                                                                                | $ | 13,217          |        |              |       |                            |     |                  |   |                                              |   |       |       
|                       | Other comprehensive income, net of tax:   |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           | Net change in unrealized gain (loss) on securities available for sale (Note 4) |   |                 | 1,750  |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       | Comprehensive income                      |                                                                                | $ | 14,967          |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       | Redeem common stock                       |                                                                                |   |                 |        |              |       |                            |     |                  |   |                                              | (6 | )     |       
|                       | Cash dividends paid:                      |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|                       |                                           | Preferred stock                                                                |   |                 |        |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           | Common stock ($6.00 per share)                                                 |   |                 |        |              |        |                           |     |                   |  |                                              |    |      |       
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       
|Balance, June 30, 2002 |                                           |                                                                                |   |                 | $      | 11,700       |        | $                          | 125 |                   | $ | 2,058                                        |    | $     | 92,285
|                       |                                           |                                                                                |   |                 |        |              |        |                            |     |                   |   |                                              |    |       |       

See Notes to Consolidated Financial Statements.

F-5

---

SPECTRUM BANCORPORATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS  Years Ended June 30, 2002, 2001 and 2000  (In Thousands)

|                                                                     |                                                                                                   | 2002                                                          |                                                      | 2001     |          | 2000     |        
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | -------- | -------- | -------- | -------
|Cash Flows from Operating Activities                                 |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Net income                                                                                        |                                                               | $                                                    | 13,217   |          | $        | 9,418  
|                                                                     | Adjustments to reconcile net income to net cash provided by operating activities:                 |                                                               |                                                      |          |          |          |        
|                                                                     |                                                                                                   | Depreciation and amortization                                 |                                                      |          | 9,713    |          |        
|                                                                     |                                                                                                   | (Gain) loss on sale of securities                             |                                                      |          | (215     | )        |        
|                                                                     |                                                                                                   | (Gain) on sale of loans, other real estate owned and other    |                                                      |          | (2,923   | )        |        
|                                                                     |                                                                                                   | Provision for loan losses                                     |                                                      |          | 6,067    |          |        
|                                                                     |                                                                                                   | Provision for impairment of mortgage servicing rights         |                                                      |          | 5,233    |          |        
|                                                                     |                                                                                                   | Provision for deferred income taxes                           |                                                      |          | (3,742   | )        |        
|                                                                     |                                                                                                   | Minority interest in net income of subsidiaries               |                                                      |          | 636      |          |        
|                                                                     |                                                                                                   | Loans originated for resale                                   |                                                      |          | (171,386 | )        |        
|                                                                     |                                                                                                   | Proceeds from sale of loans originated for resale             |                                                      |          | 171,601  |          |        
|                                                                     |                                                                                                   | (Increase) decrease in accrued interest receivable            |                                                      |          | 946      |          |        
|                                                                     |                                                                                                   | (Increase) decrease in other assets                           |                                                      |          | 961      |          |        
|                                                                     |                                                                                                   | Increase (decrease) in accrued interest and other liabilities |                                                      |          | (4,640   | )        |        
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     |                                                                                                   |                                                               | Net cash provided by operating activities            |          |          | 25,468   |        
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|Cash Flows from Investing Activities                                 |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Purchase of certificates of deposit                                                               |                                                               |                                                      | (4,199   | )        |          | (5,465 
|                                                                     | Proceeds from maturities of certificates of deposit                                               |                                                               |                                                      | 5,235    |          |          | 6,704  
|                                                                     | Purchase of securities available for sale                                                         |                                                               |                                                      | (169,624 | )        |          | (39,683
|                                                                     | Proceeds from sales and maturities of securities available for sale                               |                                                               |                                                      | 129,521  |          |          | 44,074 
|                                                                     | Purchase of mortgage servicing rights                                                             |                                                               |                                                      | (4,939   | )        |          | (4,844 
|                                                                     | Proceeds from sale of mortgage servicing rights                                                   |                                                               |                                                      | 38       |          |          |       
|                                                                     | Net increase in loans                                                                             |                                                               |                                                      | (132,146 | )        |          | (78,508
|                                                                     | Purchase of premises and equipment                                                                |                                                               |                                                      | (4,511   | )        |          | (6,129 
|                                                                     | Proceeds from sale of premises and equipment                                                      |                                                               |                                                      | 67       |          |          | 4      
|                                                                     | Purchase of other assets                                                                          |                                                               |                                                      | (125     | )        |          |       
|                                                                     | Proceeds from sale of other assets                                                                |                                                               |                                                      | 572      |          |          |       
|                                                                     | Business acquisition (Note 2)                                                                     |                                                               |                                                      | 83       |          |          | (43,819
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     |                                                                                                   |                                                               | Net cash (used in) investing activities              |          |          | (180,028 | )      
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|Cash Flows From Financing Activities                                 |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Net increase in deposits                                                                          |                                                               |                                                      | 115,288  |          |          | 131,263
|                                                                     | Net increase in federal funds purchased and securities sold under agreements to repurchase        |                                                               |                                                      | 8,440    |          |          | 842    
|                                                                     | Proceeds from issuance of preferred securities                                                    |                                                               |                                                      |         |          |          | 27,600 
|                                                                     | Proceeds from notes payable                                                                       |                                                               |                                                      | 40,522   |          |          | 47,826 
|                                                                     | Principal payments on notes payable                                                               |                                                               |                                                      | (35,095  | )        |          | (24,268
|                                                                     | Debt issuance costs incurred                                                                      |                                                               |                                                      | (38      | )        |          | (1,402 
|                                                                     | Purchase of minority interest in subsidiaries                                                     |                                                               |                                                      |         |          |          |       
|                                                                     | Proceeds from sale of minority interest in subsidiary                                             |                                                               |                                                      |         |          |          | 1,063  
|                                                                     | Purchase of common stock for retirement                                                           |                                                               |                                                      | (79      | )        |          | (78    
|                                                                     | Dividends paid, including $245, $133 and $47 paid to minority interest, respectively              |                                                               |                                                      | (1,896   | )        |          | (578   
|                                                                     | Payment of other liabilities                                                                      |                                                               |                                                      | (9,740   | )        |          |       
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     |                                                                                                   |                                                               | Net cash provided by financing activities            |          |          | 117,402  |        
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     |                                                                                                   |                                                               | Net increase (decrease) in cash and cash equivalents |          |          | (37,158  | )      
|Cash and Cash Equivalents                                            |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Beginning                                                                                         |                                                               |                                                      | 106,436  |          |          | 41,126 
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Ending                                                                                            |                                                               | $                                                    | 69,278   |          | $        | 106,436
|                                                                     |                                                                                                   |                                                               |                                                      |          |          |          |        
|Supplemental Disclosures of Cash Flow Information                    |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Cash payments for interest                                                                        |                                                               | $                                                    | 63,996   |          | $        | 50,368 
|                                                                     | Cash payments for income taxes                                                                    |                                                               |                                                      | 10,353   |          |          | 3,157  
|Supplemental Schedules of Noncash Investing and Financing Activities |                                                                                                   |                                                               |                                                      |          |          |          |        
|                                                                     | Net change in unrealized gain/loss on securities available for sale, net of deferred income taxes |                                                               | $                                                    | 1,750    |          | $        | 3,865  
|                                                                     | Dividend declared in the form of notes payable                                                    |                                                               |                                                      |         |          |          | 1,200  
|                                                                     | Purchase of mortgage servicing rights for other liabilities                                       |                                                               |                                                      | 914      |          |          | 10,000 
|                                                                     | Loans transferred to other real estate owned and other assets                                     |                                                               |                                                      | 2,005    |          |          | 621    

See Notes to Consolidated Financial Statements.

F-6

---



SPECTRUM BANCORPORATION, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Nature of business:The Company is a multi-bank holding company organized under the laws of Iowa whose primary
business is providing the traditional functions of trust, commercial, consumer, and mortgage banking services through its Nebraska, South Dakota, Missouri and Iowa based subsidiary banks.
Substantially all of the Company's income is generated from banking operations.

Basis of financial statement presentation and accounting estimates:The preparation of financial statements 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. Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses and the valuation of mortgage servicing rights.

Principles of consolidation:The consolidated financial statements include the accounts of the Company and its subsidiaries.
All material intercompany accounts and transactions with subsidiaries are eliminated in consolidation.

The
consolidated subsidiaries are as follows: Great Western Bank (100.0% owned), which is chartered in Omaha, Nebraska; F&M Bank (95.6% owned), which is chartered in Watertown, South
Dakota; Rushmore Bank & Trust (90.0% owned), which is chartered in Rapid City, South Dakota; Citizens Bank, Mount Ayr (100.0% owned), which is chartered in Mount Ayr, Iowa; Citizens Bank, Clive
(95.2% owned), which is chartered in Clive, Iowa; Citizens Bank of Princeton (100.0% owned), which is chartered in Princeton, Missouri; Spectrum Banc Service Corporation (100.0% owned by bank
subsidiaries, excluding Great Western Bank), a data processing organization; Spectrum Capital Trust I (100.0% owned); and Spectrum Capital Trust II (100.0% owned). Great Western Bank also owns 100.0%
of GW Leasing, Inc., a leasing company.

Cash and cash equivalents and cash flows:For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks (including cash items in process of clearing) and federal funds sold. Cash flows from loans (other than those originated for resale), deposits, federal funds purchased and
securities sold under agreements to repurchase are reported net.

Trust assets:Assets of the trust departments of the Company's subsidiaries, other than trust cash on deposit at that bank,
are not included in these financial statements because they are not assets of the Company.

Securities available for sale:Securities classified as available for sale are those securities that the Company intends to
hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant
movements in interest rates, changes in maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for
sale are reported at fair value with unrealized gains or losses reported as a separate component of stockholders' equity, net of the related deferred tax effect. The amortization of premiums and
accretion of discounts, computed by the interest method over their contractual lives are recognized in interest income. Realized gains or losses, determined on the basis of the amortized cost of
specific securities sold, are included in earnings. Declines in the fair value of individual securities classified as available for sale below their amortized cost that are determined to be other than
temporary result in write-downs of the individual securities to their fair value with the resulting write-downs included in current earnings as realized losses.

Loans receivable:Loans receivable that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are stated at the amount of unpaid principal, reduced by unearned fees and an allowance for loan losses.

The
Company grants real estate, commercial and consumer loans to customers primarily in Nebraska, South Dakota, Missouri and Iowa and has purchased loans primarily originated in those
states and surrounding states. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the borrower. Collateral held varies, but includes accounts
receivable, inventory, property and equipment, residential real estate, income-producing commercial properties and government guarantees.

F-7

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Loans
sold on the secondary market are sold on a prearranged basis. Loans held for sale are included in loans receivable and are stated at the lower of cost or market on an aggregate
basis. Loans held for sale totaled $6,203,000 and $6,418,000 as of June 30, 2002 and 2001, respectively.

The
allowance for loan losses is established through a provision for loan losses charged to expense. Loans receivable are charged against the allowance for loan losses when management
believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing loans, based on an evaluation of
their collectibility and prior loss experience. The evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. While management uses the best information available to make this evaluation, future
adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically
review the allowance for loan losses, and
may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

Impaired
loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when it is probable the creditor will be unable to collect all contractual principal
and interest payments due in accordance with the terms of the loan agreement. The amount of impairment, if any, and any subsequent changes are included in the provision for loan losses.

Interest
on loans is accrued daily on the outstanding balances. For impaired loans, accrual of interest is discontinued when management believes, after considering collection efforts and
other factors, that the borrower's financial condition is such that collection of interest is doubtful. For loans on which the accrual of interest has been discontinued, cash collections are credited
to the loan receivable balance, and interest income is generally not recognized on those loans until the principal balance has been collected. A loan is restored to accrual status when all interest
and principal payments are current and the borrower has demonstrated to management the ability to make payments of principal and interest as scheduled.

Substantial
portions of loan fees charged or received on the origination of mortgage loans are related to loans sold on the secondary market with servicing released and are recognized as
income when received. Certain other loans fees, net of certain direct loan origination costs, are deferred and the net amount amortized as an adjustment of the related loan's yield. The Company is
generally amortizing these amounts over the contractual life of the loan. Commitment fees based upon the amount of a customer's line of credit and fees related to letters of credit are not significant
and are recognized in income when received.

Other real estate owned:Other real estate owned (OREO) represents properties acquired through foreclosure or other
proceedings and is initially recorded at fair value at the date of foreclosure, which establishes cost. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less
estimated costs of disposal. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated regularly to ensure the
recorded amount is supported by its current fair value; and valuation allowances, to reduce the carrying amount to fair value less estimated costs to dispose, are recorded if necessary. OREO is
included in other assets in the accompanying consolidated balance sheets.

Premises and equipment:Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed
principally by the straight-line method over the following estimated useful lives:

YearsBuildings and building improvements

3-50Furniture and equipment

5-15


Intangible assets:Intangible assets consist of goodwill, value of core deposits, an unidentifiable intangible asset related
to a branch acquisition, and client listing and franchise costs. Goodwill represents the excess of the acquisition cost over the fair value of the net assets acquired in the purchase of subsidiaries.
Core deposits represents the identifiable intangible value assigned to core deposits arising from purchase acquisitions. The

F-8

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unidentifiable intangible asset represents the excess of fair value of liabilities assumed over the fair value of net assets acquired in a purchase of a failed financial institution in accordance
with Statement of Financial Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions". Client listing intangible represents the identifiable
intangible value assigned to a client listing arising from a purchase acquisition. Franchise intangible represents a contractual arrangement under which the franchiser grants the franchisee the right
to perform certain functions within a designated geographical area.

On
July 1, 2001, the Company elected early adoption of Statement of Financial Accounting Standards No. 141, "Business Combinations," and No. 142, "Goodwill and Other
Intangible Assets" (SFAS 141 and 142). SFAS 141 addresses financial accounting and reporting for business combinations and replaces APB Opinion No. 16, "Business Combinations"
(APB 16). SFAS 141 no longer allows the pooling of interests method of accounting for acquisitions, provides new recognition criteria for intangible assets and carries forward without
reconsideration the guidance in APB 16 related to the application of the purchase method of accounting. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other
intangible assets and replaces APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses how intangible assets should be accounted for upon their acquisition and after they have been
initially recognized in the financial statements. The new standards provide specific guidance on annually measuring goodwill for impairment using a two-step process. The first step
identifies potential impairment and the second step, if required, measures the amount of goodwill impairment loss to be recognized.

The
Company has identified those intangible assets that remain separable under the provisions of the new standard and those that are to be included in goodwill. In applying
SFAS 142, the Company has re-evaluated the useful lives of these separable intangible assets. The weighted average life of the remaining amortized intangible assets is
7 years. In the year of adoption, SFAS 142 requires the first step of the goodwill impairment test to be completed within the first six months and the final step to be completed within
twelve months of adoption. The first step of the test was completed as of July 1, 2001 and no indications of goodwill impairment were found; therefore, step two of the goodwill impairment test
is not applicable.

The
methods and lives used to amortize intangible assets are as follows:

|Intangible                      |  | Method                                |  | Years
|------------------------------- |  | ------------------------------------- |  | -----
|Goodwill                        |  | Straight-line (prior to July 1, 2001) |  | 11-40
|Core deposit intangible         |  | Straight-line and accelerated         |  | 5    
|Unidentifiable intangible asset |  | Straight-line                         |  | 15   
|Client listing                  |  | Straight-line                         |  | 10-15
|Franchise                       |  | Straight-line                         |  | 5-10 

Mortgage servicing rights:The cost of mortgage servicing rights acquired is amortized in proportion to, and over the period
of, estimated net servicing revenues. The cost of mortgage servicing rights acquired and the amortization thereon is periodically evaluated in relation to estimated future net servicing revenues.
Projected net servicing revenue is in turn determined on the basis of the estimated future balance of the underlying mortgage loan portfolio. The Company estimates future prepayment rates based on
relevant characteristics of the servicing portfolio. Impairment of mortgage servicing rights acquired is assessed based on the fair value of those rights as compared to amortized cost. For purposes of
measuring impairment, the rights are stratified based on investor remittance type and interest rate. Fair values are estimated using discounted cash flows based on interest rates commensurate with the
risks involved. Impairment, if any, is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount of the stratum.

Long-lived assets:Long-lived assets, including intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset is not recoverable.

Income taxes:Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more

F-9

---

likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the
dates of enactment.

Deferred compensation:The net present value of payments expected to be made under deferred compensation agreements is being
accrued over the respective employees' expected employment service period.

Earnings per common share:Earnings per common share has been computed on the basis of the weighted-average number of common
shares outstanding during each period presented. Dividends accumulated or declared on cumulative preferred stock, which totaled $900,000 for the year ended June 30, 2002 and $152,000 in each
year ended 2001 and 2000, reduced the earnings available to common stockholders in the computation. The Company has no common stock equivalents.

Operating segments:The Company uses the "management approach" for reporting information about segments in annual and interim
financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the "management
approach" model, the Company has determined that its business is comprised of a single operating segment.

Fair value of financial instruments:the Company, in estimating the fair value of its financial instruments as presented in
Note 21, used the following methods and assumptions:

Carrying amounts approximate fair valuesfor the following instruments:



Notes
payable with a variable interest rate



Discounted cash flowsusing interest rates currently being offered on instruments with similar terms and with similar credit quality:



Fees currently being chargedfor similar instruments, taking into account the remaining terms of the agreements and the counterparties'
credit standing:



F-10

---



Note 2.    Business Acquisitions

As of February 28, 2002 F&M Bank acquired by merger First Western Bank, N.A., Atkinson, Nebraska ("First Western") and Marquette Bank Nebraska, N.A.,
O'Neill, Nebraska ("Marquette") for $17,484,000. At February 28, 2002 First Western and Marquette had assets of $110,429,000, deposits of $99,589,000, net loans of $62,981,000 and stockholders'
equity of $10,217,000. The acquisition has been accounted for as a purchase and results of operation of First Western Bank and Marquette after the date of acquisition are included in the consolidated
financial statements.

On
March 23, 2001 Spectrum acquired Great Western Securities ("GWS"), and its bank subsidiary, Great Western Bank, for $58,348,384 in cash and by issuing 46,319 shares of common
stock and $10,000,000 in nonvoting, noncumulative perpetual preferred stock. The common stock was issued to existing shareholders in Spectrum for their 50% interest in GWS. The remaining portion was
purchased from an unrelated party. The acquisition has been accounted for as a purchase and results of operation of GWS since the date of acquisition are included in the consolidated financial
statements. The net assets previously attributed to the ownership of Spectrum's shareholders were recorded at predecessor cost, due to the shareholders' continuing interests. The remaining net assets
were recorded at fair value. As a result of the merger, a core deposit intangible of $6,775,000 has been recognized and is being amortized over 5 years by an accelerated method.

Unaudited
pro forma consolidated results of operations as though Great Western Securities had been acquired as of the July 1, 1999 (in thousands except share data) are summarized
below.

|                                    |  | Years Ended June 30,
|----------------------------------- |  | --------------------
|
|Total interest income               |  | $                   
|Net interest income                 |  |                     
|Net income                          |  |                     
|Basic earnings per common share     |  |                     
|Weighted average shares outstanding |  |                     

The
above amounts reflect adjustments for amortization of intangible assets, additional depreciation and amortization on revalued purchased assets and deposits, and preferred stock
dividend requirements.

On
March 31, 2001 F&M Bank acquired Founders Trust National Bank, Sioux Falls, South Dakota ("Founders") for $2,501,000, subject to adjustment for certain contingencies. At
March 31, 2001 Founders had assets of $34,644,000, deposits of $31,588,000, net loans of $17,762,000. The acquisition has been accounted for as a purchase and results of operations of Founders
after the date of acquisition are included in the consolidated financial statements.

On
August 7, 2000 the Company acquired all of the outstanding shares of Hamburg Financial ("HFI"), an unaffiliated holding company that owned two banks in southwestern Iowa. The
Company paid $8,730,995 in cash which included a premium of $2,236,123 to acquire HFI and its subsidiaries; Thurman State Corporation, a second-tier holding company which owned the United
National Bank of Iowa, headquartered in Sidney, Iowa; and Iowa State Bank, headquartered in Hamburg, Iowa. Deposits of $56,196,000 and loans of $48,989,000 were acquired. The transaction was accounted
for as a purchase. HFI and Thurman State Corporation were merged into the Company. HFI's bank subsidiaries were merged into the Company's subsidiary bank, Citizens Bank, Mt. Ayr.

On
July 13, 2000, the Company's subsidiary, Citizens Bank, Mt. Ayr purchased the assets and assumed the liabilities of the branch of Commercial Federal Bank, FSB located in
Kellerton, Iowa. A premium of approximately $175,000 was paid to acquire deposits of approximately $3,300,000.

On
January 14, 2000 the Company, through a newly chartered bank subsidiary, acquired selected assets and assumed the FDIC insured deposits of Hartford-Carlisle Savings Bank in
Carlisle, Iowa. Liquid assets of $4,800,000 and loans of $139,000 were acquired and $70,465,000 of deposits and other liabilities were assumed. A premium of $5,500,000 was paid for the right to assume
the insured deposits. The bank was capitalized with
$10,500,000 in paid-in capital, including $500,000 by a minority shareholder. Cash was received from the FDIC for the deposits assumed net of assets purchased and premium paid. The
acquisition has been accounted for in a manner similar to a purchase and the results of operation of the branches acquired since the date of acquisition are included in the consolidated financial
statements. The deposit premium of $5,500,000 has been allocated to an unidentifiable intangible asset, and is being amortized over 15 years using the straight-line method. Under a

F-11

---

purchase and assumption agreement with the FDIC, the new bank exercised its right to purchase certain securities and the buildings, real estate, furniture, fixtures and equipment of the failed bank.
The acquisition costs of these assets were determined by independent appraisal. Since acquisition date, $34,400,000 of additional loans were acquired from the FDIC.

A
summary of the fair value of net assets acquired and net cash and cash equivalents paid (received) (in thousands) on the date of acquisition is as follows:

|                     |                                    | First Western
& Marquette                     |   | 2001
Acquisitions |     | Hartford-
Carlisle
Savings Bank |         
|-------------------- | ---------------------------------- | --------------------------------------------- | - | ----------------- | --- | ------------------------------- | --------
|Assets acquired:     |                                    |                                               |   |                   |     |                                 |         
|                     | Securities                         |                                               | $ | 27,289            |     | $                               | 126,333 
|                     | Loans receivable                   |                                               |   | 62,981            |     |                                 | 578,167 
|                     | Other assets                       |                                               |   | 1,638             |     |                                 | 10,172  
|                     | Premises and equipment             |                                               |   | 3,285             |     |                                 | 15,612  
|                     | Mortgage servicing rights          |                                               |   |                  |     |                                 | 3,825   
|                     | Core deposit and other intangibles |                                               |   | 754               |     |                                 | 6,775   
|                     | Goodwill                           |                                               |   | 4,182             |     |                                 | 33,433  
|Liabilities assumed: |                                    |                                               |   |                   |     |                                 |         
|                     | Deposits                           |                                               |   | (99,589           | )   |                                 | (598,292
|                     | Common stock issued                |                                               |   |                  |     |                                 | (27,544 
|                     | Preferred stock issued             |                                               |   |                  |     |                                 | (10,000 
|                     | Other liabilities                  |                                               |   | (623              | )   |                                 | (94,662 
|                     |                                    |                                               |   |                   |     |                                 |         
|                     |                                    | Net cash and cash equivalents paid (received) |   | $                 | (83 | )                               | $       
|                     |                                    |                                               |   |                   |     |                                 |         

Note 3.    Restrictions on Cash and Due from Banks

The Company's banking subsidiaries are required to maintain reserve balances in cash and on deposit with the Federal Reserve based on a percentage of deposits.
The total requirement was approximately $6,288,000 and $4,010,000 at June 30, 2002 and 2001, respectively.

F-12

---

Note 4.    Securities Available for Sale

Amortized cost and fair value of investments in securities, all of which are classified as available for sale according to management's intent, are summarized as
follows (in thousands):

|                     |                                                                                 | Amortized
Cost |         | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |       | Fair
Value
|-------------------- | ------------------------------------------------------------------------------- | -------------- | ------- | ---------------------- | - | ----------------------- | ----- | ----------
|As of June 30, 2002: |                                                                                 |                |         |                        |   |                         |       |           
|                     | U.S. Treasury securities                                                        |                | $       | 10,077                 |   | $                       | 243   |           
|                     | U.S. Government agencies and corporations, including mortgage-backed securities |                |         | 242,414                |   |                         | 5,090 |           
|                     | States and political subdivision securities                                     |                |         | 40,194                 |   |                         | 792   |           
|                     | Corporate debt securities                                                       |                |         | 28,010                 |   |                         | 398   |           
|                     | Stock in Federal Home Loan Bank, Federal Reserve Bank and other                 |                |         | 7,129                  |   |                         |      |           
|                     |                                                                                 |                |         |                        |   |                         |       |           
|                     |                                                                                 | $              | 327,824 |                        | $ | 6,523                   |       | $         
|                     |                                                                                 |                |         |                        |   |                         |       |           
|As of June 30, 2001: |                                                                                 |                |         |                        |   |                         |       |           
|                     | U.S. Treasury securities                                                        |                | $       | 26,061                 |   | $                       | 627   |           
|                     | U.S. Government agencies and corporations, including mortgage-backed securities |                |         | 187,845                |   |                         | 2,519 |           
|                     | States and political subdivision securities                                     |                |         | 24,622                 |   |                         | 297   |           
|                     | Corporate debt securities                                                       |                |         | 15,474                 |   |                         | 381   |           
|                     | Stock in Federal Home Loan Bank, Federal Reserve Bank and other                 |                |         | 7,568                  |   |                         |      |           
|                     |                                                                                 |                |         |                        |   |                         |       |           
|                     |                                                                                 | $              | 261,570 |                        | $ | 3,824                   |       | $         
|                     |                                                                                 |                |         |                        |   |                         |       |           
|As of June 30, 2000: |                                                                                 |                |         |                        |   |                         |       |           
|                     | U.S. Treasury securities                                                        |                | $       | 6,942                  |   | $                       | 1     |           
|                     | U.S. Government agencies and corporations, including mortgage-backed securities |                |         | 103,914                |   |                         | 142   |           
|                     | States and political subdivision securities                                     |                |         | 20,617                 |   |                         | 12    |           
|                     | Corporate debt securities                                                       |                |         | 7,759                  |   |                         | 24    |           
|                     | Stock in Federal Home Loan Bank, Federal Reserve Bank and other                 |                |         | 3,240                  |   |                         |      |           
|                     |                                                                                 |                |         |                        |   |                         |       |           
|                     |                                                                                 | $              | 142,472 |                        | $ | 179                     |       | $         
|                     |                                                                                 |                |         |                        |   |                         |       |           

No
ready market exists for Federal Home Loan Bank and Federal Reserve Bank stock, and they have no quoted market value. For disclosure purposes, such stock is assumed to have a fair
value which is equal to cost.

The
amortized cost and fair value of debt securities available for sale (in thousands) as of June 30, 2002, by contractual maturity, are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the
maturity categories in the following maturity summary.

|                                       |  | Amortized
Cost |         | Fair Value
|-------------------------------------- |  | -------------- | ------- | ----------
|Due in one year or less                |  | $              | 24,728  |           
|Due after one year through five years  |  |                | 79,366  |           
|Due after five years through ten years |  |                | 34,144  |           
|Due after ten years                    |  |                | 5,765   |           
|Mortgage-backed securities             |  |                | 176,110 |           
|                                       |  |                |         |           
|                                       |  | $              | 320,113 |           
|                                       |  |                |         |           

Proceeds
from sales of securities available for sale were $9,760,000, $7,453,000, and $7,585,000 for the years ended June 30, 2002, 2001, and 2000, respectively. Gross gains of
$217,000, $133,000 and $18,000 and gross losses

F-13

---

of $2,000, $0 and $31,000 were realized on those sales for the years ended June 30, 2002, 2001, and 2000, respectively.

Securities
with an amortized cost of approximately $197,047,000 and $191,106,000 at June 30, 2002 and 2001, respectively, were pledged as collateral on public deposits, securities
sold under agreements to repurchase, notes payable to Federal Home Loan Bank and for other purposes as required or permitted by law.

The
components of other comprehensive income-net unrealized gain (loss) on securities available for sale (in thousands) are as follows:

|                                                                            |                                                                               | Years Ended June 30, |      
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------- | -----
|
|Unrealized holding gain (loss) arising during the period                    |                                                                               | $                    | 3,010
|Less reclassification adjustment for net (gain) loss realized in net income |                                                                               |                      | (215 
|                                                                            |                                                                               |                      |      
|                                                                            | Net change in unrealized gain (loss) before income taxes                      |                      |      
|Income (taxes) benefit                                                      |                                                                               |                      | (978 
|Minority interest in unrealized (gain) loss                                 |                                                                               |                      | (67  
|                                                                            |                                                                               |                      |      
|                                                                            | Other comprehensive incomenet change in unrealized gain (loss) on securities |                      | $    
|                                                                            |                                                                               |                      |      

Note 5.    Loans Receivable

The composition of net loans receivable (in thousands) is as follows:

|                              |                           | June 30, |          
|----------------------------- | ------------------------- | -------- | ---------
|
|Commercial and agricultural   |                           | $        | 1,126,417
|Residential real estate loans |                           |          | 164,812  
|Loans to individuals          |                           |          | 199,896  
|Other loans                   |                           |          | 6,241    
|                              |                           |          |          
|                              |                           |          | 1,497,366
|Deduct:                       |                           |          |          
|                              | Allowance for loan losses |          |          
|                              | Unearned net loan fees    |          |          
|                              |                           |          |          
|                              |                           | $        | 1,475,856
|                              |                           |          |          

Loans
guaranteed by agencies of the U.S. government totaled $38,462,000 and $39,939,000 at June 30, 2002 and 2001, respectively.

Information
about impaired loans (in thousands) is as follows:

|                                                                        |                      | As of and for the year ended June 30,
|----------------------------------------------------------------------- | -------------------- | -------------------------------------
|
|Loans receivable for which there is a related allowance for loan losses |                      | $                                    
|Other impaired loans                                                    |                      |                                      
|                                                                        |                      |                                      
|                                                                        | Total impaired loans |                                      
|                                                                        |                      |                                      
|Related allowance for loan losses                                       |                      | $                                    
|Average monthly balance of impaired loans (based on month-end balances) |                      |                                      
|Interest income recognized on impaired loans                            |                      |                                      

F-14

---

Changes
in the allowance for loan losses (in thousands) are as follows:

|                   |                                        | Years Ended June 30, |       
|------------------ | -------------------------------------- | -------------------- | ------
|
|Balance, beginning |                                        | $                    | 18,955
|                   | Provision charged to operating expense |                      |       
|                   | Business acquisitions (Note 2)         |                      |       
|                   | Recoveries of amounts charged off      |                      |       
|                   |                                        |                      |       
|                   |                                        |                      | 26,795
|                   | Amounts charged off                    |                      |       
|                   |                                        |                      |       
|Balance, ending    |                                        | $                    | 20,344
|                   |                                        |                      |       

Note 6.    Premises and Equipment

The major classes of premises and equipment and the total amount of accumulated depreciation (in thousands) are as follows:

|                                    |  | June 30, |        
|----------------------------------- |  | -------- | -------
|
|Land                                |  | $        | 6,405  
|Buildings and building improvements |  |          | 32,782 
|Furniture and equipment             |  |          | 24,289 
|Construction in process             |  |          | 303    
|                                    |  |          |        
|                                    |  |          | 63,779 
|Less accumulated depreciation       |  |          | (21,976
|                                    |  |          |        
|                                    |  | $        | 41,803 
|                                    |  |          |        

Depreciation
expense was $2,961,000, $2,378,000, and $1,386,000 for the years ended June 30, 2002, 2001 and 2000, respectively.

F-15

---

Note 7. Intangible Assets

Goodwill,
which is not being amortized subsequent to June 30, 2001, is net of accumulated amortization of $2,934,000 at June 30, 2002 and 2001. No impairment has been
recognized on goodwill.

A
summary of intangible assets subject to amortization is as follows (in thousands):

|                    |                          | Mortgage
Servicing
Rights |        | Core
Deposit
Intangible |   | Other |        | Total |      
|------------------- | ------------------------ | ------------------------- | ------ | ----------------------- | - | ----- | ------ | ----- | -----
|As of June 30, 2002 |                          |                           |        |                         |   |       |        |       |      
|                    | Gross carrying amount    |                           | $      | 26,960                  |   | $     | 7,454  |       | $    
|                    | Accumulated amortization |                           |        | (6,558                  | ) |       | (2,755 | )     |      
|                    | Impairment               |                           |        | (5,271                  | ) |       |       |       |      
|                    |                          |                           |        |                         |   |       |        |       |      
|                    |                          | $                         | 15,131 |                         | $ | 4,699 |        | $     | 5,193
|                    |                          |                           |        |                         |   |       |        |       |      
|As of June 30, 2001 |                          |                           |        |                         |   |       |        |       |      
|                    | Gross carrying amount    |                           | $      | 21,185                  |   | $     | 6,775  |       | $    
|                    | Accumulated amortization |                           |        | (2,782                  | ) |       | (565   | )     |      
|                    | Impairment               |                           |        | (37                     | ) |       |       |       |      
|                    |                          |                           |        |                         |   |       |        |       |      
|                    |                          | $                         | 18,366 |                         | $ | 6,210 |        | $     | 5,482
|                    |                          |                           |        |                         |   |       |        |       |      

Amortization
of intangible assets, including adjustments for impairment, for the fiscal years ended June 30, 2002, 2001 and 2000 was $11,678,000, $1,992,000 and $424,000,
respectively.

Estimated
amortization of intangible assets for each of the next five fiscal years (assuming no activities, such as acquisitions, which would result in additional amortizable intangible
assets) are as follows (in thousands):

Year ending June 30,2003

$
5,9582004


5,0152005


3,9692006


3,0172007


2,232


Had
the provisions of SFAS 141 and 142 been applied in fiscal years 2001 and 2000, the Company's net income (in thousands) and net income per share would have been as follows:

|            |                            | Year Ended
June 30, 2001 |   | Year Ended
June 30, 2000
|----------- | -------------------------- | ------------------------ | - | ------------------------
|
|Net income: |                            |                          |   |                         
|            | As reported                |                          | $ | 9,418                   
|            | Add: Goodwill amortization |                          |   | 728                     
|            |                            |                          |   |                         
|            |                            | Pro forma net income     |   | $                       
|            |                            |                          |   |                         

F-16

---

Note 8. Mortgage Servicing Rights Acquired

Mortgage
loans serviced for others are not included in the accompanying financial statements. The unpaid principal balances (in thousands) of these loans are summarized as follows:

June 30,2002

2001Mortgage loan portfolios serviced for:GNMA

$
3,538


4,742FHLMC


161,767


75,304FNMA


887,351


788,032Other investors


41,248


94,021$
1,093,904

$
962,099


Custodial
escrow balances maintained in connection with the foregoing loan servicing, which are held by the Company, were approximately $7,734,000 and $3,220,000 at June 30, 2002
and 2001, respectively. At June 30, 2002 and 2001, the number of mortgage loan pools serviced for GNMA totaled six.

Following
is an analysis of the changes in the mortgage servicing rights:

|                                   |                      | Year Ended June 30, |       
|---------------------------------- | -------------------- | ------------------- | ------
|
|Balance at the beginning of period |                      | $                   | 18,366
|                                   | Additions            |                     |       
|                                   | Sales                |                     |       
|                                   | Amortization         |                     |       
|                                   | Valuation adjustment |                     |       
|                                   |                      |                     |       
|Balance at end of period           |                      | $                   | 15,131
|                                   |                      |                     |       

Mortgage
servicing rights had an estimated fair value of $15,139,000 and $18,435,000 at June 30, 2002 and 2001, respectively. A valuation allowance totaling $5,233,000 and $37,000
was recorded as of June 30, 2002 and 2001, respectively.

Note 9. Deposits

The composition of deposits (in thousands) is as follows:

June 30,2002

2001Noninterest bearing demand

$
194,792

$
161,409NOW accounts, money market and savings


596,859


460,882Time certificates, $100,000 or more


258,329


233,531Other time certificates


585,987


565,268$
1,635,967

$
1,421,090


At
June 30, 2002, the scheduled maturities of time certificates (in thousands) are as follows:

Year ending June 30,2003

$
566,1792004


198,3022005


45,7832006 - 2007


33,3112008 and thereafter


741$
844,316


F-17

---

Note 10. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Federal
funds purchased totaled $15,140,000 and $1,699,000 at June 30, 2002 and 2001, respectively.

Securities
sold under agreements to repurchase, which generally mature within one to four days from the transaction date totaled $55,404,000 and $61,512,000 at June 30, 2002 and
2001, respectively. Securities underlying the agreements had an amortized cost of approximately $64,436,000 and $61,847,000, and fair value of approximately $66,089,000 and $67,100,000 at
June 30, 2002 and 2001 respectively. The Company holds the securities under third-party safekeeping agreements. For the years ended June 30, 2002, 2001 and 2000, respectively, the
maximum month-end balance of the agreements was $74,471,000, $65,420,000 and $23,107,000, and they had an average balance of $64,943,000, $53,893,000 and $19,058,000 and an average
interest rate of 4.35%, 5.8% and 4.8%.

Note 11. Notes Payable

Notes payable consist of the following (in thousands):

|                                                                                                                                                                                                                                            |  | June 30,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|
|Subordinated capital notes to Capital Investors, LLC, due March 2011, interest paid quarterly at prime rate plus 100 basis points, unsecured (1)                                                                                            |  | $       
|Subordinated capital notes, to shareholders, due December 2010, 10% interest paid quarterly                                                                                                                                                 |  |         
|Notes payable to bank, due March 2006, interest paid quarterly at LIBOR plus 150 basis points, annual principal payments of $2,250,000 due in April of each year, secured by stock in subsidiary banks                                      |  |         
|Notes payable to bank, due March 2006, interest paid quarterly at LIBOR plus 150 basis points, annual principal payments of $2,500,000 starting April 2003 due each year thereafter, secured by stock in subsidiary
banks                   |  |         
|Notes payable to Federal Home Loan Bank, interest rates from 2.57% to 6.37% and maturity dates from July 2002 to January 2017, secured by real estate loans and Federal Home Loan Bank stock, with various call dates at the
option of FHLB |  |         
|Notes payable to Federal Reserve Bank, consisting of treasury, tax and loan deposits, due on demand                                                                                                                                         |  |         
|Other                                                                                                                                                                                                                                       |  |         
|                                                                                                                                                                                                                                            |  |         
|                                                                                                                                                                                                                                            |  | $       
|                                                                                                                                                                                                                                            |  |         

---

The
Company has a $5,000,000 line of credit from an unaffiliated bank, secured by stock in subsidiary banks, with a maturity date of March 31, 2003. There were no advances on this
line of credit as of June 30, 2002 or 2001.

As
of June 30, 2002, notes payable are due or callable (whichever is earlier) as follows (in thousands):

2003

$
19,3992004


16,7532005


11,0872006


7,2502007


10,750Thereafter


59,025$
124,264


F-18

---

Note 12. Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Subordinated Debentures

The Company issued 2,040,000 shares, $10 par value, of Company Obligated Mandatorily Redeemable Preferred Securities ("Preferred Securities") of Spectrum Capital
Trust I on August 18, 1999. Cumulative cash distributions bear a 10.0% annual rate. The Company issued 2,760,000 shares, $10 par value, of Company Obligated Mandatorily Redeemable Preferred
Securities ("Preferred Securities") of Spectrum Capital Trust II on March 19, 2001. Cumulative cash distributions bear a 9.75% annual rate. Distributions on both series are paid quarterly. The
Company may, at one or more times, defer interest payments on the capital securities for up to 20 consecutive quarters, but not beyond thirty years from the issuance date. At the end of any deferral
period, all accumulated and unpaid distributions will be paid. The capital securities will be redeemed thirty years from the issuance date; however, the Company has the option to shorten the maturity
date to a date not earlier than five years from the issue date. The redemption price is $10 per capital security plus any accrued and unpaid distributions to the date of redemption. Holders of the
Preferred Securities have no voting rights. The Preferred Securities are unsecured and rank junior in priority of payment to all of the Company's indebtedness and senior to the Company's common and
preferred stock.

The
sole asset of each trust is junior subordinated deferrable interest debentures issued by the Company with interest and maturity provisions similar in term to the respective preferred
securities. Each trust's ability to pay amounts due on the Preferred Securities is solely dependent upon the Company making payment on the related junior subordinated debentures. The Company's
obligation under the debentures and relevant trust agreements constitute a full, irrevocable and unconditional guarantee on a subordinated basis by it of the obligations of the trusts under the
Preferred Securities.

The
Preferred Securities are classified as debt in the accompanying consolidated financial statements. For regulatory purposes, the majority of the Preferred Securities qualify for Tier
1 capital treatment, with the remaining portion qualifying as total capital.

Note 13. Income Tax Matters

The provision for income taxes charged to operations consists of the following (in thousands):

|                           |         | Years Ended June 30, |       
|-------------------------- | ------- | -------------------- | ------
|
|Currently paid or payable: |         |                      |       
|                           | Federal |                      | $     
|                           | State   |                      |       
|Deferred (benefit)         |         |                      | (3,742
|                           |         |                      |       
|                           |         | $                    | 7,393 
|                           |         |                      |       

The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income due to the following (in thousands):

|                                                    |                                                                                                | Years Ended June 30, |      
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------- | -----
|
|Computed "expected" tax expense                     |                                                                                                | $                    | 7,436
|Increase (decrease) in income taxes resulting from: |                                                                                                |                      |      
|                                                    | Benefit of income taxed at lower rates                                                         |                      |      
|                                                    | Tax exempt interest income, net                                                                |                      |      
|                                                    | State income tax, net of federal benefit                                                       |                      |      
|                                                    | Effect of Citizens Corporation income not subject to Federal tax due to S-corporation election |                      |      
|                                                    | Goodwill amortization                                                                          |                      |      
|                                                    | Other                                                                                          |                      |      
|                                                    |                                                                                                |                      |      
|                                                    |                                                                                                | $                    | 7,393
|                                                    |                                                                                                |                      |      

F-19

---

Net
deferred tax assets (liabilities) (in thousands) consist of the following components:

|                          |                                  | June 30, |       
|------------------------- | -------------------------------- | -------- | ------
|
|Deferred tax assets:      |                                  |          |       
|                          | Allowance for loan losses        |          | $     
|                          | Deferred compensation            |          |       
|                          | Net operating loss carry forward |          |       
|                          | Deposits                         |          |       
|                          | Mortgage servicing rights        |          |       
|                          | Other                            |          |       
|                          |                                  |          |       
|                          |                                  |          | 10,900
|                          |                                  |          |       
|Deferred tax liabilities: |                                  |          |       
|                          | Premises and equipment           |          |       
|                          | Securities available for sale    |          |       
|                          | Core deposit intangible          |          |       
|                          | Other                            |          |       
|                          |                                  |          |       
|                          |                                  |          | (7,692
|                          |                                  |          |       
|                          |                                  | $        | 3,208 
|                          |                                  |          |       

In
the accompanying consolidated balance sheets, net deferred tax assets are included in other assets. The deferred tax asset amounts above include no valuation allowance.

Retained
earnings at June 30, 2002 includes approximately $1,107,000 related to the pre-1998 allowance for loan losses of an acquired savings bank for which no
deferred income tax liability has been recognized. If the Company no longer qualifies as a bank or in the event of a liquidation of the Company, income would be created, for tax purposes only, which
would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount for financial statement purposes was $367,000 at June 30, 2002.

Note 14. Deferred Compensation

The Company has entered into deferred compensation agreements with certain officers, directors and employees which provide for payments to the employees or their
beneficiaries over a period of ten years beginning at age 65 or prior, due to death or disability. The level of payments is dependent upon the Company's earnings during employment. The net present
value of the payments is being accrued over the respective employees' expected employment service period. Deferred compensation charged to expense during the years ended June 30, 2002, 2001,
and 2000 was $163,000, $190,000 and $125,000, respectively, with a total amount accrued as of June 30, 2002 and 2001 of $748,000 and $652,000, respectively.

Note 15. Profit Sharing Plan

The Company participates in a multiple employer 401(k) profit sharing plan (the Plan). All employees are eligible to participate beginning with the first
eligibility date following the completion of one year of service and having reached the age of 21. In addition to employee contributions, the Company may contribute discretionary amounts for eligible
participants. Contribution rates for participating employers must be equal. The Company contributed $776,000, $686,000 and $380,000 to the Plan for the years ended June 30, 2002, 2001 and 2000,
respectively.

Note 16. Regulatory Restrictions

The Company and its banks subsidiaries are subject to certain restrictions on the amount of dividends which may be declared without prior regulatory approval and
are 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 financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and its bank subsidiaries must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated

F-20

---

under regulatory accounting practices. 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 and its bank subsidiaries to maintain minimum amounts and ratios (set forth in the table
following) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets (all defined in the regulations). Management believes the Company and its bank
subsidiaries meet all capital adequacy requirements to which they are subject as of June 30, 2002.

The
most recent notifications from the regulatory agencies categorize each of the Company's bank subsidiaries as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since those notifications that management believes have changed the category.

F-21

---

Actual
capital amounts and ratios are also presented in the following table (amounts in thousands).

|                    |                                           | Actual                     |  | For Capital
Adequacy
Purposes |         | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |     
|------------------- | ----------------------------------------- | -------------------------- |  | ----------------------------- | ------- | ---------------------------------------------------------------- | ----
|
|As of June 30, 2002 |                                           |                            |  |                               |         |                                                                  |     
|                    | Total capital (to risk-weighted assets):  |                            |  |                               |         |                                                                  |     
|                    |                                           | Consolidated               |  | $                             | 164,356 |                                                                  | 10.6
|                    |                                           | Great Western Bank         |  |                               | 69,527  |                                                                  | 11.1
|                    |                                           | F&M Bank                   |  |                               | 48,453  |                                                                  | 11.1
|                    |                                           | Rushmore Bank & Trust      |  |                               | 21,864  |                                                                  | 11.4
|                    |                                           | Citizens Bank, Mount Ayr   |  |                               | 24,354  |                                                                  | 12.3
|                    |                                           | Citizens Bank, Clive       |  |                               | 7,876   |                                                                  | 11.6
|                    |                                           | Citizens Bank of Princeton |  |                               | 4,225   |                                                                  | 14.4
|                    | Tier 1 capital (to risk-weighted assets): |                            |  |                               |         |                                                                  |     
|                    |                                           | Consolidated               |  |                               | 96,618  |                                                                  | 6.2 
|                    |                                           | Great Western Bank         |  |                               | 61,680  |                                                                  | 9.8 
|                    |                                           | F&M Bank                   |  |                               | 43,431  |                                                                  | 9.9 
|                    |                                           | Rushmore Bank & Trust      |  |                               | 19,460  |                                                                  | 10.1
|                    |                                           | Citizens Bank, Mount Ayr   |  |                               | 21,858  |                                                                  | 11.0
|                    |                                           | Citizens Bank, Clive       |  |                               | 7,025   |                                                                  | 10.3
|                    |                                           | Citizens Bank of Princeton |  |                               | 3,857   |                                                                  | 13.1
|                    | Tier 1 capital (to average assets):       |                            |  |                               |         |                                                                  |     
|                    |                                           | Consolidated               |  |                               | 96,618  |                                                                  | 5.0 
|                    |                                           | Great Western Bank         |  |                               | 61,680  |                                                                  | 8.4 
|                    |                                           | F&M Bank                   |  |                               | 43,431  |                                                                  | 7.5 
|                    |                                           | Rushmore Bank & Trust      |  |                               | 19,460  |                                                                  | 8.0 
|                    |                                           | Citizens Bank, Mount Ayr   |  |                               | 21,858  |                                                                  | 8.5 
|                    |                                           | Citizens Bank, Clive       |  |                               | 7,025   |                                                                  | 9.0 
|                    |                                           | Citizens Bank of Princeton |  |                               | 3,857   |                                                                  | 9.6 
|As of June 30, 2001 |                                           |                            |  |                               |         |                                                                  |     
|                    | Total capital (to risk-weighted assets):  |                            |  |                               |         |                                                                  |     
|                    |                                           | Consolidated               |  | $                             | 151,603 |                                                                  | 11.2
|                    |                                           | Great Western Bank         |  |                               | 64,517  |                                                                  | 11.0
|                    |                                           | F&M Bank                   |  |                               | 34,771  |                                                                  | 10.7
|                    |                                           | Rushmore Bank & Trust      |  |                               | 21,273  |                                                                  | 11.4
|                    |                                           | Citizens Bank, Mount Ayr   |  |                               | 23,255  |                                                                  | 13.3
|                    |                                           | Citizens Bank, Clive       |  |                               | 7,311   |                                                                  | 13.5
|                    |                                           | Citizens Bank of Princeton |  |                               | 3,739   |                                                                  | 13.6
|                    | Tier 1 capital (to risk-weighted assets): |                            |  |                               |         |                                                                  |     
|                    |                                           | Consolidated               |  |                               | 82,219  |                                                                  | 6.1 
|                    |                                           | Great Western Bank         |  |                               | 57,196  |                                                                  | 9.9 
|                    |                                           | F&M Bank                   |  |                               | 31,232  |                                                                  | 9.6 
|                    |                                           | Rushmore Bank & Trust      |  |                               | 18,941  |                                                                  | 10.2
|                    |                                           | Citizens Bank, Mount Ayr   |  |                               | 21,045  |                                                                  | 12.0
|                    |                                           | Citizens Bank, Clive       |  |                               | 6,632   |                                                                  | 12.2
|                    |                                           | Citizens Bank of Princeton |  |                               | 3,394   |                                                                  | 12.3
|                    | Tier 1 capital (to average assets):       |                            |  |                               |         |                                                                  |     
|                    |                                           | Consolidated               |  |                               | 82,219  |                                                                  | 4.9 
|                    |                                           | Great Western Bank         |  |                               | 57,196  |                                                                  | 8.5 
|                    |                                           | F&M Bank                   |  |                               | 31,232  |                                                                  | 7.3 
|                    |                                           | Rushmore Bank & Trust      |  |                               | 18,941  |                                                                  | 8.1 
|                    |                                           | Citizens Bank, Mount Ayr   |  |                               | 21,045  |                                                                  | 8.8 
|                    |                                           | Citizens Bank, Clive       |  |                               | 6,632   |                                                                  | 9.7 
|                    |                                           | Citizens Bank of Princeton |  |                               | 3,394   |                                                                  | 9.1 

F-22

---

Note 17. Merger of Citizens Corporation and Spectrum Bancorporation, Inc.

On August 7, 2000, Spectrum Bancorporation, Inc. (Spectrum) issued 7,584 shares of its common stock in exchange for all outstanding common stock of
Citizens Corporation (Citizens). Since the entities were under common control, the merger has been accounted for at historical cost in a manner similar to pooling-of-interests
and, accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of both entities.

The
results of operations previously reported by the separate entities and the combined amounts presented in the accompanying consolidated financial statements (in thousands) are
summarized below.

Year Ended
June 30, 2000Interest income:Spectrum Bancorporation, Inc. and Subsidiaries

$
55,572Citizens Corporation and Subsidiary


5,791Combined

$
61,363Net income:Spectrum Bancorporation, Inc. and Subsidiaries

$
7,586Citizens Corporation and Subsidiary


1,558Combined

$
9,144


Prior
to the combination, Citizens' fiscal year ended December 31. In recording the combination, Citizens' financial statement for the twelve months ended June 30, 2000
were combined with Spectrum's financial statements for the same period. For previous periods, financial statements for Citizens' fiscal years ended December 31, 1999 were combined with
Spectrum's fiscal year ended June 30, 1999. Citizens' unaudited results of operations for the six months ended December 31, 1999 included interest income of $2,831,000, net income of
$675,000, dividends paid of $138,000, and other comprehensive loss of $460,000. An adjustment has been made to stockholders' equity as of June 30, 2000 to eliminate the effect of including
Citizens' results of operations for the six months ended December 31, 1999 in the year ended June 30, 2000.

Note 18. Stock Purchase and Redemption Agreement

The Company has entered into stock purchase agreements with two minority stockholders of its subsidiary banks under which the Company has the right of first
refusal to purchase the minority shares of common stock offered for sale by each stockholder at a specified price. In addition, the Company has agreed to purchase the shares upon the death or
termination of employment of each shareholder, and obligates the estate or shareholder to sell such shares. If the purchase occurred on June 30, 2002, the total purchase price would be
approximately $3,016,000, which is recorded as a component of minority interest.

Note 19. Commitments and Contingencies

Financial instruments with off-balance-sheet risk:The Company is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of
credit. They involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. A summary of the Company's commitments (in
thousands) is as follows:

June 30,2002

2001Commitments to extend credit

$
256,881

$
217,260Letters of credit


4,921


3,730


Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Letters of credit are

F-23

---

conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The credit and collateral policy for commitments and letters of credit is comparable to that for granting loans.

Construction in progress:The Company has entered into contracts to complete construction of additional facilities. Total
estimated costs to complete these projects are approximately $127,000 at June 30, 2002. Construction in progress is approximately $303,000 as of June 30, 2002.

Contingencies:In the normal course of business, the Company is involved in various legal proceedings. In the opinion of
management, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements.

Financial instruments with concentration of credit risk by geographic location:A substantial portion of the Company's
customers' abilities to honor their contracts is dependent on the economy in eastern and northern Nebraska, northern Missouri, Iowa and South Dakota. Although the Company's loan portfolio is
diversified, there is a relationship in these regions between the agricultural economy and the economic performance of loans made to nonagricultural customers. The concentration of credit in the
regional agricultural economy is taken into consideration by management in determining the allowance for loan losses.

Note 20. Transactions with Related Parties

The Company and its subsidiaries have had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors,
executive officers, their immediate families and affiliated companies in which they have 10% or more beneficial ownership (commonly referred to as related parties). Total loans to related parties were
approximately $24,745,000 and $28,909,000 at June 30, 2002 and 2001, respectively. Loan transactions during the year ended June 30, 2002 consisted of new loans of $13,268,000, repayments
of $14,008,000 and other reductions of $3,424,000. These transactions have been, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others.

Note 21. Fair Value of Financial Instruments and Interest Rate Risk

The estimated fair values of the Company's financial instruments are (in thousands) as follows:

|                      |                                                                           | June 30,
|--------------------- | ------------------------------------------------------------------------- | --------
|
|
|Financial Assets      |                                                                           |         
|                      | Cash and due from banks                                                   |         
|                      | Federal funds sold                                                        |         
|                      | Certificates of deposit                                                   |         
|                      | Securities                                                                |         
|                      | Loans receivable                                                          |         
|                      | Mortgage servicing rights                                                 |         
|                      | Accrued interest receivable                                               |         
|Financial Liabilities |                                                                           |         
|                      | Deposits                                                                  |         
|                      | Federal funds purchased and securities sold under agreement to repurchase |         
|                      | Notes payable                                                             |         
|                      | Company obligated mandatorily redeemable preferred securities             |         
|                      | Accrued interest payable                                                  |         

F-24

---

The
estimated fair value of commitments to extend credit and letters of credit at June 30, 2002 and 2001 is insignificant. Loan commitments on which the committed interest rate is
less than the current market rate are also insignificant at June 30, 2002 and 2001.

The
Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, fair values of the Company's financial
instruments will change when interest rate levels change and the change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the
extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to repay in a falling
rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising environment and less likely to do so in a falling rate environment.
Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms
that mitigate the Company's overall interest rate risk.

F-25

---

Note 22.    Condensed Financial StatementsParent Company Only

The following presents condensed parent company only financial statements for Spectrum Bancorporation, Inc.

Condensed Balance Sheets
(In thousands)

|                     |                                             | June 30,                                  
|-------------------- | ------------------------------------------- | ------------------------------------------
|
|Assets               |                                             |                                           
|                     | Cash                                        |                                           
|                     | Investment in subsidiaries                  |                                           
|                     | Other assets                                |                                           
|                     |                                             |                                           
|                     |                                             | Total assets                              
|                     |                                             |                                           
|Liabilities          |                                             |                                           
|                     | Notes payable                               |                                           
|                     | Accounts payable and accrued liabilities    |                                           
|                     |                                             |                                           
|                     |                                             | Total liabilities                         
|                     |                                             |                                           
|Stockholders' Equity |                                             |                                           
|                     | Preferred stock                             |                                           
|                     | Common stock                                |                                           
|                     | Additional paid-in capital                  |                                           
|                     | Retained earnings                           |                                           
|                     | Accumulated other comprehensive income, net |                                           
|                     |                                             |                                           
|                     |                                             | Total stockholders' equity                
|                     |                                             |                                           
|                     |                                             | Total liabilities and stockholders' equity
|                     |                                             |                                           

F-26

---

Condensed Statements of Income
(In Thousands)

|                                               |                                      | Years Ended June 30, |                                                                                             
|---------------------------------------------- | ------------------------------------ | -------------------- | --------------------------------------------------------------------------------------------
|
|Income:                                        |                                      |                      |                                                                                             
|                                               | Dividends received from subsidiaries |                      | $                                                                                           
|                                               | Real estate brokerage commissions    |                      |                                                                                             
|                                               | Interest                             |                      |                                                                                             
|                                               | Other                                |                      |                                                                                             
|                                               |                                      |                      |                                                                                             
|                                               |                                      | Total income         |                                                                                             
|                                               |                                      |                      |                                                                                             
|Expense:                                       |                                      |                      |                                                                                             
|                                               | Salaries and employee benefits       |                      |                                                                                             
|                                               | Interest                             |                      |                                                                                             
|                                               | Amortization of goodwill             |                      |                                                                                             
|                                               | Other                                |                      |                                                                                             
|                                               |                                      |                      |                                                                                             
|                                               |                                      | Total expenses       |                                                                                             
|                                               |                                      |                      |                                                                                             
|                                               |                                      |                      | Income (loss) before income tax (benefit) and equity in undistributed income of subsidiaries
|Income tax (benefit)                           |                                      |                      | (3,790                                                                                      
|                                               |                                      |                      |                                                                                             
|                                               |                                      |                      | Income before equity in undistributed income of subsidiaries                                
|Equity in undistributed income of subsidiaries |                                      |                      | 8,722                                                                                       
|                                               |                                      |                      |                                                                                             
|                                               |                                      |                      | Net income                                                                                  
|                                               |                                      |                      |                                                                                             

F-27

---

Condensed Statements of Cash Flows
(In Thousands)

|                                      |                                                                                   | Years Ended June 30,                           |                                          
|------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities: |                                                                                   |                                                |                                          
|                                      | Net income                                                                        |                                                | $                                        
|                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                                                |                                          
|                                      |                                                                                   | Depreciation and other                         |                                          
|                                      |                                                                                   | Equity in undistributed income of subsidiaries |                                          
|                                      |                                                                                   | Changes in deferrals and accruals:             |                                          
|                                      |                                                                                   |                                                | Other assets                             
|                                      |                                                                                   |                                                | Accounts payable and accrued liabilities 
|                                      |                                                                                   |                                                |                                          
|                                      |                                                                                   |                                                | Net cash provided by operating activities
|                                      |                                                                                   |                                                |                                          
|Cash flows from investing activities: |                                                                                   |                                                |                                          
|                                      | Investment in subsidiary                                                          |                                                |                                          
|                                      | Business acquisitions                                                             |                                                |                                          
|                                      | Purchase of securities available for sale                                         |                                                |                                          
|                                      | Other                                                                             |                                                |                                          
|                                      |                                                                                   |                                                |                                          
|                                      |                                                                                   |                                                | Net cash (used in) investing activities  
|                                      |                                                                                   |                                                |                                          
|Cash flows from financing activities: |                                                                                   |                                                |                                          
|                                      | Proceeds from notes payable                                                       |                                                |                                          
|                                      | Payments on notes payable                                                         |                                                |                                          
|                                      | Incur debt issuance costs                                                         |                                                |                                          
|                                      | Dividends paid                                                                    |                                                |                                          
|                                      | Stock purchased for retirement                                                    |                                                |                                          
|                                      |                                                                                   |                                                |                                          
|                                      |                                                                                   |                                                | Net cash provided by financing activities
|                                      |                                                                                   |                                                |                                          
|                                      |                                                                                   |                                                | Net increase (decrease) in cash          
|Cash at beginning of period           |                                                                                   |                                                | 3,288                                    
|                                      |                                                                                   |                                                |                                          
|Cash at end of period                 |                                                                                   | $                                              | 2,740                                    
|                                      |                                                                                   |                                                |                                          

F-28

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Note 23.    Quarterly Financial Information (Unaudited)

(Dollars
in thousands except earnings per share data)

|                                |  | Year Ended June 30, 2002
|------------------------------- |  | ------------------------
|
|Total interest income           |  | $                       
|Net interest income             |  |                         
|Provision for loan losses       |  |                         
|Net income                      |  |                         
|Basic earnings per common share |  |                         

|                                |  | Year Ended June 30, 2001
|------------------------------- |  | ------------------------
|
|Total interest income           |  | $                       
|Net interest income             |  |                         
|Provision for loan losses       |  |                         
|Net income                      |  |                         
|Basic earnings per common share |  |                         

F-29

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